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, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number 000-26935
LEISURE TIME CASINOS & RESORTS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 34-1763271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4258 COMMUNICATIONS DRIVE
NORCROSS, GEORGIA 30093
(Address of principal executive offices)
(Zip Code)
(770) 923-9900
(Registrant's telephone number, including area code)
Not Applicable (Former name, former address and former fiscal year.
If changed since last report)
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 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 No X
--- ---
Shares outstanding of each of the registrant's classes of common
stock as of September 30, 1999:
Class Outstanding as of September 30, 1999
----- ------------------------------------
Common Stock, $.001 par value 5,873,252
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page No.
- --------
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
2 Consolidated Condensed Balance Sheets at
June 30, 1999 and September 30, 1999 (unaudited)
3 Consolidated Condensed Statements of
Income for the three months ended
September 30, 1999 (unaudited) and 1998 (unaudited)
4 Consolidated Condensed Statements of Cash Flows for the three
months ended September 30, 1999 (unaudited) and 1998 (unaudited)
Notes to Consolidated Condensed Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of
Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibits
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
CONSOLIDATED CONDENSED BALANCES SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
-------- -------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents .............................. $ 4,145 $ 2,725
Trade notes receivable ................................. 1,714 893
Trade accounts receivable, net ......................... 1,710 3,503
Receivable - other ..................................... 18 99
Current portion of net investment in direct financing
Leases ............................................... 1,199 1,531
Inventories, net ....................................... 10,671 10,981
Prepaid expenses and other ............................. 1,141 895
Deferred tax asset -- current .......................... 180 544
-------- --------
Total current assets ............................. 20,778 21,171
-------- --------
Property and equipment, net .............................. 15,864 15,942
Goodwill, net ............................................ 5,583 5,398
Non-compete agreement, net ............................... 3,758 3,632
Other assets, net ........................................ 1,187 2,119
Deposits ................................................. 200 198
Long-term portion of net investment in direct financing
leases ................................................. 1,056 1,350
-------- --------
Total assets ..................................... $ 48,426 $ 49,810
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line-of-credit ......................................... $ 960 $ 974
Current portion of long-term notes payable ............. 8,621 8,944
Current portion of capital leases ...................... 63 56
Current portion of other long-term liabilities ......... 466 416
Accounts payable ....................................... 7,642 4,206
Accrued expenses ....................................... 2,786 1,235
Income taxes payable ................................... 1,723 1,723
Deferred revenue ....................................... 50 42
-------- --------
Total current liabilities ........................ 22,311 17,596
-------- --------
Long-term liabilities
Long-term portion of notes payable ..................... 8,945 9,281
Long-term portion of capital leases .................... 93 83
Deferred income taxes payable .......................... 386 386
Other long-term liabilities ............................ 4,156 3,708
-------- --------
Total long-term liabilities ...................... 13,580 13,458
-------- --------
Total liabilities ................................ 35,891 31,054
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value; 5,000,000 shares
authorized; none issued .............................. -- --
Common stock, $.001 par value; 45,000,000 shares
authorized; 5,171,829 shares issued and
outstanding at June 30, 1999, 5,873,252
shares issued and outstanding at
September 30, 1999 ................................... 5 6
Additional paid-in capital ............................... 8,116 14,937
Common stock subscription .............................. (240) (240)
Retained earnings ...................................... 4,654 4,053
-------- --------
Total stockholders' equity ....................... 12,535 18,756
-------- --------
Total liabilities and stockholders' equity ....... $ 48,426 $ 49,810
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements
- 3 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Ended
September 30,
----------------------------
1998 1999
----------- -----------
Revenue
Manufacturing ............................ $ 11,146 $ 8,472
Gaming ................................... 2,188 2,184
Other .................................... 272 440
----------- -----------
Total revenue ...................... 13,606 11,096
----------- -----------
Cost of goods sold
Manufacturing ............................ 5,540 4,827
Gaming ................................... 216 243
Other .................................... 273 257
----------- -----------
Total cost of goods sold ........... 6,029 5,327
----------- -----------
Gross profit
Manufacturing ............................ 5,606 3,645
Gaming ................................... 1,972 1,941
Other .................................... (1) 183
----------- -----------
Total gross profit ......................... 7,577 5,769
----------- -----------
Selling, general and administrative expenses 4,113 5,958
Research and development costs ............. 237 184
Interest expense, net ...................... 218 584
----------- -----------
Total operating expenses ........... 4,568 6,726
----------- -----------
Net income (loss) before income tax benefit
(expense) ................................. 3,009 (957)
Income tax (expense) benefit ............... (1,119) 356
----------- -----------
Net income (loss) .......................... $ 1,890 $ (601)
=========== ===========
Earnings (loss) per common share -- basic .. $ .41 $ (.11)
=========== ===========
Earnings (loss) per common share -- diluted $ .22 $ (.11)
=========== ===========
Weighted average number of common shares
outstanding -basic ........................ 4,646,252 5,405,162
=========== ===========
Weighted average number of common shares
outstanding -- diluted ................... 9,055,957 5,405,162
=========== ===========
The accompanying notes are an integral part of these
consolidated condensed financial statements
- 4 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Ended
September 30,
--------------------
1998 1999
------- -------
Cash flows from operating activities
Net income (loss) ................................ $ 1,890 $ (601)
------- -------
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Deferred taxes ................................. (23) (364)
Depreciation and amortization .................. 314 767
Changes in certain assets and liabilities
Receivables .................................. (248) (1,053)
Net investment in direct financing leases .... -- (887)
Proceeds on sale of direct financing leases .. -- 261
Inventories .................................. (346) (310)
Prepaids and other assets .................... 29 246
Accounts payable ............................. 325 (436)
Accrued expenses ............................. (340) (1,551)
Income taxes payable ......................... 1,119 --
Notes receivable ............................. (72) --
Deferred revenue ............................. -- (8)
------- -------
758 (3,335)
------- -------
Net cash provided by (used by) operating
activities ................................ 2,648 (3,936)
------- -------
Cash flows from investing activities
Purchase of property and equipment ............... (486) (488)
Other assets ..................................... -- (974)
Deposits ......................................... (704) 2
------- -------
Net cash used by investing activities ...... (1,190) (1,460)
------- -------
Cash flows from financing activities
Proceeds from issuance of common stock, net ...... -- 6,822
Line-of-credit, net .............................. -- 14
Proceeds from notes payable ...................... -- 400
Loan fees ........................................ -- (4)
Payment on notes payable ......................... (429) (2,741)
Payments on capital leases ....................... (2) (17)
Payments on long-term debt ....................... (483) (498)
------- -------
Net cash (used by) provided by financing
activities ............................. (914) 3,976
------- -------
Net increase (decrease) in cash .................... 544 (1,420)
Cash and cash equivalents -- beginning of year ..... 888 4,145
------- -------
Cash and cash equivalents -- end of year or period . $ 1,432 2,725
======= =======
Non cash investing and financing activities:
During the three months ended September 30, 1999, the Company converted
$3,000 of accounts payable into a long-term note payable.
The accompanying notes are an integral part of these
consolidated condensed financial statements
- 5 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Leisure Time Casinos & Resorts, Inc. ("Casinos") was incorporated on
February 4, 1993, and was a development stage enterprise until September 1996.
Leisure Time Technology, Inc. (f/k/a U.S. Games, Inc.) ("Technology") is
incorporated in Georgia and develops, manufactures and sells video gaming
machines. Technology is licensed to manufacture gaming devices for sale to
Native American tribes in Kansas, Michigan, Minnesota, New Mexico, New York,
North Carolina and Wisconsin and is in compliance with South Carolina
regulations regarding the sale of gaming machines. Technology has applied to
become licensed as a manufacturer/distributor in Montana and intends to apply to
become licensed to distribute and manufacture gaming devices in Arizona,
Mississippi, New Mexico (for charities and fraternal organizations) and Nevada.
Leisure Time Cruise Corporation ("Cruises") was incorporated on October
17, 1997, in the state of Colorado and conducted offshore gaming cruises on the
"Vegas Express" gaming vessel until October 31, 1999, when it was placed in
drydock. In July 1998, Cruises began operating cruise to nowhere gaming
excursions. In May 1999, Leisure Express Cruise, LLC, a Colorado limited
liability company, acquired Florida Casino Cruises, Inc., the corporation that
owns the Vegas Express. Leisure Belle Cruise, LLC is a Colorado limited
liability company that owns another gaming vessel. Leisure Lady Cruise, LLC is a
Colorado limited liability company and currently has no operations.
Leisure Time Hospitality, Inc. is incorporated in Ohio and owns a hotel
property that is being redeveloped in the Cleveland metropolitan area. The
Company has retained a broker to attempt to sell the hotel.
Leisure Time Gaming, Inc. is incorporated in South Carolina and operates a
gaming route through a subsidiary.
Leisure Time International, Ltd. is incorporated in Barbados and currently
operates as a Foreign International Sales Corp. (FISC).
Leisure Time Financial Corp. (f/k/a RP Capital, Corporation) ("Financial")
is incorporated in the state of Minnesota and finances various types of
equipment acquisitions under direct financing leases and loans secured by
existing equipment and sells leases and loans to financial institutions.
Solutia Gaming Systems, Inc. is incorporated in Oklahoma has been relocated
to Atlanta. The Oklahoma office has been closed.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Casinos and
its wholly owned subsidiaries, collectively referred to as the Company. All
significant intercompany transactions and balances have been eliminated.
Interim Unaudited Financial Statements
The Company's independent auditors have not audited the accompanying
financial statements related to September 30, 1999 and 1998 and the periods then
ended. However, in the opinion of management, such financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary for
the fair presentation of the financial position, results of operations and cash
flows of the Company for the interim periods presented. The results of
operations for the three month periods ended September 30, 1999 and 1998 are
not necessarily indicative of the results that will be or were achieved for the
entirety of their respective calendar years.
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures that will normally be made in the Company's Annual Report
on Form on 10-K. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended June
30, 1999 included in the Company's Registration Statement on Form S-1 No.
333-77737.
REVENUE RECOGNITION
Manufacturing and other revenue is recognized as the product is shipped.
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Gaming revenue is the net win from gaming activities, which is the
difference between gaming wins and losses. Gaming revenue also includes ticket
sales and food and beverage revenue generated from each cruise. Gaming revenue
does not include the retail amount of tickets or food and beverages provided
gratuitously to customers, which, if material, reduces revenue as promotional
allowances.
Revenue from gaming route operations is recognized at the time the play
activity takes place and is based upon the terms of the individual revenue
participation agreement.
Leasing revenue on direct financing leases consists of interest earned on
the present value of the lease payments. Leasing revenue also includes profit
from the sale to third parties of the Company's interest in direct finance
leases.
Deferred revenue, which represents customer cruise deposits, is included
in the balance sheet when received and is recognized as passenger fare revenue
upon completion of the voyage.
USE OF ESTIMATES
The preparation of consolidated 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, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements for the
three months ended September 30,1998 have been reclassified to be consistent
with the presentation used for the three months ended September 30, 1999.
NOTE 2 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
On October 19, 1998, James J. Oden, the former Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer and Secretary of
Technology, Inc. filed a complaint against Casinos and Technology in the United
States District Court for the Northern District of Georgia (Civil Action File
No. 1: 98-CV-3033) alleging that Casinos and Technology had breached an alleged
oral employment agreement with Mr. Oden because Casinos granted incentive
stock options to Mr. Oden for 200,000 shares exercisable at $2.50 per share
rather than nonqualified stock options for 200,000 shares exercisable at $1.00
per share. Further, Mr. Oden alleges that the stock options he should have
received should have been exercisable without being conditioned upon a
particular schedule and should not have expired upon the termination of his
employment. Mr. Oden claims that the value of Casino's common stock on
October 19, 1998, exceeded $15.00 per share and seeks an unspecified amount of
damages. Casinos and Technology filed answers denying Mr. Oden's claims and
have filed a motion for Summary Judgment which is currently pending.
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On June 18, 1998, Collins Entertainment Corp. filed a complaint against
Technology in the Court of Common Pleas for the Fifth Judicial Circuit, Richland
County, State of South Carolina. Collins alleges, among other things, that
Technology breached the Sales and Distribution Agreement dated May 13, 1992 that
was entered into between Technology (which was then known as U.S. Games, Inc.)
and Collins by not supplying Collins with Pot-O-Gold machines for resale in
South Carolina. Collins further alleges that Technology used unfair and/or
deceptive means of restraining trade in violation of the South Carolina Unfair
Trade Practices Act by limiting the supply of Pot-O-Gold machines in South
Carolina. Collins requests that it be granted damages in an amount to be
determined at trial and that the damages be trebled. In interrogatory responses,
Collins alleges that its actual damages are approximately $1,300.
Collins also requested that it be granted a temporary restraining order and
preliminary injunction against Technology.
This litigation follows an earlier lawsuit regarding the same contract
filed by Collins against Technology in South Carolina District Court on
November 7, 1996 (the "Prior Litigation") which resulted in a jury verdict
returned on October 30, 1997, in favor of Collins in the amount of $0.
Technology had the Collins action removed to the United States District
Court for the District of South Carolina, Anderson Division (Civil Action No.:
3-98-1887-13). In September 1998, the Court denied Collins' request for a
temporary restraining order and preliminary injunction. Technology has filed an
Answer and Counterclaim in which Technology denies various allegations and
asserts various affirmative defenses and counterclaims alleging, among other
things, that Collins sold new Pot-O-Gold machines as used machines in South
Carolina in violation of the South Carolina Unfair Trade Practices Act.
Technology further alleges that Collins' actions in selling Pot-O-Gold games in
violation of the terms of the sales and distribution agreement resulted in a
judgment being entered against Technology in favor of Drews in the amount of
approximately $5,100 and constituted tortious interference with contract.
Technology's exclusive Distribution Agreement dated November 27, 1995 with Drews
allowed Technology to sell Pot-O-Gold games directly to Collins for Collins'
own use only, but not for resale by Collins. Technology contends that Collins
agreed to this limitation. The Court determined that, by continuing to sell
the games to Collins with actual or constructive knowledge that Collins was
reselling those games, Technology breached its exclusive Distribution Agreement
with Drews and awarded damages based on each of the resales made by Collins.
Technology requests that it be granted damages to be determined at trial and
that the damages be trebled.
On March 24, 1999, the Court struck various of Technology's answers as
being barred by res judicata or collateral estoppel because of the Prior
Litigation between Collins and Technology. The Count also dismissed Technology's
counterclaims mentioned above. Each stricken paragraph contained a defense the
essence of which was that the agreement between Technology and Collins was
either not binding or had been modified so as to prohibit Collins from reselling
Pot-O-Gold machines in South Carolina. The order also struck Technology's
counterclaims for violation of the South Carolina Unfair Trade Practices Act,
contractual and common law indemnification, and tortious interference with
contract. Technology filed a motion for reconsideration or in the alternative,
for immediate interlocutory appeal. On June 29, 1999, the Court denied
Technology's motions and issued an amended order affirming the Court's March 24,
1999 order. Technology intends to defend the lawsuit vigorously.
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On December 14, 1998, Technology filed a lawsuit against Drews
Distributing, Inc. in the Superior Court of Gwinnett County, State of Georgia
(Civil Action No.: 98-A-97614) in which Technology alleges that Drews breached
the wxclusive Distribution Agreement by failing to pay Technology $2,700 for a
portion of the memory board upgrade kits for Pot-O-Gold machines that Drews
had ordered but did not pickup from Technology and by failing to pay Technology
$5,000 million for a portion of the Pot-O-Gold machines Drews had ordered but
did not pick up from Technology. Technology also contends that, in connection
with Technology's development and sale of new T-340+ circuit boards, Drews
agreed that if a South Carolina end user purchased a Pot-O-Gold machine which
contained the old T-340 circuit board, the end user could purchase the new
T-340+ circuit board from Drews and then return his old T-340 circuit board to
Technology Drews agreed to arrange for end users to return the replaced T-340
circuit boards to Technology for reuse. It is Technology's position that the
T-340 circuit board and its technology are trade secrets of Technology and that,
by allowing its customers to keep the old T-340 circuit boards and not return
them to Technology, Drews has indirectly misappropriated Technology's technology
and trade secrets. Technology requests that it be granted damages in an amount
to be proved at trial, plus interest and attorneys' fees, specific performance
and an order enjoining the misappropriation.
Drews has filed an answer and counterclaim in this action alleging that
Technology has continued to breach the Agreement, that Technology's breach was
accompanied by a fraudulent act and that Technology committed fraudulent
nondisclosure of material facts in connection with the Agreement. Drews is
claiming actual damages in an amount to be proved at trial for the loss of
sales, for the diminution of the price of machines sold by Drews due to a loss
of exclusivity, for the refusal of Technology to sell machines at the contract
price and due to the sales by Collins and other in violation of the Agreement.
Drews is also requesting punitive damages. Drews' counterclaims are similar to
its claims in a prior case filed in 1996 against Technology which Drews
recovered a judgment in the amount of $3,066. In that case, the Court made
no finding of any fraudulent acts by Technology.
On March 25, 1999, Drews filed a complaint against Technology and
Phillip C. Caldwell as agent for Technology in the Court of Common Pleas for
the Fifth Judicial Circuit, Richland County, South Carolina, essentially
repeating the allegations asserted in its counterclaim against Technology in
the Gwinnett County, Georgia action. Specifically, Drews alleges that Technology
breached the exclusive Distribution Agreement by continuing to sell Pot-O-Gold
machines to Collins, directly selling machines in South Carolina and "illegally
raising the prices of video games." Drews also alleges claims for breach of
contract accompanied by a fraudulent act, fraudulent nondisclosure of a
material fact and tortious interference with Drews' alleged contracts with
Darlington Music Company and Gold Strike/American Bingo and Gaming. Drews seeks
unspecified "past damages," actual damages, punitive damages and attorneys'
fees.
On October 15, 1999, the former holders of approximately $1,400 of 11%
convertible promissory notes filed a complaint in the United States District
Court for the Northern District of Ohio (Civil Action NO. 1:99CV 2495) against
Casinos. The case is entitled Norman J. Levin, Trustee of the Norman J. Levin
Trust, et al. v. Leisure Time Casinos & Resorts, Inc. In January 1999,
Casinos paid in full the remaining balance of 11% convertible promissory notes
after the 11% convertible promissory notes were accelerated as a result of a
default in payment by Casinos. The 11% convertible promissory notes were
convertible into units consisting of 920,000 shares of Casinos' common stock and
warrants to purchase 920,000 shares of Casinos' common stock at a price of $1.75
and 920,000 shares of Casinos' common stock at a price equal to 120% of the
offering price of an initial public offering by Casinos. The complaint alleges
that Casinos breached the terms of the 11% convertible promissory notes by
failing to provide the holders with Casinos' financial statements denying them
the benefit of their bargain and unjustly enriching Casinos' rights under the
11% convertible promissory notes. The complaint requests judgment against
Casinos in an unspecified amount including all costs and attorneys' fees.
Casinos believes that the conversion features of the 11% convertible promissory
notes have expired, has filed an answer denying the claims and intends to
vigorously defined the lawsuit.
It is Leisure Time's policy to vigorously defend litigation, however,
Leisure Time has entered into settlements of claims in the past, and may do so
in the future, whenever management deems the circumstances appropriate. Any
unfavorable outcome related to any outstanding litigation could have a material
adverse effect on the financial condition of the Company.
NOTE 3 - INITIAL PUBLIC OFFERING
Effective September 15, 1999, Casinos completed an initial public offering
of 700,000 shares of common stock at a price of $12.00 per share. The net
proceeds of the offering to Casinos, after deducting the underwriters' discount
and other offering expenses of approximately $1,578, were $6,822.
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In connection with the offering, the Company entered into an underwriting
agreement with the underwriters under which the underwriters received an 8%
discount, a 3% non accountable expense allowance and warrants of Casinos. The
warrants are to purchase 70,000 shares of common stock of Casinos at $14.40 per
share. The warrants expire five years from their issue date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND OTHER APPLICABLE SECURITIES LAWS. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT ARE "FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF
THESE PROVISIONS, INCLUDING ANY PROJECTIONS OF EARNINGS, REVENUES OR OTHER
FINANCIAL ITEMS; ANY STATEMENTS OF THE PLANS, STRATEGIES, AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATION; ANY STATEMENTS CONCERNING PROPOSED NEW
PRODUCTS, SERVICES, OR DEVELOPMENTS; ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE; STATEMENTS OF BELIEF; AND ANY STATEMENTS OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED OR ASSUMED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT
LIMITED TO: RISKS OF PRESSURE FROM COMPETITORS, CHANGES IN ECONOMIC CONDITIONS,
OBSOLESCENCE, DECLINING POPULARITY OF EXISTING GAMES, FAILURE OF NEW GAME IDEAS
OR CONCEPTS TO BECOME POPULAR, DUPLICATION BY THIRD PARTIES, AND CHANGES IN
INTEREST RATES; DEPENDENCE ON SUPPLIERS; CHANGES IN GAMING REGULATIONS AND
TAXES; CHANGES IN KEY PERSONNEL; AND OTHER FACTORS DESCRIBED FROM TIME TO
TIME IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 FILE NO. 333-77737.
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Leisure Time Casinos & Resorts, Inc.'s ("Leisure Time" or "Casinos")
largest business segment is the manufacture and sale of video gaming and pulltab
machines. The Pot-O-Gold product line comprises Leisure Time's principal product
line. Leisure Time also sells a video pulltab machine called the Pulltab Gold. A
major component of the Pulltab Gold machine is the replaceable cartridge that
contains encrypted electronic pulltabs. Each cartridge has a finite number of
pulltabs and, when they are depleted, the cartridge must be returned to Leisure
Time to be refilled. Additionally, Leisure Time is currently developing a video
bingo machine that Leisure Time expects to introduce in the first calendar
quarter of 2000.
Leisure Time's second largest revenue generating segment has been offshore
gaming cruises. Leisure Time currently has two offshore gaming vessels. The
first vessel, the Vegas Express, operated offshore gaming cruises from
Gloucester, Massachusetts until October 31, 1999. As expected, the Vegas Express
has been placed in a shipyard for its routine two year inspection required
by the United States Coast Guard. Leisure Time's second vessel is the Leisure
Lady, which was purchased in January 1997 and since that time has undergone
repairs and renovations. Until Leisure Time locates a port for the Leisure Lady,
Leisure Time cannot predict when the Leisure Lady will commence offshore gaming
cruises. Leisure Time also owns the Biloxi Belle, a dockside gaming vessel
located on the Mississippi River that Leisure Time plans to renovate when a
site is located for the vessel. As alternatives, Leisure Time has retained
a broker to determine the market for selling the Vegas Express, the Leisure
Lady and the Biloxi Belle.
Leisure Time's third segment of business is gaming route operations.
Gaming route operations involve the installation, operation and servicing of
video gaming machines under various types of revenue participation agreements.
Leisure Time's fourth segment consists of a hotel overlooking Lake Erie in
the Cleveland, Ohio metropolitan area. Until recently, Leisure Time was
renovating the hotel. Currently, Leisure Time has offered the hotel for sale.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
of total revenue of those items included in Leisure Time's consolidated
statements of operations.
Three Months Ended
September 30,
---------------
1998 1999
---- ----
Total revenue ..................... 100% 100%
Cost of goods sold ................ 44 48
---- ----
Gross profit ...................... 56 52
Selling, general and administrative
expenses ......................... 30 54
Research and development costs .... 2 2
Interest expense, net ............. 2 5
---- ----
Total operating expenses ...... 34 61
---- ----
Income (loss) before income taxes . 22 (9)
Income tax (expense) benefit ...... (8) 3
---- ----
Net income (loss) ...... 14 (6)
==== ====
The following chart provides information as to material changes in Leisure
Time's statements of operations for the three months ended September 30, 1998 as
compared to the same period ended September 30, 1999:
<TABLE>
<CAPTION>
INCREASE
STATEMENTS OF (DECREASE) PERCENTAGE
OPERATIONS ITEM (FROM 98 TO 99) CHANGE REASON FOR CHANGE
- ---------------------- --------------- ------------- ------------------
<S> <C> <C> <C>
Manufacturing revenue $(2.7) Million (24)% Decreased sales in South
Carolina due to uncertainties
regarding the continued
legality of gaming
Offshore gaming cruise $(.004) Million (.2)% Decreased due to increased competitio
revenue from another gaming vessel
Cost of manufacturing $ (.7) Million (13)% Decreased sales in South
revenue Carolina
Cost of offshore gaming $ .03 Million 13 % Commenced offshore gaming
cruise revenue cruises in July 1998
Selling, general and $ 1.8 Million 45 % Increased due to
administrative expenses additional administrative support for
newly operational entities consisting
of Leisure Time Hospitality, Leisure
Time Financial and Solutia Gaming
Research and development $(.05) Million (22)% Significant costs in prior period
costs related to the development of location
controllers for the South Carolina market
Interest expense, net $ .4 Million 168 % Increased borrowings principally related to
refinancing of Leisure Lady and
acquisition of Biloxi Belle, Florida Casino
Cruises and Leisure Time Financial
Total operating expenses $ 2.2 Million 47 %
Income taxes $(1.5)Million (132)% Decrease in income correlates to decrease
in tax expense
Net income (loss) $(2.5)Million (132)%
</TABLE>
<PAGE>
RECENT DEVELOPMENTS THAT WILL AFFECT SECOND QUARTER RESULTS
The South Carolina Supreme Court has ruled that the gaming referendum that
was to be held on November 2, 1999, in South Carolina is unconstitutional. As a
result of the ruling, video gaming will cease in South Carolina after June 30,
2000. The ruling will likely eliminate a majority of Leisure Time's future video
poker machine sales in South Carolina, adversely impacting Leisure Time's
revenues and earnings. The sale of video poker machines in South Carolina
accounted for approximately 75% and 39% of Leisure Time's revenue for the year
ended June 30, 1999 and the three months ended September 30, 1999, respectively.
Leisure Time has not yet determined to what extent the discontinuance of video
poker machine sales in South Carolina will affect its ability to sell other
products in South Carolina until June 30, 2000.
However, Leisure Time believes that the majority of the machines in South
Carolina will ultimately be converted to redemption games or end up in other
gaming jurisdictions. As a result, Leisure Time will continue to sell software
to convert or upgrade games. Leisure Time has signed exclusive distribution
agreements with BestCo, Inc. Under the terms of the agreements, BestCo. has been
appointed to exclusively distribute Leisure Times gaming machines in West
Virginia and ancillary software products in Georgia and West Virginia. These
products, which range from conversion kits and software upgrades to machines,
will focus almost exclusively on the redemption market, where coupons for prizes
are distributed to players, upon completion of play. The agreements are
three-year agreements, which call for minimum purchases by BestCo, Inc., of
3,000 units, 5,000 units and 5,000 units, respectively, for the next three
years. BestCo has placed orders and paid for approximately 500 units of
software. The contract is cancelable if certain minimum criteria are not met.
Leisure Time's management estimates that the value of these distribution
agreements will exceed $23 million if they are in effect over the full
three-year terms.
Additionally, a South Carolina Department of Revenue spokesperson has
stated that all existing video poker machines must be connected to the state's
central monitoring system by February 2, 2000. If this comes to pass and if, as
expected, Leisure Time's data communication device is approved for use in South
Carolina, Leisure Time could have potential sales of the data communication
devices in South Carolina. Leisure Time estimates that the total market for all
data communication devices in South Carolina is 6,000 units based on five video
machines connecting to one device.
Furthermore, Leisure Time estimates that there are approximately
20,000 of Leisure Time's Pot-O-Gold video poker machines in South Carolina. If
data communication devices remain a requirement of the Department of Revenue,
the majority of these machines will require a connectivity chip set which will
connect the machine to a data communication device. The connectivity chip set is
a proprietary product of Leisure Time which could be sold to operators of
Pot-O-Gold video poker machines in South Carolina until June 30, 2000.
Leisure Time continues to assess the impact of the ruling in South Carolina
on its operations and is committed to replacing potential lost sales by pursuing
new markets.
Leisure Time has suspended offshore gaming operations of the Vegas Express,
the cruise-to-nowhere gaming vessel located in Gloucester, Massachusetts,
effective October 31, 1999. The Vegas Express has been placed in a shipyard for
its routine two year inspection required by the United States Coast Guard. As a
result, offshore gaming cruise revenues will be minimal for at least the second
and third quarters of fiscal 2000. However, despite the loss of winter revenues,
losses should be reduced dramatically for this business segment as the vessel's
related operating expenses virtually disappear. Leisure Time anticipates
returning to the Gloucester market in the spring of 2000, however, Leisure Time
will also evaluate other options including relocating the vessel to a new
location or selling the vessel. Leisure Time has retained a broker to determine
the market for selling the vessel.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Leisure Time has funded its operations primarily through
revenue generated by the sale of video gaming machines. Leisure Time has
acquired its assets, such as the Vegas Express and the Leisure Lady offshore
gaming vessels and its hotel property, through long term debt and cash available
from operations. As of September 30, 1999, Leisure Time had working capital of
approximately $3.6 million.
The following information relates to Leisure Time's sources and uses of
cash during the three months ended September 30, 1999.
Leisure Time utilized $3.9 million of cash in operations related primarily
to:
- a net loss of $.6 million;
- a $1.0 increase in accounts receivable;
- a $.4 million decrease in accounts payable
- a $1.6 million decrease in accrued expenses; and
- $.4 million increase in deferred tax assets
Leisure Time utilized $1.5 million in cash in investing activities related
primarily to:
- an increase in capitalized software costs; and
- the purchase of equipment for the manufacturing and gaming segment.
Leisure Time received approximately $4.0 million in cash from financing
activities related primarily to:
- the receipt of proceeds of approximately $6.8 million from the
issuance of common stock; and
- the payout of approximately $2.8 million of short term and long term
debt.
Leisure Time believes its current liquidity requirement during the fourth
quarter of calendar year 1999 will primarily be to meet working capital
requirements as well as the development and purchase of proprietary gaming
machines that have not yet been introduced.
Leisure Time is currently in default of one monthly payment in the
amount of $308,000 on the remaining balance of approximately $2,700,000 of a
loan payable to AIG Insurance. Leisure Time is currently negotiating with
AIG to extend the note and receive more favorable payment terms.
Leisure Time believes that the remaining proceeds from the offering
together with operating cash flow and additional debt financing it may obtain
will be sufficient for it to satisfy its short term capital needs.
Leisure Time's long term liquidity needs will consist primarily of working
capital to pay for receivables and inventory as Leisure Time grows and to pay
for long term investments. These investments could include businesses that
Leisure Time acquires, such as gaming routes, and facilities in which to operate
its business. Future profits retained in the business as well as bank debt or
additional equity financing will be necessary to pay for these needs. To date,
Leisure Time has obtained debt financing from various financial institutions.
There can be no assurances that Leisure Time will obtain long term liquidity for
the future from these or any other sources. If unable to obtain its long term
liquidity, then Leisure Time may have to scale back its long-term growth
strategy.
In addition, Leisure Time is reviewing its non-core businesses and may
sell off some assets in an attempt to reduce bank debt and improve operating
cash flow. Some of the initiatives Leisure Time has currently undertaken include
the following:
- Leisure Time has suspended offshore gaming operations for the Vegas Express,
a cruise-to-nowhere gaming vessel that was located in Gloucester,
Massachusetts. As expected, the Vegas Express has been placed in a shipyard
for its routine two year inspection required by the United States Coast
Guard. While the vessel is in dry dock, Leisure Time has retained a broker to
determine the market for selling the Vegas Express and Leisure Time's other
gaming vessels, the Leisure Lady and Biloxi Bell. Depending on market
conditions, the Vegas Express may resume operations in the spring of 2000.
<PAGE>
- Solutia Gaming, headquartered in Tulsa Oklahoma has been relocated to
Atlanta. The Oklahoma office has been closed.
- Leisure Time is in the process of closing it's South Carolina office and
relocating to Atlanta. The South Carolina market will be serviced out of the
Atlanta Office.
- Leisure Time has offered the hotel, located in Cleveland, Ohio for sale.
Leisure Time will be soliciting offers and believes that it can sell the
hotel and make a profit on the sale.
- Leisure Time is reorganizing its Atlanta operations to focus on its core
businesses.
- Leisure Time has signed exclusive distribution agreements with BestCo. Under
the terms of the agreements, BestCo. Inc. has been appointed to exclusively
distribute Leisure Time's gaming machines in West Virginia and ancillary
software products in Georgia and West Virginia. These products, which range
from conversion kits and software upgrades to machines, will focus almost
exclusively on the redemption market, where coupons for prizes are
distributed to players, upon completion of play. The agreements are
three-year agreements, which call for minimum purchases by BestCo of 3,000
units, 5,000 units and 5,000 units, respectively, for the next three-years.
BestCo has placed orders and paid for approximately 500 units of software or
approximately $600,000. The agreements are cancelable if certain minimum
criteria are not met. Leisure time's management estimates that the value of
these distribution agreements will exceed $23 million if they are in effect
over the full three-year terms.
Below is a more detailed description of Leisure Time's plan to develop new
markets and securing future revenue:
Leisure Time's objectives are to be a leading provider of video gaming, pulltab
and bingo products and related software and to expand its gaming operations to
increase recurring revenue. Key strategies to achieve Leisure Time's objectives
include:
Increase Installed Base of Pot-O-Gold, and other new Product Lines
Leisure Time intends to continue increasing its installed base of video gaming
and pulltab products by:
- - continuing to market its Pot-O-Gold product line to newly established casinos
and route operators both in existing markets and in jurisdictions in which
gaming is legalized, including to Native American tribes; One such state is
California. A number of California-based Native American tribes currently
conduct gaming in California. A constitutional amendment will be submitted to
voters in California in March 2000. Leisure Time believes there is currently no
organized opposition to the amendment. If adopted, the constitutional amendment,
in conjunction with the compacts, will legalize Native American gaming in
California. If the compacts remain in effect and the constitutional amendment is
adopted, Leisure Time anticipates that soon thereafter it will begin selling its
Pot-O-Gold product line of video gaming machines in California. Leisure Time
believes that sales to the various Native American tribes in California could
have a material positive effect on Leisure Time's revenue in the fourth fiscal
quarter of 2000. Leisure Time expects the California market to be a
43,000-machine market. There are currently approximately 15,000 machines
operating in the state, a large number of which Leisure Time believes will need
to be replaced due to non-compliance with Native Indian Gaming Association
minimum requirements. Leisure Time has approximately 3000 machines currently in
the market from its previous ownership, with the leading game in the market
called "Touch Easy Keno". In addition, Leisure Time is in the process of
developing a wide area progressive for linking Touch Easy Keno throughout the
California tribal casino's market in order to enable the casino's to award
million dollar prizes.
- - selling the Pot-O-Gold product line to replace existing video gaming
machines;
- - placing Pot-O-Gold, Pulltab Gold and bingo products in locations owned or
operated on a revenue sharing basis by Leisure Time;
- - providing casino and route customers with equipment financing to facilitate
increased sales; and
- - offering a wide variety of interactive touchscreen video games featuring new
designs, graphic improvements, improved audio quality, sophisticated data
communication capabilities, customized formats and features designed to
increase player appeal.
<PAGE>
Leverage Growth in Installed Products to Increase Recurring Revenue
From Software Sales
To date, most of Leisure Time's revenue has been derived from the sale of video
gaming machines. As Leisure Time's installed product base has grown, Leisure
Time has experienced an increase in customers' demand for sales of:
- - newly developed game software;
- - software enhancements for existing games; and
- - cartridge replacements for video pulltab machines.
Expand Gaming Machine Route Operations
Leisure Time acquired its first gaming machine route in South Carolina in
February 1999. Leisure Time expects to expand its gaming route operations
through:
- - acquisition or establishment of routes in Louisiana, Montana, New Mexico
and selected other states; and
- - addition of route locations in establishments not currently served by
existing route operations.
Leisure Time believes that creation of additional gaming route operations will
offer benefits such as:
- - recurring revenue;
- - increases in market share for the Pot-O-Gold product line, thereby
facilitating additional software sales; and
- - opportunities for Leisure Time to increase video gaming product sales to
the replacement market.
Promote Acceptance and Use of Video Pulltab and Bingo Products
Leisure Time's video pulltab machines offer a number of benefits over
traditional paper pulltabs and bingo games, including:
- - enhanced tracking and accountability through data collection devices
incorporated in each machine;
- - extended hours of operation, thus increasing opportunities for revenue
generation;
- - improved earnings potential through enhancing the speed of play; and
- - increased recurring revenue from software and cartridge sales.
Selectively Explore Domestic Acquisition and International Expansion
Opportunities
Leisure Time expects to pursue acquisitions of domestic companies engaged in:
- - development and sale of software designed for the gaming market;
- - gaming route operations; and
- - purchase, ownership or licensing of rights to
proprietary games or enhancements.
YEAR 2000 COMPLIANCE
Leisure Time is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when 1999 changes to 2000. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail.
All of Leisure Time's material internal information technology and
non-information technology systems are year 2000 compliant. Leisure Time
expended approximately $75,000 in making all of its internal IT and non-IT
systems year 2000 compliant.
All of Leisure Time's primary suppliers have stated that they are year
2000 compliant.
Currently, Leisure Time is defining and refining the list of approved
alternate suppliers as a precaution against a present supplier's inability to
fulfill orders, thereby minimizing, if not eliminating, disruptions to
manufacturing. In the unlikely event no approved alternate supplier can be
identified, inventory levels of the specific product will be reviewed with the
present supplier and raised to provide a buffer against potential outages.
Leisure Time will continue to monitor the lead-times of products and the market
to ensure availability of supplies. Leisure Time does not anticipate incurring
significant additional costs as a result of purchasing from alternative
suppliers.
Leisure Time is including year 2000 compliance warranty language in all of
its purchase orders placed with its suppliers during the last two quarters of
1999.
<PAGE>
INTRODUCTION OF THE EURO
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and a new currency called the "Euro." These countries agreed to adopt the Euro
as their common legal currency on that date. The Euro trades on currency
exchanges and is available for non-cash transactions. The existing sovereign
currencies will remain legal tender in these countries until January 1, 2002. On
that date the Euro is scheduled to replace the sovereign legal currencies of the
member countries.
Leisure Time plans to sell its video gaming machines in countries that
have adopted the Euro. Leisure Time will evaluate the impact the implementation
of the Euro will have on its business operations, but does not expect the Euro
to have a material effect on its competitive position. Leisure Time can provide
no assurance that the implementation of the Euro will not have a material
adverse effect on its financial condition and operating results. In addition,
Leisure Time cannot accurately predict the impact the Euro will have on currency
exchange rates or its currency exchange risk. Leisure Time has historically
priced its foreign sales in dollars and, as a result, Leisure Time has had no
material need to hedge any foreign currency exposure. If competitive conditions
require Leisure Time to sell its products for the Euro or other currencies, it
may engage in currency hedging to manage this exposure in the future if
appropriate for it to do so.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 19, 1998, James J. Oden, the former Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer and Secretary of
Technology, Inc. filed a complaint against Casinos and Technology in the United
States District Court for the Northern District of Georgia (Civil Action File
No. 1: 98-CV-3033) alleging that Casinos and Technology had breached an alleged
oral employment agreement with Mr. Oden because Casinos granted incentive
stock options to Mr. Oden for 200,000 shares exercisable at $2.50 per share
rather than nonqualified stock options for 200,000 shares exercisable at $1.00
per share. Further, Mr. Oden alleges that the stock options he should have
received should have been exercisable without being conditioned upon a
particular schedule and should not have expired upon the termination of his
employment. Mr. Oden claims that the value of Casino's common stock on
October 19, 1998, exceeded $15.00 per share and seeks an unspecified amount of
damages. Casinos and Technology filed answers denying Mr. Oden's claims and
have filed a motion for Summary Judgment which is currently pending.
On June 18, 1998, Collins Entertainment Corp. filed a complaint against
Technology in the Court of Common Pleas for the Fifth Judicial Circuit, Richland
County, State of South Carolina. Collins alleges, among other things, that
Technology breached the Sales and Distribution Agreement dated May 13, 1992 that
was entered into between Technology (which was then known as U.S. Games, Inc.)
and Collins by not supplying Collins with Pot-O-Gold machines for resale in
South Carolina. Collins further alleges that Technology used unfair and/or
deceptive means of restraining trade in violation of the South Carolina Unfair
Trade Practices Act by limiting the supply of Pot-O-Gold machines in South
Carolina. Collins requests that it be granted damages in an amount to be
determined at trial and that the damages be trebled. In interrogatory responses,
Collins alleges that its actual damages are approximately $1,300.
Collins also requested that it be granted a temporary restraining order and
preliminary injunction against Technology.
This litigation follows an earlier lawsuit regarding the same contract
filed by Collins against Technology in South Carolina District Court on
November 7, 1996 (the "Prior Litigation") which resulted in a jury verdict
returned on October 30, 1997, in favor of Collins in the amount of $0.
Technology had the Collins action removed to the United States District
Court for the District of South Carolina, Anderson Division (Civil Action No.:
3-98-1887-13). In September 1998, the Court denied Collins' request for a
temporary restraining order and preliminary injunction. Technology has filed an
Answer and Counterclaim in which Technology denies various allegations and
asserts various affirmative defenses and counterclaims alleging, among other
things, that Collins sold new Pot-O-Gold machines as used machines in South
Carolina in violation of the South Carolina Unfair Trade Practices Act.
Technology further alleges that Collins' actions in selling Pot-O-Gold games in
violation of the terms of the sales and distribution agreement resulted in a
judgment being entered against Technology in favor of Drews in the amount of
approximately $5,100 and constituted tortious interference with contract.
Technology's exclusive Distribution Agreement dated November 27, 1995 with Drews
allowed Technology to sell Pot-O-Gold games directly to Collins for Collins'
own use only, but not for resale by Collins. Technology contends that Collins
agreed to this limitation. The Court determined that, by continuing to sell
the games to Collins with actual or constructive knowledge that Collins was
reselling those games, Technology breached its exclusive Distribution Agreement
with Drews and awarded damages based on each of the resales made by Collins.
Technology requests that it be granted damages to be determined at trial and
that the damages be trebled.
<PAGE>
On March 24, 1999, the Court struck various of Technology's answers as
being barred by res judicata or collateral estoppel because of the Prior
Litigation between Collins and Technology. The Count also dismissed Technology's
counterclaims mentioned above. Each stricken paragraph contained a defense the
essence of which was that the agreement between Technology and Collins was
either not binding or had been modified so as to prohibit Collins from reselling
Pot-O-Gold machines in South Carolina. The order also struck Technology's
counterclaims for violation of the South Carolina Unfair Trade Practices Act,
contractual and common law indemnification, and tortious interference with
contract. Technology filed a motion for reconsideration or in the alternative,
for immediate interlocutory appeal. On June 29, 1999, the Court denied
Technology's motions and issued an amended order affirming the Court's March 24,
1999 order. Technology intends to defend the lawsuit vigorously.
On December 14, 1998, Technology filed a lawsuit against Drews
Distributing, Inc. in the Superior Court of Gwinnett County, State of Georgia
(Civil Action No.: 98-A-97614) in which Technology alleges that Drews breached
the wxclusive Distribution Agreement by failing to pay Technology $2,700 for a
portion of the memory board upgrade kits for Pot-O-Gold machines that Drews
had ordered but did not pickup from Technology and by failing to pay Technology
$5,000 million for a portion of the Pot-O-Gold machines Drews had ordered but
did not pick up from Technology. Technology also contends that, in connection
with Technology's development and sale of new T-340+ circuit boards, Drews
agreed that if a South Carolina end user purchased a Pot-O-Gold machine which
contained the old T-340 circuit board, the end user could purchase the new
T-340+ circuit board from Drews and then return his old T-340 circuit board to
Technology Drews agreed to arrange for end users to return the replaced T-340
circuit boards to Technology for reuse. It is Technology's position that the
T-340 circuit board and its technology are trade secrets of Technology and that,
by allowing its customers to keep the old T-340 circuit boards and not return
them to Technology, Drews has indirectly misappropriated Technology's technology
and trade secrets. Technology requests that it be granted damages in an amount
to be proved at trial, plus interest and attorneys' fees, specific performance
and an order enjoining the misappropriation.
Drews has filed an answer and counterclaim in this action alleging that
Technology has continued to breach the Agreement, that Technology's breach was
accompanied by a fraudulent act and that Technology committed fraudulent
nondisclosure of material facts in connection with the Agreement. Drews is
claiming actual damages in an amount to be proved at trial for the loss of
sales, for the diminution of the price of machines sold by Drews due to a loss
of exclusivity, for the refusal of Technology to sell machines at the contract
price and due to the sales by Collins and other in violation of the Agreement.
Drews is also requesting punitive damages. Drews' counterclaims are similar to
its claims in a prior case filed in 1996 against Technology which Drews
recovered a judgment in the amount of $3,066. In that case, the Court made
no finding of any fraudulent acts by Technology.
On March 25, 1999, Drews filed a complaint against Technology and
Phillip C. Caldwell as agent for Technology in the Court of Common Pleas for
the Fifth Judicial Circuit, Richland County, South Carolina, essentially
repeating the allegations asserted in its counterclaim against Technology in
the Gwinnett County, Georgia action. Specifically, Drews alleges that Technology
breached the exclusive Distribution Agreement by continuing to sell Pot-O-Gold
machines to Collins, directly selling machines in South Carolina and "illegally
raising the prices of video games." Drews also alleges claims for breach of
contract accompanied by a fraudulent act, fraudulent nondisclosure of a
material fact and tortious interference with Drews' alleged contracts with
Darlington Music Company and Gold Strike/American Bingo and Gaming. Drews seeks
unspecified "past damages," actual damages, punitive damages and attorneys'
fees.
On October 15, 1999, the former holders of approximately $1,400 of 11%
convertible promissory notes filed a complaint in the United States District
Court for the Northern District of Ohio (Civil Action NO. 1:99CV 2495) against
Casinos. The case is entitled Norman J. Levin, Trustee of the Norman J. Levin
Trust, et al. v. Leisure Time Casinos & Resorts, Inc. In January 1999,
Casinos paid in full the remaining balance of 11% convertible promissory notes
after the 11% convertible promissory notes were accelerated as a result of a
default in payment by Casinos. The 11% convertible promissory notes were
convertible into units consisting of 920,000 shares of Casinos' common stock and
warrants to purchase 920,000 shares of Casinos' common stock at a price of $1.75
and 920,000 shares of Casinos' common stock at a price equal to 120% of the
offering price of an initial public offering by Casinos. The complaint alleges
that Casinos breached the terms of the 11% convertible promissory notes by
failing to provide the holders with Casinos' financial statements denying them
the benefit of their bargain and unjustly enriching Casinos' rights under the
11% convertible promissory notes. The complaint requests judgment against
Casinos in an unspecified amount including all costs and attorneys' fees.
Casinos believes that the conversion features of the 11% convertible promissory
notes have expired, has filed an answer denying the claims and intends to
vigorously defined the lawsuit.
It is Leisure Time's policy to vigorously defend litigation, however,
Leisure Time has entered into settlements of claims in the past, and may do so
in the future, whenever management deems the circumstances appropriate. Any
unfavorable outcome related to any outstanding litigation could have a material
adverse effect on the financial condition of the Company.
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) and (b) not applicable.
(c) The following is information as to all securities of Leisure Time sold by
Leisure Time during the three months ended September 30, 1999, which
were not registered under the Securities Act of 1933, as amended
("Securities Act"). Leisure Time does not consider issuances of options
to employees to purchase Leisure Time's common stock to be sales.
In September 1999, Leisure Time issued 1,423 shares of its common stock
upon exercise of outstanding warrants that had previously been issued to
Paul F. Frymark. Mr. Frymark exercised the warrants by surrendering the
right to exercise the warrants for a number of shares having a fair market
value of $4,587. Leisure Time issued the shares in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.
Mr. Frymark had available to him all material information concerning
Leisure Time. The certificate evidencing the common stock bears a
restrictive legend under the Securities Act. No underwriter was involved in
the transaction.
(d) On September 15, 1999, Leisure Time's Registration Statement File No.
333-77737 was declared effective. The offering closed on September 20,
1999, after the sale of 700,000 shares of Leisure Time's common stock.
The representative of the underwriters for Leisure Time's offering was
Schneider Securities, Inc.
Not including 75,000 shares of common stock underlying warrants that were
to be issued to the representative of the underwriters, Leisure Time
registered 862,500 shares of common stock for sale at a maximum offering
price of $13.00 per share for an aggregate amount of $11,212,500. The
862,500 shares included 112,500 shares that were issuable upon exercise of
the underwriters' over-allotment option. Subsequent to the effective time
of the Registration Statement, Leisure Time and Schneider Securities, Inc.
agreed to reduce the primary offering to 700,000 shares of common stock
which were sold at $12.00 per share for an aggregate amount of $8,400,000.
The underwriters did not exercise their over-allotment option for an
additional 105,000 shares. Accordingly, a total of 162,500 shares of common
stock were not sold in the offering.
Since September 15, 1999, Leisure Time has incurred an aggregate of
approximately $1,184,000 of expenses in connection with the offering,
including underwriting discounts ($672,000), expenses paid to or for the
underwriter ($232,000), and other expenses of the offering ($280,000). Such
amounts were not paid directly or indirectly to the directors, to the
officers or to persons owning 10% or more of any class of equity
securities of Leisure Time or to affiliates of Leisure Time. Rather,
such payments were to others. After deducting the total expenses,
Leisure Time received net offering proceeds of approximately $7,216,000.
The net offering proceeds have been used for:
- approximately $4.2 million as working capital, including the
payment of accounts payable; and
- approximately $1.0 million to develop a new Pot-O-Gold line of
video game machines and related software.
Other than using the net offering proceeds for working capital, including
the payment of salaries, none of the net offering proceeds were used to
make payments to the directors, to the officers or to persons owing 10%
or more of any class of equity securities of Leisure time or to affiliates
of Leisure Time. Rather, such payments were to others.
Leisure Time's uses of the net proceeds do not represent a material change
in the use of proceeds described in Leisure Time's prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Leisure Time is currently in default of one monthly payment of $308,000 on
the remaining balance of approximately $2,700,000 of a loan payable
to AIG Insurance. Leisure Time is currently negotiating with AIG to
extend the note and receive more favorable payment terms.
(b) not applicable.
ITEM 6. (a) EXHIBITS
(b) Exhibits.
10.1 Solutia Gaming Systems, Inc. Exclusive Distribution Agreement
dated November 9, 1999.
10.2 Solutia Gaming Systems, Inc. Exclusive Distribution Agreement of
Individual Games dated November 9, 1999.
<PAGE>
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
Date: November 15, 1999
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ ALAN N. JOHNSON
---------------------
Alan N. Johnson, President and
Chief Executive Officer
By: /s/ Eric R. Dey
---------------------
Eric R. Dey, Chief Financial
Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
- --------
10.3 Solutia Gaming Systems, Inc. Exclusive Distribution Agreement
dated November 9, 1999.
10.4 Solutia Gaming Systems, Inc. Exclusive Distribution Agreement of
Individual Games dated November 9, 1999.
27.2 Financial Data Schedule
<PAGE>
27.1* Financial Data Schedule
- -----------
* Filed herewith
1
SOLUTIA GAMING SYSTEMS, INC.
EXCLUSIVE DISTRIBUTION AGREEMENT
This Agreement is entered into on this the 9th day of November, 1999
between Solutia Gaming Systems, Inc. (Solutia), a Oklahoma Corporation with its
principal place of business in Norcross, Georgia and BestCo., Inc.
(Distributor), a South Carolina corporation with its principal place of business
at 920 Frontage Road, Greenville, SC 29611. Solutia and Distributor agree as
follows:
1. Solutia appoints Distributor to be an exclusive distributor for the
sale of Solutia products, which for the purposes of this agreement are
exclusively T340+ boards and the requisite software only, ("products") in
the following distribution location only: Georgia (redemption market) and
West Virginia (both hereinafter referred to as "territory"). Distributor's
exclusive territory for the distribution of products is limited to the
territory. Solutia may continue to sell the necessary products to the
distributors detailed and contained in "Attachment A" until the expiration
of the various agreements with the distributors so named in "Attachment
A." Solutia or Leisure Time Technology, Inc. shall be the only multi-game
capable boards, software, or game units sold by Distributor in the
Territory.
2. Solutia agrees, during the term of this Agreement, to sell Products to
Distributor at a price of $795.00 for the T-340+ boards and $400.00 for
the requisite software. This price reflects a discount of 20% plus $5.00
off of the retail price of the product which is $1,500.00, i.e., the
retail of $1,000.00 for the boards less 20%=$800.00-$5.00=$795.00 and
software retail of $500.00 less 20%=$400.00. This price may be
renegotiated at the conclusion of the Exclusive Distribution Agreement.
3. Distributor agrees all purchases are payable one hundred percent (100%)
FOB, Solutia dock unless other financial arrangements are made between
Solutia and Distributor.
4. Distributor agrees to use its best efforts to promote, sell,
merchandise and demonstrate Products in the Territory. Distributor shall
purchase at least 3,000 T340+ boards and the requisite software from
Solutia by June 30, 2000. Then Distributor shall purchase 5,000 T340+
boards and the requisite software from Solutia by June 30, 2001. Then the
Distributor shall purchase 5,000 T340+ boards and the requisite software
from Solutia by June 30, 2002. Distributor shall be entitled to purchase
the latest approved software available by Solutia for sale on the
respective market.
5. Solutia and Distributor acknowledge that Distributor is an independent
contractor, and the acceptance of this Agreement does not make or appoint
Distributor as an agent or representative of Solutia for any purpose.
Distributor is not authorized to act for, incur debt for, or make any
representations on behalf of Solutia other than as set forth herein, and
Distributor is not to represent itself to the public as an agent or
representative of Solutia. Distributor shall not make any representations
regarding Solutia or Products performance such as will bind Solutia to
any such representation which are not authorized by Solutia in writing or
stated in Solutia's product and promotional materials.
6. Distributor shall be responsible for and shall pay or have paid all
taxes or license(s) or other costs on Products distributed in Georgia
and West Virginia under this Agreement as are imposed by any governmental
agency due to the sale or operation of
<PAGE>
Product in Georgia and West Virginia, except any such taxes expressly
assumed in writing by Solutia.
7. Distributor shall hold Solutia harmless and shall indemnify Solutia
against all claims, demands, losses, costs, damages, suits, judgments,
penalties, expenses, and liabilities of any kind whatsoever arising out of
Distributor's ownership, leasehold, or operation of its wholesale
location. Distributor and Solutia shall indemnify and hold harmless each
other for any liability arising out of their own acts, omissions, or
failure to perform any obligation under this Agreement.
8. Neither Solutia nor Distributor shall be held liable under this
Agreement for failure to carry out its provisions to the extent that such
failure is caused by strikes, sabotage, fire, flood, inability to secure
raw materials, act of God, riot, insurrection, war, act of any
governmental authority, priorities granted at the request of or for the
benefit, directly or indirectly, or any government or agency thereof, or
any cause beyond their respective control. This clause shall be effective
only so long as performance is prevented.
9. This Agreement shall continue on a year to year basis, subject to the
provisions of paragraph 4. This Agreement will not be automatically
renewed if Distributor fails to purchase the quantity of units as
described in paragraph 4. The Agreement will be automatically renewed
at the expiration of the term unless Solutia provides ninety (90) day
written notice to cancel this contract without cause.
10. Except as otherwise provided herein, in the event of a breach of this
Agreement or a default hereunder, Solutia or Distributor may cancel this
Agreement for cause upon thirty (30) days written notice in the event such
breach or default is not cured within thirty (30) days of receipt of said
notice or in the event Distributor, after notice from Solutia, continues
to engage in conduct that is detrimental or harmful to the good name,
good will or reputation of Solutia or Leisure Time Technology, Inc. or
Leisure Time Casinos & Resorts, Inc. or affiliates.
11. A waiver of any breach of any provision of this Agreement shall not be
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement. The acceptance of any order by Solutia
after the termination of this Agreement shall not be construed as a
renewal or extension of this Agreement nor as a waiver of the termination
hereof.
12. This Agreement supersedes all previous or now existing arrangements or
agreements between Distributor and Solutia and contains the entire
understanding between the parties relating to the subject matter hereof.
No modification or amendment of any provision or part of this Agreement
shall be binding unless in writing, expressly denominated as an amendment
hereto, signed by both parties.
13. Should any part or provision of this Agreement be held unenforceable
or in conflict with the law of any jurisdiction, the validity of the
remaining part or provisions shall not be affected by such holding.
14. Any dispute or controversy of or relating to this Agreement; or any
breach of this Agreement, shall be settled by arbitration to be held in
Atlanta, GA, in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto. The decision of the
arbitrator shall be final, conclusive, and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction, and the parties irrevocably consent to the
jurisdiction of the Georgia state courts for this purpose. Costs shall be
shared by both parties. If Solutia breaches this Agreement, then
Distributor's damages shall be limited to a total of $305.00 per unit
which represents the difference between the retail price and the
distribution price as stated in paragraph 2 or representative share of the
software and/or T340+ board per item sold by Solutia in breach of this
agreement. i.e., retail price of boards of $1,000 and software of $500.00
= $1,500.00. Distributor price of board of $795.00 and software of $400.00
= $1,195.00 for a total difference of $305.00.
15. Without limitation, the following events shall constitute breaches or
defaults:
a. Insolvency of Distributor
b. Filing by or against Distributor or a petition in Bankruptcy or
other insolvency proceeding.
c. Breach by Distributor of any representation or warranty to Solutia
contained herein or otherwise made to Solutia.
d. Failure of Distributor to keep open its authorized location of
business for more than thirty (30) consecutive business days; and
e. The commission of any act by Distributor's management in violation
of federal, state, or local law or such conduct, which in the sole
discretion of Solutia adversely affects the ability of Solutia
and/or the parent company Leisure Time Casinos & Resorts Inc. or
sister company, Leisure Time Technology Inc., to obtain or maintain
a license to market Products in any licensed jurisdiction.
16. Distributor shall not divulge to any third party, or use for its own
unrelated purposes, any confidential, proprietary or business information
relating to the business affairs of Solutia except to the extent that
confidential information must be divulged or used in performing the
Distributor's obligations under this Agreement. Confidential information
shall include, but not be limited to, "CONFIDENTIAL" relating to
Distributor prices, company policy, promotional programs not yet public,
technical information regarding Products, market strategy, or any
material or other information in writing and designated by Solutia as
"CONFIDENTIAL". Distributor further agrees not to copy or to cause to
allow any third party to copy, use or distribute any proprietary or
confidential information. If distributor becomes aware of any breach of
this provision, it must notify Solutia immediately. Any violation of
this section shall be grounds for the immediate termination of this
Agreement by Solutia without prior notice.
Distributor will take all reasonable measures to protect Solutia and/or
Leisure Time Technology, Inc.'s ("LTT") Proprietary Rights in the
Software and Hardware. Distributor acknowledges that Distributor has no
Proprietary Rights in the Hardware, Software or any other materials
received from Solutia or LTT and does not acquire any rights in these
Proprietary Rights by virtue of this agreement, except those contractual
rights that are expressly granted herein. No rights to manufacture
Solutia or LTT's Products are granted by this agreement. Distributor
acknowledges that the Software and the structure, sequence and
organization of the Software is proprietary to Solutia or LTT, and that
Solutia or LTT retains exclusive ownership of the Software. Distributor
shall not allow or cause to translate, disassemble, reverse engineer,
or decompile Software in whole or in part. Distributor further agrees
not to make copies or media translations of any of the documentation
associated with the Software or Hardware except copies of manuals to be
provided to End Users which manuals shall not be distributed to anyone
or any entity by Distributor (other than to End Users as set forth
herein) and which shall be returned to Solutia or LTT immediately upon
Solutia or LTT's request. Distributor shall promptly notify LTT
in writing if Distributor becomes aware of any misuse of or infringement
upon Solutia or LTT's to its Proprietary Rights including translation,
disassembling, reverse engineering, or decompiling Software in whole or
in part by an person.
Distributor recognizes that Solutia or LTT is the sole owner of the
trademarks and tradenames as well the goodwill of the businesses
associated with the trademarks and tradenames. Solutia or LTT grants
Distributor a limited right to use the Solutia or LTT trademarks in its
distribution, advertising and promotion for the Hardware and Software
within the Territory in accordance with this agreement. Distributor may
use the Solutia or LTT trademarks only in connection with the sale of
the Products provided by Solutia and authorized by Solutia to be sold
or licensed by Distributor within the Territory. Distributor agrees that
the nature and quality of the products or services it supplies in
connection with the Solutia or LTT trademarks shall conform to Solutia
or LTT's standards. Distributor agrees to cooperate with Solutia or LTT
in facilitating LTT's monitoring and control of the nature and quality
of such products and services. Distributor will use LTT trademarks in
accordance with applicable trademark law and only in a format and style
approved by Solutia or LTT. Distributor agrees to comply with Solutia
or LTT's policies regarding advertising and trademark usages established
from time to time and to provide samples of such usage to Solutia or
LTT upon request. Distributor will use such trademark notices as may be
reasonably requested by Solutia or LTT to protect Solutia or LTT's
trademark rights. Distributor further agrees not to affix any Solutia or
LTT. trademarks to products other than the genuine Solutia or LTT
Products.
17. Distributor shall not make or give any warranties on Products that
bind Solutia except for such written warranties as are extended by
Solutia.
18. It is Solutia's firm policy and practice to comply with all applicable
gaming laws and regulations. Distributor shall conduct its business as a
Solutia Distributor in the same manner. Non-compliance with any
applicable gaming law shall cause this agreement to be terminated
immediately without notice.
19. Distributor agrees to maintain customer files reflecting adequate
information pertinent to each sale to enable tracking of Product sold.
The information shall be provided to Solutia upon request.
20. This Agreement is not assignable or otherwise transferable by
distributor without the prior written consent of Solutia. For purposes
of this Agreement, the term "assignment" or "transfer" shall include any
change in the ownership, or control of distributor which in Solutia in
its sole discretion deems substantial.
<PAGE>
IN WITNESS WHEROF, Solutia and Distributor have caused this Agreement to
be executed by their officers who have authority to bind their respective
companies. The original of this Agreement is to be signed by Distributor and
sent to Solutia for execution at Norcross, Georgia.
AGREED AND ACCEPTED:
Distributor:
- -----------------------------
BestCo. Inc.
- -----------------------------
By its President, Bobby G. Mosley
- -----------------------------
Location
- -----------------------------
Date
AGREED AND ACCEPTED:
Solutia Gaming Systems, Inc.
Norcross, Georgia
- ------------------------------
By its President, Thomas Klingel
- ------------------------------
Date
SOLUTIA GAMING SYSTEMS, INC.
EXCLUSIVE DISTRIBUTION AGREEMENT
OF INDIVIDUAL GAMES
This Agreement is entered into on this the 9th day of November, 1999
between Solutia Gaming Systems, Inc. (Solutia), a Oklahoma Corporation with its
principal place of business in Norcross, Georgia and BestCo., Inc.
(Distributor), a South Carolina corporation with its principal place of business
at 920 Frontage Road, Greenville, SC 29611. Solutia and Distributor agree as
follows:
1. Solutia appoints Distributor to be an exclusive distributor for the
sale of Solutia products, which for the purposes of this agreement are
exclusively game units, ("products") in the following distribution location
only: West Virginia (hereinafter referred to as "territory"). Distributor's
exclusive territory for the distribution of products is limited to the
territory.
2. Solutia agrees, during the term of this Agreement, to sell Products to
Distributor at a price of $5,622.00 per unit for orders up to 99 units;
$5,247.00 per unit for orders of 100 or more. All orders must be taken
within 30 days.
3. Distributor agrees all purchases are payable one hundred percent (100%)
FOB, Solutia dock unless other financial arrangements are made between
Solutia and Distributor.
4. Distributor agrees to use its best efforts to promote, sell,
merchandise and demonstrate Products in the Territory. Distributor shall
purchase at least 13,000 units (games or software/T344+ boards) in
accordance with the terms contained in the Solutia Gaming Systems, Inc.
Exclusive Distribution Agreement, dated November 9, 1999 and attached as
"Exhibit A". Each unit shall consist of either, (1)a single game, or (2)
requisite software and a T340+ board combination.
5. Solutia and Distributor acknowledge that Distributor is an independent
contractor, and the acceptance of this Agreement does not make or appoint
Distributor as an agent or representative of Solutia for any purpose.
Distributor is not authorized to act for, incur debt for, or make any
representations on behalf of Solutia other than as set forth herein, and
Distributor is not to represent itself to the public as an agent or
representative of Solutia. Distributor shall not make any representations
regarding Solutia or Products performance such as will bind Solutia to any
such representation which are not authorized by Solutia in writing or
stated in Solutia's product and promotional materials.
6. Distributor shall be responsible for and shall pay or have paid all
taxes or license(s) or other costs on Products distributed in Georgia and
West Virginia under this Agreement as are imposed by any governmental
agency due to the sale or operation of Product in Georgia and West
Virginia, except any such taxes expressly assumed in writing by Solutia.
7. Distributor shall hold Solutia harmless and shall indemnify Solutia
against all claims, demands, losses, costs, damages, suits, judgments,
penalties, expenses, and liabilities of any kind whatsoever arising out of
Distributor's ownership, leasehold, or operation of its wholesale
location. Distributor and Solutia shall indemnify and hold harmless each
other for any liability arising out of their own acts, omissions, or
failure to perform any obligation under this Agreement.
8. Neither Solutia nor Distributor shall be held liable under this
Agreement for failure to carry out its provisions to the extent that such
failure is caused by strikes, sabotage, fire, flood, inability to secure
raw materials, act of God, riot, insurrection, war, act of any governmental
authority, priorities granted at the request of or for the benefit,
directly or indirectly, or any government or agency thereof, or any cause
beyond their respective control. This clause shall be effective only so
long as performance is prevented.
9. This Agreement shall continue on a year to year basis, subject to the
provisions of paragraph 4. This Agreement will not be automatically
renewed if Distributor fails to purchase the quantity of units as
described in paragraph 4. The Agreement will be automatically renewed at
the expiration of the term unless Solutia provides ninety (90) day written
notice to cancel this contract without cause.
10. Except as otherwise provided herein, in the event of a breach of this
Agreement or a default hereunder, Solutia or Distributor may cancel this
Agreement for cause upon thirty (30) days written notice in the event such
breach or default is not cured within thirty (30) days of receipt of said
notice or in the event Distributor, after notice from Solutia, continues
to engage in conduct that is detrimental or harmful to the good name, good
will or reputation of Solutia or Leisure Time Technology, Inc. or Leisure
Time Casinos & Resorts, Inc. or affiliates.
11. A waiver of any breach of any provision of this Agreement shall not be
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement. The acceptance of any order by Solutia after
the termination of this Agreement shall not be construed as a renewal or
extension of this Agreement nor as a waiver of the termination hereof.
12. This Agreement shall be in conjunction with all previous or now
existing arrangements or agreements between Distributor and Solutia and
contains the entire understanding between the parties relating to the
subject matter hereof. No modification or amendment of any provision or
part of this Agreement shall be binding unless in writing, expressly
denominated as an amendment hereto, signed by both parties.
13. Should any part or provision of this Agreement be held unenforceable
or in conflict with the law of any jurisdiction, the validity of the
remaining part or provisions shall not be affected by such holding.
14. Any dispute or controversy of or relating to this Agreement; or any
breach of this Agreement, shall be settled by arbitration to be held in
Atlanta, GA, in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto. The decision of the
arbitrator shall be final, conclusive, and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction, and the parties irrevocably consent to the
jurisdiction of the Georgia state courts for this purpose. Costs shall be
shared by both parties.
15. Without limitation, the following events shall constitute breaches or
defaults: a. Insolvency of Distributor b. Filing by or against Distributor
or a petition in Bankruptcy or other insolvency proceeding.
c. Breach by Distributor of any representation or warranty to Solutia
contained herein or otherwise made to Solutia.
d. Failure of Distributor to keep open its authorized location of business
for more than thirty (30) consecutive business days; and
e. The commission of any act by Distributor's management in violation of
federal, state, or local law or such conduct, which in the sole
discretion of Solutia adversely affects the ability of Solutia and/or
the parent company Leisure Time Casinos & Resorts Inc. or sister
company, Leisure Time Technology Inc., to obtain or maintain a license
to market Products in any licensed jurisdiction.
16. Distributor shall not divulge to any third party, or use for its own
unrelated purposes, any confidential, proprietary or business information
relating to the business affairs of Solutia except to the extent that
confidential information must be divulged or used in performing the
Distributor's obligations under this Agreement. Confidential information
shall include, but not be limited to, "CONFIDENTIAL" relating to
Distributor prices, company policy, promotional programs not yet public,
technical information regarding Products, market strategy, or any material
or other information in writing and designated by Solutia as
"CONFIDENTIAL". Distributor further agrees not to copy or to cause to
allow any third party to copy, use or distribute any proprietary or
confidential information. If distributor becomes aware of any breach of
this provision, it must notify Solutia immediately. Any violation of this
section shall be grounds for the immediate termination of this Agreement
by Solutia without prior notice.
Distributor will take all reasonable measures to protect Solutia and/or
Leisure Time Technology, Inc.'s ("LTT") Proprietary Rights in the Software
and Hardware. Distributor acknowledges that Distributor has no Proprietary
Rights in the Hardware, Software or any other materials received from
Solutia or LTT and does not acquire any rights in these Proprietary Rights
by virtue of this agreement, except those contractual rights that are
expressly granted herein. No rights to manufacture Solutia or LTT's
Products are granted by this agreement. Distributor acknowledges that the
Software and the structure, sequence and organization of the Software is
proprietary to Solutia or LTT, and that Solutia or LTT retains exclusive
ownership of the Software. Distributor shall not allow or cause to
translate, disassemble, reverse engineer, or decompile Software in whole
or in part. Distributor further agrees not to make copies or media
translations of any of the documentation associated with the Software or
Hardware except copies of manuals to be provided to End Users which manuals
shall not be distributed to anyone or any entity by Distributor (other
than to End Users as set forth herein) and which shall be returned to
Solutia or LTT immediately upon Solutia or LTT's request. Distributor shall
promptly notify LTT in writing if Distributor becomes aware of any misuse
of or infringement upon Solutia or LTT's to its Proprietary Rights
including translation, disassembling, reverse engineering, or decompiling
Software in whole or in part by an person.
Distributor recognizes that Solutia or LTT is the sole owner of the
trademarks and tradenames as well the goodwill of the businesses associated
with the trademarks and tradenames. Solutia or LTT grants Distributor a
limited right to use the Solutia or LTT trademarks in its distribution,
advertising and promotion for the Hardware and Software within the
Territory in accordance with this agreement. Distributor may use the
Solutia or LTT trademarks only in connection with the sale of the Products
provided by Solutia and authorized by Solutia to be sold or licensed by
Distributor within the Territory. Distributor agrees that the nature and
quality of the products or services it supplies in connection with the
Solutia or LTT trademarks shall conform to Solutia or LTT's standards.
Distributor agrees to cooperate with Solutia or LTT in facilitating LTT's
monitoring and control of the nature and quality of such products and
services. Distributor will use LTT trademarks in accordance with applicable
trademark law and only in a format and style approved by Solutia or LTT.
Distributor agrees to comply with Solutia or LTT's policies regarding
advertising and trademark usages established from time to time and to
provide samples of such usage to Solutia or LTT upon request. Distributor
will use such trademark notices as may be reasonably requested by Solutia
or LTT to protect Solutia or LTT's trademark rights. Distributor further
agrees not to affix any Solutia or LTT. trademarks to products other than
the genuine Solutia or LTT Products.
17. Distributor shall not make or give any warranties on Products that
bind Solutia except for such written warranties as are extended by Solutia.
18. It is Solutia's firm policy and practice to comply with all applicable
gaming laws and regulations. Distributor shall conduct its business as a
Solutia Distributor in the same manner. Distributor agrees to comply with
all Federal, State, Municipal or local laws including but not limited to
applicable gaming laws and regulations. Non-compliance with any applicable
gaming law shall cause this agreement to be terminated immediately without
notice.
19. Distributor agrees to maintain customer files reflecting adequate
information pertinent to each sale to enable tracking of Product sold. The
information shall be provided to Solutia upon request.
20. This Agreement is not assignable or otherwise transferable by
distributor without the prior written consent of Solutia. For purposes of
this Agreement, the term "assignment" or "transfer" shall include any
change in the ownership, or control of distributor which in Solutia in its
sole discretion deems substantial.
<PAGE>
IN WITNESS WHEROF, Solutia and Distributor have caused this Agreement to
be executed by their officers who have authority to bind their respective
companies. The original of this Agreement is to be signed by Distributor and
sent to Solutia for execution at Norcross, Georgia.
AGREED AND ACCEPTED:
Distributor:
- -----------------------------
BestCo. Inc.
- -----------------------------
By its President, Bobby G. Mosley
- -----------------------------
Location
- -----------------------------
Date
AGREED AND ACCEPTED:
Solutia Gaming Systems, Inc.
Norcross, Georgia
- ------------------------------
By its President, Thomas Klingel
- ------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,725,000
<SECURITIES> 0
<RECEIVABLES> 3,534,000
<ALLOWANCES> 31,000
<INVENTORY> 10,981,000
<CURRENT-ASSETS> 21,171,000
<PP&E> 17,812,000
<DEPRECIATION> 1,870,000
<TOTAL-ASSETS> 49,810,000
<CURRENT-LIABILITIES> 17,596,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 18,756,000
<TOTAL-LIABILITY-AND-EQUITY> 49,810,000
<SALES> 8,472,000
<TOTAL-REVENUES> 11,096,000
<CGS> 5,327,000
<TOTAL-COSTS> 11,469,000
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<INTEREST-EXPENSE> 584,000
<INCOME-PRETAX> (957,000)
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