SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2002
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 001-12986
INTERLOTT TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 31-1297916
(State of Incorporation) (I.R.S. Employer
Identification No.)
7697 Innovation Way, Mason, Ohio 45040
(Address of principal executive offices, including zip code)
(513) 701-7000
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 14, 2002
---------------------------- ------------------------------
Common Stock, $.01 Par Value 6,462,669 shares
EXPLANATORY NOTE
This amendment is filed to correct a transposition error in the Condensed
Statements of Income. The original filing showed "Selling, general, and
administrative expenses" for the six months ended June 30 in the three-month
columns and vice versa. The error did not affect any of the other numbers
reported.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERLOTT TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
ASSETS JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Current assets:
Cash $ 375,068 $537,332
Accounts receivable, less allowance for doubtful accounts of $293,101
in 2002 and $203,101 in 2001 6,415,371 7,125,250
Investment in sales type leases, current portion 2,596,817 2,299,706
Inventories 9,216,030 10,628,290
Prepaid & refundable taxes -- 404,220
Deferred tax asset 60,641 182,350
Prepaid expenses 5,725 274,033
Total current assets ---------- ----------
18,669,652 21,451,181
Property and equipment:
Leased machines 34,970,192 33,759,213
Machinery and equipment 784,937 777,687
Building and improvements 689,409 689,409
Furniture and fixtures 178,719 179,182
---------- ----------
36,623,257 35,405,491
Less accumulated depreciation and amortization 19,928,795 16,784,029
---------- ----------
16,694,462 18,621,462
Other assets 578,669 578,386
Goodwill net of accumulated amortization of $166,581 in 2002 and 2001 4,572,655 4,572,655
Value of leases acquired net of accumulated amortization of $927,550 in 2002 and
$499,450 in 2001 3,353,455 3,781,555
Investment in sales type leases, less current portion 5,900,778 5,618,510
Product development rights, net of accumulated amortization of $843,328 in 2002
and $806,661 in 2001 256,672 293,339
----------- -----------
$50,026,343 $54,917,088
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions $19,380,129 $ 24,255,659
Current portion of notes payable - related parties -- 487,327
Accounts payable 1,792,912 2,249,874
Accounts payable - related party 171,695 317,505
Accrued expenses 2,089,804 1,463,175
---------- ----------
Total current liabilities 23,434,540 28,773,540
Subordinated term note 5,000,000 5,000,000
Deferred tax liability 326,164 568,950
---------- ----------
Total liabilities 28,760,704 34,342,490
Commitments and contingent liabilities:
Interest rate swap agreements 402,982 580,174
Notes payable - related parties 24,124 24,124
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 shares authorized, 6,458,650
shares issued and outstanding in 2002 and 6,441,498 shares issued
and outstanding in 2001 32,248 32,140
Additional paid-in capital 10,525,954 10,482,853
Accumulated comprehensive income (loss) (265,060) (382,915)
Retained earnings 10,545,391 9,838,222
---------- ----------
Total stockholders' equity 20,838,533 19,970,300
---------- ----------
$50,026,343 $54,917,088
=========== ===========
See accompanying notes to condensed financial statements.
2
INTERLOTT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
Revenues: 2002 2001 2002 2001
---- ---- ---- ----
Machine and parts sales $ 3,758,455 $ 9,590,951 $ 8,534,137 $ 12,189,027
Machine leases 4,797,544 4,683,473 9,455,263 8,986,777
Other 1,594,504 998,579 3,303,285 1,907,799
------------ ------------ ------------ ------------
10,150,503 15,273,003 21,292,685 23,083,603
Cost of revenues 7,238,783 10,891,802 15,174,344 16,352,643
------------ ------------ ------------ ------------
Gross profit 2,911,720 4,381,201 6,118,341 6,730,960
Operating expenses:
Selling, general, and
administrative expenses 1,688,606 1,584,572 3,297,765 3,117,502
Research and development costs 147,961 63,117 227,572 217,119
Amortization of goodwill 0 125,777 0 125,777
------------ ------------ ------------ ------------
Total operating expenses 1,836,567 1,773,466 3,525,337 3,460,398
------------ ------------ ------------ ------------
Operating income 1,075,153 2,607,735 2,593,004 3,270,562
Other income (expense):
Interest expense (586,578) (463,762) (1,260,305) (815,884)
Other (199,805) 9,842 (202,410) 16,524
------------ ------------ ------------ ------------
(786,383) (453,920) (1,462,715) (799,360)
------------ ------------ ------------ ------------
Income before income taxes 288,770 2,153,815 1,130,289 2,471,202
Income taxes 103,380 818,380 423,120 939,570
------------ ------------ ------------ ------------
Net income $ 185,390 $ 1,335,435 $ 707,169 $ 1,531,632
============ ============ ============ ============
Basic net income per share $ .03 $ .21 $ .11 $ .24
============ ============ ============ ============
Diluted net income per share $ .03 $ .20 $ .11 $ .23
============ ============ ============ ============
3
INTERLOTT TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Six months ended June 30,
-------------------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $707,169 $1,531,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 3,654,858 3,573,585
Principal portion of sales type lease received 1,202,927 847,399
Deferred income taxes (180,414) (81,267)
Gain on sale of equipment under sales type lease (836,805) (5,236)
Decrease (increase) in accounts receivable 709,879 (3,434,497)
Decrease in inventories net of leased equipment returned 1,456,998 1,045,898
Decrease in prepaid expenses 268,025 484,751
Decrease in prepaid & refundable taxes 404,220 --
(Increase) in deferred tax asset -- (217,368)
(Decrease) increase in accounts payable (456,962) 465,689
(Decrease) increase in accounts payable - related parties (145,810) 357,160
Increase in accrued expenses 523,350 93,762
Increase in income taxes payable 103,279 709,344
--------- ---------
Net cash provided by operating activities 7,410,714 5,370,852
--------- ---------
Cash flows from investing activities:
Cost of leased machines (2,246,543) (4,229,791)
Acquisition of business -- (13,411,679)
Purchases of property & equipment (6,787) (24,525)
--------- ---------
Net cash used in investing activities (2,253,330) (17,665,995)
--------- ---------
Cash flows from financing activities:
(Payment of) proceeds from notes payable - credit facility (4,875,530) 8,842,053
Proceeds from subordinated term note 0 5,000,000
Proceeds from exercise of stock options 43,209 6,250
Repayment of long-term debt (27,227) (50,425)
Payment of notes payable - related parties (460,100) (852,124)
--------- ---------
Net cash (used for) provided by financing activities (5,319,648) 12,945,754
--------- ---------
(Decrease) increase in cash (162,264) 650,611
Cash, at beginning of year 537,332 46,645
--------- ---------
Cash, at end of period $375,068 $697,256
========= =======
4
Supplemental Disclosures of Cash Flow Information:
Interest paid $1,141,567 $732,949
Income taxes paid 132,686 1,246,656
Net book value of capitalized leased ITVMs returned from field and
transferred to inventory 44,738 902,574
Interest swap liability 117,855 -
Business combination accounted for as a purchase
Accounts receivable 0 1,043,852
Inventory 0 3,422,053
Value of leases acquired 0 4,281,005
Goodwill 0 4,664,769
---------- -----------
$0 $13,411,679
========== ===========
See accompanying notes to condensed financial statements.
5
INTERLOTT TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
The accounting and reporting policies of Interlott Technologies, Inc.
conform to generally accepted accounting principles in the United States of
America. The financial statements for the three months and six months ended June
30, 2002 and 2001 are unaudited and do not include all information or footnotes
necessary for a complete presentation of financial condition, results of
operations and cash flows. The interim financial statements include all
adjustments, consisting only of normal recurring accruals, which in the opinion
of management are necessary for a fair presentation. The financial statements
should be read in conjunction with the financial statements and notes which
appear in the Company's 2001 Annual Report on Form 10-K. The results of
operations for the three months and six months ended June 30, 2002 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 2002.
2. INVENTORIES
Inventories at June 30, 2002 and December 31, 2001 consisted of the
following:
2002 2001
----------- -----------
Finished goods $ 2,202,812 $ 2,255,882
Work in process 256,329 531,355
Raw materials and supplies 6,756,889 7,841,053
----------- -----------
$ 9,216,030 $10,628,290
3. ACQUISITION
On June 1, 2001, Interlott Technologies, Inc. completed the acquisition
of the lottery assets of On-Point Technology Systems, Inc. of San Marcos,
California. Through the purchase, Interlott acquired all of the lottery assets
of On-Point, including patents, technology, accounts receivable, inventory,
service contracts and lease contracts with the New York, Illinois, Virginia and
Missouri state lotteries.
The purchase price included approximately $13 million paid at closing,
deferred payments of $9 million payable, subject to adjustment, over 5 years,
and an earn-out of up to $6 million based upon certain future revenues. In
addition, at the closing Interlott and On-Point entered into a separate
agreement to market a patented design for an on-line activated instant lottery
ticket.
Prior to the closing, to finance the cash payment paid at closing,
Interlott increased its existing credit facility with Fifth Third Bank,
Cincinnati, Ohio (which participated portions of the credit facility to
Huntington Bank and National Bank of Canada) from $25 million to $30 million,
and completed a mezzanine financing of junior debt in the form of a term note
due June 30, 2003 in the principal amount of $5 million with Fifth Third Bank.
The note bears interest at the rate of 9% per annum and the Company has paid and
must pay a success fee equal to 1% of the unpaid principal balance of the note
outstanding on the last day of the fiscal quarter for each of the four (4)
fiscal quarters ending on September 30, 2001, December 31, 2001, March 31,
6
2002, and June 30, 2002; and equal to 1.5% of the unpaid principal balance of
the note outstanding on the last day of the fiscal quarter for each of the four
(4) fiscal quarters ending on September 30, 2002, December 31, 2002, March 31,
2003, and June 30, 2003.
The acquisition has been accounted for by the purchase method. Revenues
reported during the quarter ending June 30, 2002 from lease and maintenance
contracts acquired were approximately $1.5 million.
4. GOODWILL
On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. The Company
adopted SFAS No. 141 on July 1, 2001. The change had no material effect on the
Company's financial position or results of operations.
SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment.
The Company adopted SFAS No. 142 on January 1, 2002, as required. As a
result, there was no amortization of goodwill relating to the On-Point
acquisition for the three or six months ended June 30, 2002. Goodwill
amortization for the three months ended June 30, 2001 was $54,427. At this time,
the Company believes that no impairment exists.
5. COMPREHENSIVE INCOME
Comprehensive income reflects the change in the estimated fair market
value of the Company's interest rate swap agreements. The estimated fair value
is based upon appropriate market information and projected interest rate changes
obtained from a reputable financial institution. Total comprehensive income for
the three and six months ended June 30, 2002 is summarized as follows:
Three Months Six Months
------------ ----------
Net income $185,390 $707,169
Other comprehensive income 2,670 117,855
-------- --------
Total comprehensive income $188,060 $825,024
======== ========
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERLOTT TECHNOLOGIES, INC.
(Registrant)
Date: August 30, 2002
/s/ Dennis W. Blazer
--------------------------------------------
Dennis W. Blazer
Chief Financial and Accounting Officer
8