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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, 2003
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No x
--- ---
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, 2003
- -------------------------------------- ------------------------------
Common Stock, $.01 Par Value 6,462,994 shares
INTERLOTT TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
- ------ ------
1 Financial Statements:
Condensed Balance Sheets as of June 30, 2003
and December 31, 2002 3
Condensed Statements of Income
for the three months and six months ended
June 30, 2003 and 2002 4
Condensed Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 5
Notes to Condensed Financial Statements 6 - 9
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
3 Quantitative and Qualitative Disclosures About 12
Market Risk
4 Controls and Procedures 12
PART II. OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERLOTT TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
June 30, 2003 December 31, 2002
------------- -----------------
ASSETS
Current assets:
Cash $ 347,454 $ 419,492
Accounts receivable, less allowance for doubtful accounts of $143,332
in 2003 and $53,332 in 2002 8,409,380 6,646,988
Investment in sales type leases, current portion 2,685,104 2,588,005
Inventories 9,923,934 8,440,471
Prepaid & refundable taxes -- 562,598
Deferred tax asset 471,011 508,600
Prepaid expenses 465,609 639,307
------------ ------------
Total current assets 22,302,492 19,805,461
Property and equipment:
Leased machines 35,172,389 35,113,524
Machinery and equipment 797,802 784,219
Building and improvements 688,234 688,234
Furniture and fixtures 182,717 182,717
------------ ------------
36,841,142 36,768,694
Less accumulated depreciation and amortization 25,447,246 22,963,442
------------ ------------
11,393,896 13,805,252
Other assets 197,455 238,176
Goodwill net of accumulated amortization of $166,581 in 2003 and 2002 4,682,202 4,572,655
Value of leases acquired net of accumulated amortization of $1,783,750 in 2003 and
$1,355,650 in 2002 2,497,255 2,925,355
Investment in sales type leases, less current portion 9,002,259 10,154,855
Product development rights, net of accumulated amortization of $916,667 in 2003
and $880,000 in 2002 183,333 220,000
------------ ------------
$ 50,258,892 $ 51,721,754
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions $ 17,310,454 $ 21,310,417
Current portion of notes payable - related parties -- 24,124
Accounts payable 2,845,959 2,663,405
Accounts payable - related party 528,045 380,855
Accrued expenses 2,753,629 1,680,134
------------ ------------
Total current liabilities 23,438,087 26,058,935
Deferred tax liability 1,976,841 2,009,600
------------ ------------
Total liabilities 25,414,928 28,068,535
Commitments and contingent liabilities:
Interest rate swap agreements 366,534 453,484
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 shares authorized, 6,462,994
shares issued and outstanding in 2003 and 6,455,826 shares issued and
outstanding in 2002 64,630 64,558
Treasury Stock (63,298) (63,298)
Additional paid-in capital 10,603,072 10,568,907
Accumulated comprehensive income (loss) (245,390) (299,299)
Retained earnings 14,118,416 12,928,867
------------ ------------
Total stockholders' equity 24,477,430 23,199,735
------------ ------------
$ 50,258,892 $ 51,721,754
============ ============
See accompanying notes to condensed financial statements.
3
INTERLOTT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Machine and parts sales $ 6,114,381 $ 3,758,455 $ 11,876,090 $ 8,534,137
Machine leases 4,521,399 4,797,544 8,976,955 9,455,263
Other 1,633,580 1,594,504 3,098,338 3,303,285
------------ ------------ ------------ ------------
12,269,360 10,150,503 23,951,383 21,292,685
Cost of revenues 8,647,229 7,238,783 17,133,732 15,174,344
------------ ------------ ------------ ------------
Gross profit 3,622,131 2,911,720 6,817,651 6,118,341
Operating expenses:
Selling, general, and administrative
expenses 1,729,568 1,688,606 3,484,484 3,297,765
Research and development costs 87,222 147,961 207,862 227,572
------------ ------------ ------------ ------------
Total operating expenses 1,816,790 1,836,567 3,692,346 3,525,337
------------ ------------ ------------ ------------
Operating income 1,805,341 1,075,153 3,125,305 2,593,004
Other income (expense):
Interest expense (276,928) (586,578) (547,577) (1,260,305)
Other (151,455) (199,805) (655,749) (202,410)
------------ ------------ ------------ ------------
(428,383) (786,383) (1,203,326) (1,462,715)
------------ ------------ ------------ ------------
Income before income taxes 1,376,958 288,770 1,921,979 1,130,289
Income taxes 524,780 103,380 732,430 423,120
------------ ------------ ------------ ------------
Net income $ 852,178 $ 185,390 $ 1,189,549 $ 707,169
============ ============ ============ ============
Basic net income per share $ .13 $ .03 $ .18 $ .11
============ ============ ============ ============
Diluted net income per share $ .12 $ .03 $ .17 $ .11
============ ============ ============ ============
4
INTERLOTT TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Six Months Ended June 30,
-------------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 1,189,549 $ 707,169
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 3,163,403 3,654,858
Principal portion of sales type lease received 1,637,855 1,202,927
Deferred income taxes (65,800) (180,414)
Gain on sale of equipment under sales type lease (270,367) (836,805)
(Increase) decrease in accounts receivable (1,762,392) 709,879
(Increase) decrease in inventories net of leased equipment returned (1,431,536) 1,456,998
Decrease in prepaid expenses 89,222 268,025
Decrease in prepaid & refundable taxes 0 404,220
Decrease in deferred tax asset 37,589 0
Increase (decrease) in accounts payable 182,554 (456,962)
Increase (decrease) increase in accounts payable -
related parties 147,190 (145,810)
Increase in accrued expenses 670,982 523,350
Increase in income taxes payable 965,111 103,279
----------- -----------
Net cash provided by operating activities 4,553,360 7,410,714
----------- -----------
Cash flows from investing activities:
Cost of leased machines (621,965) (2,246,543)
Purchases of property & equipment (13,583) (6,787)
----------- -----------
Net cash used in investing activities (635,548) (2,253,330)
----------- -----------
Cash flows from financing activities:
(Payment of) notes payable - credit facility (3,999,963) (4,875,530)
Proceeds from exercise of stock options 0 43,209
Proceeds from Employee Stock Purchase Plan 34,237 0
Repayment of notes payable - financial institutions (1,348) (27,227)
Payment of notes payable - related parties (22,776) (460,100)
----------- -----------
Net cash used for financing activities (3,989,850) (5,319,648)
----------- -----------
(Decrease) increase in cash (72,038) (162,264)
Cash, at beginning of year 419,492 537,332
----------- -----------
Cash, at end of period $ 347,454 $ 375,068
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 437,702 $ 1,141,567
Income taxes (refunded) paid (192,821) 132,686
Net book value of capitalized leased ITVMs returned from field and
transferred to inventory 51,927 44,738
Interest swap liability 53,909 117,855
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, 2003 and 2002 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 Annual Report on Form 10-K. The results of operations
for the three months and six months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the entire year ending December 31,
2003.
2. Inventories
-----------
Inventories at June 30, 2003 and December 31, 2002 consisted of the
following:
2003 2002
---- ----
Finished goods $2,010,374 $1,721,996
Work in process 1,320,211 396,719
Raw materials and supplies 6,593,349 6,321,756
---------- ----------
$9,923,934 $8,440,471
3. Merger Agreement
----------------
The Company has entered into an Amended and Restated Agreement and Plan
of Merger dated as of March 17, 2003 with GTECH Holdings Corporation and
subsidiaries of GTECH, pursuant to which the Company will merge into and become
a wholly-owned subsidiary of GTECH. Upon the merger, each share of the Company's
Common Stock will be changed into the right to receive $9.00 in cash, GTECH
common shares or a combination of the two, with 51.5% of the aggregate merger
consideration to be paid in GTECH common shares and the balance in cash.
Consummation of the merger is subject to satisfaction of various
conditions, including the approval of the Company's stockholders, the making of
various regulatory filings, the absence of any injunction or certain litigation
challenging the merger, the receipt of tax and other legal opinions, the
accuracy of the parties' representations and warranties and performance of their
agreements, and the receipt of consents to the merger from customers
representing 85% of the Company's projected business for 2003 and certain other
parties to material contacts. GTECH may terminate the merger agreement if its
average stock price for purpose of calculating the number of common shares to be
issued in the merger is less than $25.12, unless the Company elects to convert
the merger consideration into all cash.
The Company has agreed not to solicit a competing offer, but may
terminate the merger agreement to accept an unsolicited superior proposal. If it
does so, the Company
6
will be required to pay GTECH a termination fee of $2.75 million and reimburse
GTECH's expenses up to $750,000.
In connection with the Merger Agreement, GTECH also entered into a
Stockholder Voting and Option Agreement and a Noncompetition Agreement with L.
Rogers Wells, Jr. Under the Voting and Option Agreement, Mr. Wells agreed to
vote in favor of the merger and granted GTECH the option to purchase his Company
Common Stock at $9.00 per share if the Merger Agreement terminates for specified
reasons. The Voting and Option Agreement terminates if the Company terminates
the Merger Agreement to accept a superior proposal. If GTECH exercises the
option, it is required to make a cash tender offer for the remaining Common
Stock of the Company at $9.00 per share.
Pursuant to the Noncompetition Agreement, Mr. Wells has agreed not to
engage in the lottery business for five years after consummation of the merger.
As compensation for this agreement, GTECH will pay him $250,000 per year during
that five-year period.
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 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. 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, 2003 is summarized as follows:
Three months Six months
------------ ----------
Net income $ 852,178 $1,189,549
Other comprehensive income 31,498 53,909
---------- ----------
Total comprehensive income $ 883,676 $1,243,458
========== ==========
7
(6) Stock Incentive Plans
---------------------
The Company's 1994 Stock Incentive Plan was amended and restated
effective December 29, 2000. The Company also has a 1994 Directors Stock
Incentive Plan under which options were granted prior to the amendment of the
1994 Stock Incentive Plan. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant. Options vest at the
rate of 25% per year beginning one year from the date of grant, subject to the
recipient's continued employment with or service to the Company, and must be
exercised within 10 years after that date.
As permitted by SFAS No. 123, the Company applies the intrinsic value
method prescribed by APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized in the accompanying statements of income.
Had compensation cost for options granted during 2003 been determined
consistent with the fair value methodology of SFAS No. 123, the Company's net
income and earnings per share for the three and six months ended June 30, 2003
would have been reduced to the pro forma amounts presented below:
Three months Six months
------------ ----------
Net income - as reported $ 852,178 $1,189,549
Stock based employee compensation cost
determined under fair value based method - net of tax 118,096 236,192
--------- ----------
Pro forma net income $ 734,082 $ 953,357
Basic earnings per share
As reported $ 0.13 $ 0.18
Pro forma $ 0.11 $ 0.15
Diluted earnings per share
As reported $ 0.12 $ 0.17
Pro forma $ 0.10 $ 0.14
The fair value of options granted during 2003 for purposes of the
accompanying pro forma disclosures is estimated on the grant date using
the Black-Scholes option-pricing model with the following
weighted-average assumptions: no dividends paid, as
8
it has been the Company's policy not to declare or pay dividends and the
Company does not anticipate paying dividends in the foreseeable future;
expected volatility of 53%, based on the calculated volatility of the
Company's stock; risk-free rate of return of 4.41%; and expected lives of
10 years.
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.
The Company has entered into an Amended and Restated Agreement and Plan
of Merger dated as of March 17, 2003 with GTECH Holdings Corporation and
subsidiaries of GTECH, pursuant to which the Company will merge into and become
a wholly-owned subsidiary of GTECH. Upon the merger, each share of the Company's
Common Stock will be changed into the right to receive $9.00 in cash, GTECH
common shares or a combination of the two, with 51.5% of the aggregate merger
consideration to be paid in GTECH common shares and the balance in cash. For
additional information, see Note 3 of the Notes to Condensed Financial
Statements in Item I above.
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, 2003, the Company had a total of 11,874 ITVMs and PCDMs
deployed under operating and sales type leases as compared to 11,806 at March
31, 2003. In the aggregate, the Company has sold or leased over 32,000 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.
9
RESULTS OF OPERATIONS
The Company's revenues increased 21% to $12,269,360 from $10,150,503
for the three months, and 12% to $23,951,383 from $21,292,685 for the six
months, ended June 30, 2003 and 2002, respectively. Revenues from sales of ITVMs
increased 63% to $6,114,381 from $3,758,455 for the three months, and 39% to
$11,876,090, from $8,534,137 for the six months, ended June 30, 2003 and 2002,
respectively. The increase in revenues from sales resulted from a higher number
of ITVMs sold in 2003. Revenues from operating leases decreased 6% to $4,521,399
from $4,797,544 for the three months, and 5% to $8,976,955 from $9,455,263 for
the six months, ended June 30, 2003 and 2002, respectively. Lease revenues
represented 37% and 47% of total revenues for the three months, and 37% and 44%
of total revenues for the six months, ended June 30, 2003 and 2002,
respectively. Other revenues increased 2% to $1,633,580 from $1,594,504 for the
three months, and decreased 6% to $3,098,338 from $3,303,285 for the six months,
ended June 30, 2003 and 2002, respectively.
Cost of revenues increased 19% to $8,647,229 from $7,238,783 for the
three months, and 13% to $17,133,732 from $15,174,344 for the six months, ended
June 30, 2003 and 2002, respectively. Depreciation charged to cost of revenues
decreased 15% to $1,483,975 from $1,739,030 for the three months, and 14% to
$3,002,559 from $3,494,896 for the six months, ended June 30, 2003 and 2002,
respectively, due to leased machines becoming fully depreciated. Service and
installation costs decreased 5% to $2,757,176 from $2,894,392 for the three
months, and decreased 3% to $5,519,596 from $5,713,520 for the six months, ended
June 30, 2003 and 2002, respectively, due primarily to the expiration of the
Virginia maintenance contract on October 1, 2002 and partially offset by
increases in rework and replacement costs. Amortization of leases relating to
the acquisition On-Point Technology Systems charged to cost of goods sold
remained constant at $214,050 for the three months ended June 30, 2003 and 2002
and $428,100 for the six months ended June 30, 2003 and 2002. As a result of
these factors and higher margins on equipment sold, cost of revenues as a
percentage of revenues decreased from 71.3 % for the three months ended June 30,
2002 to 70.5% for the three months ended June 30, 2003 and increased slightly
from 71.3% for the six months ended June 30, 2002 to 71.5% for the six months
ended June 30, 2003.
Due primarily to higher sales volume, gross profit increased 24% to
$3,622,131 from $2,911,720 for the three months, and increased 11% to $6,817,651
from $6,118,341 for the six months, ended June 30, 2003 and 2002, respectively.
Gross profit as a percentage of revenues increased 1% for the three months ended
June 30, 2003 and remained constant for the six months ended June 30, 2003, as a
result of the previously discussed changes in expenses.
Selling, general, and administrative expenses increased 2% to
$1,729,568 from $1,688,606 for the three months, and 6% to $3,484,484 from
$3,297,765 for the six months, ended June 30, 2003 and 2002, respectively.
Increases in legal and professional fees of $43,490 for the three months, and
$102,702 for the six months, were the primary reasons for the increase in costs
in both periods.
Interest expense decreased 53% to $276,928 from $586,578 for the three
10
months, and decreased 57% to $547,577 from $1,260,305 for the six months, ended
June 30, 2003 and 2002, respectively. The decrease reflects decreased overall
borrowing under the Company's credit facility accompanied by decreases in
interest rates.
Other income (expense) was ($151,455) and ($199,805) for the three
months, and ($655,749) and ($202,410) for the six months, ended June 30, 2003
and 2002, respectively. The increase in expense for the six months, ended June
30, 2003 was due to costs associated with the merger agreement between Interlott
and GTECH. These costs included fairness opinion fees, merger related legal fees
and Special Committee compensation.
As a result of the factors discussed above, income before income taxes
increased 377% to $1,376,958 from $288,770 for the three months, and increased
70% to $1,921,979 from $1,130,289 for the six months, ended June 30, 2003 and
2002, respectively.
Income taxes were $524,780 for the three months, and $732,430 for the
six months, ended June 30, 2003. The Company's effective tax rate is 38%.
As a result of the foregoing factors, net income after tax increased
360% to $852,178 from $185,390 for the three months, and increased 68% to
$1,189,549 from $707,169 for the six months, ended June 30, 2003 and 2002,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the six months ended June 30, 2003
and 2002 was $4,553,360 and $7,410,714, respectively. The decrease for the first
six months of 2003 as compared to the same period in 2002 resulted primarily
from an increase in accounts receivable of $1,762,392 and an increase in
inventories of $1,431,536. The increase in accounts receivable resulted from
several large ITVM sales in June 2003, and the increase in inventories was the
result of increasing production levels of ITVMs for future sales and deployments
under lease contracts.
Net cash used in investing activities was $635,548 and $2,253,330 for
the six months ended June 30, 2003 and 2002, respectively. The decrease in 2003
was due to the lower amount spent on equipment deployed under leases in the
first six months of 2003.
Net cash used for financing activities was $3,989,850 for the six
months ended June 30, 2003 as compared to net cash used by financing activities
of $5,319,648 for the six months ended June 30, 2002. The change is primarily
the result of lower payments made on the credit facility in 2003 as compared to
payments made on the credit facility in 2002 and also of lower repayments of
notes to related parties.
The credit facility is a three year credit line, which expires on May
31, 2004 and is secured by a lien on all of the assets of the Company. The
interest rate on the credit facility is based on the prime rate or LIBOR,
adjusted up or down depending on the
11
Company's funded debt to EBITDA ratio. The current rate is prime (4.0% at August
1, 2003).
On August 1, 2003, the Company was indebted to Fifth Third Bank in the
aggregate principal amount of $17,025,081 and had $12,974,919 available on the
credit facility.
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 $5 million at July 3, 2001 which expires on
May 31, 2004 and an interest rate swap agreement with a total notional principal
amount of $10 million at November 7, 2002 which also 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 ($366,534) at June
30, 2003. The estimated fair value is based upon appropriate market information
and projected interest rate changes obtained from a reputable institution. The
estimated amount of deferred loss on the hedge to be reclassified to earnings in
2003 is $320,000.
ITEM 4. CONTROLS AND PROCEDURES.
As of June 30, 2003, an evaluation was performed under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures were effective
as of June 30, 2003. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to June 30, 2003.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32 Section 1350 Certifications
(b) Reports on Form 8-K. On May 9, 2003, the Company furnished its
press release reporting first quarter 2003 results and related
information to the Commission on Form 8-K (Item 9, providing
information requested by Item 12).
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, 2003 /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