UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 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 March 31, 2000:
Class Outstanding as of March 31, 2000
- -------------------------------- ---------------------------------
Common Stock, $.001 par value 5,902,018
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
Page No.
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
3 Consolidated Condensed Balance Sheets at June 30, 1999 and
March 31, 2000 (unaudited)
4 Consolidated Condensed Statements of Operations for the three months
ended March 31, 2000 (unaudited) and 1999 (unaudited)
5 Consolidated Condensed Statements of Operations for the nine months
ended March 31, 2000 (unaudited) and 1999 (unaudited)
6. Consolidated Condensed Statements of Cash Flows for the nine months
ended March 31, 2000 (unaudited) and 1999 (unaudited)
7. 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibits
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
-------- --------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents .................................. $ 2,636 $ 153
Trade accounts receivable, net ............................. 1,689 965
Receivable - other ......................................... 18 --
Current portion of net investment in direct financing leases 1 --
Inventories, net ........................................... 10,643 8,952
Prepaid expenses and other ................................. 905 3,273
Deferred tax asset - current ............................... 180 180
Income tax receivable ...................................... -- 2,524
Net assets of discontinued operations (Note 4) ............. 7,749 --
-------- --------
Total current assets ................................... 23,821 16,047
Property and equipment, net ................................... 2,859 2,974
Financial interest in collateral (Note 4) ..................... 7,423 7,291
Goodwill, net ................................................. 4,344 4,881
Non-compete agreement, net .................................... 3,758 3,400
Other assets, net ............................................. 1,084 1,565
Deposits ...................................................... 124 --
-------- --------
Total assets .................................................. $ 43,413 $ 36,158
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Line-of-credit ............................................. $ 960 $ 1,021
Current portion of long-term notes payable ................. 7,445 6,725
Current portion of capital leases .......................... 63 --
Current portion of other long-term liabilities ............. 466 400
Notes payable - related party .............................. -- 187
Accounts payable ........................................... 7,157 2,544
Accrued expenses ........................................... 1,915 1,833
Income taxes payable ....................................... 1,723 1,723
Net liabilities of discontinued operations (Note 4) ........ -- 2,098
-------- --------
Total current liabilities .............................. 19,729 16,531
Long-term liabilities
Long-term portion of notes payable ......................... 6,514 6,703
Long-term portion of capital leases ........................ 93 --
Deferred income taxes payable .............................. 386 386
Other long-term liabilities ................................ 4,156 3,519
-------- --------
Total long-term liabilities ............................ 11,149 10,608
Total liabilities ...................................... 30,878 27,139
-------- --------
Commitments and contingencies (Note 2)
Stockholders' equity (Note 3)
Preferred stock, no par value; 5,000,000
shares authorized; 523,759 shares
issued and outstanding at March 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,
5,902,018 shares issued and outstanding
at March 31, 2000 5 6
Additional paid-in capital ................................. 8,116 14,589
Common stock subscription .................................. (240) (240)
Retained earnings (deficit) ................................ 4,654 (10,300)
-------- --------
Total stockholders' equity ............................. 12,535 9,019
-------- --------
Total liabilities and stockholders' equity .................... $ 43,413 $ 36,158
======== ========
</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 Operations (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
Revenue ........................................................................ $ 15,410 $ 1,706
Cost of goods sold ............................................................. 8,368 1,368
----------- -----------
Gross profit ................................................................... 7,042 338
----------- -----------
Selling, general and administrative expenses ................................... 5,014 1,124
Inventory adjustment ........................................................... -- 1,425
Research and development costs ................................................. (217) 510
Interest expense, net .......................................................... 182 133
Other (income) expense ......................................................... (777) 880
----------- -----------
Total operating expenses .................................................. 4,202 4,072
----------- -----------
Income (loss) from continuing operations before income tax (expense)
benefit ....................................................................... 2,840 (3,734)
Income tax (expense) benefit ................................................... (1,051) 1,382
----------- -----------
Income (loss) from continuing operations ....................................... 1,789 (2,352)
----------- -----------
Loss from operations of discontinued operations (Note 4) ....................... (1,975) (1,569)
Loss on disposal of discontinued operations including provision of $2,098
for operating losses during phase out period (Note 4) -- (7,369)
----------- -----------
Loss from discontinued operations .............................................. (1,975) (8,938)
----------- -----------
Net loss ...................................................................... $ (186) $ (11,290)
=========== ===========
Income (loss) from continuing operations per common share - basic ............. $ .38 $ (.40)
=========== ===========
Loss from discontinued operations per common share - basic .................... $ (.42) $ (1.52)
=========== ===========
Loss per common share - basic ................................................. $ (.04) $ (1.91)
=========== ===========
Income (loss) from continuing operations from common share - diluted .......... $ .23 $ (.40)
=========== ===========
Loss from discontinued operations per common share - diluted .................. $ (.25) $ (1.52)
=========== ===========
Loss per common share - diluted ............................................... $ (.02) $ (1.91)
=========== ===========
Weighted average number of common shares outstanding - basic .................. 4,664,452 5,900,426
=========== ===========
Weighted average number of common shares outstanding - diluted ................ 7,944,699 5,900,426
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated condensed
financial statements.
- 4 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Consolidated Condensed Statements of Operations (Unaudited)
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
Revenue ........................................................................ $ 41,317 $ 11,503
Cost of goods sold ............................................................. 22,075 6,982
----------- -----------
Gross profit ................................................................... 19,242 4,521
----------- -----------
Selling, general and administrative expenses ................................... 9,436 8,366
Inventory adjustment ........................................................... -- 1,425
Research and development costs ................................................. 174 906
Interest expense, net .......................................................... 548 657
----------- -----------
Total operating expenses .................................................. 10,158 11,354
----------- -----------
Income (loss) from continuing operations before income tax (expense) benefit
9,084 (6,833)
Income tax (expense) benefit ................................................... (3,361) 2,524
----------- -----------
Income (loss) from continuing operations ....................................... 5,723 (4,309)
----------- -----------
Loss from operation of discontinued operations (Note 4) ....................... (2,486) (3,276)
Loss on disposal of discontinued operations including provision of $2,098
for operating losses during phase out period (Note 4) -- (7,369)
----------- -----------
Loss from discontinued operations .............................................. (2,486) (10,645)
----------- -----------
Net income (loss) ............................................................. $ 3,237 $ (14,954)
=========== ===========
Income (loss) from continuing operations per common share - basic ............. $ 1.23 $ (.75)
=========== ===========
Loss from discontinued operations per common share - basic .................... $ (.53) $ (1.86)
=========== ===========
Net income (loss) per common share - basic .................................... $ .69 $ (2.61)
=========== ===========
Income (loss) from continuing operations per common share - diluted ........... $ .74 $ (.75)
=========== ===========
Loss from discontinued operations per common share - diluted .................. $ (.32) $ (1.86)
=========== ===========
Net income (loss) per common share - diluted .................................. $ .42 $ (2.61)
=========== ===========
Weighted average number of common shares outstanding - basic .................. 4,663,648 5,730,306
=========== ===========
Weighted average number of common shares outstanding - diluted ................ 7,726,386 5,730,306
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ......................................... $ 3,237 $(14,954)
-------- --------
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities --
Inventory adjustment .................................. -- 1,425
Issuance of stock options ............................. 1,400 --
Assumption of guaranteed customer debt ................ -- 400
Deferred taxes ........................................ (502) --
Depreciation and amortization ......................... 1,294 1,517
Changes in certain assets and liabilities
Receivables ......................................... (753) 743
Inventories ......................................... (1,623) 266
Prepaids and other assets ........................... 57 (185)
Accounts payable .................................... 1,196 (97)
Accrued expenses .................................... (903) (19)
Income taxes payable ................................ 1,947 --
Income tax receivable ............................... -- (2,524)
Notes receivable .................................... 38 --
Net assets (liabilities) of discontinued
operations ......................................... (2,876) 9,847
-------- --------
(725) 11,373
-------- --------
Net cash provided by (used by) operating
activities ................................ 2,512 (3,581)
-------- --------
Cash flows from investing activities
Purchase of property and equipment ...................... (967) (1,632)
Other assets ............................................ 2,325 (660)
Deposits ................................................ 207 124
-------- --------
Net cash provided by (used by) investing
activities ................................ 1,565 (2,168)
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock and preferred, net 189 6,988
Preferred stock fees -- (175)
Line-of-credit, net ..................................... 4 61
Proceeds from long-term debt ............................ 2,937 1,489
Proceeds from note payable - related party .............. -- 187
Loan fees ............................................... (38) --
Payment on long-term debt ............................... (5,490) (5,128)
Payments on capital leases .............................. (27) (156)
-------- --------
Net cash (used by) provided by financing
activities ................................ (2,425) 3,266
-------- --------
Net increase (decrease) in cash ........................... 1,652 (2,483)
Cash and cash equivalents - beginning of period ........... 888 2,636
-------- --------
Cash and cash equivalents - end of period ................. $ 2,540 $ 153
======== ========
</TABLE>
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 nine month period ending March 31, 1999:
The Company acquired fixed assets by incurring capital lease obligations
in the amount of $107.
The Company converted $79 (unaudited) of debt to equity by issuing
capital stock to the debt holders.
Supplemental disclosure of cash flow information.
Cash paid for interest was approximately $841 (unaudited).
Cash paid for income taxes was $529 (unaudited).
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 nine month period ended March 31, 2000:
The Company converted $3,000 of accounts payable into a short-term note
payable. Also, the company converted $958 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.
Supplemental disclosure of cash flow information:
Cash paid for interest was approximately $520 (unaudited).
No cash was paid for income taxes during the period.
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 California, 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's application to become licensed to distribute
and manufacture gaming devices in Arizona has been denied. Technology plans to
appeal the decision.
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 from July 1998 until October 31, 1999, when it was
placed in drydock. In May 1999, Leisure Express Cruise, LLC, a Colorado limited
liability company, acquired Florida Casino Cruises, Inc., the corporation that
owns the Vegas Express. Cruises also owns the "Leisure Lady", another gaming
vessel that has not been placed in operation. Leisure Belle Cruise, LLC is a
Colorado limited liability company that owns a dockside gaming vessel that has
not been placed in operation. Leisure Lady Cruise, LLC is a Colorado limited
liability company and currently has no operations. Effective March 31, 2000, the
Company has decided to discontinue this business segment and is investigating
alternatives for disposing the net assets of this segment (Note 4).
Leisure Time Hospitality, Inc. is incorporated in Ohio and owns a hotel property
that was being redeveloped in the Cleveland metropolitan area. Effective March
31, 2000, the Company has decided to discontinue this business segment and is
investigating alternatives for disposing the net assets of this segment (Note
4).
Leisure Time Gaming, Inc. is incorporated in South Carolina and operates a
gaming route.
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. Effective March
31, 2000, the Company decided to discontinue this business segment and is
expected to cease operations during the next three to six months (Note 4). In
May 2000, the Company sold the stock of this business segment back to the
previous owner.
- 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)
Organization (continued)
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 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 March 31, 1999 and 2000 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 nine month periods ended March 31, 1999 and 2000
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 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 when 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.
- 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)
Revenue Recognition (continued)
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
and nine months ended March 31,1999 have been reclassified to be consistent with
the presentation used for the three and nine months ended March 31, 2000.
- 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
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 was 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 the 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 alleged 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 requested judgment against Casinos in an
unspecified amount including all costs and attorneys' fees. Casinos believed
that the conversion features of the 11% convertible promissory notes have
expired and filed an answer denying the claims. Casinos settled the lawsuit in
March 2000 by agreeing to issue 5,000 shares of Casino's unregistered common
stock for each $50,000 loaned by each former noteholder for a total of 115,000
shares. The 115,000 shares were issued in April 2000.
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. The trial
is scheduled for September 12, 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 requested 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 was filed on May 9, 2000. Ceronix was awarded a judgment in the
principal amount of $135,819 on May 9, 2000.
On February 25, 2000, The Property Company of America filed a complaint against
Solutia Gaming Systems in the District Court of Tulsa County, State of Oklahoma,
(Case No. CJ-000-0848), alleging Solutia Gaming of indebtedness and wrongful
possession of real property. Plaintiff requests that it be granted damages in
the amount of $10,559 plus late charges accruing at $10 per day from January 10,
2000. The complaint is pending while Solutia is attempting to settle.
On March 8, 2000, Hammond Electronics Inc. filed a complaint against Leisure
Time Technology, Inc. in the State Court of Gwinnett County, State of Georgia,
(Case No: 00-C-1602-2). Plaintiff requests that it be granted damages in the
amount of $116,640 and judgment for $155,427 principal, $4828 pre-judgment
interest to date, plus continuing pre-judgment interest and post-judgment
interest at a rate of 18% per annum.
- 11 -
<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 April 28, 2000, General Electric Capital Corporation filed a complaint
against the Biloxi Belle, her engines, tackle, etc., in rem, and Leisure Belle
Cruise, L.L.C. in personam in the U.S. District Court, Eastern District of
Louisiana (Civil Action No. 00-1287) alleging that Defendant's breached their
obligation under a loan with a principal balance of $1,382,825.
The Plaintiff requests that the Biloxi Belle, her rigging, tackle, apparel,
furniture, engines and all other necessaries thereunto appertaining and
belonging be condemned and sold to pay the demands and claims.
The Company has received demand letters and requests from several suppliers
relating to unpaid invoices of approximately $500,000.
The following lawsuits and legal claims have had no material change in their
status since December 31, 1999:
- - Civil Action 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.
- - Civil Action No.: 3-98-1887-13 between Collins Entertainment Corp. and
Technology, including various counterclaims. A mediation conference is
scheduled for June 9, 2000 and the trial is scheduled for June 19, 2000.
- - Civil Action No.: 98-A-9761-4 between Technology and Drews Distributing,
Inc.
- - Civil Action No.: 99-CP-401068 between Drews Distributing, Inc. and
Technology.
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.
Debt Guaranties
During March 2000, a customer defaulted on $400,000 of debt guaranteed by the
Company. The lender has notified the Company of its intent to collect from the
Company.
- 12 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Notes to Consolidated Condensed Financial Statements
(In Thousands, Except Share and Per Share Amounts)
Note 3 - Stockholders' Equity
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.
Preferred Stock Issuance
On December 10, 1999, the Company issued 523,759 shares of convertible Series A
preferred stock for forgiveness of indebtedness totaling $5,237,586. The shares
are entitled to a dividend of 6% per annum payable on a semi-annual basis
beginning June 10, 2000. The dividends are cumulative. Unpaid dividends
accumulate at a rate of 12% per annum until paid in full. Subject to prior
redemption, the shares are convertible into common stock at a conversion price
of $7.875 per share for a maximum of 1,173,867 shares of common stock. In the
event of liquidation or dissolution, the holders of these shares are entitled to
distributions prior and in preference to holders of common stock.
Other Equity Transactions
The Company issued 23,785 shares for cash during the second quarter. The Company
issued 6,404 shares from October 1, 1999 to March 31, 2000 upon the surrender of
warrants.
Note 4 - Discontinued Operations
In April 2000, the Company decided to discontinue its offshore gaming cruise,
financial and hospitality business segments. The segment is expected to
cease operations during the next three to six months. All offshore gaming cruise
operations have ceased and related locations have been closed. The renovations
on the hotel have ceased.
The Company intends to sell the net assets of the subsidiaries related to the
offshore gaming cruise segment and is actively seeking to do so. The stock of
the financing segment was sold on May 7, 2000 to a current stockholder and the
former owner. The Company intends to sell the hotel business segment to an
interested purchaser and is actively seeking to do so.
- 13 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Notes to Consolidated Condensed Financial Statements
(In Thousands, Except Share and Per Share Amounts)
Note 4 - Discontinued Operations
No proceeds have been received related to the discontinued assets as of March
31, 2000.
All employees with the aforementioned divisions have been, or will be terminated
or transferred to another division.
The results of operations of the segments are included in the statements of
operations and include the following:
Nine Months Ended
March 31,
--------------------
1999 2000
------- -------
Revenues ....................................... $ 3,738 $ 3,611
Total costs and expenses ....................... (6,224) (6,887)
------- -------
Loss from operations of discontinued operations $(2,486) $(3,276)
======= =======
The loss of the disposition of the segments has been accounted for as
discontinued operations and includes:
Loss on
Discontinued
Operations
----------
Estimated loss on disposal and carrying value
of net assets in excess of anticipated proceeds . $(5,271)
Estimated loss from operations of the discontinued
divisions for the period April 20, 2000 through
September 2000 .................................. (2,098)
-------
Total disposal costs .............................. (7,369)
-------
Loss on disposal of discontinued business ......... $(7,369)
=======
The components of the loss on disposal of the offshore gaming cruise, financing
and hospitality segments were based on reasonable estimates and assumptions that
management believes are adequate; however, actual amounts may differ from these
estimates.
The Company has guaranteed the outstanding debt from a financial institution
related to the vessels that operated in the offshore gaming cruise segment. The
Company continues to seek an interested buyer to acquire the assets and assume
the debt related to the offshore gaming cruise segment. As such, the Company has
not removed the indebtedness from the accompanying financial statements and has
recorded an asset of equal value to the debt titled financial interest in
collateral.
- 14 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
Notes to Consolidated Condensed Financial Statements
(In Thousands, Except Share and Per Share Amounts)
Note 4 - Discontinued Operations (continued)
The carrying value of net assets of discontinued operations at June 30, 1999 and
March 31, 2000 is based on estimated future cash flows associated with the
assets.
June 30, March 31,
1999 2000
-------- --------
Assets
Cash ......................................... $ 1,509 $ 144
Receivables .................................. 3,988 3,290
Machinery and equipment, net ................. 5,583 1,232
Other assets ................................. 1,682 434
-------- --------
Total assets ................................. $ 12,762 $ 5,100
======== ========
Liabilities
Notes payable ................................ $ (3,607) $ (3,315)
Accrued liabilities and other expenses ....... (1,406) (1,785)
Provision for losses on disposal of
discontinued operations ..................... -- (2,098)
-------- --------
Total liabilities ............................ $ (5,013) $ (7,198)
======== ========
Net assets (liabilities) of discontinued
operations .................................. $ 7,749 $ (2,098)
======== ========
- 15 -
<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 THE COMPANY WILL NOT REALIZE SIGNIFICANT SALES IN
CALIFORNIA, MONTANA OR OTHER JURISDICTIONS; 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.
- 16 -
<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. Effective March
31, 2000, the Company has decided to discontinue this business segment and is
investigating alternatives for disposing of the net assets of this segment.
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. Effective March 31, 2000, the Company has decided to discontinue this
business segment and is investigating alternatives for disposing of the net
assets of this segment.
- 17 -
<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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -------------------
1999 2000 1999 2000
------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue .............................. 100% 100% 100% 100%
Cost of goods sold ......................... 54 80 53 61
---- ---- ---- ----
Gross profit ............................... 46 20 47 39
Selling, general and administrative expenses
33 66 24 73
Inventory adjustment ....................... -- 83 -- 12
Research and development costs ............. (1) 30 -- 8
Other (income) expense ..................... (5) 52 -- --
Interest expense, net ...................... 1 8 1 6
---- ---- ---- ----
Total operating expenses .......... 28 239 25 99
---- ---- ---- ----
Income (loss) from continuing operations
before income tax (expense) benefit
18 (219) 22 (60)
Income tax (expense) benefit ............... (7) 81 (8) 22
---- ---- ---- ----
Income (loss) from continuing operations ... 11 (138) 14 (38)
Loss from discontinued operations .......... (13) (524) (6) (92)
---- ---- ---- ----
Net income (loss) .......................... (2)% (662)% 8% (130)%
==== ==== ==== ====
</TABLE>
- 18 -
<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 three months ended March 31, 1999 as
compared to the same period ended March 31, 2000:
<TABLE>
<CAPTION>
Increase
Statements of (Decrease) Percentage
Operations Item Millions Change Reason for Change
- ------------------------ --------------- ----------- ----------------------------
<S> <C> <C> <C>
Revenue $(13.7) (88.9)% Decreased sales in South
Carolina due to a South
Carolina Supreme court
ruling that determined
that gaming was illegal
in South Carolina.
Cost of goods sold $ (7.0) (83.6)% Decreased sales in South
Carolina.
Selling, general and
administrative expen $ (3.9) (77.6)% Decreased due to the
discontinuation of service
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.
Inventory adjustment $ 1.4 100 % Increase due to the write down
of inventory associated with
the South Carolina Supreme Court
ruling that determined that
gaming was illegal in South
Carolina.
Research and
development cost $ .7 335 % Increased due to the design and
development of new products for
release in 2000.
Interest expense, net $ (.05) 26.9 %
Total operating expenses $ (.1) (3.1)%
Income taxes $ (2.4) (231.5)% Decrease in income resulting in
a decrease in tax expense.
Net loss from continuing
operations $ 4.1 231.5 % Decrease due to write down of
obsolete inventory of $1.4 million,
guarantee of debt of $.4 million,
and decreased sales of $2.3 million
due to South Carolina ruling.
</TABLE>
- 19 -
<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 three months ended March 31, 1999 as
compared to the same period ended March 31, 2000:
<TABLE>
<CAPTION>
Increase
Statements of (Decrease) Percentage
Operations Item Millions Change Reason for Change
- ------------------------ --------------- ----------- ----------------------------
<S> <C> <C> <C>
Loss from discontinued
operations $7 352.6% Increased due to loss estimated
to be incurred related to the
disposal of the discontinued
entities
Net loss $11.1 5969.9%
</TABLE>
- 20 -
<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 nine months ended March 31, 1999 as
compared to the same period ended March 31, 2000:
<TABLE>
<CAPTION>
Increase
Statements of (Decrease) Percentage
Operations Item Millions Change Reason for Change
- ------------------------ --------------- ----------- ----------------------------
<S> <C> <C> <C>
Manufacturing revenue $(26.1) (63.2) Decreased sales in South Carolina
due to a South Carolina Supreme
court ruling that determined that
gaming was illegal in South Carolina.
Cost of manufacturing
revenue $(15.1) (68.4) Decreased sales in South Carolina.
Selling, general and
administrative expenses $(1.1) (11.3)% Decrease due to the discontinuation of
service of the Vegas Express on
October 31, 1999, the shut down of the
Tulsa, Oklahoma and Spartenburg, South
Carolina offices and the reorganization
of the Atlanta operations.
Inventory adjustment $ 1.4 100 % Increase due to the write down of
inventory associated with the South
Carolina Supreme Court ruling that
determined that gaming was illegal
in South Carolina.
Research and development cost $ .7 420.7 % Significant costs in prior 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
previously released or to be released in
2000.
</TABLE>
- 21 -
<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 nine months ended March 31, 1999 as
compared to the same period ended March 31, 2000:
<TABLE>
<CAPTION>
Increase
Statements of (Decrease) Percentage
Operations Item Millions Change Reason for Change
- ------------------------ --------------- ----------- ----------------------------
<S> <C> <C> <C>
Interest expense, net $ .1 19.9%
Total operating expenses $ 1.2 11.8%
Income taxes $ (5.9) 175.1% Decrease in income resulting
in a decrease in tax expense.
Net loss from continuing
operations $ 10 175.3% Decrease due to writedown of
obsolete inventory of $1.4
million, guarantee of debt
of $.4 million, and decreased
sales of $8.2 million due to
South Carolina ruling.
Loss from discontinued operations $ 8.2 328.2% Increased due to loss estimated
to be incurred related to the
disposal of the discontinued
entities.
Net loss $ 18.2 562%
</TABLE>
Below is a detailed description of the events which may effect the fourth
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 fourth quarter and for the foreseeable
future. The sale of video poker machines in South Carolina accounted for
approximately 75%, 39%, 31% and 27% of Leisure Time's revenue for the year ended
June 30, 1999 and the three months ended September 30, 1999, December 31, 1999
and March 31, 2000, 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.
- 22 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (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. Solutia 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 1,050 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 agreed to purchase 100 Pot O' Gold machines, upon approval of
the machines by the state of Montana, which occurred March 30, 2000. 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.
The Company intends to sell this segment and is actively seeking to do so.
- 23 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS THAT WILL AFFECT RESULTS FOR THE FORESEEABLE FUTURE
The loss of the South Carolina market has had a material adverse effect on
Leisure Time's revenue and earnings in the first, second and third 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 fourth quarter should improve as Leisure Time
moves into new markets, begins the introduction of new products, and fulfills
orders to existing customers. Leisure Time's fourth quarter results are
dependent on Leisure Time increasing revenues through increased sales. If
Leisure Time is unable to increase revenues, Leisure Time's fourth quarter 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 March 31, 2000, Leisure Time had negative working capital of
approximately $(.5) million.
The following information relates to Leisure Time's sources and uses of cash
during the nine months ended March 31, 2000.
Leisure Time utilized $3.6 million of cash in operations related primarily to:
- a net loss of $14.9 million;
- a $1.4 million decrease due to the inventory write down;
- $1.5 million of depreciation and amortization;
- a $.7 million decrease in accounts receivable;
- a $.2 million increase in prepaids and other assets;
- a $.1 million decrease in accounts payable
- a $.4 million net decrease in accrued expenses and other; and debt
guarantee
- a $2.5 million increase in income taxes receivable
- 24 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Leisure Time utilized $2.2 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 $3.3 million in cash from financing
activities related primarily to:
- the receipt of net proceeds of approximately $7 million from the
issuance of common and preferred stock; and
- the net payout of approximately $3.7 million of short term and long
term debt.
Leisure Time believes its current liquidity requirement during the fourth
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 five monthly payments approximating $635,000 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 four monthly payments approximating
$149,024 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. GE Capital has filed a lawsuit
as a result of the default.
Leisure Time is currently in default on six monthly payments approximating
$1,848,000 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 fourth 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.
- 25 -
<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
will have to scale back its long-term growth strategy.
In addition, Leisure Time is reviewing its non-core businesses and is attempting
to 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. Effective March
31, 2000, the Company has decided to discontinue offshore gaming operations
and is investigating alternatives for disposing of the net assets of the
offshore gaming operations.
- - Leisure Time is attempting 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 six monthly payments in the amount of
$1,848,000 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.
Solutia 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 1,050 units of software or approximately $1,259,000.
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.
- 26 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 agreed to purchase 100 Pot O' Gold
machines, upon approval of the machines by the state of Montana which occurred
on March 30, 2000. 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
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 where a number of
California-based Native American tribes currently conduct gaming in
California. A constitutional amendment was adopted by the voters in
California in March 2000. In May 2000, the constitutional amendment,
in conjunction with the compacts, legalized Native American gaming in
California when a list of compacts with Native American tribes was
published in the Federal Register. Leisure Time anticipates that it
can now 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. 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.
- 27 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
- - 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.
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.
- 28 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 was 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 the 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 alleged 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 requested judgment against Casinos in an
unspecified amount including all costs and attorneys' fees. Casinos believed
that the conversion features of the 11% convertible promissory notes have
expired and filed an answer denying the claims.
Casinos settled the lawsuit in March 2000 by agreeing to issue 5,000 shares of
Casino's unregistered common stock for each $50,000 loaned by each former
noteholder for a total of 115,000 shares. The 115,000 shares were issued in
April 2000.
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
plus interest at a rate of 7.6% per annum on the note and, in the alternative,
$2,773,377 plus interest, together with the costs and disbursements of the
action, including attorneys fees, for breach of the finance agreement. Casino
has filed an answer and has requested interrogatories and production of
documents. The trial is scheduled for September 12, 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 is attempting a
negotiated settlement. Ceronix was awarded a judgment in the principal amount
$135,819 on May 9, 2000.
On February 25, 2000, The Property Company of America filed a complaint against
Solutia Gaming Systems in the District Court of Tulsa County, State of Oklahoma,
(Case No. CJ-000-0848), alleging Solutia Gaming of indebtedness and wrongful
possession of real property. Plaintiff requests that it be granted damages in
the amount of $10,559 plus late charges accruing at $10 per day from January 10,
2000. The complaint is pending while Solutia is attempting to settle.
On March 8, 2000, Hammond Electronics Inc. filed a complaint against Leisure
Time Technology, Inc. in the State Court of Gwinnett County, State of Georgia,
(Case No: 00-C-1602-2). Plaintiff requests that it be granted damages in the
amount of $116,640 and judgment for $155,427 principal, $4828 pre-judgment
interest to date, plus continuing pre-judgment interest and post-judgment
interest at a rate of 18% per annum.
On April 28, 2000, General Electric Capital Corporation filed a complaint
against the Biloxi Belle, her engines, tackle, etc., in rem, and Leisure Belle
Cruise, L.L.C. in personam in the U.S. District Court, Eastern District of
Louisiana (Civil Action No. 00-1287) alleging that Defendant's breached their
obligation under a loan with a principal balance of $1,382,825.
The Plaintiff requests that the Biloxi Belle, her rigging, tackle, apparel,
furniture, engines and all other necessaries thereunto appertaining and
belonging be condemned and sold to pay the demands and claims.
- 29 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (continued)
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 material change in their
status since September 30, 1999:
- - Civil Action 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.
- - Civil Action No.: 3-98-1887-13 between Collins Entertainment Corp. and
Technology, including various counterclaims. A mediation conference is
scheduled for June 9, 2000 and the trial is scheduled for June 19, 2000.
- - Civil Action No.: 98-A-9761-4 between Technology and Drews Distributing, Inc.
- - Civil Action No.: 99-CP-401068 between Drews Distributing, Inc. and
Technology.
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.
- 30 -
<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 nine months ended March 31, 2000, 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.
Between October 1, 1999 and March 31, 2000, Leisure Time issued 6,404 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 an aggregate number of shares having fair
market values on the dates of exercise equal to the exercise prices of the
warrants. 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.
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 was entitled Norman J. Levin, Trustee of the Norman J. Levin
Trust et al. v. Leisure Time Casinos & Resorts, Inc. In January 1999, Leisure
Time paid in full the remaining balance of the 11% convertible promissory notes
after the 11% convertible promissory notes were accelerated as a result of a
default in payment by Leisure Time. The the 11% convertible promissory notes
were convertible into units consisting of 920,000 shares of Leisure Times'
common stock and warrants to purchase 920,000 shares of Leisure Time's common
stock at a price of $1.75 and 920,000 shares of Leisure Times' common stock at a
price equal to 120% of the offering price of an initial public offering by
Leisure Time. The complaint alleged that Leisure Time breached the terms of the
11% convertible promissory notes by failing to provide the holders with Leisure
Times' financial statements denying them the benefit of their bargain and
unjustly enriching Leisure Times' rights under the 11% convertible promissory
notes. The complaint requested judgment against Leisure Time in an unspecified
amount including all costs and attorneys' fees. Leisure Time believed that the
conversion features of the 11% convertible promissory notes had expired and
filed an answer denying the claims. Leisure Time settled the lawsuit in March
2000 by agreeing to issue 5,000 shares of Leisure Times' unregistered common
stock for each $50,000 loaned by each former noteholder for a total of 115,000
shares. The 115,000 shares were issued in April 2000. Leisure Time issued the
shares in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act and in reliance on Regulation D adopted under the
Securities Act. A Form D was filed. The noteholders had available to them all
material information concerning Leisure Time. The certificates evidencing the
common stock bear a restrictive legend under the Securities Act. No underwriter
was involved in the transaction.
- 31 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Leisure Time is in default on five monthly payments in the amount of
$635,000 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 three monthly payments in the
amount of $111,768 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. GE
Capital has filed a lawsuit as a result of the default.
Leisure Time is currently in default of six monthly payments of $1,848,000
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 5. OTHER INFORMATION
In November 1999, Technology received a manufacturers license from the State of
Montana's Department of Justice Gambling Control Division. In April 20, 2000,
Technology received approvals from the State of Montana to begin selling its
Pot-O-Gold multi-game machines in Montana. The approvals from the State of
Montana Department of Justice - Gambling Control Division enable Technology to
move forward with its two-year distribution agreement with Summit Amusements and
Distribution LTD. Under the agreement, Summit has been appointed a non-exclusive
distributor for the sale of Technology's products in Montana, including the
Pot-O-Gold machine which includes the Touch Easy Keno, Super Ball Keno and four
Poker games.
In December 1999, August Perez III and Per-Arne Skogstad jointed the Board of
Directors of Leisure Time and Leisure Time's Audit Committee and Compensation
Committee.
Mr. Perez was the Director of Perez Ernst Farnet, a nationally recognized, New
Orleans based architectural firm, from 1975 until his retirement in 2000. He is
a graduate of Tulane University and has a Design Certificate from Carnegie
Institute. Mr. Perez is also board certified with the National Council of
Architectural Registration Board.
- 33 -
<PAGE>
LEISURE TIME CASINOS & RESORTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 5. OTHER INFORMATION (continued)
Mr. Skogstad has been the Director General of the Civil Aviation Authority in
Norway since March 1999. From 1995 to 1999, he was Director General of the
Department of Civil Affairs of the Ministry of Justice and Policy of Norway. He
has also served as the Assistant Director General of the Department of Research
at the University of Oslo and was the Head of the Housing Department of the
Student's Welfare Organization of Rogaland. Mr. Skogstad has a Master of
Political Science from the Institute of Public Administration and Organization,
at the University of Bergen, Norway and is a graduate in Economy and
Administration from the State of Rogaland, Stravanger, Norway.
In March 2000, August Perez resigned from Leisure Time's Board of Directors.
Additionally, R. Thomas Klingel, President of Leisure Time's Solutia Gaming
Systems, Inc. subsidiary, resigned effective April 22, 2000.
In April 2000, Carl A. Williams was appointed to the Board of Directors to fill
the vacancy created by the resignation of August Perez, III. Carl A. Williams
also was appointed as a member of Leisure Time's Audit Committee and
Compensation Committee. Carl A. Williams is retired after 25 years as the owner
of a successful business in Cleveland, Ohio.
In May 2000, the Arizona Department of Gaming denied Leisure Time, Technology's
and various of their directors and officers applications to serve as a
manufacturer/supplier of gaming devices to Indian Tribes located with the state.
Leisure Time intends to appeal the Arizona Department of Gaming's denial. The
appeal will address the allegations brought forth by the Department and the
legitimacy thereof.
In May 2000, the Secretary of Interior published in the Federal Register a list
of approved Tribal-State compacts for the purpose of engaging in Class III
gaming activities on Indian lands in the state of California. This publication
now allows Leisure Time the opportunity to target and begin selling in this
market. In total, the list includes over 55 tribes located throughout the state.
Leisure Time has received initial orders for $1.5 million of goods and services
in the newly approved California market and has approvals of another
approximately $11.0 million outstanding in California.
ITEM 6. (a) EXHIBITS
Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
- 34 -
<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: May 15, 2000
LEISURE TIME CASINOS & RESORTS, INC.
By: /s/ Alan N. Johnson
-------------------
Alan N. Johnson, President and
Chief Executive Officer
By: /s/ Elden W. Rance
------------------
Elden W. Rance, Executive Vice
President and Principal
Financial Officer
- 35 -
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
27.1* Financial Data Schedule
- -----------
* Filed herewith
- 36 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 153,000
<SECURITIES> 0
<RECEIVABLES> 965,000
<ALLOWANCES> 390,000
<INVENTORY> 8,952,000
<CURRENT-ASSETS> 16,047,000
<PP&E> 2,974,000
<DEPRECIATION> 1,517,000
<TOTAL-ASSETS> 36,158,000
<CURRENT-LIABILITIES> 16,531,000
<BONDS> 0
0
4,964,000
<COMMON> 6,000
<OTHER-SE> 4,049,000
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 11,503,000
<TOTAL-REVENUES> 11,503,000
<CGS> 6,982,000
<TOTAL-COSTS> 6,982,000
<OTHER-EXPENSES> 10,697,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 657,000
<INCOME-PRETAX> (6,833,000)
<INCOME-TAX> 2,524,000
<INCOME-CONTINUING> (4,309,000)
<DISCONTINUED> (10,645,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,954,000)
<EPS-BASIC> (2.61)
<EPS-DILUTED> (2.61)
</TABLE>
