UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For 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)
(770) 923-9900
-----------------------------------------------------------------------
(Registrant's telephone number)
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 X No
----- -----
Shares of the registrant's outstanding common stock as of December 31, 1999:
Class Outstanding as of December 31, 1999
- ------------------------------ -----------------------------------
Common Stock, $.001 par value 5,898,833
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1999
INDEX
Page No.
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
3 Consolidated Condensed Balance Sheets at June 30, 1999
and December 31, 1999 (unaudited).............................3
4 Consolidated Condensed Statements of Income for the three
months ended December 31, 1999 (unaudited) and 1998
(unaudited)...................................................4
5 Consolidated Condensed Statements of Income for the six
months ended December 31, 1999 (unaudited) and 1998
(unaudited)...................................................5
6 Consolidated Condensed Statements of Cash Flows for the
six months ended December 31, 1999 (unaudited) and 1998
(unaudited)...................................................6
7. Notes to Consolidated Condensed Financial Statements
(unaudited)...................................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................13
Part II. Other Information.............................................26
Item 1. Legal Proceedings.............................................26
Item 3. Defaults Upon Senior Securities...............................29
Item 6. Exhibits and Reports on Form 8-K..............................29
Signatures.................................................................30
Exhibits...................................................................31
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
-------- --------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents .............................. $ 4,145 $ 801
Trade notes receivable ................................. 1,714 1,202
Trade accounts receivable, net ......................... 1,710 1,004
Receivable - other ..................................... 18 38
Current portion of net investment in direct
financing leases ...................................... 1,199 1,632
Inventories, net ....................................... 10,671 10,862
Prepaid expenses and other ............................. 1,141 3,238
Deferred tax asset -- current .......................... 180 1,967
-------- --------
Total current assets ................................. 20,778 20,744
Property and equipment, net .............................. 15,864 15,721
Goodwill, net ............................................ 5,583 5,214
Non-compete agreement, net ............................... 3,758 3,516
Other assets, net ........................................ 1,187 2,722
Deposits ................................................. 200 198
Long-term portion of net investment in direct
financing leases ........................................ 1,056 1,438
-------- --------
Total assets ............................................. $ 48,426 $ 49,553
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Line-of-credit ......................................... $ 960 $ 998
Current portion of long-term notes payable ............. 8,621 8,304
Current portion of capital leases ...................... 63 48
Current portion of other long-term liabilities ......... 466 410
Accounts payable ....................................... 7,642 2,073
Accrued expenses ....................................... 2,786 2,243
Income taxes payable ................................... 1,723 1,713
Deferred revenue ....................................... 50 --
-------- --------
Total current liabilities ............................ 22,311 15,789
Long-term liabilities
Long-term portion of notes payable ..................... 8,945 8,616
Long-term portion of capital leases .................... 93 72
Deferred income taxes payable .......................... 386 386
Other long-term liabilities ............................ 4,156 3,652
-------- --------
Total long-term liabilities .......................... 13,580 12,726
Total liabilities .................................... 35,891 28,515
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value; 5,000,000
shares authorized; 523,759 shares issued and
outstanding at December 31, 1999 ...................... -- 4,964
Common stock, $.001 par value; 45,000,000
shares authorized; 5,171,829 shares issued
and outstanding at June 30, 1999, 5,898,833
shares issued and outstanding at December 31,
1999 5 6
Additional paid-in capital ............................. 8,116 14,669
Common stock subscription .............................. (240) (240)
Retained earnings ...................................... 4,654 1,639
-------- --------
Total stockholders' equity ........................... 12,535 21,038
-------- --------
Total liabilities and stockholders' equity ............... $ 48,426 $ 49,553
======== ========
</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
December 31,
------------------------------
1998 1999
------------ ------------
Revenue
Manufacturing ............................ $ 14,486 $ 1,145
Gaming ................................... 912 831
Other .................................... 4 335
------------ ------------
Total revenue ........................... 15,402 2,311
Cost of goods sold
Manufacturing ............................ 7,883 718
Gaming ................................... 110 52
Other .................................... 4 184
------------ ------------
Total cost of goods sold ................ 7,997 954
Gross profit
Manufacturing ............................ 6,603 427
Gaming ................................... 802 779
Other .................................... -- 151
------------ ------------
Total gross profit ......................... 7,405 1,357
------------ ------------
Selling, general and administrative expenses 4,806 4,403
Research and development costs ............. 154 211
Stock based compensation ................... 760 --
Interest expense, net ...................... 347 588
------------ ------------
Total operating expenses ................ 6,067 5,202
------------ ------------
Net income (loss) before income tax benefit
(expense) ................................. 1,338 (3,845)
Income tax (expense) benefit ............... (490) 1,431
------------ ------------
Net income (loss) .......................... $ 848 $ (2,414)
============ ============
Earnings (loss) per common share - basic ... $ .18 $ (.41)
============ ============
Earnings (loss) per common share - diluted . $ .09 $ (.41)
============ ============
Weighted average number of common shares
outstanding -basic ........................ 4,655,583 5,885,331
============ ============
Weighted average number of common shares
outstanding - diluted ..................... 10,182,096 5,885,331
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
- 4 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
Six Months Ended
December 31,
------------------------------
1998 1999
------------ ------------
Revenue
Manufacturing ............................ $ 25,632 $ 9,617
Gaming ................................... 3,100 3,015
Other .................................... 276 775
------------ ------------
Total revenue ........................... 29,008 13,407
Cost of goods sold
Manufacturing ............................ 13,423 5,545
Gaming ................................... 326 295
Other .................................... 277 441
------------ ------------
Total cost of goods sold ................ 14,026 6,281
Gross profit
Manufacturing ............................ 12,209 4,072
Gaming ................................... 2,774 2,720
Other .................................... (1) 334
------------ ------------
Total gross profit ......................... 14,982 7,126
------------ ------------
Selling, general and administrative expenses 8,919 10,361
Research and development costs ............. 391 395
Stock based compensation ................... 760 --
Interest expense, net ...................... 565 1,172
------------ ------------
Total operating expenses ................ 10,635 11,928
------------ ------------
Net income (loss) before income tax benefit
(expense) ................................. 4,347 (4,802)
Income tax (expense) benefit ............... (1,609) 1,787
------------ ------------
Net income (loss) .......................... $ 2,738 $ (3,015)
============ ============
Earnings (loss) per common share - basic ... $ .59 $ (.53)
============ ============
Earnings (loss) per common share - diluted . $ .27 $ (.53)
============ ============
Weighted average number of common shares
outstanding -basic ........................ 4,642,753 5,645,247
============ ============
Weighted average number of common shares
outstanding - diluted ..................... 10,169,266 5,645,247
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
- 5 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
Six Months Ended
December 31,
--------------------
1998 1999
------- -------
Cash flows from operating activities
Net income (loss) ........................... $ 2,738 $(3,015)
------- -------
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities
Issuance of stock options .................. 760 --
Deferred taxes ............................. (304) (1,787)
Depreciation and amortization .............. 884 1,510
Allowance for doubtful accounts ............ -- 100
Inventory reserve .......................... -- 100
Loss on disposal of assets ................. -- 6
Changes in certain assets and liabilities
Receivables ............................... (629) 1,098
Net investment in direct financing leases . -- (1,207)
Proceeds on sale of direct financing leases -- 392
Inventories ............................... (35) (291)
Prepaids and other assets ................. 83 86
Accounts payable .......................... 1,506 (2,011)
Accrued expenses .......................... (1,003) (480)
Income taxes payable ...................... 1,844 (10)
Deferred revenue .......................... -- (50)
------- -------
3,106 (2,544)
Net cash provided by (used by) operating
activities ............................. 5,844 (5,559)
------- -------
Cash flows from investing activities
Purchase of property and equipment .......... (3,100) (674)
Other assets ................................ -- (1,619)
Deposits .................................... (929) 2
------- -------
Net cash used by investing activities ... (4,029) (2,291)
------- -------
Cash flows from financing activities
Proceeds from issuance of common stock, net . -- 6,988
Preferred stock fees ........................ -- (175)
Line-of-credit, net ......................... -- 38
Proceeds from notes payable ................. 5,327 1,489
Loan fees ................................... (29) (4)
Payment on notes payable .................... (3,861) (3,234)
Payments on capital leases .................. (33) (36)
Payments on long-term debt .................. (564) (560)
------- -------
Net cash (used by) provided by financing
activities ............................. 840 4,506
------- -------
Net increase (decrease) in cash ............... 2,655 (3,344)
Cash and cash equivalents - beginning of year . 888 4,145
------- -------
Cash and cash equivalents - end of year or
period ....................................... $ 3,543 $ 801
======= =======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
- 6 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
Non cash investing and financing activities:
During the six month period ended December 31, 1998:
The Company acquired fixed assets by incurring capital lease obligations in
the amount of $277.
The Company converted $53, of debt to equity by issuing capital stock to
the debt holders.
During the six month period ended December 31, 1999:
The Company converted $3,000 of accounts payable into a short-term note
payable.
The Company issued 523,759 shares of Convertible Series A Preferred Stock
to a vendor for a total consideration of $5,238, consisting of the
cancellation of a $2,000 promissory note payable, a credit for the payment
of interest of $63, a credit for the payment of $70 of interest that the
Company might be obligated to pay, a conversion of $558 of accounts
payable, and a deposit of $2,547 against future purchases of inventory by
the Company from the vendor.
The Company incurred a transaction fee of $274 related to the issuance of
the 523,759 shares of Convertible Series A Preferred Stock and offset the
fee against additional paid-in capital. Payment of the fee consisted of
$175 in cash and the balance in the form of a promissory note for $99.
The Company offset $434 of capitalized initial public offering costs, which
were paid prior to June 30, 1999, against additional paid-in capital.
The accompanying notes are an integral part of these consolidated
condensed financial statements.
- 7 -
<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, Montana, New Mexico, New
York, North Carolina and Wisconsin and is in compliance with South Carolina
regulations regarding the sale of gaming machines. In addition, Technology is
licensed by the state for the sale of gaming devices in Minnesota, Montana and
Wisconsin. Technology intends to apply to become licensed to distribute and
manufacture gaming devices in Arizona, Mississippi, Louisiana, Michigan,
California 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 may
attempt to sell the property.
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.
- 8 -
<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 (continued)
Principles of Consolidation
The consolidated financial statements include the accounts of Casinos and its
wholly owned subsidiaries, collectively referred to as the Company or Leisure
Time. 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 December 31, 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 and six month periods ended December 31, 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.
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.
- 9 -
<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 (continued)
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
and six months ended December 31,1998 have been reclassified to be consistent
with the presentation used for the three and six months ended December 31, 1999.
Note 2 - Commitments and Contingencies
Litigation
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.
- 10 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Notes to Consolidated Condensed Financial Statements
(In Thousands, Except Share and Per Share Amounts)
Note 2 - Commitments and Contingencies (continued)
Litigation (continued)
On December 27, 1999 American International Specialty Lines Insurance Co. and
A.I. Credit Corp., filed a complaint against Casinos in the United States
District Court for the Southern District of New York, Civil Action No. 99
CV12369 alleging that Casinos defaulted on the payment of a note and breach of
contract by failing to pay in accordance with the premium finance agreement.
Plaintiff requests that it be granted damages in the amount of $2,688,088.54
plus interest at a rate of 7.6% per annum on the note and, in the alternative,
$2,773,377.00 plus interest, together with the costs and disbursements of the
action, including attorneys fees, for breach of the finance agreement. Casinos
has answered the complaint and is awaiting discovery.
On January 26, 2000, Ceronix, Inc. filed a complaint against Technology in the
State Court of Gwinnett County, State of Georgia, Civil Action No. 00-C-06277-4,
alleging that Technology has failed to pay on an account. Plaintiff requests
that it be granted damages in the amount of $135,937 plus interest, attorneys
fees and costs of the action. Technology's answer to the Complaint is due to be
filed on March 1, 2000.
The Company has received letters and requests from several suppliers
relating to unpaid invoices of approximately $500,000. Leisure Time
is currently unable to pay these suppliers.
The following lawsuits and legal claims have had no material change in their
status since September 30, 1999:
o Civil Action File No. 1:98-CV-3033 alleging that Casinos and Technology had
breached an alleged oral employment agreement with James J. Oden, the former
Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer
and Secretary of Technology.
o Civil Action File No.: 3-98-1887-13 between Collins Entertainment Corp. and
Technology, including various counterclaims.
o Civil Action File No.: 98-A-97614 between Drews Distributing, Inc. and
Technology, including various counterclaims.
It is the Company's policy to vigorously defend litigation, however, The Company
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.
- 11 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Notes to Consolidated Condensed Financial Statements
(In Thousands, Except Share and Per Share Amounts)
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 $1,846, were $6,554. $434 of these expenses
had been paid prior to June 30, 1999, and were reflected as deferred initial
public offering costs.
In connection with the offering, Casinos 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.
- 12 -
<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: THE
RISK THAT THE COMPANY WILL NOT REALIZE A SUFFICIENT AMOUNT OF REVENUES TO PAY
ITS EXPENSES; THE RISK THAT CALIFORNIA WILL NOT LEGALIZE NATIVE AMERICAN GAMING
OR THAT THE COMPANY WILL NOT REALIZE SIGNIFICANT SALES IN CALIFORNIA; THE RISK
THAT THE COMPANY WILL NOT BE ABLE TO SATISFY THE DEMANDS OF ITS CREDITORS. 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.
- 13 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Leisure Time's 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.
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. 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. Leisure Time also owns the Biloxi Belle, a dockside gaming vessel
located on the Mississippi River that is in need of renovation. Leisure Time has
retained a broker to attempt to sell the Vegas Express, the Leisure Lady and the
Biloxi Belle and might not continue in the offshore gaming cruise business.
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.
Currently, Leisure Time's only gaming route operations are in South Carolina and
these operations will be discontinued on June 30, 2000.
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 is offering the hotel for sale.
- 14 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Six Months Ended
December 31, December 31,
------------------- ------------------
1998 1999 1998 1999
------- ------- ------- -------
Total revenue 100% 100% 100% 100%
Cost of goods sold 52 41 48 47
------- ------- ------- -------
Gross profit 48 59 52 53
Selling, general and
administrative expenses 31 191 31 77
Research and development costs 1 9 1 3
Stock based compensation 5 - 3 -
Interest expense, net 2 25 2 9
------- ------- ------- -------
Total operating expenses 39 225 37 89
------- ------- ------- -------
Income (loss) before income 9 (166) 15 (36)
taxes
Income tax (expense) benefit (3) 62 (6) 14
------- ------- ------- -------
Net income (loss) 6% (104)% 9% (22)%
======= ======= ======= =======
The following chart provides information as to material changes in Leisure
Time's statements of operations for the three months ended December 31, 1998 as
compared to the same period ended December 31, 1999:
Statements of Increase Percentage
Operations Item (Decrease) Change Reason for Change
- ------------------- ------------ ---------- -------------------------------
Manufacturing $(13.3) (92.1)% Decreased sales in South
revenue Million Carolina due to a South
Carolina Supreme court ruling
that determined that gaming
was illegal in South Carolina.
Offshore gaming $(.1) (8.9)% Decreased due to increased
cruise Million competition revenue from
another gaming vessel and the
discontinuation of service of
the Vegas Express on October
31, 1999.
- 15 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Statements of Increase Percentage
Operations Item (Decrease) Change Reason for Change
- ------------------- ------------ ---------- -------------------------------
Cost of $(7.2) (90.9)% Decreased sales in South
manufacturing revenue Million Carolina.
Cost of offshore $(.1) (52.7)% Decreased due to the
gaming cruise Million discontinuation of service
revenue of the Vegas Express on
October 31, 1999.
Selling, general and $(.4) (8.4)% Decreased due to the
administrative Million discontinuation of service
expenses of the Vegas Express on
October 31, 1999, the shutdown
of the Tulsa, Oklahoma and
Spartenburg, South Carolina
offices and the reorganization
of the Atlanta operations.
Research and $.1 37.0% Increased due to the design
development cost Million and development of new
products for release in
2000.
Interest expense, $.2 69.5% Increased borrowings
net Million principally related to
refinancing of the Leisure
Lady and acquisition of the
Biloxi Belle, Florida Casino
Cruises and Leisure Time
Financial.
Total operating $(.9) (14.3)%
expenses Million
Income taxes $(1.9) (392.0)% Decrease in income resulting
Million in a decrease in tax
expense.
Net income (loss) $(3.3)Million (384.7)%
- 16 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
The following chart provides information as to material changes in Leisure
Time's statements of operations for the six months ended December 31, 1998 as
compared to the same period ended December 31, 1999:
Statements of Increase Percentage
Operations Item (Decrease) Change Reason for Change
- ------------------- ------------ ---------- -------------------------------
Manufacturing $(16.0) (62.5)% Decreased sales in South
revenue Million Carolina due to a South
Carolina Supreme court ruling
that determined that gaming
was illegal in South Carolina.
Offshore gaming $(.1) (2.7)% Decreased due to increased
cruise Million competition revenue from
another gaming vessel and the
discontinuation of service of
the Vegas Express on October
31, 1999.
Cost of $(7.9) (58.7)% Decreased sales in South
manufacturing revenue Million Carolina.
Cost of offshore $0 (9.5)% Decreased due to the
gaming cruise Million discontinuation of service
revenue of the Vegas Express on
October 31, 1999.
Selling, general and $1.4 16.2% Increased due to additional
administrative Million administrative support for
expenses newly operational entities
consisting of Leisure Time
Hospitality, Leisure Time
Financial and Solutia Gaming
Research and $0 1.0% Significant costs in prior
development cost Million period related to the
development of location
controllers for the South
Carolina market while costs in
this period were due to the
design and development of new
products for release in 2000.
- 17 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Statements of Increase Percentage
Operations Item (Decrease) Change Reason for Change
- ------------------- ------------ ---------- -------------------------------
Interest expense, $.6 107.4% Increased borrowings
net Million principally related to
refinancing of the Leisure
Lady and acquisition of the
Biloxi Belle, Florida
Casino Cruises and Leisure
Time Financial
Total operating $1.3 12.2%
expenses Million
Income taxes $(3.4) (211.1)% Decrease in income resulting
Million in a decrease in tax expense
Net income (loss) $(5.8)Million (210.1)%
Below is a detailed description of the events which may effect the third quarter
results.
RECENT DEVELOPMENTS THAT WILL AFFECT RESULTS FOR THE FORESEEABLE FUTURE
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 become illegal 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 revenue and earnings in the third quarter and for the foreseeable future.
The sale of video poker machines in South Carolina accounted for approximately
75%, 39% and 31% of Leisure Time's revenue for the year ended June 30, 1999, the
three months ended September 30, 1999, and the three months ended December 31,
1999, respectively. The discontinuance of video poker machine sales in South
Carolina also will affect Leisure Time's ability to sell other related products
in South Carolina. A South Carolina Department of Revenue spokesperson has
stated that all existing video poker machines will not be required to be
connected to the state's central monitoring system by February 2, 2000 as
previously reported. As a result, the Company will not be able to sell its data
communication devices or connectivity chips in South Carolina. The connectivity
chip is a basic component of the Company's product and can be used in the normal
course of business. The Company is currently seeking new markets for the data
communication devices. If a market cannot be found for these devices, the
Company may have to write down or write off the value of this inventory, which
as of December 31, 1999 was approximately $1,500,000.
- 18 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS THAT WILL AFFECT THIRD QUARTER RESULTS (continued)
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 attempt to continue to sell
software to convert or upgrade games. Leisure Time has signed exclusive
distribution agreements with BestCo for Georgia and West Virginia and a
distributor agreement for North Carolina. Under the terms of the agreements,
BestCo Inc. will distribute Leisure Times redemption gaming machines, boards and
software. 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 ended June 30. Bestco has placed orders and paid for approximately
800 units of software. The contract is cancelable if certain minimum criteria
are not met.
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.
In November, 1999, Technology received a manufacturers license from the State of
Montana's Department of Justice Gambling Control Division. Accordingly,
Technology will be able to conduct business with licensed gambling operators,
licensed manufacturers, distributors and non-profit organizations throughout the
state.
In conjunction with the approval of the Montana license, Technology has entered
into a two-year distribution agreement with Summit Amusements and Distribution
LTD. Under the terms of the agreement, Summit Amusements has been appointed a
non-exclusive distributor for the sale of Technology's products in Montana.
Summit Amusements has agreed to initially purchase 100 Pot O' Gold machines,
upon approval of the machines by the state of Montana. Technology is also
submitting its new games for review and expects state approval in the near
future.
Also, 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, losses should be reduced dramatically for this
business segment as the vessel's related operating expenses virtually disappear.
Leisure Time has retained a broker to attempt to sell the vessel.
- 19 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS THAT WILL AFFECT THIRD QUARTER RESULTS (continued)
The loss of the South Carolina market has had a material adverse effect on
Leisure Time's revenue and earnings in the first and second quarters of fiscal
2000 and Leisure Time expects to feel the impact of the loss of this key market
for the foreseeable future. However, Leisure Time believes that the level of
operations in the second quarter was the lowest of the year and that sales
should begin to increase on a quarter over quarter basis for the remainder of
the year and into fiscal 2001. The third quarter should improve as Leisure Time
moves into new markets, begins the introduction of new products, and fulfills
orders to existing customers. The fourth quarter results should also improve if
sales begin in additional new markets. Leisure Time's third and fourth quarter
results are dependent on Leisure Time increasing revenues through increased
sales. If Leisure Time is unable to increase revenues, Leisure Time's third and
fourth quarters will result in significant loses and Leisure Time's ability to
be a going concern will be in doubt.
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 December 31, 1999, Leisure Time had working capital of
approximately $5.0 million. However, since December 31, 1999, Leisure Time has
experienced a significant shortfall in working capital as sales have continued
to decline.
The following information relates to Leisure Time's sources and uses of cash
during the six months ended December 31, 1999.
Leisure Time utilized $5.6 million of cash in operations related primarily to:
- a net loss of $3.0 million;
- $1.5 million of depreciation and amortization;
- a $1.1 million decrease in accounts receivable;
- a $.8 million net increase in direct financing leases;
- 20 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
- a $2.0 million decrease in accounts payable
- a $.6 million net decrease in accrued expenses and other; and
- a $1.8 million increase in deferred tax assets
Leisure Time utilized $2.3 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 $4.5 million in cash from financing
activities related primarily to:
- the receipt of net proceeds of approximately $6.8 million from
the issuance of common and preferred stock; and
- the net payout of approximately $2.3 million of short term and long term
debt.
Leisure Time believes its current liquidity requirement during the first quarter
of calendar year 2000 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 in default on two monthly payments in the amount of $254,000 on
the remaining balance of approximately $7,350,000 of a loan payable to Foothill
Capital relating to the offshore gaming vessels. The offshore gaming division
has suspended operations as of October 31, 1999 and is currently seeking a buyer
for the vessels. Leisure Time has decided to suspend future payments until a
buyer can be found and is currently working with Foothill Capital to restructure
the loan and is attempting to dispose of the vessels.
Leisure Time is currently in default on one monthly payment in the amount of
$37,256 on the remaining balance of approximately $1,367,000 of a loan payable
to GE Capital. Leisure Time has decided to suspend future payments until a buyer
can be found for the vessel securing the loan.
Leisure Time is currently in default on three monthly payments in the amount of
$924,000 on the remaining balance of approximately $2,700,000 of a loan payable
to AIG Insurance. AIG Insurance has filed a lawsuit against Leisure Time as a
result of the default. Leisure Time is currently negotiating with AIG to extend
the note and receive more favorable payment terms.
Cash generated from operations may not be sufficient to meet working capital
requirements for the third fiscal quarter of 2000. Therefore, additional debt or
equity financing may be required for Leisure Time to satisfy its short term
capital needs. If Leisure Time does not generate sufficient cash from operations
and if additional debt or equity financing cannot be obtained, Leisure Time may
not be able to continue as a going concern.
- 21 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Leisure Time's long term liquidity needs will consist primarily of working
capital to finance receivables and inventory. Future profits, if any, 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. 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 attempt to sell the Vegas Express and Leisure Time's
other gaming vessels, the Leisure Lady and Biloxi Bell.
- Leisure Time may attempt to sell the hotel, located in Cleveland, Ohio.
- Leisure Time has reorganized its Atlanta operations to focus on its core
businesses.
- Leisure Time is currently in default of three monthly payments in the
amount of $924,000 payable to AIG Insurance. AIG Insurance has filed a
lawsuit against Leisure Time as a result of the default. The Company is
currently negotiating with AIG to extend the note and receive more
favorable payment terms.
- Leisure Time has decided to suspend payments on the financing for its
offshore gaming vessels until a buyer can be found for the vessels. The
Company is currently working with one of the financing companies to
restructure one of the loans and is attempting to dispose of the
vessels.
- 22 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Leisure Time has signed exclusive distribution agreements with BestCo for
Georgia and West Virginia and a distributor agreement for North Carolina. Under
the terms of the agreements, BestCo Inc. will distribute Leisure Time's
redemption gaming machines, boards and software. 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 ended June 30. BestCo has placed
orders and paid for approximately 800 units of software or approximately
$960,000. The agreements are cancelable if certain minimum criteria are not met.
In November, 1999, Leisure Time Technology received a manufacturers license from
the State of Montana's Department of Justice Gambling Control Division.
Accordingly, Leisure Time Technology will be able to conduct business with
licensed gambling operators, licensed manufacturers, distributors and non-profit
organizations throughout the state.
In conjunction with the approval of the Montana license, Leisure Time Technology
has entered into a two-year distribution agreement with Summit Amusements and
Distribution LTD. Under the terms of the agreement, Summit Amusements has been
appointed a non-exclusive distributor for the sale of Leisure Time Technology
products in Montana. Summit Amusements has agreed to initially purchase 100 Pot
O' Gold machines, upon approval of the machines by the state of Montana. Leisure
Time Technology is also submitting its new games for review and expects state
approval in the near future.
Below is a more detailed description of Leisure Time's plan to develop new
markets and secure 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
- 23 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 constitutional
amendment is adopted and the compacts are signed, 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 minimum of 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.
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.
- 24 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
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.
YEAR 2000 COMPLIANCE
Leisure Time has not experienced any year 2000 system failures
resulting from internal or external sources. Leisure Time will
continue to monitor its system for any year 2000 failures. However,
Leisure Time does not expect any such failures.
- 25 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 15, 1999, the former holders of approximately $1,400,000 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.
On December 27, 1999 American International Specialty Lines Insurance Co. and
A.I. Credit Corp., filed a complaint against Casinos in the United States
District Court for the Southern District of New York, Civil Action No. 99
CV12369 alleging that Casinos defaulted on the payment of a note and breach of
contract by failing to pay in accordance with the premium finance agreement.
Plaintiff requests that it be granted damages in the amount of $2,688,088.54
plus interest at a rate of 7.6% per annum on the note and, in the alternative,
$2,773,377.00 plus interest, together with the costs and disbursements of the
action, including attorneys fees, for breach of the finance agreement. On
January 20, 2000, Casinos was granted leave to plead until February 15, 2000.
On January 26, 2000, Ceronix, Inc. filed a complaint against Technology, in the
State Court of Gwinnett County, State of Georgia, Civil Action No. 00-C-06277-4,
alleging that Technology has failed to pay on an account. Plaintiff requests
that it be granted damages in the amount of $135,937 plus interest, attorneys
fees and costs of the action. Technology's answer to the Complaint is due to be
filed on March 1, 2000.
Further, Leisure Time has received letters and requests from several suppliers
relating to unpaid invoices of approximately $500,000. Leisure Time is currently
unable to pay these suppliers.
The following lawsuits and legal claims have had no change in their status since
September 30, 1999:
o Civil Action File No. 1:98-CV-3033 alleging that Casinos and Technology had
breached an alleged oral employment agreement with James J. Oden, the former
Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer
and Secretary of Technology, Inc.
- 26 -
<PAGE>
PART II. OTHER INFORMATION
o Civil Action File No.: 3-98-1887-13 between Collins Entertainment Corp. and
Technology, including various counterclaims.
o Civil Action File No.: 98-A-97614 between Drews Distributing, Inc. and
Technology, including various counterclaims.
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.
- 27 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 six months ended December 31, 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.
Prior to September 15, 1999, Leisure Time had incurred an aggregate of
approximately $520,000 of expenses in connection with the offering.
Since September 15, 1999, Leisure Time has incurred an aggregate of
approximately $1,326,000 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 ($422,000). 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 $6,554,000. The net offering proceeds have been used for:
- approximately $5.6 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.
- 28 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (continued)
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 in default on two monthly payment in the amount of $254,000
on the remaining balance of approximately $7,350,000 of a loan payable to
Foothill Capital relating to the offshore gaming vessels. The offshore
gaming division has suspended operations as of October 31, 1999 and is
currently seeking a buyer for the vessels. Leisure Time has decided to
suspend future payments until a buyer can be found and is currently working
with Foothill Capital to restructure the loan and is attempting to dispose
of the vessels.
Leisure Time is currently in default on one monthly payment in the amount
of $37,256 on the remaining balance of approximately $1,367,000 of a loan
payable to GE Capital. Leisure Time has decided to suspend future payments
until a buyer can be found for the vessel securing this loan.
Leisure Time is currently in default of three monthly payments of $924,000
on the remaining balance of approximately $2,700,000 of a loan payable to
AIG Insurance. AIG Insurance has filed a lawsuit against Leisure Time as a
result of the default. Leisure Time is currently negotiating with AIG to
extend the note and receive more favorable payment terms.
(b) Not applicable.
ITEM 6. (a) EXHIBITS
(c) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K was filed on December 28, 1999, reporting
under Item 5 the sale of 523,759 shares of Convertible Series A Preferred
Stock by Casinos and related transactions. The documents pertaining to the
sale and related transactions were filed under Item 7.
- 29 -
<PAGE>
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: February 14, 2000
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ ALAN N. JOHNSON
----------------------------------------
Alan N. Johnson, President and
Chief Executive Officer
By: /s/ Elden Rance
----------------------------------------
Elden Rance, Executive Vice President
and Principal Financial Officer
- 30 -
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
27.1* Financial Data Schedule
- -----------
* Filed herewith
- 31 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 801,000
<SECURITIES> 0
<RECEIVABLES> 4,032,000
<ALLOWANCES> (156,000)
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<DEPRECIATION> (2,197,201)
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0
4,964,000
<COMMON> 6,000
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<INCOME-TAX> 1,787,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,015,000)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
