SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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 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) 792-7000
(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 May 12, 2000
Common Stock, $.01 Par Value 3,210,000 shares
<PAGE>
INTERLOTT TECHNOLOGIES, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2000
Table of Contents
Item Page
Number PART I. FINANCIAL INFORMATION Number
1 Financial Statements:
Condensed Balance Sheets as of March 31, 2000
and December 31, 1999 3
Condensed Statements of Income for the three
months ended March 31, 2000 and 1999 4
Condensed Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 5
Notes to Condensed Financial Statements 6
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
3 Quantitative and Qualitative Disclosures About 9
Market Risk
PART II. OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
ASSETS
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 127,960 $ 132,501
Accounts receivable, less allowance for doubtful accounts of $ 170,872
in 2000 and $158,793 in 1999 4,818,358 3,305,486
Investment in sales type leases, current portion 1,269,779 1,251,144
Inventories 5,810,442 5,214,106
Prepaid expenses 140,892 267,838
---------- ----------
Total current assets 12,167,431 10,171,075
Property and equipment:
Leased machines 37,468,115 35,244,923
Machinery and equipment 622,297 610,968
Building and improvements 204,737 202,441
Furniture and fixtures 60,237 60,237
---------- ----------
38,355,386 36,118,569
Less accumulated depreciation and amortization 14,382,876 14,301,656
---------- ----------
23,972,510 21,816,913
Investment in sales type leases, less current portion 3,592,288 3,775,876
Product developement rights, net of accumulated amortization of
$678,330 in 2000 and $659,997 in 1999 421,670 440,003
---------- ----------
$40,153,899 $36,203,867
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $17,809,590 $16,005,029
Current portion of notes payable - related parties - 286,698
Accounts payable 3,040,023 1,781,884
Accounts payable - related party 370,979 179,469
Accrued expenses 1,428,868 1,358,253
Income taxes payable 248,348 -
---------- ----------
Total current liabilities 22,897,808 19,611,333
Notes payable - related parties 79,000 -
Deferred tax liability 558,533 570,700
---------- ----------
Total liabilities 23,535,341 20,182,033
Series A preferred stock, $.01 par value, 20,000,000 shares authorized,
1,335,000 shares issues and outstanding in 2000 and 1999 1,335,000 1,335,000
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 shares authorized,
3,210,000 shares issued and outstanding in 2000 and 1999 32,100 32,100
Additional paid-in capital 10,376,017 10,376,017
Retained earnings 4,875,441 4,278,717
---------- ----------
Total stockholders' equity 15,283,558 14,686,834
---------- ----------
$40,153,899 $36,203,867
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Statements of Income
Three Months ended March 31, 2000 and 1999
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Machine and parts sales $2,622,015 $ 369,682
Machine leases 4,445,935 4,068,857
Other 589,840 521,578
--------- ---------
7,657,790 4,960,117
Cost of revenues 5,031,513 3,199,109
--------- ---------
Gross profit 2,626,277 1,761,008
Operating expenses:
Selling, general and administrative expenses 1,125,000 975,101
Research and development costs 150,948 124,696
--------- ---------
Total operating expenses 1,275,948 1,099,797
--------- ---------
Operating income 1,350,329 661,211
Other income (expense):
Interest expense (380,424) (230,240)
Other income (expense (6,852) 625,000
--------- ---------
(387,276) 394,760
--------- ---------
Income before income taxes 963,053 1,055,971
Income taxes 366,330 401,610
--------- ---------
Net income $ 596,723 $ 654,361
========= =========
Basic and diluted net income per share $.19 $.20
=== ===
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Three Months ended March 31, 2000 and 1999
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 596,723 $ 654,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (12,168) (80,945)
Depreciation and amortization 1,555,287 1,295,784
Principal portion of sales type leases received 292,716 200,614
Gain on sale of equipment under sales type leases (32,247) (19,173)
(Increase) decrease in accounts receivable (1,512,871) 335,163
Decrease (increase) in inventories 58,472 (123,791)
Decrease in prepaid expenses 126,945 30,738
Increase in accounts payable 1,267,140 580,391
Increase in accounts payable - related party 182,510 55,662
Increase (decrease) in accrued expenses 70,617 (216,719)
Increase in income taxes payable 248,348 223,969
--------- ---------
Net cash provided by operating activities 2,841,472 2,936,054
Cash flows from investing activities:
Cost of leased machines (4,429,251) (3,617,561)
Purchases of property and equipment (13,625) (6,583)
--------- ---------
Net cash used in investing activities (4,442,876) (3,624,144)
Cash flows from financing activities:
Proceeds from notes payable, net 1,804,561 1,017,562
Repayment of long-term debt (207,698) (192,302)
--------- ---------
Net cash provided by financing activities 1,596,863 825,260
--------- ---------
Increase (decrease) in cash (4,541) 137,170
Cash at beginning of year 132,501 30,004
--------- ---------
Cash at end of period $ 127,960 $ 167,174
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 381,999 $ 423,500
========= =========
Income taxes paid $ 72,902 $ 177,641
========= =========
Net book value of capitalized ITVMs returned from the field
and transferred into inventory $ 654,809 $ 150,943
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
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. The financial statements
for the three months ended March 31, 2000 and 1999 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 1999 Annual Report
on Form 10-K. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for the entire
year ending December 31, 2000.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Interlott Technologies, Inc. (the "Company") manufactures instant
ticket vending machines ("ITVMs") and prepaid phone card dispensing machines
("PCDMs") that dispense instant lottery tickets and prepaid telephone calling
cards without the assistance of an employee of the lottery or the telephone card
vendor. The Company derives its revenues from (i) the lease of ITVMs and PCDMs,
(ii) the sale of ITVMs and PCDMs, (iii) and to a lesser extent the service
agreements and the sale of parts for ITVMs and PCDMs.
As of March 31, 2000, the Company had sold or leased over 20,000 ITVMs
and PCDMs under agreements with both domestic and international lotteries and
their licensees or contractors, as well as to both domestic and international
vendors of prepaid telephone calling cards.
Results of Operations
The Company's revenues increased 54% to $7,657,790 in the first three
months of 2000 from $4,960,117 for the same period in 1999. Revenues from sales
of ITVMs and PCDMs increased 609% to $2,622,015 in the first three months of
2000 from $369,682 for the same period in 1999. The increase in revenues from
sales resulted from ITVM sales to Automated Wagering, Inc. for use by the
Pennsylvania Lottery and to the Netherlands National Lottery. Revenues from
operating leases increased 9% to $4,445,935 in the first three months of 2000
from $4,068,857 for the same period in 1999, as the result of additional leased
units deployed. Lease revenues represented 58% of total revenues for the three
months ended March 31, 2000 and 82% of total revenues for the three months ended
March 31, 1999.
Cost of revenues increased 57% to $5,031,513 in the first three months
of 2000 from $3,199,109 for the same period in 1999. The increase in cost was
due to the higher number of machines sold and the increase in machines deployed
under lease contracts. Depreciation charged to cost of revenues increased 23% to
$1,511,319 in the first three months of 2000 from $1,232,223 for the same period
in 1999, primarily as a result of an increase in the number of leased machines
deployed in prior years. Service and installation costs decreased 6% to
$1,683,712 in the first three months of 2000 from $1,781,718 for the same period
in 1999, primarily due to the decrease in the cost of rework and repair parts as
well as lower travel costs.
Gross profit increased 49% to $2,626,277 in the first three months of
2000 from $1,761,008 for the same period in 1999, as the result of the changes
described previously.
Selling, general, and administrative expenses increased 15% to
$1,125,000 in the first three months of 2000 from $975,101 for the same period
in 1999. Increases in professional fees and sales activities were the primary
factors related to the increase in cost.
7
<PAGE>
Operating income increased 104% to $1,350,329 in the first three months
of 2000 from $661,211 for the same period in 1999, as the result of the changes
described previously.
Interest expense increased 65% to $380,424 in the first three months of
2000 from $230,240 for the same period in 1999. The increase reflects an
increase in borrowings which were incurred to fund increases in sold and leased
machines. Also, interest rates charged to the Company increased in the first
three months of 2000 due to increases in both the prime rate and LIBOR rates.
Other income decreased by $631,852 in the first three months of 2000
from $625,000 for the same period in 1999 which consisted of a one time
non-recurring income item from settlement of litigation previously reported upon
by the Company.
As a result of the previously discussed changes, income before income
taxes decreased 9% to $963,053 in the first three months of 2000 from $1,055,971
for the same period in 1999.
Due to the foregoing factors, net income decreased 9% to $596,723 in
the first three months of 2000 from $654,361 for the same period in 1999.
Liquidity and Capital Resources
The Company's liquidity and capital resources are significantly
impacted by the Company's decision to use leasing as a means to market its ITVMs
and PCDMs. However, leasing inherently requires significantly more capital and
longer-term payout than sales. At March 31, 2000 the Company had a total of
9,733 ITVMs and PCDMs deployed under operating and sales type leases as compared
to 7,950 at March 31, 1999.
The Company finances its operations primarily through cash flow from
operations and a three-year revolving credit facility from Mercantile Business
Credit, Inc. ("MBCI") entered into as of October 29, 1997. The Credit facility
with MBCI is a $25,000,000 three year credit line, secured by a lien on all of
the assets of the Company. The rate of interest on this loan is prime or LIBOR
plus two percent.
Net cash provided by operations for the three months ended March 31,
2000 and 1999 was $2,841,472 and $2,936,054, respectively. The decrease for the
first three months of 2000 as compared to the same period in 1999 results
primarily from an increase in accounts receivable relating to current machine
sales, offset by an increase in accounts payable and accounts payable - related
party which resulted from an increase in purchasing activity to support the
higher sales volume.
Net cash used in investing activities was $4,442,876 and $3,624,144 for
the three months ended March 31, 2000 and 1999, respectively. This increase
reflects the higher number of ITVMs and PCDMs deployed under lease in the first
three months of 2000 as compared to the first three months of 1999.
Net cash provided by financing activities was $1,596,863 for the three
months ended March 31, 2000 as compared to $825,260 for the three months ended
March 31, 1999. The change is the result of increased borrowings of $1,804,561
to finance a portion of the ITVMs manufactured during the quarter offset by a
payment of $207,698 on a related party note payable.
8
<PAGE>
At March 31, 2000, the Company was indebted to MBCI in the aggregate
principal amount of $17,809,590 and had $7,190,410 available under the credit
facility.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable pursuant to Item 305(e) of Regulation S-K.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by
the Company during the quarter ended March 31, 2000.
10
<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.
INTERLOTT TECHNOLOGIES, INC.
(Registrant)
Date: May 12, 2000 /s/ David F. Nichols.
--------------------
President and
Chief Executive Officer
(Duly Authorized Officer)
/s/ Dennis W. Blazer
--------------------
Dennis W. Blazer
Chief Financial and Accounting Officer
11
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 4,818
<ALLOWANCES> 0
<INVENTORY> 5,810
<CURRENT-ASSETS> 12,167
<PP&E> 38,355
<DEPRECIATION> 14,383
<TOTAL-ASSETS> 40,154
<CURRENT-LIABILITIES> 22,898
<BONDS> 0
1,335
0
<COMMON> 32
<OTHER-SE> 10,376
<TOTAL-LIABILITY-AND-EQUITY> 40,154
<SALES> 2,622
<TOTAL-REVENUES> 7,658
<CGS> 1,733
<TOTAL-COSTS> 5,032
<OTHER-EXPENSES> 1,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 380
<INCOME-PRETAX> 963
<INCOME-TAX> 366
<INCOME-CONTINUING> 597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597
<EPS-BASIC> .19
<EPS-DILUTED> .19
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