FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 No. 0-11551
eLOT, Inc.
(Exact name of registrant as specified in its charter)
Virginia 86-0449210
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Merritt 7 Corporate Park, Norwalk, Connecticut 06851
(Address of principal executive offices) (Zip Code)
(203) 840-8600
(Registrant's telephone number, including area code)
EXECUTONE Information Systems, Inc., 478 Wheelers Farms Road,
Milford, Connecticut 06460
(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
The number of shares outstanding of registrant's Common Stock,
$.01 par value per share, as of July 31, 2000 was 65,623,217.
<PAGE>
INDEX
eLOT, Inc.
Page#
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999. 3
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 2000 and 1999. 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
eLOT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except for share and per share amounts) June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,849 $ 1,060
Restricted Cash 4,122 ---
Accounts receivable 178 12
Prepaid expenses and other current assets 443 174
Net assets of discontinued operations 13,771 53,402
Total Current Assets 26,363 54,648
PROPERTY AND EQUIPMENT, net 3,953 2,480
INTANGIBLE ASSETS, net 4,122 ---
OTHER ASSETS 2,339 5,034
$ 36,777 $ 62,162
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 243 $ 19,818
Accounts payable 1,856 5,342
Accrued payroll and related costs 92 772
Accrued liabilities 4,347 3,808
Total Current Liabilities 6,538 29,740
LONG-TERM DEBT 13,265 13,660
Total Liabilities 19,803 43,400
STOCKHOLDERS' EQUITY:
Common stock: $.01 par value; 80,000,000 shares
authorized; 65,623,217 and 63,010,953 issued and
outstanding 656 630
Additional paid-in capital 89,140 81,054
Accumulated other comprehensive loss (518) (336)
Accumulated deficit (72,304) (62,586)
Total Stockholders' Equity 16,974 18,762
$ 36,777 $ 62,162
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
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eLOT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except for Three Months Ended Six Months Ended
per share amounts) June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $ 100 $ --- $ 250 $ ---
COSTS AND EXPENSES:
Prizes, content, advertising
and promotion 676 --- 1,295 ---
General and Administrative 2,720 1,026 4,322 1,809
Depreciation and Amortization 490 293 687 588
3,886 1,319 6,304 2,397
OPERATING LOSS (3,786) (1,319) (6,054) (2,397)
INTEREST EXPENSE (388) (723) (802) (1,476)
OTHER INCOME, NET 691 (162) 804 1,007
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,483) (2,204) (6,052) (2,866)
INCOME TAXES --- --- --- ---
LOSS FROM CONTINUING OPERATIONS (3,483) (2,204) (6,052) (2,866)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations (2,822) (2,063) (4,053) (4,432)
Gain (loss) on sale of
discontinued operations, (net
of tax provision of $15,924 for
the six months ended
June 30, 2000) (3,500) --- 387 ---
Income (loss) from discontinued
operations (6,322) (2,063) (3,666) (4,432)
NET INCOME (LOSS) $ (9,805) $ (4,267) $ (9,718) $ (7,298)
BASIC AND DILUTED LOSS PER SHARE:
Loss from continuing operations $ (0.05) $ (0.04) $ (0.09) $ (0.05)
Loss from discontinued operations (0.04) (0.03) (0.06) (0.08)
Loss on sale of discontinued
operations (0.06) --- ---- ---
NET INCOME (LOSS) PER SHARE $ (0.15) $ (0.07) $ (0.15) $ (0.13)
AVERAGE COMMON SHARES
OUTSTANDING: 64,805 59,512 64,212 54,520
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
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eLOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Six Months Ended
June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (6,052) $ (2,866)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 687 588
Accretion on Debentures 149 126
Gain on Claricom notes/warrants --- (1,161)
Changes in working capital items:
Accounts receivable (166) (224)
Accounts payable and accruals (3,626) (35)
Other working capital items, net (269) (865)
NET CASH PROVIDED (USED) BY
CONTINUING OPERATING ACTIVITIES (9,277) (4,437)
Cash flows used by discontinued operating activities (5,949) (6,737)
NET CASH USED BY OPERATING ACTIVITIES (15,226) (11,174)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,849) (364)
Proceeds From Sale of CT Business 44,300 ---
Restricted Cash-Proceeds From Sale of CT Business (4,122) ---
Proceeds from Claricom note/warrants --- 9,261
ESIP participants loan repayments 2,578 ---
Deferred NIL expenses --- (1,929)
Other, net (207) 824
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 40,700 7,792
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments/Borrowings under revolving
credit facility (19,617) 2,866
Repayments of other long-term debt (454) (67)
Repurchase of stock --- (1,340)
Proceeds from issuance of stock 1,386 530
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (18,685) 1,989
INC (DEC) IN CASH AND CASH EQUIVALENTS 6,789 (1,393)
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 1,060 1,482
CASH AND CASH EQUIVALENTS - END
OF PERIOD $ 7,849 $ 89
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
5
<PAGE>
eLOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - NATURE OF THE BUSINESS AND FORMATION OF THE COMPANY
eLOT, Inc. (the "Company" or "eLOT"), formerly known as Executone
Information Systems, Inc., is committed to leading the
governmental lottery industry into the e-commerce market. The
Company has developed, installed and operated systems that have
processed ten million e-commerce lottery ticket sales and
transactions. It has operated Internet, Intranet, telephone,
communications, accounting, banking, database and other
applications and services that can facilitate the electronic sale
of new and existing lottery products worldwide. The Company has
also developed transitional e-commerce solutions for governmental
lotteries, which leverage the power of the Internet, while
political, legal and social issues surrounding the sales of
lottery tickets over the Internet are simultaneously addressed.
The Company operates a reward-entertainment lottery portal,
eLotteryFreeWay offers lottery and entertainment games (for no
consideration) with registered players earning ePoints that are
redeemable for cash and merchandise credit. eLotteryFreeWay's
mission is to build an Internet community whose members are
expected to be highly predisposed to purchase governmental
lottery tickets over the Internet.
eLOT recently acquired FreeLotto.com's governmental lottery
information web site, www.LottoNet.com, which will soon be re-
branded and re-launched as eLottoNet.com. eLottoNet.com offers a
free daily lottery email notification service (LENS) of state
lottery results and other information and services via email.
On January 4, 2000, the Company changed its name from Executone
Information Systems, Inc. to eLOT, Inc. to recognize the change
in the Company's core business focus to the governmental lottery
industry.
As discussed more thoroughly in Note D, the Company's Computer
Telephony and Healthcare communications businesses, along with
certain other assets and liabilities are presented as
discontinued operations in the accompanying consolidated
financial statements.
The condensed interim financial statements included herein have
been prepared by eLOT, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and
reflect all adjustments which are of a normal recurring nature
and which, in the opinion of management, are necessary for a fair
statement of the results for interim periods. Certain information
and footnote disclosures have been condensed or omitted pursuant
to such rules and regulations. Although eLOT, Inc. believes that
the disclosures are adequate to make the information presented
not misleading, it is suggested that these condensed financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual
report to stockholders.
NOTE B - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. In consolidating
the accompanying financial statements, all significant
intercompany transactions have been eliminated. Investments in
affiliated companies owned more than 20%, but not in excess of
50%, are recorded under the equity method.
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<PAGE>
The preparation of 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, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE C - EARNINGS PER SHARE
Earnings per share is based on the weighted average number of
shares of common stock outstanding during the periods. Common
stock equivalents and the convertible debentures which are
antidilutive based upon losses from continuing operations have
been excluded from the computations in both periods.
A reconciliation of the Company's loss per share calculations for
the three-month and six-month periods ended June 30, 2000 and
1999, respectively, is as follows:
<TABLE>
<CAPTION>
Loss from
(in thousands, except for per share amounts) Continuing Per Share
Operations Shares Amount
<S> <C> <C> <C>
For the three months ended June 30, 2000:
Basic and Diluted Loss Per Share: $ (3,483) 64,805 $ (0.05)
For the three months ended June 30, 1999:
Basic and Diluted Loss Per Share: $ (2,204) 59,512 $ (0.04)
For the six months ended June 30, 2000:
Basic and Diluted Loss Per Share: $ (6,052) 64,212 $ (0.09)
For the six months ended June 30, 1999:
Basic and Diluted Loss Per Share: $ (2,866) 54,520 $ (0.05)
</TABLE>
NOTE D - DISCONTINUED OPERATIONS
On March 29, 1999, the Company announced that it would divest its
Telephony and Healthcare businesses. By divesting the core
Telephony and Healthcare businesses, the Company plans to focus
its resources on its Internet subsidiary, eLottery, Inc.
Accordingly, the Company pursued the sales of these businesses
since the announcement while continuing to execute each
division's respective business development plans. During the
fourth quarter of 1999, the Company finalized the plan of
disposal for these businesses, and accordingly, started
accounting for the businesses as discontinued operations.
On January 1, 2000, the Company completed the sale of its
Computer Telephony division to Inter-Tel, Incorporated for $44.3
million in cash plus the assumption of certain liabilities. The
$44.3 million in proceeds includes $4.0 million being held in
escrow, which is reflected as restricted cash in the accompanying
balance sheet. These funds were to be released to the Company in
two parts, $2.0 million in July 2000 and the remainder in January
2001, subject to potential indemnity claims by Inter-Tel. The
Company and Inter-Tel are discussing potential indemnity and
other claims and approximately $1.4 million of the escrowed funds
to be released in July are being held pending final negotiation
and determination of amounts due, if any. The Company does not
anticipate incurring any material liability
7
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or reduction of purchase price as a result of these claims. A
portion of the proceeds was used to repay all of the Company's
outstanding revolving debt ($19.6 million) in January 2000. The
sales proceeds are subject to adjustment to be determined in
2000.
On July 21, 2000, the Company completed the sale of its
Healthcare Communications division to Grinnell Corporation for
$5.0 million in cash, with the potential for an additional $1.0
million to be paid in 90 days subject to adjustments for the
change in the net assets of the business between May 31, 2000 and
the closing date, and the assumption of certain liabilities.
eLOT is also continuing to pursue the sale of all or part of its
investment in Dialogic Communications Corporation (DCC), a
private company, based in Franklin, Tennessee, that develops and
markets interactive call processing solutions for business,
industry and government. In the meantime, the business continues
to execute its plans for further business development.
Summarized financial information for the discontinued operations
is as follows (000):
<TABLE>
<CAPTION>
For the three months ended June 30, 2000 1999
<S> <C> <C>
Revenues $ 7,994 $ 32,201
Loss from Discontinued Operations (2,822) (2,063)
Loss on sale of discontinued operations,
Net of Taxes (3,500) ---
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30, 2000 1999
<S> <C> <C>
Revenues $ 16,747 $ 63,950
Loss from Discontinued Operations (4,053) (4,432)
Gain on sale of discontinued operations,
Net of Taxes 387 ---
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 2000 and December 31, 1999 2000 1999
<S> <C> <C>
Current Assets $ 17,646 $ 57,981
Total Assets 30,500 92,706
Current Liabilities 16,729 36,784
Total Liabilities 16,729 39,304
Net Assets 13,771 53,402
</TABLE>
In summary, the Company recorded an after-tax gain of $0.4
million related to the sale of discontinued operations in 2000.
This gain represents an after-tax gain of $14.9 million (net of a
tax provision of $9.9 million) on the sale of the Computer
Telephony division, a $8.5 million reserve related to the sale of
the Healthcare Communications division ($5 million in the first
quarter and $3.5 million in the second quarter) and a $6 million
valuation allowance against deferred tax assets that the Company
estimates will not be realizable when all of the discontinued
operations are sold.
8
<PAGE>
During 1995, the Company acquired 47% of the common stock and
certain other assets of Dialogic Communications Corporation
(DCC), a vendor of certain telephony products, in exchange for
353,118 shares of the Company's common stock and $100,000 cash.
In January 2000, the Company acquired an additional 254,686
shares of DCC in exchange for 254,686 eLOT shares from an entity
controlled by a director of the Company. The Company believes it
now has a 51% interest in DCC. The purpose of the acquisition of
these shares was to maximize eLOT's proceeds upon sale of its
ownership in DCC.
NOTE E - eLOTTONET
On May 31, 2000, the Company entered into a long-term strategic
partnership agreement with PlasmaNet, Inc., a leading online
database marketing company providing targeted advertising and
marketing services. PlasmaNet owns and operates FreeLotto.com.
The Company acquired PlasmaNet's lottery results web site, which
will be held in a newly formed subsidiary, eLOTTONET. The
agreement calls for the Company to obtain branded links on the
FreeLotto home page, which will seamlessly connect to the
LottoNet.com site and the Company's reward-entertainment lottery
portal. In addition, the Company will have the exclusive right
to market products and services related to the pay-to-play
lottery business to FreeLotto.com's user base.
The Company issued 1.6 million common shares valued at $4.3
million to PlasmaNet as consideration for the site and as payment
for the first tranche of registered customer referrals. The
acquisition has been accounted for under the purchase method and
the results of operations of this business are included in the
Company's financial statements. The purchase price has been
allocated to intangible assets and is being amortized over the
estimated economic life of two years. The agreement calls for
additional consideration contingent upon success in reaching
specified registered customer referral milestones.
NOTE F - OTHER MATTERS
For the six-month periods ended June 30, 2000 and 1999,
respectively, the Company made cash payments of approximately
$730,000 and $1.2 million for interest expense on indebtedness.
For the six-month periods ended June 30, 2000 and 1999
respectively, the company made cash payments for income taxes of
approximately $33,000 and $55,000.
The market value of the Company's investment in Virtgame.com
declined subsequent to March 31, 2000. The amount of such
decline was $182,000 as of June 30, 2000 and such amount is
included in the accumulated other comprehensive loss.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis explains trends in the
Company's financial condition as of
June 30, 2000 and results of operations for the three month and
six month periods ended June 30, 2000 and 1999. It is intended
to help shareholders and other readers understand the dynamics of
the Company's business and the key factors underlying its
financial results. This discussion should be read in conjunction
with the consolidated financial statements and notes included
elsewhere in this Form 10-Q, and with the Company's audited
consolidated financial statements and notes thereto for the year
ended December 31, 1999 included in Form 10-K. Management
believes that certain statements in this discussion and analysis
constitute forward-looking statements within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Such
statements are based on current expectations, estimates and
projections about the industries in which the Company operates,
management's beliefs and assumptions made by management. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry
results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-
looking statements. Such risks, uncertainties and assumptions
include, among others, the following: general economic and
business conditions; demographic changes; rapid technology
development and changes; timing of product introductions; the mix
of products/services; industry capacity and other industry
trends; and the ability of the Company to attract and retain key
employees.
OVERVIEW
eLOT, Inc., (formerly Executone Information Systems, Inc.)
through its subsidiary eLottery, Inc., is committed to leading
the governmental lottery industry into the e-commerce market. The
Company has developed, installed and operated systems that have
processed ten million e-commerce lottery ticket sales and
transactions. The Company has operated Internet, Intranet,
telephone, communications, accounting, banking, database and
other applications and services that can facilitate the
electronic sale of new and existing lottery products worldwide.
The Company has also developed transitional e-commerce solutions
for governmental lotteries, which leverage the power of the
Internet.
eLottery also operates a reward-entertainment lottery portal,
eLotteryFreeWay, which offers lottery and entertainment games
(for no consideration) with registered players earning "e-points"
that are redeemable for cash and merchandise. eLotteryFreeWay's
mission is to build an Internet community whose members are
expected to be highly predisposed to purchase governmental
lottery tickets over the Internet.
eLOT recently acquired FreeLotto.com's governmental lottery
information web site, www.LottoNet.com, which will soon be re-
branded and re-launched as eLottoNet.com. eLottoNet.com offers a
free daily lottery email notification service (LENS) of state
lottery results and other information and services via email.
Discontinued Operations
In March 1999, eLOT announced its intention to divest its
Computer Telephony and Healthcare Communications divisions in
order to focus on the electronic lottery business conducted by
eLottery. On January 1, 2000, the Company sold the Computer
Telephony business to Inter-Tel for $44.3 million in
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cash. On July 21, 2000, the Company completed the sale of its
Healthcare Communications division to
Grinnell Corporation for $5.0 million in cash, with the potential
for an additional $1.0 million to be paid in 90 days subject to
adjustments for the change in the net assets of the business
between May 31, 2000 and the closing date, and the assumption of
certain liabilities. The Company continues to pursue the sale of
all or part of its investment in DCC. As a result of the Company
finalizing the plan of disposal for these businesses and
investment in the fourth quarter of 1999, the businesses and
investment have been reflected in accompanying consolidated
financial statements and discussion and analysis as discontinued
operations.
THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2000 COMPARED
WITH THE SAME PERIODS LAST YEAR.
RESULTS OF OPERATIONS
REVENUES: During the fourth quarter of 1999, the Company's
eLottery subsidiary began generating advertising revenues through
its lottery portal web site at www.eLotteryFreeWay.com launched
on November 9, 1999. Revenues for the three and six month
periods ended June 30, 2000 were $100,000 and $250,000,
respectively.
PRIZES, CONTENT, ADVERTISING AND PROMOTION: Prizes, content,
advertising and promotions for the three and six month periods
ended June 30, 2000 were $676,000 and $1.3 million, respectively.
These expenses include "ePoints" earned by registered players on
the eLotteryfreeway entertainment site, cost of editorial content
and advertising and special promotional programs designed to
acquire new registered players and reward our existing player
base.
GENERAL & ADMINISTRATIVE: General & Administrative expenses were
$2.7 million for the second quarter, up from $1.0 million for the
comparable period in 1999. Year-to-date, General &
Administrative expenses for 2000 were $4.3 million, up from $1.8
million for 1999. In addition to General & Administrative
expenses for the Company's eLottery subsidiary, the results also
include eLOT corporate expenses. The increase in General &
Administrative expenses is attributable to the continued
development of the eLottery business plan including expanding the
Company's eLotteryFreeWay portal web site, costs incurred
preparing for the launch of the Company's Jamaica and UK Lottery
contracts to sell Lottery tickets over the internet,
implementation of the IMARCS software product in Idaho, increased
Lobbying efforts related to proposed U.S. government legislation
regarding our business, and increased personnel, legal and
occupancy costs.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization
expense for the three and six month periods ended June 30, 2000
was approximately $490,000 and $687,000, respectively, up from
$293,000 and $588,000, respectively, for the comparable 1999
periods.
INTEREST EXPENSE: Interest expense for the three and six month
periods ended June 30, 2000 was $388,000 and $802,000,
respectively, as compared to $723,000 and $1.5 million,
respectively, in 1999. The decrease is due to lower levels of
bank borrowings in 2000 due to the repayment of the credit
facility on January 3, 2000.
OTHER INCOME, NET: Other income, net, for the three month period
ended June 30, 2000 was $691,000 as compared to ($162,000) for
the comparable 1999 period. The increase over 1999 was primarily
due to a nonrecurring $473,000 gain from the return of escrowed
funds from the sale of the
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Company's investment in Claricom and interest income
earned from the investment of corporate funds. Other income,
net, year-to-date was $804,000 for 2000 as compared to $1.0
million in 1999. The decrease was primarily due to a
nonrecurring $1.2 million gain in 1999 on the receipt of payment
from Claricom on a $5.9 million junior subordinated note plus
interest, along with the redemption of the warrants held by the
Company, both of which were part of the consideration received in
the 1996 sale of the direct sales organization.
DISCONTINUED OPERATIONS: Revenues from discontinued operations
for the three and six month periods ended June 30, 2000 were $8.0
million and $16.8 million, respectively, compared to $32.2
million and $63.9 million, respectively, in 1999. The decrease
in revenue is due entirely to the sale of the Computer Telephony
business in January 2000. The loss from discontinued operations
for the three- and six-month periods ended June 30, 2000 was $2.8
million and $4.1 million, respectively, versus $2.1 million and
$4.4 million, respectively, for 1999.
The Company recorded an after-tax gain for the six months ended
June 3, 2000 of $0.4 million related to the sale of discontinued
operations in 2000. This gain represents an after-tax gain of
$14.9 million (net of a tax provision of $9.9 million) on the
sale of the Computer Telephony division, a $8.5 million reserve
related to the sale of the Healthcare Communications division and
a $6 million valuation allowance against deferred tax assets that
the Company estimates will not be realizable when all of the
discontinued operations are sold.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the Company entered into a credit facility with Fleet
Capital Corporation. The credit facility provided a maximum
overall credit line of $30 million consisting of a revolving line
of credit for direct borrowings, along with standby and trade
letters of credit. The credit facility was secured by
substantially all of the Company's assets and had a five-year
term. Upon the sale of the Computer Telephony business on
January 1, 2000, the outstanding balance of $19.6 million under
this credit facility was repaid and the facility was terminated.
After paying down this facility, the Company had approximately
$19 million in cash and cash equivalents, $4.0 million of which
is restricted in an escrow account. These funds were to be
released to the Company in two parts, $2.0 million in July 2000
and the remainder in January 2001, subject to potential indemnity
claims by Inter-Tel. The Company and Inter-Tel are discussing
potential indemnity and other claims and approximately $1.4
million of the escrowed funds to be released in July are being
held pending final negotiation and determination of amounts due,
if any. The Company does not anticipate incurring any material
liability or reduction of purchase price as a result of these
claims.
The Company expects that the current cash and cash equivalents on
hand plus the proceeds to be received upon the dispositions of
the Healthcare business and investment in DCC will provide
sufficient cash and liquidity to finance the investment in the
eLottery business through 2001.
At June 30, 2000, cash and cash equivalents amounted to $12.0
million, including restricted cash of $4.1 million.
Cash used by continuing operating activities was $15.2 million in
the first six months of 2000, $4.1 million more than in 1999.
Cash used by discontinued operating activities in the first six
months of 2000 was $5.9 million versus $6.7 million for the same
period in 1999.
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Cash provided by investing activities was approximately $40.7
million in the first six months of 2000, primarily due to the
proceeds received from the sale of the Computer Telephony
business of $44.3 million and the repayment by certain key
management of the ESIP loans for $2.6 million, offset partially
by restricted cash from the proceeds received from the sale of
the Computer Telephony business of $4.1 million and the purchase
of property and equipment. Cash provided by investing activities
totaled $7.8 million for the comparable 1999 period.
The Company used $18.7 million in cash from financing activities
during the first six months of 2000. The primary use of cash was
the repayment of the outstanding balance under the credit
facility and other long term debt of $20.1 million, offset
partially by proceeds from the exercise of stock options. During
the first six months of 1999, the Company generated $2.0 million
from its financing activities, primarily by increased borrowings
of $2.9 million and proceeds from the exercise of stock options
of $0.5 million and used $1.3 million to repurchase 420,000
shares of the Company's common stock.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11 - Statement Regarding Computation of Per
Share Earnings (see Note C of Notes to
Consolidated Financial Statements in Part I,
Item 1).
b) Reports on Form 8-K
Not applicable.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report for the
quarterly period ended June 30, 2000 on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
eLOT, Inc.
Dated: August 11, 2000 /s/ Edwin J. McGuinn
Edwin J. McGuinn
President and Chief Executive Officer
Dated: August 11, 2000 /s/ David J. Parcells
David J. Parcells
Vice President Finance and Chief Financial Officer
15
