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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 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
INTERLOTT TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
------ ------
1 Financial Statements:
Condensed Balance Sheets as of June 30, 2002
and December 31, 2001 3
Condensed Statements of Income
for the three months and six months ended
June 30, 2002 and 2001 4
Condensed Statements of Cash Flows for the six
months ended June 30, 2002 and 2001 5 - 6
Notes to Condensed Financial Statements 7 - 8
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -12
3 Quantitative and Qualitative Disclosures About 12
Market Risk
PART II. OTHER INFORMATION
1 Legal Proceedings 13
6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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.
3
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 3,297,765 3,117,502 1,688,606 1,584,572
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
============ ============ ============ ============
4
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 activites:
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 activites (2,253,330) (17,665,995)
--------- ---------
Cash flows from financing activites:
(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
========= =======
5
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.
6
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,
7
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
======== ========
8
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 (1) the lease of ITVMs and PCDMs,
(2) the sale of ITVMs and PCDMs, and (3) to a lesser extent, service agreements
and the sale of parts for ITVMs and PCDMs.
On June 1, 2001, the Company completed the acquisition of the lottery
assets of On-Point Technology Systems, Inc. of San Marcos, California. The
assets acquired included patents, technology, accounts receivable of $729,000,
$3.4 million of inventory, service contracts, and lease contracts for 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.
The Company historically has experienced fluctuations in its financial
results due to the variable nature, timing and results of the lotteries'
contract bid and award process. The Company's revenues and capital expenditures
can vary significantly from period to period because the Company's sales cycle
may be relatively long and because the amount and timing of revenues and capital
expenditures depend on factors such as the amount and timing of awarded
contracts and changes in customer budgets and demands. Operating results may be
affected by the lead-time sometimes required for business opportunities to
result in signed lease or sales agreements, working capital requirements
associated with manufacturing ITVMs pursuant to new orders, competitive bidding
for contract awards and the extended time that may elapse between the award of a
contract and the receipt of revenues from the sale or lease of ITVMs. The
Company's decision to lease a significant portion of its ITVMs generally offers
the Company better gross margins than direct sales agreements. However, leasing
inherently requires more capital and a longer-term payout than sales.
At June 30, 2002, the Company had a total of 11,431 ITVMs and PCDMs
deployed under operating and sales type leases as compared to 11,176 at March
31, 2002. In the aggregate, the Company has sold or leased over 28,000 ITVMs and
PCDMs under agreements with 29 domestic and 14 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 net revenues decreased 34% to $10,150,503 from
$15,273,003 for the three months, and 8% to $21,292,686 from $23,083,603 for the
six months, ended June 30, 2002 and 2001, respectively. Revenues from sales of
ITVMs and
9
PCDMs decreased 61% to $3,758,455 from $9,590,951 for the three months, and 30%
to $8,534,137 from $12,189,027 for the six months, ended June 30, 2002 and 2001,
respectively. The decrease in revenues from sales resulted from a lower number
of ITVMs sold in 2002 as compared to a large sale to one domestic lottery and
sales to two international lotteries in the three months and six months ended
June 30, 2001. Revenues from operating leases increased 2% to $4,797,544 from
$4,683,473 for the three months, and 5% to $9,455,263 from $8,986,777 for the
six months, ended June 30, 2002 and 2001, respectively. Leases acquired from
On-Point contributed $600,886 to lease revenues for the quarter ended June 30,
2002 and $1,223,623 for the six months ended June 30, 2002, offsetting a
decrease in other lease revenues of approximately $436,284 and $863,140 for the
three and six months, respectively, due to a contract which expired in July,
2001. Lease revenues represented 47% and 31% of total revenues for the three
months, and 44% and 39% of total revenues for the six months, ended June 30,
2002 and 2001, respectively. Other revenues increased 60% to $1,594,504 from
$998,579 for the three months, and 73% to $3,303,285 from $1,907,799 for the six
months, ended June 30, 2002 and 2001 respectively, primarily due to service
revenues from the contracts acquired from On-Point.
Cost of revenues decreased 34% to $7,238,783 from $10,891,802 for the
three months, and 7% to $15,174,344 from 16,352,643 for the six months, ended
June 30, 2002 and 2001, respectively. Depreciation charged to cost of revenues
increased 3% to $1,739,030 from $1,687,876 for the three months, and 5% to
$3,494,856 from $3,328,328 for the six months, ended June 30, 2002 and 2001,
respectively, due to newer, more expensive equipment being deployed on new
contracts. Service and installation costs increased 31% to $2,894,392 from
$2,207,246 for the three months, and increased 36% to $5,713,520 from $4,187,328
for the six months, ended June 30, 2002 and 2001, respectively, due to the
leases and maintenance contracts acquired from On-Point. Amortization of leases
relating to the On-Point acquisition charged to cost of goods sold was $214,050
for the three months ended June 30, 2002 and $428,100 for the six months ended
June 30, 2002. Amortization of leases for the three months and six months ended
June 30, 2001 was $71,350 which reflected one month of expense subsequent to the
acquisition on June 1, 2001. As a result of these factors and higher margins on
equipment sold, cost of revenues as a percentage of revenues remained constant
at 71% for the three months and the six months ended June 30, 2002.
Due primarily to lower sales volume, gross profit decreased 34% to
$2,911,720 from $4,381,201 for the three months, and decreased 9% to $6,118,341
from $6,730,960 for the six months, ended June 30, 2002 and 2001, respectively.
Gross profit as a percentage of revenues remained constant at 29% for the three
months and six months ended June 30, 2002, as a result of the previously
discussed changes in expenses.
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 months and six months ended June 30, 2002.
Amortization for the three and six months ended June 30, 2001 was $54,427.
Selling, general, and administrative expenses increased 7% to
$1,688,605 from $1,584,572 for the three months, and 6% to $3,297,765 from
$3,117,502 for the six months, ended June 30, 2002 and 2001, respectively.
Increases in wages and benefits
10
and legal and professional fees were the primary factors related to the increase
in costs for both the three month and six month periods.
Interest expense increased 26% to $586,578 from $463,762 for the three
months, and increased 54% to $1,260,305 from $815,884 for the six months, ended
June 30, 2002 and 2001, respectively. The increase reflects increased overall
borrowing under the Company's credit facility partially offset by decreases in
interest rates. The increased borrowing was due primarily to the On-Point
acquisition but also was related to the financing of a new lease contract with a
domestic lottery.
Other income (expense) was $(199,805) and $9,842 for the three months,
and ($202,410) and $16,524 for the six months, ended June 30, 2002 and 2001,
respectively. This increase in expense was due to a non-recurring charge for the
settlement of litigation, as described in Part II, Item 1 (Legal Proceedings),
in the amount of $200,000 which was recorded in the quarter ended June 30, 2002.
As a result of the factors discussed above, income before income taxes
decreased 87% to $288,770 from $2,153,815 for the three months, and decreased
54% to $1,130,289 from $2,471,202 for the six months, ended June 30, 2002 and
2001, respectively.
Income taxes were $103,380 for the three months and $423,120 for the
six months, ended June 30, 2002. The Company's effective tax rate is 38%.
As a result of the foregoing factors, net income after tax decreased
86% to $185,390 from $1,335,435 for the three months, and decreased 54% to
$707,169 from $1,531,632 for the six months, ended June 30, 2002 and 2001,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the closing of the acquisition of the lottery assets of
On-Point, to finance the cash payment paid at closing, the Company increased its
existing credit facility with its bank from $25 million to $30 million, and also
completed a mezzanine financing of junior debt in the principal amount of $5
million with its bank. The amended credit facility is a three year credit line,
secured by a lien on all of the assets of the Company. The rate of interest on
this loan is based on the prime rate or LIBOR rate adjusted up or down depending
on the Company's funded debt to EBITDA ratio. The current rate is LIBOR plus
2.5% (4.32% at August 1, 2002). The mezzanine financing consists of a $5 million
term note due June 30, 2003, which is subordinate to the credit facility. This
note bears interest at a fixed 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, 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 note may be prepaid when availability on the credit
facility exceeds $2 million and the Company is in compliance with all loan
covenants. The Company intends to pay down all or part of this note prior to the
maturity date using funds generated from operations. In the event
11
that the Company secures a large lease contract requiring a significant capital
investment, the redemption of this debt may be delayed.
Net cash provided by operations for the six months ended June 30, 2002
and 2001 was $7,410,714 and $5,370,852, respectively. The increase for the first
six months of 2002 as compared to the same period in 2001 resulted primarily
from a decrease in accounts receivable, partially offset by a decrease in
accounts payable.
Net cash used in investing activities was $2,253,330 and $17,665,995
for the six months ended June 30, 2002 and 2001, respectively. The six months
ended June 30, 2001 included the purchase of the lottery assets of On-Point for
$13.4 million offset in part by the lower amount spent on equipment deployed
under leases in the first six months of 2001. Net cash used in investing
activities for the six months ended June 30, 2002 consisted primarily of the
cost of leased machines built for deployment under lease contracts.
Net cash used for financing activities was $5,319,648 for the six
months ended June 30, 2002 as compared to net cash provided by financing
activities of $12,945,754 for the six months ended June 30, 2001. The change is
primarily the result of payments made on the credit facility in 2002 as compared
to additional borrowings on the credit facility in 2001 related to the On-Point
acquisition.
On August 1, 2002, the Company was indebted to Fifth Third Bank in the
aggregate principal amount of $19,089,583 and had $10,910,417 available on the
credit facility, as well as the aggregate principal of $5,000,000 on the
subordinated term note.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company entered into an interest rate swap agreement with a total
notional principal amount of $10,000,000 at December 31, 1999 which expires on
November 7, 2002 and an interest rate swap agreement with a total notional
principal amount of $5,000,000 at July 3, 2001 which expires on May 31, 2004.
The objective of these agreements is to convert a portion of the Company's
floating rate revolving credit facility to a fixed rate. The estimated fair
value of the interest rate swap agreements was approximately ($402,982) at June
30, 2002. The estimated fair value is based upon appropriate market information
and projected interest rate changes obtained from a reputable institution.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 23, 2002, The United States District Court for the Western
District of Washington, approved the settlement of a class action lawsuit styled
PAUL DOYON AND ALBERT DELARA, ON THEIR BEHALF, AND ON THE BEHALF OF ALL MEMBERS
OF THE SIMILARLY SITUATED CLASS OF PERSONS, PLAINTIFFS, V. INTERLOTT
TECHNOLOGIES, INC., DEFENDANT CASE NO. C01-0988C. This action was filed by a
former Interlott field service representative on behalf of himself and others
similarly situated asserting an entitlement to overtime pay relating to hours
worked while in the employment of the Company. In connection with the
settlement, the lawsuit has been dismissed by the United States District Court
without any admission or finding of liability on the part of Interlott. The
Company is paying a total of $25,000 to settle the claims, and $175,000 in
reimbursement of class counsel's attorney's fees and expenses. This case was
previously reported in the Company's 2001 Form 10-K Report filed on March 29,
2002, at Part I, Item 3.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K. None
13
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: August 14, 2002 /s/ David F. Nichols
--------------------------------------------
David F. Nichols
President and Chief Executive Officer
/s/ Dennis W. Blazer
--------------------------------------------
Dennis W. Blazer
Chief Financial and Accounting Officer
14