RELATED PARTY TRANSACTIONS

12 Months Ended

Apr. 30, 2012

5. RELATED PARTY TRANSACTIONS

During the years ended April 30, 2012 and 2011, revenues from all related party agreements for sales of products and services totaled approximately $6.1 million (51% of total revenue) and $3.7 million (63% of total revenue), respectively. Included in accounts receivable at April 30, 2012 and 2011 was $189,000 and $145,000, respectively, from these customers. Descriptions of the transactions with the Company's related parties in the years ended April 30, 2012 and 2011 are presented below.

Berjaya Lottery Management (H.K.) Ltd. ("BLM")

In 1996, the Company entered into an agreement to purchase specific inventory on behalf of BLM, the owner of 71.3% of ILTS's outstanding voting stock as of April 30, 2012.

Over time, the Company has sold or used portions of the BLM inventory in unrelated third party transactions. The sale or use of the inventory results in a liability to BLM for the cost of the items utilized.

The financial activities and balances related to BLM were as follows:

There were no related party sales to BLM in the years ended April 30, 2012 and 2011;

There were no accounts receivable balances from BLM at April 30, 2012 and 2011; and

Liabilities to BLM arising from the sale or use of the BLM inventory, recorded as "Payable to Parent," were $252,000 and $251,000 as of April 30, 2012 and 2011, respectively.

Philippine Gaming Management Corporation

During fiscal 2012, the Company received from Philippine Gaming Management Corporation ("PGMC"), a related party and a subsidiary of BLM, orders valued at approximately $3.2 million for lottery products. Shipments of these products were completed and the related revenue was recognized accordingly.

On December 20, 2011, the Company received from PGMC, an additional order valued at approximately $1.1 million for lottery products. Shipments of these products are expected to begin and be completed in the first quarter of fiscal 2013.

In addition, the Company provides PGMC with terminal spare parts on an ongoing basis and support services on an as-needed basis.

The financial activities and balances related to transactions with PGMC were as follows:

Revenues recognized on the sale of lottery products and support services totaled approximately $3.8 million during the year ended April 30, 2012. For the year ended April 30, 2011, revenue recognized on the sale of lottery products and software support services totaled approximately $2.3 million;

There was no billings in excess of costs and estimated earnings balance as of April 30, 2012. Net cost and estimated earnings in excess of billings relating to support services totaled approximately $32,000 as of April 30, 2011;

There was a deferred revenue balance of approximately $264,000 as of April 30, 2012 in connection with the lottery product order dated December 20, 2011 mentioned above. There was no deferred revenue balance as of April 30, 2011; and

Accounts receivable totaled $189,000 as of April 30, 2012, compared to $47,000 as of April 30, 2011.

Sports Toto Malaysia Sdn. Bhd.

The Company provides lottery products, software development and software support services to Sports Toto Malaysia ("STM"), an affiliate of BLM and a related party.

On December 21, 2011, the Company signed a contract with STM for a complete DataTrakII lottery system valued at approximately $4.3 million. The contract is scheduled to be completed by the fourth quarter of fiscal 2013.

The financial activities and balances related to transactions with STM were as follows:

Revenue recognized on the performance of contract deliverables and sale of support services totaled approximately $2 million during the year ended April 30, 2012. Revenue of $326,000 was recognized on the sale of support services and lottery products during the year ended April 30, 2011;

Net cost and estimated earnings in excess of billings relating to the abovementioned contract dated December 21, 2011 totaled approximately $726,000 as of April 30, 2012. There was no net billings in excess of costs and estimated earnings balance as of April 30, 2011;

There were deferred revenues of $9,000 on software support services as of both April 30, 2012 and 2011; and

There was no accounts receivable balance from STM as of April 30, 2012, compared to $16,000 as of April 30, 2011.

Natural Avenue Sdn. Bhd.

The Company provides Natural Avenue Sdn. Bhd. ("Natural Avenue"), an affiliate of BLM and a related party, with lottery and software products, support services and spare parts.

On December 16, 2009, the Company signed a contract with Natural Avenue for a complete DataTrak lottery system valued at approximately $3.6 million. The contract was completed in the fourth quarter of fiscal 2012, and the related revenue was recognized.

The financial activities and balances related to transactions with Natural Avenue were as follows:

During the year ended April 30, 2012, revenue of $243,000 was recognized on the performance of contract deliverables and sale of support services. Revenue of $969,000 was recognized on the performance of contract deliverables and sale of support services during the year ended April 30, 2011;

There was no net billings in excess of costs and estimated earnings balance as of April 30, 2012, compared to $105,000 as of April 30, 2011;

Deferred revenue on lottery product licensing totaled $4,000 as of April 30, 2012, compared to $10,000 on software support services as of April 30, 2011; and

There was no accounts receivable balance from Natural Avenue as of April 30, 2012, compared to $16,000 as of April 30, 2011.

Sports Toto Computers Sdn. Bhd.

The Company engages Sports Toto Computers Sdn. Bhd. ("STC"), a related party, to provide consulting, programming and other related services to the Company.

During the years ended April 30, 2012 and 2011, the Company incurred approximately $196,000 and $200,000, respectively.

Ascot Sports Sdn. Bhd.

The Company provided Ascot Sports Sdn. Bhd. ("Ascot Sports"), an affiliate of BLM and a related party, with software products.

There was no revenue recognized during the year ended April 30, 2012. For the year ended April 30, 2011, the Company recognized revenue of $66,000 for software product development.

There was no accounts receivable balance as of April 30, 2012, compared to $66,000 as of April 30, 2011.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

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+ Details