1
EXHIBIT 13
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
1995 ANNUAL REPORT
[MISCELLANEOUS PHOTOS]
2
International Lottery & Totalizator Systems,
Inc.(TM) (NASDAQ:ITSI) provides computerized ticket processing equipment,
systems and services to racing organizations and lotteries worldwide.
3
QUALITY COMMITMENT
ILTS is an ISO 9001 registered company, which
demonstrates that we meet the highest level of quality standards for both our
design and manufacturing processes. ILTS has a long-established reputation of
providing the best technology and highest quality products to the markets we
serve. The Company's quality commitment is to achieve customer satisfaction by:
- Providing products designed and manufactured for durability and
reliability.
- Providing delivery performance that competitors cannot match.
- Providing customer service that meets or exceeds customer expectations.
ILTS / 1
4
PRESIDENT'S MESSAGE TO
THE SHAREHOLDERS
Nineteen ninety-five was another challenging year for ILTS. We continued to
strategically reposition the Company for future growth and profitability while
simultaneously resolving some difficult issues from the past.
The strategic shift initiated in 1992 to transition the Company from relying
solely on contract sales to also becoming a lottery facilities management
service provider remains a sound objective. However, the initial lottery service
projects have proven costly. Chief among those has been the Russian lottery
project. Begun in 1993, this project has been both difficult and frustrating.
Among the lessons learned, we found that everything in Russia takes longer and
costs more than anyone ever imagined. Although almost all of the project was
written off or reserved at year-end 1994, the project was finally terminated in
November of 1995 after exhausting numerous options to secure outside financing
or joint venture partners for the project. The remaining investment and costs of
the project were expensed in 1995.
Another major contributor to the 1995 loss was the shareholders' class
action lawsuit. This suit was filed in mid-1994
[CAPTION]
ILTS provides innovative gaming solutions with quality products
and services to maximize the revenue of our customers and
bring a fair return to our shareholders.
[PHOTOS]
2 / ILTS
5
following the announced write-off of costs associated with the lottery service
projects in the Republic of Georgia and the Dominican Republic and the
write-down of the Company's investment in the Papua New Guinea project. The
Company's total legal expenses in 1995 exceeded $1 million dollars; the majority
of this related to the shareholders' suit. Additionally, the Company recorded a
reserve for the costs associated with the proposed settlement, which includes
legal fees plus 1.2 million authorized and unissued common shares.
Yet another factor in the 1995 loss was lower-than-expected sales volume
primarily due to delays and postponements of anticipated procurements by both
existing customers and new prospects.
Notwithstanding the negative effects of the Russian project, the
shareholders' lawsuit, and the reduced contract volume, there were a number of
notable positive events for ILTS in 1995:
- We sold the facilities management and equipment lease contracts for the
lottery in Papua New Guinea to the principal shareholders of the operating
company, The Lotto Pty. Ltd. Proceeds from the sale are anticipated to
accelerate the Company's return on its investment, and ultimately should provide
a greater return than if the Company had continued to operate the lottery for
Lotto Pty.
- We negotiated several significant strategic partnerships and alliances
during 1995. Among these was a participation and licensing agreement with The
Royal Hong Kong Jockey Club (RHKJC) where, in exchange for the Company's
participation in developing a new, high-performance betting system for the
RHKJC, we receive the rights to market that software system. A second alliance
involved a licensing agreement with Racecourse Totalizators Pty. Ltd. of
Australia, wherein ILTS has licensed Racecourse Totalizators' UNIX-based
[CAPTION]
Widespread employee involvement, teamwork and pride of workmanship
are keys to the Company's success in providing customer satisfaction.
[PHOTOS]
ILTS / 3
6
betting system software products for incorporation into the Company's
pari-mutuel system. Another strategic alliance was established with a company
that has developed a low-cost terminal for entering and storing bets off-line.
In combination with our on-line technology, we are confident this alliance will
facilitate new opportunities for automating lotteries in many developing
countries around the world.
In total, we expect all of these new alliances to make our product offerings
stronger and to aid us in establishing competitive advantages in several of the
markets we serve.
- We added two new lottery customers in 1995, Pascal & Company (Pascal) of
the United Kingdom and Natural Avenue Sdn. Berhad of Malaysia. For Pascal, we
will provide a lottery system and services for operation of an on-line lottery
on behalf of the National Health Service and the National Hospital Trust in
England. Natural Avenue is the operator of a lottery in the state of Sarawak, in
east Malaysia. On-line sales began on February 12, 1996.
- We continued to book new orders from several of our established customers,
including ATG in Sweden, PGMC in the Philippines and SATAB in Australia. All of
these orders include the DATAMARK Flipper terminal, which gained wide support
with our customers in 1995.
- We completed an ISO audit performed by Underwriters Laboratories and
received ISO 9001 certification. This was a strategic target for the Company and
demonstrates our continued commitment to quality in design, development and
manufacturing under rigid standards.
- We continued to develop and refine our lottery system software to enable
the Company to compete successfully in the lottery service business.
- We continued to streamline internal operations, including more efficient
employee utilization and reducing operating expenses wherever possible.
Our goal is to become profitable in 1996, and establish a pattern of
consistent profitability. To do so, we will continue to streamline our
operations, control and reduce costs where possible, and work toward improving
our manufacturing efficiencies and project costs. At the same time, we are
implementing an aggressive sales effort.
It is important to mention that although this is our goal several factors
outside our control, such as delays in receiving new orders and foreign
political uncertainties, could affect our ability to accomplish this objective.
I believe we have eliminated many of the past problems and have positioned
the Company for future profitability. I offer my sincere gratitude and
appreciation to our shareholders who have shown continued loyalty, and to our
employees who remain dedicated and enthusiastic. With the continued support and
patience of our shareholders and employees together with that of our valued
customers, we will build a strong and profitable company.
[PHOTO OF FREDERICK A. BRUNN]
/s/ Frederick A. Brunn
FREDERICK A. BRUNN
PRESIDENT
DIRECTOR
4 / ILTS
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SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
Thousands of dollars except per share amounts and non-monetary items
Income statement data
Revenue $ 18,641 $ 24,089 $ 25,017 $ 19,837 $ 29,491
Gross profit 1,185 4,527 9,038 6,796 10,474
Operating income (loss) (14,221) (22,943) 302 (679) 2,428
Net income (loss) (13,869) (22,620) 605 (629) 1,701
Earnings (loss) per share (.83) (1.35) .05 (.06) .18
Balance sheet data
Total assets 21,352 31,888 54,924 19,883 19,295
Long-term obligations 109 -- -- -- 84
Shareholders' equity 13,412 27,145 48,855 10,828 11,285
Key ratios & statistics
Gross margin 6.4% 18.8% 36.1% 34.3% 35.5%
Operating margin/(loss) (76.3%) (95.2%) 1.2% (3.4%) 8.2%
Working capital 8,788 22,236 31,670 3,774 8,264
Book value .80 1.62 2.94 1.10 1.17
Current ratio 2.12 5.69 6.22 1.42 2.05
Backlog 9,214 11,168 15,250 16,819 19,387
Employees 176 277 249 216 201
Shares outstanding 16,816 16,804 16,574 9,782 9,632
ILTS / 5
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1995 vs. 1994
1995 revenue decreased $5.4 million or 23% compared to 1994. This change mainly
reflects a lower level of contract business in 1995. New orders received in 1995
were $12.6 million compared to $20.0 million in 1994. As part of its strategic
plan, the Company has pursued long-term service contracts as a source of
revenue. Service contracts pose capital investment risks for the Company that do
not exist in its product sale business. Revenues are received only after a
system becomes operational, based upon a percentage of the customer's gross
receipts from the system. The Company, therefore, bears the risk that scheduling
delays may occur, that a system may never become operational, or that revenue
levels may not be sufficient to provide a return of costs invested. During 1992,
the Company entered into a lottery service agreement in Papua New Guinea. A
minimal amount of revenues was earned on this service contract in the first six
months of 1995. In July 1995, the Company sold all interest in its Papua New
Guinea lottery operations to the principal shareholders of the lottery licensee,
The Lotto Pty. Ltd., in return for $175 thousand cash and a note of $1.3 million
to be paid in monthly installments of approximately $79 thousand per month for a
period of 17 months commencing in September 1995. Additionally, the Company will
receive a percentage of the annual gross lottery sales or an annual sum of $260
thousand, whichever is greater for a period of five years, provided that the
additional sums shall not exceed $3 million. The installment payments and the
minimum percentage payments are secured by all lottery assets and certain
personal guarantees and indemnifications of all of the shareholders of The Lotto
Pty. Ltd. The Company's remaining investment in the PNG lottery is approximately
$338 thousand and is included in other assets. The Company will not record any
gain until the balance of the receivable has been collected.
In August 1993, the Company entered into management and equipment lease
agreements to operate an on-line lottery within the Russian Federation ("the
Project") with Zodiac On-Line ("Zodiac"), a Russian lottery operating company.
Under the terms of the agreements, the lottery was to be conducted under a
non-exclusive license held by a Russian charitable organization (the
"Foundation"). In 1994, the Company acquired Zodiac making it a wholly owned
subsidiary. In December 1994, the Company recorded a provision with respect to
its investment and subsequently has expensed all related costs as they were
incurred. In June 1995, the Company became the lottery operator under a license
granted to the Russian Federal Postal Service. In November 1995, the Company
terminated the Project after exhausting numerous financing and joint venture
possibilities. In 1995, project related expenses, including a provision for
future costs to liquidate the operation totaled $2.8 million. In May 1995, the
Company entered into an equipment lease agreement in the United Kingdom (U.K.)
to operate a lottery to benefit the National Hospital System. The Company has
invested $2.8 million in the Project as of December 31, 1995, which comprises
the entire amount invested in lottery service agreements at that date. See Note
4 of Notes to Consolidated Financial Statements on page 13. The Company believes
it will ultimately recover its investment in the U.K. lottery service agreement.
However, realization of this investment is dependent upon future events,
including the successful operation of the lottery at revenue levels sufficient
to provide a return of costs invested. Cost of sales as a percentage of revenue
increased to 94% in 1995 from 81% in 1994 due mainly to unfavorable
manufacturing variances in 1995, costs associated with a reduction in work force
and operational costs in support of the Company's lottery service operations.
Engineering, research and development expenses in 1995 decreased $258 thousand
or 16% compared to 1994. Of the $1.4 million expended in 1995, $0.9 million went
toward development of lottery software. Selling, general and administrative
expenses increased $2.8 million in 1995 compared to 1994. The increase in
selling, general and administrative expenses from 1994 is due to increased legal
expenses and a proposed settlement of a shareholders' lawsuit, costs incurred
for domestic lottery proposals, and costs associated with a reduction in work
force. Net interest income was $407 thousand in 1995 compared to net interest
income of $467 thousand in 1994. Interest income is generated from short term
investments.
1994 vs. 1993
1994 revenue decreased $0.9 million or 4% compared to 1993. This change mainly
reflects a lower level of contract business in 1994. New orders received in 1994
were $20.0 million compared to $20.9 million in 1993. As part of its strategic
plan, the Company has pursued
6 / ILTS
9
long-term service contracts as a source of revenue. Service contracts pose
capital investment risks for the Company that do not exist in its product sale
business. Revenues are received only after a system becomes operational, based
upon a percentage of the customer's gross receipts from the system. The Company,
therefore, bears the risk that scheduling delays may occur, that a system may
never become operational, or that revenue levels may not be sufficient to
provide a return of costs invested. During 1992, the Company entered into
lottery service agreements in Papua New Guinea and the Republic of Georgia. In
1993, two additional lottery service agreements, in the Russian Federation and
Dominican Republic, were added. A minimal amount of revenues was earned on
service contracts in 1994. In the second quarter of 1994, the Company took a
$9.8 million accounting charge to write-off its investment in the Dominican
Republic and the Republic of Georgia and to write down its investment in Papua
New Guinea. The Company abandoned its investment of $1.2 million in the Republic
of Georgia due to worsening of the political and economic environment there.
Based on projected revenues, the Papua New Guinea investment was written down by
$3.0 million to the estimated future cash flows of that project and the
Dominican Republic investment of $5.6 million was written off.
In August 1993, the Company entered into management and equipment lease
agreements to operate an on-line lottery within the Russian Federation ("the
Project") with Zodiac On-Line ("Zodiac"), a Russian lottery operating company.
Under the terms of the agreements, the lottery was to be conducted under a
non-exclusive license held by a Russian charitable organization ("the
Foundation"). In 1994, the Company acquired Zodiac making it a wholly-owned
subsidiary. On November 1, 1994, the Russian government issued a decree which
required all existing lottery license holders, including the Foundation, to
apply for re-registration of their license by February 1, 1995. The Company
initially understood that the re-registration was to be a straightforward,
administrative process. However, at December 31, 1994, the re-registration
process had not been defined by the government and the Company was awaiting
official notification of the re-registration requirements. The Company had
invested $9.0 million in the Project through December 31, 1994 and, subject to
resolution of the re-registration of the license described above, expects to
continue with the Project. Because of this uncertainty, there can be no
assurance that the Company will ultimately implement the Project or, if
implemented, that the Project will be successful. Due to the above change in
circumstances, combined with the continued economic, political and legal
instability in Russia, the Company recorded a provision of $7.6 million in its
quarter ended December 31, 1994 with respect to the investment made in the
Project. The remaining $1.4 million represents the estimated net realizable
value of the terminal and related equipment, should the project be terminated.
Further, due to the circumstances noted above, future costs of the Project, in
excess of the recoverable value of the terminals and related equipment, will now
be expensed as incurred by the Company rather than capitalized. See Note 4 of
Notes to Consolidated Financial Statements on page 13. The Company has net
assets of $2.3 million at December 31, 1994 in lottery service agreements. The
Company believes it will ultimately recover its investment in these lottery
service agreements. However, realization of this investment is dependent upon
future events, including the successful operation of the lotteries at revenue
levels sufficient to provide a return of costs invested. In addition, in the
quarter ended December 31, 1994, the Company discontinued its airline
ticket/boarding pass terminal product line, resulting in a charge of $0.5
million in the quarter and a total of $1.5 million through December 31, 1994.
Cost of sales as a percentage of revenue increased to 81% in 1994 from 64% in
1993 due mainly to unfavorable manufacturing variances, inventory reserves;
costs associated with a reduction in work force and operational costs in support
of the Company's lottery service operations. Engineering, research and
development expenses in 1994 decreased $415 thousand or 20% compared to 1993. Of
the $1.6 million expended in 1994, $0.9 million went toward development of the
DATAMARK Flipper terminal. Selling, general and administrative expenses
increased $1.7 million in 1994 compared to 1993. The increase in selling,
general and administrative expenses from 1993 is due to increased legal expenses
relating to a shareholders lawsuit, costs associated with the retirement and
consulting agreement with the Company's former chairman and chief executive
officer, costs incurred for domestic lottery proposals and costs associated with
a reduction in work force. Net interest income was $467 thousand in 1994
compared to net interest income of $107 thousand in 1993. Interest income is
generated from short term investments.
Liquidity and Capital Resources
During 1995, the Company's working capital decreased approximately $13.5 million
due to costs relating to a shareholders lawsuit, manufacturing variances, and
expenses associated with the Russian lottery project. Cash and current
receivable balances totaled approximately $5.5 million at December 31, 1995. The
Company is dependent upon its few major customers. Advance and progress payments
from these customers are also an important source of working capital. Management
believes that existing cash and cash equivalents, plus cash provided from
operations will provide adequate resources to fund 1996 operations. As of
December 31, 1995, there are no commitments for major capital expenditures.
ILTS / 7
10
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Thousands of dollars, except per share amounts
Contract revenue and sales $ 18,641 $ 24,089 $ 25,017
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of sales 17,456 19,562 15,979
Write-offs and write-downs of lottery service agreements 2,807 17,444 --
Engineering, research and development 1,360 1,618 2,033
Selling, general and administrative 11,239 8,408 6,703
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 32,862 47,032 24,715
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from operations (14,221) (22,943) 302
Other income:
Foreign exchange gain -- -- 25
Interest income, net 352 467 107
Gain on sale of subsidiary -- -- 268
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before provision for taxes based on income (13,869) (22,476) 702
- ---------------------------------------------------------------------------------------------------------------
Provision for income taxes -- 144 97
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ (13,869) $ (22,620) $ 605
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Primary $ (.83) $ (1.35) $ .05
- ---------------------------------------------------------------------------------------------------------------
Fully-diluted $ (.83) $ (1.35) $ .04
- ---------------------------------------------------------------------------------------------------------------
Shares used in determination of net income (loss) per share:
Primary 16,812 16,760 13,261
- ---------------------------------------------------------------------------------------------------------------
Fully-diluted 16,812 16,760 13,780
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes.
8 / ILTS
11
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Thousands of dollars, except share amounts
Assets
Current assets:
Cash and cash equivalents $ 3,904 $ 9,467
Accounts receivable, net of allowance for doubtful accounts of $63 ($209 in 1994) 1,588 2,398
Costs and estimated earnings in excess of billings on uncompleted contracts 3,665 3,382
Inventories, at lower of cost (first-in, first-out method) or market:
Finished goods 150 831
Work in process 173 2,173
Raw materials 6,497 7,495
- --------------------------------------------------------------------------------------------------------------------------
Total inventories 6,820 10,499
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Other current assets 642 1,233
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Total current assets 16,619 26,979
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Non-current account receivable 52 --
Investment in lottery service agreements, net 2,759 2,254
Equipment, furniture and fixtures at cost, less accumulated depreciation of $3,222 ($2,903 in 1994) 1,361 1,650
Computer software costs, less accumulated amortization of $1,331 ($821 in 1994) 561 1,005
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 21,352 $ 31,888
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ -- $ 300
Accounts payable 231 909
Billings in excess of costs and estimated earnings on uncompleted contracts 115 968
Accrued payroll and related taxes 949 595
Warranty reserves 298 348
Accrued litigation settlement 4,200 --
Other current liabilities 2,038 1,623
--------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,831 4,743
- --------------------------------------------------------------------------------------------------------------------------
Capital lease obligations 109 --
Commitments and contingencies
Shareholders' equity:
Common shares; no par value, 50,000,000 shares authorized; 16,816,211 shares issued
and outstanding (16,803,711 in 1994) 48,687 48,650
Retained earnings (deficit) (35,223) (21,354)
Foreign currency translation adjustment (52) (151)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 13,412 27,145
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 21,352 $ 31,888
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
ILTS / 9
12
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Thousands of dollars
Cash flows from operating activities:
Net income (loss) $(13,869) $(22,620) $ 605
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Depreciation and amortization 1,061 1,656 1,444
Deferred income taxes -- 148 (148)
Foreign exchange gain -- -- (25)
Stock option compensation -- 304 --
Write-offs and write-downs of lottery service agreements 2,807 17,444 --
Gain on sale of subsidiary -- -- (268)
Changes in operating assets and liabilities:
Accounts receivable 810 1,635 (264)
Costs and estimated earnings in excess of billings on uncompleted contracts (283) (856) (2,133)
Inventories 3,679 (4,003) 1,441
Accounts payable (678) (633) (650)
Billings in excess of costs and estimated earnings on uncompleted contracts (853) (1,432) (968)
Accrued payroll and related taxes 354 (66) 222
Income taxes -- -- (121)
Accrued litigation settlement 4,200 -- --
Other 572 580 (27)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (2,200) (7,843) (892)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Investment in lottery service agreements (4,044) (5,934) (9,912)
Lottery service agreement sale proceeds and advance repayments 651 402 --
Non-current account receivable -- 330 202
Additions to equipment (250) (1,209) (259)
Additions to computer software costs (67) (413) (718)
Proceeds from sale of subsidiary 525 325 325
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (3,185) (6,499) (10,362)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used for) financing activities:
Additions to notes payable -- 300 --
Payments on notes payable (300) -- (2,250)
Proceeds from issuance of subordinated notes -- -- 2,350
Payments on subordinated notes -- -- (2,350)
Proceeds from issuance of common shares and warrants 23 614 35,944
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (277) 914 33,694
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 99 (8) 22
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5,563) (13,436) 22,462
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 9,467 22,903 441
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,904 $ 9,467 $ 22,903
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the year for interest 46 47 330
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for income taxes 7 8 220
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
10 / ILTS
13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOREIGN
RETAINED CURRENCY
COMMON SHARES EARNINGS TRANSLATION
SHARES AMOUNT (DEFICIT) ADJUSTMENT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
Thousands of shares/dollars
Balance at December 31, 1992 9,782 $ 10,349 $ 661 $ (182) $ 10,828
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock options,
including related tax benefits 192 459 -- -- 459
Proceeds from sale of shares to Berjaya
Lottery Management 6,600 35,325 -- -- 35,325
Issuance of warrants and stock options -- 1,599 -- -- 1,599
Foreign currency translation adjustment -- -- -- 39 39
Net income - 1993 -- -- 605 -- 605
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 16,574 47,732 1,266 (143) 48,855
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of warrants 98 471 -- -- 471
Proceeds from exercise of stock options 132 143 -- -- 143
Accelerated vesting of options for
terminated employees -- 304 -- -- 304
Foreign currency translation adjustment -- -- -- (8) (8)
Net loss - 1994 -- -- (22,620) -- (22,620)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 16,804 48,650 (21,354) (151) 27,145
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock options 12 23 -- -- 23
Accelerated vesting of stock options for
terminated employees -- 14 -- -- 14
Foreign currency translation adjustment -- -- -- 99 99
Net loss - 1995 -- -- (13,869) -- (13,869)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 16,816 $ 48,687 $ (35,223) $ (52) $ 13,412
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
ILTS / 11
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Lottery & Totalizator Systems, Inc. ("the Company") designs,
manufactures, sells, leases, manages, supports and services computerized ticket
issuing systems and terminals for global pari-mutuel and on-line lottery
industries. The principal applications for the Company's products are in the
automated pari-mutuel (horse racing) wagering and on-line government sponsored
lottery industries.
The principal proprietary component of the Company's system is the DATAMARK
terminal, a compact, reliable microprocessor-based ticketing terminal which can
be modified to meet specific customer feature and configuration requirements.
The Company sells its product principally in international markets.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The accompanying financial statements consolidate
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
Intercompany accounts and transactions are eliminated in consolidation.
REVENUE RECOGNITION The Company recognizes long-term contract revenue on the
percentage-of-completion method, based on contract costs incurred to date
compared to total estimated contract costs. The effects of changes in contract
cost estimates are recognized in the period they are determined. Revenues under
lottery services agreements are based on a percentage of the customer's lottery
sales volume and recognized upon receipt. Revenues relating to certain assets
when the ultimate total collection is not reasonably assured are being recorded
under the cost recovery method. All other revenue is recorded on the basis of
shipments of products or performance of services.
USE OF ESTIMATES 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.
DEPRECIATION Depreciation of equipment, furniture and fixtures is provided
principally using the straight-line method over estimated useful lives of 3 to 8
years.
COMPUTER SOFTWARE COSTS The Company capitalizes the costs of computer software
incurred in the development of specific products, after technological
feasibility has been established. The capitalized software costs are amortized
using the greater of the amount computed using the ratio of current product
revenue to estimated total product revenue or the straight-line method over the
remaining estimated economic lives of the products (2 to 5 years). Amortization
expense totaled $510 thousand, $687 thousand, and $666 thousand for the years
ended December 31, 1995, 1994, and 1993 respectively.
WARRANTY RESERVES Estimated expenses for warranty obligations are accrued as
income is recognized on related contracts. The reserves are adjusted
periodically to reflect actual results.
FOREIGN CURRENCY The Company has contracts with certain customers that are
denominated in foreign currencies and related transaction gains and losses are
recognized as a component of current operations. The consolidated accounts of
the Company's Australian subsidiary have been translated from its functional
currency, the Australian dollar. The effect of the exchange rate fluctuations
between the U.S. dollar and the Australian dollar is recorded as an increase
(decrease) to a separate component of shareholders' equity. The Company's other
foreign subsidiary uses the U.S. dollar as its functional currency and,
accordingly, related translation gains and losses are recognized in current
operations.
PER SHARE INFORMATION Primary earnings per share are based on the weighted
average number of shares outstanding during the year and the dilutive effect of
common share equivalents.
RESEARCH AND DEVELOPMENT Research and development expense for the years ended
December 31, 1995, 1994, and 1993 was $1.4 million, $1.6 million, and $2.0
million, respectively.
CONCENTRATION OF CREDIT RISK Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts are primarily related to
contracts with a few major customers. These amounts are payable in accordance
with the terms of individual contracts and generally collateral is not required.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Included in cash and cash equivalents at December 31, 1995 and 1994 are
investments in commercial paper and municipal bonds totaling $2.2 and $7.9
million, respectively, which mature in January 1996 and March 1995,
respectively. The estimated fair value of these investments approximate the
amortized cost; therefore, there are no unrealized gains or losses as of
December 31, 1995 or 1994.
INVESTMENT IN LOTTERY SERVICE AGREEMENTS The investment in lottery service
agreements includes the direct costs of manufacture and installation of
computerized electronic lotteries, including the terminals, central computer
systems and start-up related implementation costs to the extent that recovery of
such costs is determined to be reasonably assured. The Company depreciates the
system cost over the shorter of the estimated useful life or initial contract.
STOCK OPTIONS The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
NOTE PAYABLE TO BANK The maximum amount of month-end borrowings under short-term
notes payable to a bank were $.58 million, $.3 million and $2.2 million in 1995,
1994 and 1993 respectively. The average month-end amount outstanding during 1995
was $115 thousand, (1994 -$54 thousand and 1993 - $797 thousand) with a weighted
average interest rate of 8.3% (1994- 9.1% and 1993-8.0%)
2. RELATED PARTY TRANSACTIONS
The Company has entered several sales agreements to supply terminals to entities
in which a substantial shareholder of the Company has a significant equity
interest. These revenues totaled $3.5 million and $5.2 million in 1995 and 1994
respectively. Included in accounts receivable and costs and estimated earnings
in excess of billings on uncompleted contracts were $2.3 million and $1.4
million at December 31, 1995 and 1994, respectively, relating to these
customers.
12 / ILTS
15
3. CONTRACTS IN PROCESS
The amounts by which total costs and estimated earnings exceeded or were less
than billings on uncompleted contracts are as follows (in thousands):
DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------
Costs incurred $ 15,665 $ 12,572
Estimated earnings 4,612 5,820
- -------------------------------------------------------------------------------
20,277 18,392
- -------------------------------------------------------------------------------
Less: billings (16,727) (15,978)
- -------------------------------------------------------------------------------
$ 3,550 $ 2,414
- -------------------------------------------------------------------------------
Included in the accompanying
consolidated balance sheets as follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 3,665 $ 3,382
Billings in excess of costs and estimated
earnings on uncompleted contracts (115) (968)
- -------------------------------------------------------------------------------
$ 3,550 $ 2,414
- -------------------------------------------------------------------------------
The Company is obligated under a $2.8 million contract to supply ticket
issuing equipment. The contract provides for certain late delivery penalties and
the Company is contingently liable for successful performance under a
performance bond with an insurance company for $2.7 million. The Company has
experienced difficulty in satisfying some of the customer's ultimate
requirements during the initial pilot testing period of the program. The Company
has $1.1 million recorded as costs and estimated earnings in excess of billings
on uncompleted contracts at December 31, 1995. The Company does not anticipate
any losses beyond amounts accrued. Although not probable, the Company could
sustain a loss that could be material to the financial statements.
4. LOTTERY SERVICE AGREEMENTS
The Company entered into contracts to provide lottery equipment and management
of on-line lottery system on a long-term basis in Papua New Guinea and the
Russian Federation in 1992 and 1993, respectively, and it entered into a
contract to provide lottery equipment in the United Kingdom in 1995.
The Company has committed lottery equipment costing approximately $2.8
million to its United Kingdom lottery service agreement in 1995. The Company has
agreed to provide a complete lottery system and will receive a percentage of
lottery revenues. The lottery is scheduled to commence operations in 1997.
The Papua New Guinea lottery commenced operation in March 1993. Revenues
from the lottery in Papua New Guinea did not meet expectations and in June 1994,
the Company wrote down its investment in Papua New Guinea by $3.0 million to its
estimated future cash flows. In July 1995, the Company sold all interests in the
Papua New Guinea lottery operation to the principal shareholders of the lottery
licensee, for $175 thousand in cash and a note of $1.3 million to be paid in
monthly installments of approximately $79 thousand per month for a period of 17
months commencing in September 1995. Additionally, the Company will receive a
percentage of the annual gross lottery sales or an annual sum of $260 thousand,
whichever is greater, for a period of five years, provided that the additional
sums shall not exceed $3.0 million. The Company is accounting for the sale under
the cost recovery method. The installment payments and the minimum percentage
payments are secured by all lottery assets and certain personal guarantees. The
Company's remaining investment in the Papua New Guinea lottery at December 31,
1995 is approximately $338 thousand and is included in other current assets.
Due to uncertainties which arose in November 1994 regarding the Russian
lottery license process and the continued economic, political and legal
instability in Russia, the Company recorded a provision of $7.6 million to
record the assets at estimated net realizable value with respect to the Russian
lottery investment. In November 1995, the Company terminated its Russian
project. In 1995, the Company incurred $2.8 million in costs toward its Russian
lottery project, including the write-off of costs related to a reduction in its
Russian work force and future costs to liquidate the operation.
In June 1994, the Company wrote off its investment in two lottery service
agreements which totaled $6.8 million, $1.2 million in the Republic of Georgia
and $5.6 million in the Dominican Republic, as projected revenues indicated the
Company would not be able to recover its investment. In January 1995, the
Company ceased operations in the Dominican Republic and in 1994 closed its
office in the Republic of Georgia
Although the Company believes that its remaining lottery service agreement
investment in the U.K. represents a good business investment the realization of
this investment is dependent upon future events, including the successful
operation of the lottery at levels sufficient to provide the Company a return of
its costs invested. The investment in lottery service agreements is comprised of
the following (in thousands):
DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------
Systems, equipment and other start-up
costs relating to lottery contracts $2,759 $ 13,236
Less accumulated depreciation,
amortization and write-down -- (10,982)
- -------------------------------------------------------------------------------
Total: $2,759 $ 2,254
- -------------------------------------------------------------------------------
5. INDUSTRY SEGMENT AND GEOGRAPHICAL DATA
The Company operates in one industry segment which includes totalizator and
lottery systems. The Company has an Australian subsidiary, International Lottery
& Totalizator Systems Australia Pty., Ltd., and a United Kingdom subsidiary,
Totalizator Systems (UK) Ltd. and a Russian subsidiary, Zodiac On-line.
Sales between geographic areas are generally priced to recover material
costs plus an appropriate markup. Revenue from major customers is as follows (in
thousands):
CUSTOMER LOCATION 1995 1994 1993
- --------------------------------------------------------------------------------
Australia $ 4400 $2,400 $3,300
Philippines 2900 5,200 --
Sweden, Stockholm 2700 400 700
Malaysia 2300 2,100 600
Norway 900 1,200 --
Hong Kong 600 9,400 9,500
China -- 800 4,900
The following table at the top of page 14 summarizes information about the
Company's operations in different geographic areas for the years ended December
31, 1995, 1994 and 1993 (in thousands).
Sales, income and identifiable assets of the Dominican Republic are included
in the U.S., Europe consists of the U.K. subsidiary, Russia and Georgia, and
Pacific includes the Australian subsidiary and Papua New Guinea.
ILTS / 13
16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
Years Ended December 31, 1995 1994
------------------------------------------- ---------------------------------------------
Eastern Eastern
Europe/ Consoli- Europe/ Consoli-
USA Pacific Europe dated USA Pacific Europe dated
- -------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers:
Export $ 15,006 $ -- $ -- $ 15,006 $ 19,923 $ -- $ -- $ 19,923
Domestic 513 2,614 508 3,635 946 2,612 608 4,166
- -------------------------------------------------------------------------------------------------------------------------------
Sales to:
Australia subsidiary 508 -- -- 508 423 -- -- 423
- -------------------------------------------------------------------------------------------------------------------------------
16,027 2,614 508 19,149 21,292 2,612 608 24,512
- -------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-
company sales (508) -- -- (508) (423) -- -- (423)
- -------------------------------------------------------------------------------------------------------------------------------
Total revenue 15,519 2,614 508 18,641 20,869 2,612 608 24,089
- -------------------------------------------------------------------------------------------------------------------------------
Write-offs and write-
downs of lottery
service agreements -- -- (2,807) (2,807) (5,663) (3,000) (8,781) 17,444
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(13,561) $ (76) $ (232) $(13,869) $(10,700) $(3,084) $ (8,836) $(22,620)
- -------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 19,572 $ 1,478 $ 302 $ 21,352 $ 27,952 $ 2,322 $ 1,614 $ 31,888
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993
-----------------------------------------
Eastern
Europe/ Consoli-
USA Pacific Europe dated
- ----------------------------------------------------------------------------
Sales to unaffiliated customers:
Export $ 21,141 $ -- $ 88 $ 21,229
Domestic 15 3,340 433 3,788
- ----------------------------------------------------------------------------
Sales to:
Australia subsidiary 296 -- -- 296
- ----------------------------------------------------------------------------
21,452 3,340 521 25,313
- ----------------------------------------------------------------------------
Elimination of inter-
company sales (296) -- -- (296)
- ----------------------------------------------------------------------------
Total revenue 21,156 3,340 521 25,017
- ----------------------------------------------------------------------------
Write-offs and write-
downs of lottery
service agreements -- -- -- --
- ----------------------------------------------------------------------------
Net income (loss) $ 372 $ 152 $ 81 $ 605
- ----------------------------------------------------------------------------
Identifiable assets $ 42,836 $5,124 $ 6,964 $ 54,924
- ----------------------------------------------------------------------------
6. LEASES
The Company leases its facilities under operating lease agreements which expire
at various dates through March 2002. Certain lease agreements provide for
increases in minimum annual rent based on increases in various market indices.
Also, the Company has the option to renew the lease on its U.S. facility for one
additional ten year term. Rent expense for the years ended December 31, 1995,
1994, and 1993 was $674 thousand, $551 thousand, and $493 thousand respectively.
Minimum future obligations for these leases are as follows (in thousands): 1996
- - $700; 1997 - $646; 1998 - $534; 1999 - $546; 2000 - $297, and $96 thereafter.
In 1995, the Company purchased $209 thousand of equipment under capital lease
obligations. Future minimum lease obligations for capital leases total $205
thousand and are due as follows: 1996 - $96 thousand, 1997 - $93 thousand and
1998 - $16 thousand; including total imputed interest of $18 thousand.
7. INCOME TAXES
The provision (credit) for taxes based on income (loss) consists of the
following (in thousands):
YEARS ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Current:
Federal provision $ -- $ -- $ 160
State provision -- -- 61
Foreign provision -- -- 24
Tax benefit of federal net
operating loss carry forwards -- -- --
- -------------------------------------------------------------------------------
Total current -- -- 245
Deferred:
Federal provision (credit) -- 88 (92)
State provision -- 56 (56)
- -------------------------------------------------------------------------------
Total deferred -- 144 (148)
- -------------------------------------------------------------------------------
Total provision $ -- $144 $ 97
- -------------------------------------------------------------------------------
Income taxes differed from the amount calculated using the federal statutory
rate of 34% as a result of the following (in thousands):
DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Expected federal income tax
(credit) at statutory rate $(4,715) $(7,642) $ 239
U.S. and foreign net operating
losses - no benefit 4,715 7,642 --
State taxes net of federal income
tax benefit -- -- 42
Effect of earnings of foreign
subsidiaries subject to
different tax rates -- -- 9
Benefit of U.S. and foreign
business credit and net
operating loss carryforwards -- -- (175)
Other, net -- 144 (18)
- -------------------------------------------------------------------------------
Total $ -- $ 144 $ 97
- -------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The components of the
Company's deferred tax liabilities and assets are as follows (in thousands):
14 / ILTS
17
YEARS ENDED DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Computer software costs $ 225 $ 243
- -------------------------------------------------------------------------------
Total deferred tax liabilities 225 243
- -------------------------------------------------------------------------------
Deferred tax assets:
Reserves against investment in lottery
service agreements 235 6,940
Reserves and accruals 2620 1,540
Rent expense 160 177
Employee benefits 130 162
Patent expense 35 40
Net operating loss and credit carryforwards 12,120 1,515
Other 18 54
- -------------------------------------------------------------------------------
Total deferred tax assets 15,318 10,428
- -------------------------------------------------------------------------------
Net deferred tax assets 15,093 10,185
- -------------------------------------------------------------------------------
Valuation allowance (15,093) (10,185)
- -------------------------------------------------------------------------------
Net deferred tax accounts $ -- $ --
- -------------------------------------------------------------------------------
The Company has Federal and California net operating losses of approximately
$30.7 million and $14.7 million respectively, which will begin to expire in 1998
unless previously utilized. The difference between the Federal and California
net operating loss carryforwards relates primarily to California's statutory 50%
annual reduction rule. The Company also has Federal general business credit
carryforwards of approximately of $575 thousand, which begin to expire in 1996.
Pursuant to the Tax Reform Act of 1986, use of the Company's business credit and
net operating loss carryforwards may be limited if a cumulative change in
ownership of more than 50% occurs within any three year period. Management
believes such a change in ownership has not occurred.
8. COMMON STOCK
In 1993, the Company sold 6.6 million shares of its common stock to Berjaya
Lottery Management for total consideration of $35.3 million. Berjaya Lottery
Management's interest in the Company represented approximately 39% of the total
outstanding shares at December 31, 1995.
In March and April 1993, the Company issued warrants to purchase a total of
502 thousand shares of the Company's common stock in conjunction with a private
offering of subordinated notes. The notes were fully paid in October 1993. The
warrants are exercisable at $4.31 per share and expire on March 17, 1996.
In 1995, a warrant to purchase 500 thousand shares of the Company's common
stock at $4.75 per share, which was issued in 1993 in conjunction with acquiring
the Company's Russian lottery service agreement, was cancelled.
The Company has three current Employee Stock Option Plans whereby options to
purchase 2.6 million shares of the Company's common stock may be granted.
Pursuant to these Plans, options for 1.1 million shares at prices ranging from
$1.375 to $15.75 per share were outstanding at December 31, 1995. Options for .9
million shares were exercisable at December 31, 1995.
In September 1993, the Company adopted a Directors Option Plan under which
240 thousand shares of the Company's common stock may be granted only to outside
directors of the Company. Pursuant to this Plan, the Company has issued options
totaling 180 thousand shares, at prices ranging from $2.219 to $10.25 per share.
At December 31, 1995, 180 thousand shares were outstanding and 60 thousand
shares were exercisable.
At December 31, 1995 there were 1.8 million shares reserved for issuance in
connection with all of the Company's outstanding options and warrants.
The Company has an Employee Stock Bonus Plan, commonly referred to as a
401(k) plan, qualified under the Internal Revenue Code, in which all eligible
employees, as defined in the Internal Revenue Code, may elect to participate.
Under the Plan, employees may voluntarily make tax-deferred contributions of up
to 15% of their compensation to a trust which provides the participant with
various investment alternatives. In addition, the Company, at the discretion of
the Board of Directors, may contribute an amount for each fiscal year which does
not exceed 5% of the annual compensation of all participants in the Plan.
Company contributions charged to operations were $198 thousand, $272 thousand,
and $245 thousand in 1995, 1994 and 1993 respectively.
9. MCKINNIE & ASSOCIATES
On March 31, 1993, the Company sold its subsidiary, McKinnie & Associates, Inc.
to Shreveport Acquisition for cash and a note. The recorded balance of the
receivable on the McKinnie sale of $49 thousand is included in the December 31,
1995 balance sheet with accounts receivable. Unrecorded gain and interest of
$1.5 million will be recognized using the cost recovery method as payments are
received.
10. LITIGATION
In June and July 1994, shareholders of the Company filed class action lawsuits
against the Company and several of its officers and directors. Those actions
were consolidated by stipulation and order and are now pending in the United
States District Court for the Southern District of California. Plaintiffs
contend that during the class period (June 22, 1993 through June 21, 1994) the
Company and the individual defendants made a series of public statements that
failed to disclose adverse information about the Company's lottery service
contracts, that these purported nondisclosures artificially inflated the price
of the Company's stock, and that those purchasers who acquired their shares in
reliance on the integrity of the market suffered damages as a result. Attorneys
for all defendants have executed a stipulation settlement with the law firm
representing the plaintiffs. The proposed settlement includes a cash payment and
1.2 million authorized but unissued common shares of the Company, and is subject
to agreement by the shareholders included in the class period and approval by
the court. Accordingly, a provision for the proposed settlement has been
included in the consolidated financial statements, which includes an estimate of
the value of the shares at date of issuance as a current liability.
In November, 1995, Mr. James Walters, the former chairman and president of
the Company, filed an action in the San Diego County Superior Court against the
Company, its current president, Frederick A. Brunn, a publishing company and an
author alleging that certain statements in a magazine article were slander per
se by ILTS and Brunn and libel by the publishing company and the author, and
that Mr. Walters suffered an invasion of privacy by all defendants. In addition,
Walters' alleged that erroneous information in the Company's 1995 Proxy
Statement resulted in two other magazine articles publishing allegedly incorrect
information. Mr. Walters seeks general and special damages of $9 million and
punitive damages. The Company and Mr. Brunn deny all allegations in Mr. Walters'
complaint and will defend the litigation accordingly. Since the outcome of the
case is not expected to result in any liability to the Company, no provision for
any liability that may result has been included in the consolidated financial
statements.
ILTS / 15
18
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
We have audited the accompanying consolidated balance sheets of International
Lottery & Totalizator Systems, Inc. as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Lottery & Totalizator Systems, Inc. at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Diego, California
February 9, 1996
16 / ILTS
19
CORPORATE AND COMMON
SHARE INFORMATION
DIRECTORS
Theodore A. Johnson
Chairman of the Board
Frederick A. Brunn
President
Chan Kien Sing
Group Executive Director,
Berjaya Group Berhad
M. Mark Michalko
Executive Vice President
Martin J. O'Meara, Jr.
President,
The Budget Plan, Inc.
Ng Foo Leong
Executive Director, Sports
Toto Malaysia Sdn Bhd
Sir Michael G.R. Sandberg
Private Investor
Tan Sri Dato Vincent Tan Chee Yioun
Group Chief Executive Officer,
Berjaya Group Berhad
OFFICERS
Frederick A. Brunn
President
Timothy R. Groth
Vice President,
Technical Operations
William A. Hainke
Chief Financial Officer,
Corporate Secretary and Treasurer
M. Mark Michalko
Executive Vice President
Lennart K. Sundin
Senior Vice President,
Marketing and Sales
MARKET FOR COMMON STOCK
The Company's common stock is traded under the symbol ITSI on the NASDAQ
National Market System. At December 31, 1995, there were 16,816,211 common
shares outstanding and 896 shareholders of record. Berjaya Lottery Management
owned 39% of the total outstanding shares and the Company's management owned
1%.
1995 HIGH LOW
First Quarter 4-7/8 1-15/16
Second Quarter 4-3/8 1-7/8
Third Quarter 3-3/8 2-1/8
Fourth Quarter 2-11/16 15/16
Average Daily Volume 52,267
Total Annual Trading Volume 13,171,342
1994 HIGH LOW
First Quarter 15-7/8 9-7/8
Second Quarter 11 4
Third Quarter 6-1/2 4-3/8
Fourth Quarter 5 2-1/2
Average Daily Volume 77,660
Total Annual Trading Volume 19,570,320
DIVIDEND POLICY
The Company retains earnings to support operations.
FORM 10-K
A copy of Form 10-K as filed with the Securities and Exchange Commission may be
obtained by contacting:
Investor Relations
ILTS
2131 Faraday Avenue
Carlsbad, CA 92008-7297 USA
(619) 931-4027
ANNUAL MEETING OF SHAREHOLDERS
The 1996 Annual Meeting will be held at 3:00 p.m. PDT on Thursday, June 6,
1996, at Pea Soup Andersen's 850 Palomar Airport Road, Carlsbad, California,
(619) 438-0880. Shareholders and interested parties are invited to attend.
TRANSFER AGENT AND REGISTRAR
Stock Transfer Administration
First Interstate Bank, Ltd.
P.O. Box 54261
Los Angeles, CA 90054-0261 USA
(213) 614-2404
LEGAL COUNSEL
Lawrence E. Logue
General Counsel
ILTS
2131 Faraday Avenue
Carlsbad, CA 92008-7297 USA
(619) 931-4000
INDEPENDENT AUDITORS
Ernst & Young LLP
501 West Broadway, Suite 1100
San Diego, CA 92101-3536 USA
(619) 235-5000
INVESTOR RELATIONS
ILTS
2131 Faraday Avenue
Carlsbad, CA 92008-7297 USA
(619) 931-4027
To receive Company information via facsimile, call the Investor Relations
Hotline: 1-800-859-5903
Designed and produced by GornKellerMartinez, Inc., Del Mar, California
20
[PHOTO OF CORPORATE OFFICE]
HEADQUARTERS
International Lottery & Totalizator Systems, Inc.
2131 Faraday Avenue
Carlsbad, CA 92008-7297 USA
Tel: (619) 931-4000
Fax: (619) 931-1789
TECHNICAL AND MARKETING/SALES SUPPORT FACILITIES
United Kingdom
Totalizator Systems (UK) Ltd.
241 Horton Road
Yiewsley, West Drayton
Middlesex, UB7 8HT ENGLAND
Tel: (44) (1895) 449550
Fax: (44) (1895) 420600
Australia
International Lottery & Totalizator Systems
Australia Pty. Ltd.
IA, 167 Prospect Highway
Seven Hills, New South Wales 2147 AUSTRALIA
Tel: (61) (2) 624-4300
Fax: (61) (2) 674-6832
SALES OFFICES
Asia Pacific
Sales Office
Christina Bldg. Unit 304
Herrera Corner Legaspi Sts.
Legaspi Village, Makati PHILIPPINES
Tel: (63) (2) 816-6989
Fax: (63) (2) 815-3270
Scandinavia/Europe
ITS Europe
Vollsveien 168
N-1343 Eiksmarka NORWAY
Tel: (47) (67) 14 73 76
Fax: (47) (67) 14 80 68
[INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. LOGO]
Visit the ILTS Home Page: http://www.ilts.com
International Lottery & Totalizator Systems, Inc.(TM) and DATAMARK(R) are
registered trademarks of International Lottery & Totalizator Systems, Inc.
Registered to ISO 9001 Certificate No. 43960