<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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: 0-10294
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-3276269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2131 FARADAY AVENUE, CARLSBAD, CALIFORNIA 92008-7297
(Address of Principal Executive Offices)
(Zip Code)
(760) 931-4000
(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.
As of June 30, 1998, 6,009,183 shares of common stock were outstanding.
1
<PAGE> 2
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 (Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 1998 and 1997
and Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Submission of Matters to a Vote of Security Holders 11
Signature 13
</TABLE>
2
<PAGE> 3
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(Thousands of dollars) (UNAUDITED) (NOTE)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 778 $ 2,371
Accounts receivable, net of allowance 1,198 1,040
Costs and estimated earnings in excess of billings on
uncompleted contracts 742 1,716
Inventories, at lower of cost (first-in,
first-out method) or market 3,318 2,544
Other current assets 197 111
----------- -----------
Total current assets 6,233 7,782
Equipment, furniture and fixtures, net 746 802
Other 77 78
----------- -----------
Total assets $ 7,056 $ 8,662
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,226 $ 575
Billings in excess of costs and estimated earnings on
uncompleted contracts 973 386
Accrued payroll and related taxes 1,013 839
Related party liability 130 146
Other current liabilities 1,476 2,624
----------- -----------
Total current liabilities 4,818 4,570
Shareholders' equity:
Common shares; no par value: authorized shares
50,000,000 - issued and outstanding
shares 6,009,183 51,103 51,103
Accumulated deficit (48,798) (46,659)
Foreign currency translation adjustment (67) (352)
----------- -----------
Total shareholders' equity 2,238 4,092
----------- -----------
Total liabilities and shareholders' equity $ 7,056 $ 8,662
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date, but do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
3
<PAGE> 4
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------- --------
(Thousands of dollars, except per share amounts)
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Sales of products $ 2,349 $ 3,386 $ 3,650 $ 5,110
Services 568 600 1,093 1,250
------- ------- ------- -------
Total revenues 2,917 3,986 4,743 6,360
Costs of revenues:
Cost of sales of products 1,078 1,856 2,230 3,401
Cost of services 436 428 815 831
------- ------- ------- -------
Total costs of revenues 1,514 2,284 3,045 4,232
------- ------- ------- -------
Gross profit 1,403 1,702 1,698 2,128
Engineering, research and development 459 312 998 638
Selling, general and administrative 1,719 1,496 3,014 3,344
------- ------- ------- -------
Loss from operations (775) (106) (2,314) (1,854)
Other income and (expense), net 160 118 175 304
------- ------- ------- -------
Net income (loss) ($ 615) $ 12 ($2,139) ($1,550)
======= ======= ======= =======
Other comprehensive income:
Foreign currency translation adjustments 0 (67) 285 (203)
------- ------- ------- -------
Comprehensive loss ($ 615) ($ 55) ($1,854) ($1,753)
======= ======= ======= =======
Net income (loss) per share - basic and diluted ($ 0.10) $ 0.00 ($ 0.31) ($ 0.29)
======= ======= ======= =======
Number of shares used in computation of net
loss per share - basic and diluted 6,009 6,009 6,009 6,009
======= ======= ======= =======
</TABLE>
Note: The number of shares used in the computation of per share amounts has
been adjusted to reflect the 3 for 1 reverse stock split which was
effective June 12, 1998.
See accompanying notes.
4
<PAGE> 5
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
(Thousands of dollars) 1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,139) ($1,550)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 172 346
Changes in assets and liabilities:
Accounts receivable (158) 461
Costs and estimated earnings in excess of billings
on uncompleted contracts 974 446
Inventories (774) 422
Accounts payable 651 (270)
Billings in excess of costs and estimated earnings
on uncompleted contacts 587 182
Accrued payroll and related taxes 174 3
Other (1,330) (240)
------- -------
Net cash used for operating activities (1,843) (200)
------- -------
Cash flows from investing activities:
Lottery service agreement sale proceeds and advance
repayments 80 239
Additions to equipment (130) (35)
Proceeds from sale of subsidiary -- 90
Other 15 (21)
------- -------
Net cash used for investing activities (35) 273
------- -------
Effect of exchange rate changes on cash 285 (203)
------- -------
Decrease in cash and cash equivalents (1,593) (130)
Cash and cash equivalents at beginning of period 2,371 5,387
------- -------
Cash and cash equivalents at end of period $ 778 $ 5,257
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1998
(Thousands of dollars)
1. The accompanying condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments), considered
necessary for a fair presentation of the financial condition, results
of operations and comprehensive income and cash flows for such
periods have been included.
The accompanying condensed consolidated financial statements do not
include certain footnotes and financial presentations normally
required under generally accepted accounting principles and,
therefore, should be read in conjunction with the audited financial
statements incorporated by reference in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 as included
in the Registrant's Annual Report to Shareholders for the year ended
December 31, 1997.
The Registrant's consolidated financial statements were prepared on a
continuing operations basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the
normal course of business. The Registrant incurred net losses of
$13,869, $5,498 and $5,938 in 1995, 1996 and 1997, respectively,
while revenues decreased from $18,641 in 1995 to $10,826 in 1997.
During the six months ended June 30, 1998, revenues were $4,743 and
the Registrant incurred a net loss of $2,139. The Registrant is
largely dependent upon significant contracts for its revenue, which
typically include a deposit upon contract signing and up to 3 months
lead-time before delivery of hardware begins. At June 30, 1998, the
Registrant has a backlog of $6,535 compared to backlog of $4,988 at
December 31, 1997.
At June 30, 1998, the Registrant had working capital of $1,415.
Management recognizes that the Registrant must recover its investment
in existing contracts and generate additional contract sales to
maintain its current level of operations. Additionally, management is
currently seeking additional sources of funding through debt or
equity financing and consideration of other business transactions,
including the proposed acquisition of a controlling interest in Prime
Gaming Philippines Inc., which management believes should generate
sufficient resources to assure continuation of the Registrant's
operations.
Management anticipates that it will be successful in recovering its
investment in existing contracts and obtaining sufficient contracts
to enable the Registrant to continue normal operations; however, no
assurances can be given that the Registrant will be successful in
realizing sufficient new contract revenues or obtaining additional
financing. If the Registrant is unable to recover its investment in
existing contracts, obtain sufficient new contract revenue or
financing, management will be required to reduce the Registrant's
operations. On February 27, 1998, the Registrant's largest
shareholder, Berjaya Lottery Management (Berjaya), agreed to provide
financial support if and when necessary to ensure that the
Registrant's operations continue for at least one year from December
31, 1997. The Registrant's ability to continue its on-going
operations on a long-term basis is dependent upon its ability to
recover its investment in existing contracts, obtain additional
financing, secure additional new contracts, and ultimately achieve a
sustainable level of profit from operations.
6
<PAGE> 7
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
2. The results of operations for the interim periods shown in this
report are not necessarily indicative of the results to be expected
for the full year.
3. Inventories - The inventory balance at June 30, 1998 and December 31,
1997 is composed entirely of raw materials and work in process.
4. In July 1995, the Registrant sold all interests in its Papua New
Guinea lottery operation to the principal shareholders of the lottery
licensee for $175 in cash, a note of $1,300 and certain minimum
percentage payments. The Registrant is accounting for the sale under
the cost recovery method. At June 30, 1998, the Registrant's basis in
this asset is zero and all future payments received will be
recognized as a gain upon receipt. The installment payments and
certain minimum percentage payments are secured by the lottery assets
and certain personal guarantees. During the six months ended June 30,
1998 and 1997, payments aggregating $80 and $239, respectively, were
received and recognized as other income. As of June 30, 1998, future
payments expected to be received aggregate approximately $620.
5. On June 19, 1998, the Registrant signed an agreement with Berjaya
Lottery Management (H.K.) Limited ("Berjaya"), pursuant to which the
Registrant would acquire a controlling interest in Prime Gaming
Philippines Inc. ("Prime") from Berjaya and/or current Prime
shareholders in exchange for the issuance of the Registrant's common
stock. Under the proposed transaction the Registrant would issue 9.5
million new common shares to Berjaya and/or other current Prime
shareholders in exchange for a 52.25% interest in Prime.
The Registrant's shares to be issued in the transaction would
represent approximately 61% of the Registrant's outstanding shares
upon completion of the transaction. In the event that the other
current Prime shareholders assign their interest in the transaction
to Berjaya, Berjaya's percentage ownership of the Registrant would
then increase from its present 36.6% to 75.4%. If none of the current
Prime shareholders assign their interest in the transaction to
Berjaya, Berjaya's percentage ownership of the Registrant would be
38.7%.
The proposed transaction is subject to satisfaction of customary
closing conditions, including approval of the transaction by the
Registrant's shareholders, the shareholders of Berjaya Group Berhad
(the parent of Berjaya) and completion of due diligence. Subject to
these conditions, the transaction is expected to close in late
September or October immediately following the Registrant's
shareholder approval at a special shareholders meeting.
6. Orders received subsequent to June 30, 1998 include a $1.0 million
terminal order from PGMC, a $1.5 million contract from the Hong Kong
Jockey Club and approximately $1.0 million from a new customer to
ILTS, the Singapore Turf Club.
7. 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 and 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.
7
<PAGE> 8
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
8. On June 12, 1998, a 3 for 1 Reverse Stock Split was effected, as
approved by the Registrant's Shareholders at the Annual Meeting on
June 1, 1998. This action was initiated in order to increase the
stock price of the Common Stock to a level that will make it more
likely that the Registrant will be able to meet the $1.00 minimum bid
price requirement for its NASDAQ listing. The number of authorized
shares of Common Stock remains at 50,000,000.
9. On January 1, 1998 the Registrant adopted SFAS No. 130, "Reporting
Comprehensive Income." The effect of the implementation was to show
the change in the foreign currency translation adjustment in
shareholders' equity as a component of the statement of operations
and comprehensive income. All prior periods were restated to conform
with the implementation of SFAS No. 130.
10. In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which is required to be adopted for the fiscal quarter
beginning after June 15, 1999. At this time, the Registrant has not
entered into any derivative instruments or hedging activities.
11. In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-1, "Accounting for Costs
of Computer Software Developed or Obtained for Internal Use." This
statement provides guidance on accounting for the costs of computer
software developed or obtained for internal use and identifies
characteristics of internal use software and provides assistance in
determining when computer software is for internal use. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998, with
earlier application permitted. The Registrant has not yet determined
what impact, if any, the adoption of SOP 98-1 will have on the
Registrant's consolidated financial statements, results of
operations, or related disclosures thereto.
12. In April 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities." This statement provides guidance on
financial reporting of start-up costs and organization costs and
requires that such costs of start-up activities be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. The Registrant
has not yet determined what impact, if any, the adoption of SOP 98-5
will have on the Registrant's consolidated financial statements,
results of operations, or related disclosures thereto.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Thousands of dollars)
RESULTS OF OPERATIONS
During the quarter ended June 30, 1998, revenue from the sale of products
decreased by 31%, or $1,037, to $2,349 from $3,386 for the same quarter ended
June 30, 1997. This decrease is the result of the 1997 contract revenues of
$2,340 from Olympic Gold which was not replaced by a similar new contract in
1998. Service related revenues decreased by 5%, or $32, to $568 from $600 in the
quarter ended June 30, 1997. This decrease is the result of fewer customer
support projects in 1998. The gross profit on sales of products was 54% in 1998,
compared to 45% in 1997. Gross profit for 1998 benefited from the completion of
projects for which actual costs were less than previously calculated. Losses on
these contracts had been anticipated and reported in previous periods. Due to
these favorable project cost results, a portion of the previous loss reserves
reduced the cost of sales in the second quarter of 1998. The 1997 gross profit
on sales of products was favorably impacted by the gross profit recognized on a
contract with a new customer for earlier model terminals which had previously
been fully reserved. The gross profit on services of 23% in 1998 compared to 29%
8
<PAGE> 9
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
in 1997. The decrease in services gross profit was due to a higher level of
costs incurred related to customer software support agreements in 1998.
Engineering, research and development expenses in the second quarter of 1998
increased 47% to $459 compared to $312 in the second quarter of 1997. The 1998
costs were primarily related to expanding the functionality of the Data Trak
lottery software and ongoing development efforts for an off-line selling system
which can interface with on-line Datamark terminals. Selling, general and
administrative expenses increased by 15%, or $223, to $1,719 for the second
quarter of 1998 compared to $1,496 for the second quarter of 1997. This increase
was primarily due to costs incurred in 1998 associated with the proposed
acquisition of a controlling interest in Prime Gaming Philippines Inc. and
higher bid and proposal costs.
During the six month period ended June 30, 1998, revenue from the sale of
products decreased by 29%, or $1,460, to $3,650 from $5,110 for the same period
in 1997. This decrease primarily reflects the impact of the 1997 contract
revenues of $2,340 from Olympic Gold as noted above. Service related revenues
decreased by 13%, or $157, to $1,093 from $1,250 which is the result of a lower
level of customer support projects in 1998. The gross profit on sales of
products was 39% for the six months ended June 30, 1998, compared to 33% in
1997. The increase in 1998 gross profit was due to the completion of projects as
discussed above. The gross profit on services was 25% in 1998, compared to 34%
for the similar period in 1997. The 1998 services gross profit decrease was the
result of higher customer support agreement costs. Engineering, research and
development expenses for the first six months of 1998 increased $360, or 56% to
$998 as compared to $638 for the same period in 1997. As explained above, 1998
costs were primarily related to expanding the functionality of the Data Trak
lottery software. Selling, general and administrative costs decreased by $330,
or 10%, to $3,014 for the six month period ended June 30, 1998 compared to
$3,344 for the same period in 1997. This decrease is primarily due to cost
reduction actions implemented late in the first quarter of 1997. Other income
and expense, net, decreased $129, or 42%. The decrease relates to the 1997 gain
recognized from the sale of the McKinnie & Associates subsidiary and fewer
receipts from the Papua New Guinea lottery than in 1997.
As part of its strategic plan, the Registrant intends to pursue long-term
service contracts as a source of revenue. Service contracts pose capital
investment risks for the Registrant that do not exist in its product sale
business. Service contracts require up-front investments of capital which is
repaid only after a system becomes operational, based upon a percentage of the
customer's gross receipts from the system. The Registrant, therefore, bears the
risk that scheduling delays may occur, a system may not become operational or
that the customer's gross receipts from the system may be less than projected.
If the Registrant enters into a long-term service contract, the Registrant must
seek the funds necessary to implement the project from Berjaya or other sources.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30, 1998, the Registrant's working capital
decreased by $580 primarily as a result of the $596 net loss for the quarter. In
addition, working capital was utilized to increase the inventory on hand from
the December 31, 1997 level in preparation for deliveries in the third quarter
of 1998. The Registrant's consolidated financial statements for the year ended
December 31, 1997 and the six months ended June 30, 1998 have been prepared on a
continuing operations basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. At
June 30, 1998, the Registrant had working capital of $1,415. Management
recognizes that the Registrant must generate additional contract sales to
maintain its current level of operations. Additionally, management is currently
seeking additional sources of funding through debt or equity financing and
consideration of other business transactions, including the proposed acquisition
of a controlling interest in Prime Gaming Philippines Inc., which would generate
sufficient resources to assure continuation of the Registrant's operations.
9
<PAGE> 10
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Management anticipates that it will be successful in obtaining sufficient
contracts to enable the Registrant to continue normal operations; however, no
assurances can be given that the Registrant will be successful in realizing
sufficient contract revenue or obtaining additional funding. If the Registrant
is unable to obtain sufficient contract revenue or funding, management will be
required to reduce the Registrant's operations.
On February 27, 1998, the Registrant's largest shareholder, Berjaya Lottery
Management (Berjaya), agreed to provide financial support if and when necessary
to ensure that the Registrant's operations continue for at least one year from
December 31, 1997. The Registrant's ability to continue its on-going operations
on a long-term basis is dependent upon its ability to recover its investment in
existing contracts, obtain additional financing, secure additional new contracts
and ultimately achieve a sustainable level of profit from operations.
The Registrant's reporting currency is the U.S. dollar. Historically, a majority
of the Registrant's sales have been denominated in U.S. dollars, with the
balance denominated in foreign currencies. These foreign currency sales have
been effected principally by the Registrant's international subsidiaries.
Changes from reporting period to reporting period in the exchange rates between
various foreign currencies and the U.S. dollar have had, and will in the future
continue to have, an impact on revenues and expenses reported by the Registrant,
and such effect may be material in any individual reporting period. As the
contracts are predominantly denominated in the functional currency of the
subsidiary performing under the contract, the Registrant has historically
incurred immaterial amounts of transaction gains or losses.
As of June 30, 1998 there were no material commitments for capital expenditures.
Asia
A significant portion of the Registrant's revenues are derived from customers
located in Asia. In the last 18 months the currencies of the Asian countries in
which the Registrant's customers are located have declined significantly against
the U.S. dollar. This decline has effectively increased the cost of the
Registrant's products to its customers. Generally, the Registrant does not
believe that its on-going business has been negatively impacted by the Asian
currency exchange situation, with the exception of one current customer which
has asked to delay the scheduled delivery of terminals. This could result in the
delay of ILTS revenues and cash receipts of approximately $1 million in late
1998.
Year 2000
Management has initiated an enterprise-wide program to prepare the Registrant's
computer systems and applications for the Year 2000. The Registrant expects to
incur internal staff costs as well as other expenses related to infrastructure
and facilities enhancements necessary to prepare the systems for the Year 2000.
The Registrant has evaluated the effort required and believes that the related
costs will be immaterial and will be expensed as incurred. In addition, the
Registrant has reviewed the software systems and hardware previously sold and
determined that it is Year 2000 compliant.
Forward Looking Statements
The statements in this filing which are not historical facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth or implied by forward-looking
statements. These risks and uncertainties include the absence of significant
contract backlog, the dependence on business from foreign customers sometimes in
politically unstable regions, political and governmental decisions as to the
establishment of lotteries and other wagering industries in which the
Registrant's products are marketed, fluctuations in quarter-by-quarter operating
results and other factors described in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.
10
<PAGE> 11
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Walters v ILTS - On November 3, 1995, Mr. James T. Walters, the
former chairman and president of the Registrant, who retired in 1994, filed a
defamation and invasion of privacy action in the San Diego County Superior Court
against the Registrant, its former president, Frederick A. Brunn and other
parties, relating to statements in a magazine article. The other parties
previously settled with Mr. Walters. Mr. Walters sought general and special
damages of $9 million and punitive damages. On November 1, 1996, a summary
judgment was entered in favor of the Registrant and Mr. Brunn. Mr. Walters filed
an appeal with the California Fourth District Court of Appeal. It is anticipated
that oral arguments will be heard in the Fall of 1998.
Item 4. Submission of Matters to a Vote of Security Holders
On June 1, 1998, the Registrant held its 1998 Annual Meeting of
Shareholders. At the Annual Meeting, the following persons were elected as
directors of the Registrant: Chan Kien Sing, Frederick A. Brunn, Theodore A.
Johnson, M. Mark Michalko, Ng Aik Chin, Ng Foo Leong, Martin J. O'Meara, Jr.,
Lord Michael G.R. Sandberg and Tan Sri Dato (Vincent) Tan Chee Yioun.
The following are the results of the voting on this matter:
1. The election of directors was conducted by the Inspector of
Elections.
For all nominees, except Ng Aik Chin
16,883,638 -or- at least 98% of the votes cast;
(Mr. Chin received 59.26% of the votes. He has since left the
employment of the Company but remains a director).
Withheld total or partial authority 284,568-or-2% of the votes cast.
2. Approve 3 for 1 Reverse Stock Split.
For 95.33% Against & Abstain 4.67%
3. Amend Bylaws to increase range of number of authorized directors and
set the number of authorized directors at nine.
For 95.85% Against & Abstain 4.15%
4. Amend Corporate Articles to limit liability of directors and
authorize expanded directors/officers indemnification.
For 93.83% Against & Abstain 6.17%
5. Approve Bylaw amendment for directors/officers
indemnification. For 93.96% Against & Abstain 6.04%
6. Approve Indemnification Agreement for directors/officers.
For 93.93% Against & Abstain 6.07%
11
<PAGE> 12
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Item. 5
Nasdaq Notification
As a result of the Registrant's Form 10-Q filed on May 15, 1998, Nasdaq
determined that the Registrant no longer met the $4 million net tangible asset
requirement for continued listing on the Nasdaq National Market and that the
Registrant should be delisted from the Nasdaq National Market. At the request of
the Registrant, Nasdaq provided the Registrant with an oral hearing on August 7,
1998 relating to the Registrant's request for a temporary waiver of the Nasdaq
net tangible asset requirement until the Registrant completes its acquisition of
the majority of the shares of Prime Gaming, Inc. ("Prime") of the Philippines in
early September. Prime controls almost all of the shares of Philippine Gaming
Management Corporation ("PGMC") which manages and operates the Philippine
lottery in Luzon (greater Manila) and PGMC's net tangible assets would be
sufficient for ILTS' consolidated financial statements to satisfy the NTA test.
12
<PAGE> 13
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
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.
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
/s/ M. Mark Michalko
-------------------------------------------
M. Mark Michalko
President
/s/ Dennis D. Klahn
-------------------------------------------
Dennis D. Klahn
Chief Financial Officer
Date: August 14, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 778
<SECURITIES> 0
<RECEIVABLES> 1,198
<ALLOWANCES> 0
<INVENTORY> 3,318
<CURRENT-ASSETS> 6,233
<PP&E> 746
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,056
<CURRENT-LIABILITIES> 4,818
<BONDS> 0
0
0
<COMMON> 51,103
<OTHER-SE> (48,779)
<TOTAL-LIABILITY-AND-EQUITY> 7,056
<SALES> 2,917
<TOTAL-REVENUES> 2,917
<CGS> 1,514
<TOTAL-COSTS> 1,514
<OTHER-EXPENSES> 2,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (615)
<INCOME-TAX> 0
<INCOME-CONTINUING> (615)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (615)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
