U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 1997
Commission file number 0-25624
LOTTOWORLD, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0399794
(State of Incorporation) (IRS Employer ID No.)
2150 Goodlette Road
Suite 200
Naples, FL 34102
(Address of principal executive offices) (Zip Code)
(941) 643-1677
(Telephone Number)
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
--- ---
Common stock, par value $.001 per share; 7,299,401 shares outstanding as of
April 30, 1997
<PAGE>
LOTTOWORLD, INC.
TABLE OF CONTENTS
PART I Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Common Shareholders'
Equity (Deficit) 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statement 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
<PAGE>
LOTTOWORLD, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 18,633 $ 137,752
Accounts receivable, net 287,644 324,297
Prepaid expenses 279,281 549,664
------------ ------------
585,558 1,011,713
Restricted Cash, redeemable convertible preferred stock 1,000,020 1,000,020
Accounts receivable, officers 58,375 58,375
Furniture, Fixtures and Equipment, net 328,128 338,729
Other Assets 26,820 26,820
------------ ------------
$ 1,998,901 $ 2,435,657
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 16,667 $ 16,667
Accounts payable 771,701 757,789
Accrued expenses 192,211 45,724
Deferred revenue 332,313 366,372
Dividends payable 25,000 25,000
------------ ------------
1,337,892 1,211,552
------------ ------------
Long-Term Debt, less current maturities 504,213 8,383
------------ ------------
Redeemable convertible preferred stock 1,000,020 1,000,020
------------ ------------
Common Shareholders' Equity
Common stock 6,599 6,165
Additional paid-in capital 12,766,436 12,491,870
Accumulated deficit (13,582,185) (12,248,259)
Less treasury stock (34,074) (34,074)
------------ ------------
(843,224) 215,702
------------ ------------
$ 1,998,901 $ 2,435,657
============ ============
</TABLE>
-3-
<PAGE>
LOTTOWORLD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
----------- -----------
<S> <C> <C>
Sales revenue $ 261,237 $ 246,266
----------- -----------
Operating expenses:
Production, distribution and editorial 584,463 410,551
Circulation 119,616 265,734
Advertising, promotion and business development 129,864 133,508
Selling, general and administrative 746,787 317,869
----------- -----------
1,580,730 1,127,662
----------- -----------
Operating (loss) (1,319,493) (881,396)
----------- -----------
Other income (expense):
Interest income 11,171 25,442
Interest expense (604) (1,019)
----------- -----------
10,567 24,423
----------- -----------
Net (loss) ($1,308,926) ($ 856,973)
=========== ===========
Net (loss) per common share ($ 0.20) ($ 0.26)
=========== ===========
Weighted average number of common shares outstanding 6,393,343 3,357,689
=========== ===========
</TABLE>
-4-
<PAGE>
LOTTOWORLD, INC.
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional Common Total
Common Stock Paid-in Accumulated Stock Treasury Shareholders'
Stock Subscribed Capital (Deficit) Subscriptions Stock Equity
----- ---------- ------- --------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $3,106 $ 1,316,230 $ 7,933,759 ($ 7,789,523) ($ 866,250) -- $ 597,322
Common stock issued (3,058,831 shares) 3,059 (449,980) 4,558,111 -- -- -- 4,111,190
Common stock subscriptions expired -- (866,250) -- -- 866,250 -- --
Treasury shares purchased (11,500 shares) -- -- -- -- -- (34,074) (34,074)
Dividend distributions -- -- -- (100,002) -- -- (100,002)
Net loss -- -- -- (4,358,734) -- -- (4,358,734)
------ ----------- ----------- ------------ ----------- --------- -----------
Balance, December 31, 1996 6,165 -- 12,491,870 (12,248,259) -- (34,074) 215,702
Common stock issued (434,188 shares) 434 -- 274,566 -- -- -- 275,000
Dividend distribution -- -- -- (25,000) -- -- (25,000)
Net loss -- -- -- (1,308,926) -- -- (1,308,926)
------ ----------- ----------- ------------ ----------- --------- -----------
Balance , March 31, 1997 $6,599 -- $12,766,436 ($13,582,185) -- ($ 34,074) ($ 843,224)
====== =========== =========== ============ =========== ========= ===========
</TABLE>
-5-
<PAGE>
LOTTOWORLD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
THREE MONTHS ENDED MARCH 31
1997 1996
----------- -----------
Net cash (used in) operating activities ($ 361,750) ($1,522,807)
----------- -----------
Cash Flows (Used In) Investing Activities
(Purchase) disposal of furniture and equipment (3,199) ($ 21,099)
----------- -----------
Cash Flows From Financing Activities
Issuance on long-term notes payable (4,170) ($ 4,167)
Issuance of common stock 275,000 1,607,498
Purchase of treasury stock -- (10,860)
Dividends paid (25,000) --
----------- -----------
245,830 1,592,471
----------- -----------
Net increase in cash (119,119) 48,565
Cash
Beginning 137,752 1,318,983
----------- -----------
Ending $ 18,633 $ 1,367,548
=========== ===========
-6-
<PAGE>
LOTTOWORLD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited financial statements and the related notes have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying financial
statements and related notes should be read in conjunction with the
audited financial statements of the Company, and notes thereto, for the
year ended December 31, 1996.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented.
(2) The net (loss) per common share amounts are computed using the weighted
average number of common shares outstanding during the periods.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations:
- ----------------------
For the three months ended March 31, 1997 and 1996, the Company had
operating revenues of $261,000 and $246,000; operating expenses of $1,581,000
and $1,128,000; operating losses of $1,319,000 and $ $881,000; net losses of
$$1,309,000 and $857,000; and losses per share of $.20 and $.26 respectively.
Included in the losses are $450,000 attributable to the start-up of the New York
Lottery Players Monthly and $250,000 attributable to investor relations
Production, distribution and editorial expenses rose $174,000 from
$411,000 in 1996 to $585,000 in 1997, or 43%. $85,000 of the net increase is
linked to the printing of the New York Lottery Players Monthly, which did not
begin publication until October 1996 ($188,000) and the reduction of the print
order of LottoWorld magazine, whose printing expense deceased $103,000. The
balance of the increase is attributable to increased editorial personnel.
Selling, general and administrative expenses increased $429,000 from
$318,000 to $747,000, or 75%. In addition to the increase of $250,000 for
investor relations: (i) $65,000 was expended for financing costs associated with
$500,000 of a convertible note payable on demand which was obtained in February
1997; (ii) overall salaries increased by $30,000; (iii) taxes and benefits
increased $19,000 attributable to more employees being eligible for full payment
of their medical insurance due to longevity of service; iv) legal and accounting
expenses increased $24,000 as a result of additional Securities and Exchange
reporting requirements and for Time Distribution Services; and (v) the
remaining $41,000 is attributable to increased costs of a larger company.
Liquidity and Capital Resources
- -------------------------------
The Company had a net decrease in its cash position of $119,000 for the
three months ended March 31, 1997. This was net of $275,000 of additional
capital raised through the issuance of common stock.
The Company does not have sufficient capital to operate its business past
May 1997 unless the Company raises additional capital.
The Company is currently negotiating with several sources for the needed
capital and while the Company is confident it will raise the necessary capital,
there can be no assurance the Company will be successful.
8
<PAGE>
RECENT DEVELOPMENTS WITH THE NASDAQ STOCK MARKET
On April 18, 1997, the Company received a letter from The Nasdaq
Stock Market, Inc. ("Nasdaq") informing the Company that based upon its Annual
Report on Form 10-KSB for the year ended December 31, 1996, the Company's
capital and surplus was less than $1,000,000 and that Nasdaq required companies
listed on The Nasdaq SmallCap Market must maintain capital and surplus of at
least $1,000,000 for continued listing. Nasdaq went on to say "in light of the
circumstances, the Company's shares of common stock are subject to delisting
effective with the close of business on May 2, 1997 unless the Company can
provide three (3) copies of an SEC-filed report, which demonstrates that the
Company currently meets all The Nasdaq SmallCap Market listing criteria."
On a Current Report on Form 8-K and 8-K/A, dated April 22, 1997,
the Company reported that based upon its March 31, 1997 balance sheet
(unaudited) and a pro-forma balance sheet as of the same date, including (I) the
conversion of $250,000 of the Company's Series A Redeemable Convertible
Preferred Stock; (ii) the issuance of $500,000 of shares of the Company's common
stock in exchange for an investment in Sound Money Investor's Inc.; and (iii)
the payment, by common stock, for $101,000 of printing services, thereby the
Company reported capital and surplus of $1,031,467.
On May 6, 1997, Nasdaq wrote the Company, "Although the Company
reported capital and surplus of $1,031,467 ..., the Company only achieved
minimal compliance.." and the Company's common stock will be delisted from
Nasdaq effective with the close of business May 13, 1997.
The Company is entitled to a review of the delisting determination
by Nasdaq's staff and has asked for an appeal of the determination at the
earliest time available. Nasdaq has set June 12, 1997 as the date of the review.
Until the review and appeal process is completed, the Company's common stock
will continue to be listed on The Nasdaq SmallCap Market.
The Company is currently negotiating with several sources for the
needed capital and while the Company is confident it will raise the necessary
capital, there can be no assurance the Company will be successful.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11. Computation of net (loss) per share of
Common Stock - not required
(b) The Registrant did not file a Form 8-K during the
quarter ended March 31, 1997.
9
<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.
LOTTOWORLD, INC.
DATED: May 21, 1997 S/ Stuart Dubow
-------------------
Stuart Dubow
Chief Financial Officer
DATED: May 21, 1997 S/ Stuart Dubow
------------------
Stuart Dubow
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LOTTOWORLD, INC. FOR THE THREE MONTHS ENDED MARCH 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<RECEIVABLES> 288
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<CURRENT-ASSETS> 586
<PP&E> 564
<DEPRECIATION> 236
<TOTAL-ASSETS> 1,999
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</TABLE>
