10-Q

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 July 31, 2011

[ ]           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.

(Exact name of registrant as specified in its charter)

California	95-3276269
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2310 Cousteau Court Vista, California (Address of principal executive offices) 92081-8346 (Zip Code)

(760) 598-1655

(Registrant’s telephone number)

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 12 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 ý Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Yes ýNoo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	ý

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act) 

Yes o     No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at September 14, 2011
Common Stock, no par value per share	12,962,999 shares

1

[Missing Graphic Reference]

INDEX

PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements (Unaudited)		3-11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		12-16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		17
Item 4.	Controls and Procedures		17
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		18
Item 1A.	Risk Factors		18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Reserved
Item 5.	Other Information		18
Item 6.	Exhibits		19
	Signatures

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32

2

PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Amounts in thousands)

	July 31, 2011			April 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	4,225		$	3,881
Certificates of deposit		250			499
Accounts receivable, net of allowance for doubtful accounts of $75		75			203
Costs and estimated earnings in excess of billings on uncompleted contracts		-			32
Deferred cost of revenue		75			113
Inventories, net		907			436
Other current assets		233			132
Total current assets		5,765			5,296
Equipment, furniture and fixtures, net		424			432
Other noncurrent assets		65			65
Total assets	$	6,254		$	5,793
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	553		$	152
Billings in excess of costs and estimated earnings on uncompleted contracts		146			231
Accrued payroll and related taxes		381			326
Warranty reserves		24			31
Payable to Parent		252			251
Other current liabilities		58			67
Deferred revenues		1,477			615
Total current liabilities		2,891			1,673
Long-term liabilities		7			12
Total liabilities		2,898			1,685
Commitments and contingencies
Shareholders’ equity:
Preferred shares, no par value; 20,000 shares authorized; no shares issued or outstanding		-			-
Common shares, no par value; 50,000 shares authorized; 12,963 shares issued and outstanding		56,370			56,370
Accumulated deficit		(53,014	)		(52,262	)
Total shareholders' equity		3,356			4,108
Total liabilities and shareholders' equity	$	6,254		$	5,793

See notes to condensed consolidated financial statements

3

INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in thousands, except per share amounts)

	Three Months Ended
	July 31,
	2011			2010
Revenues:
Sales of products	$	321		$	1,451
Services		288			261
		609			1,712
Cost of sales:
Cost of product sales		657			1,156
Cost of services		92			43
		749			1,199
Gross profit (loss)		(140	)		513
Selling, general and administrative expenses		610			629
Loss from operations		(750	)		(116	)
Other income (expense):
Interest and dividend income		1			1
Other		(3)			12
Net loss	$	(752	)	$	(103	)
Net loss per share:
Basic and diluted	$	(0.06	)	$	(0.01	)
Weighted average shares used in computation of net loss per share:
Basic and diluted		12,963			12,963

See notes to condensed consolidated financial statements

4

INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in thousands)

	Three Months Ended July 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(752	)	$	(103	)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization		32			24
Warranty reserve expense		2			6
Changes in operating assets and liabilities:
Accounts receivable		128			(885	)
Costs and estimated earnings in excess of billings on uncompleted contracts		32			778
Deferred cost of revenue		38			-
Inventories		(471	)		(168	)
Other current assets		(101	)		117
Accounts payable		401			(120	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(85	)		92
Accrued payroll and related taxes		55			56
Warranty reserves		(9	)		(12	)
Other current liabilities		(13	)		(3	)
Deferred revenues		862			154
Net cash provided by (used in) operating activities		119			(64	)
Cash flows from investing activities:
Purchases of certificates of deposit		(250	)		(747	)
Proceeds from redemption of certificates of deposit		499			995
Additions to equipment, furniture and fixtures		(24	)		(13	)
Net cash provided by investing activities		225			235
Net increase in cash and cash equivalents		344			171
Cash and cash equivalents at beginning of period		3,881			2,363
Cash and cash equivalents at end of period	$	4,225		$	2,534

See notes to condensed consolidated financial statements

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Description of the Business

International Lottery & Totalizator Systems, Inc. (“ILTS” or the “Company,” together with its subsidiary,) designs, manufactures, sells, manages, supports and services computerized wagering systems and terminals for the global lottery and pari-mutuel racing industries.  The wagering system features include real-time, secure processing of data received from multiple locations, hardware redundancy and complete communications redundancy in order to provide the highest level of fault tolerant operation. In addition, although the Company is not presently doing so, ILTS has demonstrated capability to provide full facilities management services to customer organizations authorized to conduct lotteries.  The Company is largely dependent upon significant contracts for its revenue, which typically include a deposit upon contract signing and up to six months lead time before delivery of hardware begins.

In recent years, the Company, through its wholly-owned subsidiary Unisyn Voting Solutions, Inc. (“Unisyn”), has devoted significant resources to developing federally certified end-to-end optical scan voting systems and a full-featured Election Management Software that provides precinct tabulation, ballot review and audio voting capability.  In addition to the InkaVote Plus Precinct Ballot Counter (“PBC”) system certified to the National Association of State Election Directors (“NASED”) 2002 Voting System Standards (“VSS”), the Company recently received the 2005 Voluntary Voting System Guidelines (“VVSG”) certification from the United States Election Assistance Commissions (“EAC”) for its OpenElect® digital optical scan election system – a digital scan voting system built with Java on a streamlined and hardened Linux platform.  As part of a jurisdiction’s procurement process, the Company will provide the OpenElect® products’ source code for independent review.

These efforts leverage the Company’s extensive experience to develop highly secure, mission-critical solutions that meet the NASED 2002 VSS and the EAC 2005 VVSG standards.  In addition, the Company’s voting systems offer the following features:

·   High level of security and vote encryption to ensure integrity and voter privacy;

·   Electronic and paper audit trails that offer added security and redundancy for recounts;

·   Minimal training required for poll workers to set-up and operate; and

·   Minimal voter re-education required.

Berjaya Lottery Management (H.K.) Ltd. (“BLM” or the “Parent”) owns 71.3% of the outstanding voting stock of ILTS.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of ILTS and its wholly-owned subsidiary, Unisyn Voting Solutions, Inc.  All significant inter-company accounts and transactions are eliminated in consolidation.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q.  Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows have been included.

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.  The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2011 filed with the SEC on July 7, 2011.  The condensed consolidated balance sheet as of April 30, 2011 has been derived from the audited financial statements included in the Form 10-K for that year.

6

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions.  Actual results could differ from those estimates.  Estimates may affect the reported amounts of assets and liabilities and revenues and expenses, and the disclosure of contingent assets and liabilities.

Deferred Revenues and Deferred Cost of Revenues

Deferred revenues of approximately $1.5 million as of July 31, 2011 represent prepayments for products and services which were related to the use of the OpenElect® and PBC voting systems, and other software and technical support services.  

Deferred cost of revenues of approximately $75,000 as of July 31, 2011 consists of costs associated with the use of the OpenElect® voting systems, and other software and technical support services for which revenues have been deferred.  The Company will recognize the revenues and related cost of revenues upon its fulfillment of the prescribed criteria for revenue recognition.

Certain amounts included in the costs and earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts as of April 30, 2011 and July 31, 2010 have been reclassified to deferred cost of revenue to conform with the current presentation.

Warranty Reserves

Estimated warranty costs are accrued as revenues are recognized.  Included in the warranty cost accruals are costs for basic warranties on products sold.  A summary of product warranty reserve activity for the three months ended July 31, 2011 is as follows:

(Amounts in thousands)
Balance at May 1, 2011	$	31
Additional reserves		4
Warranty reserve expense adjustments		(2)
Charges incurred		(9)
Balance at July 31, 2011	$	24

Segment Information

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280 “Segment Reporting” requires companies to report certain information about operating segments in their consolidated financial statements and establishes standards for related disclosures about products and services, geographic areas and major customers.  FASB ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.

The Company divides its operations into two operating segments: the gaming business and the voting business.  The gaming segment designs and develops computerized wagering systems and terminals for the lottery and pari-mutuel racing industries worldwide.   Presently the voting segment generates revenues from product servicing and software support services.

7

The Company’s segment information is presented below (in thousands):

	As of and for the Three Months Ended
	July 31, 2011
	Gaming Business			Voting Business			Totals
Total revenues		$	338		$	271		$	609
Loss from operations			(509)			(241)			(750)
Depreciation and amortization			20			12			32
Equipment, furniture and fixtures, net			105			319			424
Deferred revenues			273			1,204			1,477
Inventories, net			684			223			907
	As of and for the Three Months Ended
	July 31, 2010
	Gaming Business			Voting Business			Totals
Total revenues		$	1,569		$	143		$	1,712
Income (loss) from operations			178			(294)			(116)
Depreciation and amortization			18			6			24
Equipment, furniture and fixtures, net			149			246			395
Deferred revenues			229			269			498
Inventories, net			1,116			94			1,210

Inventories

Inventories are stated at the lower of cost or the current estimated market values.  Cost is determined using the first-in, first-out method.  

Inventories consisted of the following:

	July 31,		April 30,
	2011		2011
(Amounts in thousands)
Raw materials and subassemblies	$	906	$	436
Work-in-process		1		-
	$	907	$	436

8

Equipment, Furniture and Fixtures

Net equipment, furniture and fixtures consisted of the following (in thousands):

	July 31,			April 30,
	2011			2011
(Amounts in thousands)
Plant and machinery	$	680		$	674
Computer equipment		1,375			1,308
Leasehold improvement		183			183
Furniture, fixtures and equipment		91			91
Construction in progress		1			50
		2,330			2,306
Accumulated depreciation and amortization		(1,906	)		(1,874	)
Net equipment, furniture and fixtures	$	424		$	432

Net Loss per Share

Basic and diluted net loss per share is based on the weighted average number of shares outstanding during the periods.  

Major Customers

The following table summarizes major customers who individually accounted for more than 10% of revenues for the periods presented.

	July 31, 2011	July 31, 2010
Revenue:
From unrelated customers	Three customers accounted for 55% of total revenue or 32%, 12% and 11% individually.	No individual customer accounted for more than 10% of total revenue.
From related customers	Two customers accounted for 29% of total revenue or 16% and 13% individually.	Two customers accounted for 79% of total revenue or 54% and 25% individually.

Related Party Transactions

During the three months ended July 31, 2011 and 2010, revenues from all related party agreements for sales of products and services totaled approximately $225,000 (37% of total revenue) and $1.4 million (82% of total revenue), respectively.  Included in accounts receivable at July 31, 2011 was approximately $15,000 from these customers.  Descriptions of the transactions with the Company’s related parties in the three months ended July 31, 2011 and 2010 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 July 31, 2011.  Title to the inventory resides with BLM and is on consignment; therefore, no amounts are reflected in the Company’s condensed consolidated balance sheets for inventory purchased on BLM’s behalf.

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 three months ended July 31, 2011 and 2010;

•   There were no accounts receivable balances from BLM as of July 31, 2011 and April 30, 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 July 31, 2011 and April 30, 2011, respectively.

9

Philippine Gaming Management Corporation

On May 3, 2011, the Company received from Philippine Gaming Management Corporation (“PGMC”), a related party and a subsidiary of BLM, an order valued at approximately $1.1 million for lottery products.  Shipments of these products are expected to begin in the second quarter of fiscal 2012 and be complete in the third quarter of fiscal 2012.

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 service during the three months ended July 31, 2011 and 2010 totaled approximately $96,000 and $924,000, respectively; 

•   There was no billing in excess of costs and estimated earnings balance as of July 31, 2011. Net cost and estimated earnings in excess of billings relating to support services totaled approximately $32,000 as of April 30, 2011;

•   In connection with the lottery product order dated May 3, 2011 mentioned above, there was a deferred revenue balance of approximately $264,000 as of July 31, 2011. There was no deferred revenue balance as of April 30, 2011; and    

•   Accounts receivable from the sale of lottery products totaled $4,000 as of July 31, 2011, 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.  

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

•   Revenues of $78,000 were recognized on the sale of support services during each of the three months ended July 31, 2011 and 2010;

•   There were deferred revenues of $9,000 on software support services as of July 31, 2011 and April 30, 2011; and

•   There was no accounts receivable balance from STM as of July 31, 2011, 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 products and support services.  

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 is scheduled to be completed by the fourth quarter of fiscal 2012.

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

•   Revenues of $51,000 and $420,000 were recognized on the performance of contract deliverables and sale of support services during the three months ended July 31, 2011 and 2010, respectively;

•   Net billings in excess of costs and estimated earnings relating to the abovementioned contract dated December 16, 2009 totaled approximately $85,000 as of July 31, 2011, compared to $105,000 as of April 30, 2011; and

•   Accounts receivable totaled approximately $11,000 as of July 31, 2011, compared to $16,000 as of April 30, 2011.

10

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 three months ended July 31, 2011 and 2010, the Company incurred services of approximately $51,000 and $58,000, respectively.  

Fair Value of Financial Instruments

The Company’s material financial instruments consist of its cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable and related party payables.  The carrying amounts of the Company’s financial instruments generally approximated their fair values at July 31, 2011 and April 30, 2011 due to the short-term maturity of the instruments.

Subsequent Events

On August 12, 2011, the Company received from PGMC an order valued at approximately $1.4 million for lottery products.  Shipments of these products are expected to be complete by the third quarter of fiscal 2012.

On September 9, 2011, the Company received from PGMC an order valued at approximately $705,000 for lottery products.  Shipments of these products are expected to be complete by the fourth quarter of fiscal 2012.

11

 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTE REGARDING FORWARD-LOOKING STATEMENTS

SAFE HARBOR STATEMENT PURSUANT TO SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934

This report contains certain forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under the heading "Risk Factors" and elsewhere in, or incorporated by reference into, this report. In some cases, you can identify forward looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "anticipate," "estimate," "predict," "potential," or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. The forward-looking statements in this report are based upon management's current expectations and belief, which management believes are reasonable. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including, such factors, among others, as market acceptance and market demand for our products and services, pricing, the changing regulatory environment, the effect of our accounting policies, potential seasonality, industry trends, adequacy of our financial resources to execute our business plan, our ability to attract, retain and motivate key technical, marketing and management personnel, and other risks described from time to time in periodic and current reports we file with the United States Securities and Exchange Commission, or the "SEC." You should consider carefully the statements under "Item 1A. Risk Factors" and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition.  All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.

CRITICAL ACCOUNTING POLICIES

Use of Estimates

Our condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. Accordingly, we are required to make estimates, judgments and assumptions that we believe are reasonable.  We base our estimates on historical experience, contract terms, observance of known trends in our company and the industry as a whole, and information available from other outside sources.  Estimates affect the reported amounts and related disclosures. Actual results may differ from initial estimates.  There have been no material changes to the critical accounting policies outlined in the Company’s annual report on form 10-K for the fiscal year ended April 30, 2011.

12

RESULTS OF OPERATIONS

Revenue Analysis

	Three Months Ended
(Amounts in thousands)	July 31,
Revenues		2011		2010		Change
Products:
Contracts		$	207	$	1,291	$	(1,084)
Spares			114		160		(46)
Total Products			321		1,451		(1,130)
Services:
Software Support			192		182		10
Product Servicing and Support			96		79		17
Total Services			288		261		27
		$	609	$	1,712	$	(1,103)

Significant fluctuations in period-to-period contract revenue are expected in both gaming and voting industries since individual contracts are generally considerable in value, and the timing of contracts does not occur in a predictable trend. Contracts from the same customer generally may not recur or generally do not recur in the short-term.  Accordingly, comparative results between quarters may not be indicative of trends in contract revenue.

The current domestic and global economic slowdown and tightening of the credit markets may adversely affect our business and financial condition in ways that we cannot reasonably predict.  For the gaming business, due to the tightening of the credit markets, our potential and existing customers may not be able to secure financing for lottery projects which could effectively impact our revenue potential.  For the voting business, various government entities and jurisdictions have experienced severe budget constraints which could compel them to delay or cancel their purchasing decisions, and hence, impact our ability to generate revenue.

Contract revenue for the three months ended July 31, 2011 was $207,000, compared to $1.3 million in the same period in 2010.  The substantial decrease is due to limited contract activities in the first quarter of fiscal 2012.

Spares revenue for the three months ended July 31, 2011 was $114,000, compared to $160,000 for the corresponding period in 2010.  The decrease is due to lower demand.  Customer demand for spare parts fluctuates from period to period.

Software support revenue for the three months ended July 31, 2011 was $192,000, compared to $182,000 for the same period in 2010.   The increase in 2011 is primarily due to higher fees charged to one customer, partially offset by the termination of a software support agreement with a related customer.

Product servicing and support revenues for the three months ended July 31, 2011 and 2010 were $96,000 and $79,000, respectively.  The slight increase in 2011 was driven by a one-off arrangement with a related customer, partially offset by lower demand for onsite support services.

Related party revenue of approximately $225,000 accounted for 37% of total revenue in the three months ended July 31, 2011, compared to $1.4 million or 82% of total revenue in the corresponding period in 2010.  

13

Cost of Sales and Gross Profit Analysis

	Three Months Ended
	July 31,				July 31,
(Amounts in thousands)	2011				2010
Revenues:
Products	$	321	53	%	$	1,451	85	%
Services		288	47	%		261	15	%
Total revenues	$	609	100	%	$	1,712	100	%
Cost of sales:
Products	$	657	108	%	$	1,156	68	%
Services		92	15	%		43	3	%
Total costs of sales	$	749	123	%	$	1,199	71	%
Gross profit (loss):
Products	$	(336)	(55	%)	$	295	17	%
Services		196	32	%		218	12	%
Total gross profit (loss)	$	(140)	(23	%)	$	513	29	%

Individual contracts are generally significant in value and are awarded in a highly competitive bidding process.  The gross profit margin varies from one contract to another, depending on the size of the contract and the competitiveness of market conditions.  Accordingly, comparative results between quarters may not be indicative of trends in gross profit margin.

We incurred a loss of $140,000 during the three months ended July 31, 2011, compared to a gross profit of $513,000 or gross profit margins of 29% for the corresponding period in 2010.  The loss incurred in 2011 was due to insufficient revenue generated which resulted in higher unabsorbed production labor costs.  In addition, slightly higher labor cost incurred on gaming contracts, partially offset by slightly more favorable cost of sales on spare parts, contributed to the loss.

Selling, General and Administrative (“SG&A”)

SG&A expenses for the three months ended July 31, 2011 were $610,000, compared to $629,000 in the corresponding period in 2010.  The net decrease is primarily related to slightly lower employee related expenses resulting from lower headcount, lower consulting fees related to the voting segment, partially offset by higher trade show expenses and increased proposal and marketing activities related to the voting segment.  We anticipate that SG&A expense will remain relatively constant in the remaining quarters of fiscal 2012.

Other Income

Other income in the three months ended July 31, 2011 and 2010 remained relatively insignificant.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our net working capital at July 31, 2011 was $2.9 million.

Contract backlog at July 31, 2011 was approximately $5.8 million.  Of this amount, approximately $3.3 million will be derived from gaming orders received from a related customer.  Of the $3.3 million amount, approximately $702,000 has been paid by our related customers as of September 14, 2011.  The remaining contract backlog amount of approximately $2.5 million relates to voting and gaming contracts with unrelated customers.  Of the $2.5 million amount, approximately $1.3 million has been paid by our unrelated customers as of September 14, 2011.

14

Additional sources of cash through July 31, 2012 are expected to be derived from spares, software and technical support and licensing revenues.  Uses of cash are expected to be for normal operating expenses and costs associated with contract deliverables.

While we anticipate that we will be successful in obtaining additional product or service contracts to enable us to continue normal operations through July 31, 2012, there can be no assurance that we will be able to acquire new contracts.

In the highly competitive industry in which we operate, operating results may fluctuate significantly from period to period.  We anticipate that our cash flows from operations, expected contract payments and available cash will be sufficient to enable us to meet our liquidity needs through at least July 31, 2012.  Although we are not aware of any particular trends, in the event that we are unable to secure new business, we may experience reduced liquidity or insufficient cash flows.

15

The following table summarizes our cash flow activities:

	Three Months Ended
	July 31,		July 31,		Increase
	2011		2010		(Decrease)
(Amounts in thousands)
Condensed cash flow comparative:
Operating activities	$	119	$	(64)	$	183
Investing activities		225		235		(10)
Net increase in cash and cash equivalents	$	344	$	171	$	173

Cash Flow Analysis

Net cash provided by operating activities was $119,000 for the three months ended July 31, 2011, compared to net cash used in operating activities of $64,000 for the same period in 2010.  The primary factors contributing to the variability in the reported cash flow amounts relate to the timing of customer contract performance and delivery and the related milestone invoicing which effectively impacted the cost and earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts.  In addition, we attribute the variability in the reported cash flow amounts to the down payment received on a voting equipment order in 2011 and the net loss of $752,000 in 2011, compared to the net loss of $103,000 in 2010, which resulted from limited revenue generated.  Furthermore, higher inventory purchase and related increase in vendor deposits in 2011 contributed to the variability in the reported cash flow amounts.

Net cash provided by investing activities was $225,000 for the three months ended July 31, 2011, compared to $235,000 in 2010.  The lower net cash provided by investing activities in the three months ended July 31, 2011 resulted from the increase in capital expenditures related to computer and tooling equipment which amounted to $24,000 in the three months ended July 31, 2011, compared to $13,000 in 2010.

There were no financing activities during the three months ended in July 31, 2011 or 2010.

Capital Resources

As of July 31, 2011, there were no credit facilities.

16

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in SEC Rule 13a-15(e) and 15d-15 (e)) as of the end of the period covered by this report.  Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have not been any changes in the Company’s internal control over financial reporting during the quarter ended July 31, 2011 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

17

PART II	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS

The Company is currently not a party to any pending legal proceedings, and no such action by or, to the best of its knowledge, against the Company has been threatened as of the date of this report.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors relating to our business as disclosed in our Form 10-K for the fiscal year ended April 30, 2011 filed with the SEC on July 7, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. RESERVED

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

18

ITEM 6. EXHIBITS

A.          Exhibits

Exhibit Number		Document Description
	31.1	Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Chief Financial Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification Pursuant to 18 United States Code Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:      September 14, 2011		INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
	/s/	Jeffrey M. Johnson Jeffrey M. Johnson
		President
	/s/	T. Linh Nguyen
		T. Linh Nguyen
		Chief Financial Officer and Corporate Secretary

EX-31.1

EXHIBIT 31.1

Certification requirements set forth in Section 302 (a) of the Sarbanes-Oxley Act.

 I, Jeffrey M. Johnson, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of International Lottery & Totalizator Systems, Inc. (“ILTS”);

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of ILTS as of, and for, the periods presented in this report;

4.    ILTS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for ILTS and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to ILTS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of ILTS’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in ILTS's internal control over financial reporting that occurred during ILTS’s most recent fiscal quarter (ILTS's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, ILTS's internal control over financial reporting.

5.    ILTS’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to ILTS’s auditors and the audit committee of ILTS’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect ILTS’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in ILTS's internal control over financial reporting.

Dated: September 14, 2011	/s/	Jeffrey M. Johnson
		Jeffrey M. Johnson
		President

EX-31.2

EXHIBIT 31.2

Certification requirements set forth in Section 302 (a) of the Sarbanes-Oxley Act.

 I, T. Linh Nguyen, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of International Lottery & Totalizator Systems, Inc. (“ILTS”);

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of ILTS as of, and for, the periods presented in this report;

4.    ILTS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for ILTS and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to ILTS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of ILTS’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in ILTS's internal control over financial reporting that occurred during ILTS’s most recent fiscal quarter (ILTS's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, ILTS's internal control over financial reporting.

5.    ILTS’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to ILTS’s auditors and the audit committee of ILTS’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect ILTS’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in ILTS's internal control over financial reporting.

Dated: September 14, 2011	/s/	T. Linh Nguyen
		T. Linh Nguyen
		Chief Financial Officer and Corporate Secretary

EX-32

EXHIBIT 32

Certification of the Chief Executive Officer and

the Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of International Lottery & Totalizator Systems, Inc. (the “Company”) hereby certify that:

(i)   the Quarterly Report on Form 10-Q of the Company for the period ended July 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 14, 2011	/s/	Jeffrey M. Johnson
		Jeffrey M. Johnson
		President
	/s/	T. Linh Nguyen
		T. Linh Nguyen
		Chief Financial Officer and Corporate Secretary

XML



CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data	Jul. 31, 2011	Apr. 30, 2011
Current assets:
Accounts receivable, allowance for doubtful accounts	$ 75	$ 75
Shareholders' equity:
Preferred shares, par value (in dollars per share)	$ 0	$ 0
Preferred shares, shares authorized (in shares)	20,000	20,000
Preferred shares, shares issued (in shares)	0	0
Preferred shares, shares outstanding (in shares)	0	0
Common shares, par value (in dollars per share)	$ 0	$ 0
Common shares, shares authorized (in shares)	50,000	50,000
Common shares, shares issued (in shares)	12,963	12,963
Common shares, shares outstanding (in shares)	12,963	12,963

XML



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) In Thousands, except Share data	3 Months Ended
	Jul. 31, 2011	Jul. 31, 2010
Revenues:
Sales of products	$ 321	$ 1,451
Services	288	261
Total revenues	609	1,712
Cost of sales:
Cost of product sales	657	1,156
Cost of services	92	43
Total cost of sales	749	1,199
Gross profit (loss)	(140)	513
Selling, general and administrative expenses	610	629
Loss from operations	(750)	(116)
Other income (expense):
Interest and dividend income	1	1
Other	(3)	12
Net loss	$ (752)	$ (103)
Net loss per share:
Basic and diluted (in dollars per share)	$ (0.06)	$ (0.01)
Weighted average shares used in computation of net loss per share:
Basic and diluted (in shares)	12,963	12,963

XML



Document And Entity Information (USD $)	3 Months Ended
	Jul. 31, 2011	Sep. 14, 2011	Oct. 31, 2010
Entity Registrant Name	INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC
Entity Central Index Key	0000354813
Current Fiscal Year End Date	--04-30
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 1,078,128
Entity Common Stock, Shares Outstanding		12,962,999
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 31, 2011

XML



Segment Information

3 Months Ended

Jul. 31, 2011

Segment Information [Abstract]

Segment Information

Segment Information

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280 “Segment Reporting” requires companies to report certain information about operating segments in their consolidated financial statements and establishes standards for related disclosures about products and services, geographic areas and major customers.  FASB ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.

The Company divides its operations into two operating segments: the gaming business and the voting business.  The gaming segment designs and develops computerized wagering systems and terminals for the lottery and pari-mutuel racing industries worldwide.   Presently the voting segment generates revenues from product servicing and software support services.

The Company's segment information is presented below (in thousands):

	As of and for the Three Months Ended
	July 31, 2011
	Gaming Business			Voting Business			Totals
Total revenues		$	338		$	271		$	609
Loss from operations			(509)			(241)			(750)
Depreciation and amortization			20			12			32
Equipment, furniture and fixtures, net			105			319			424
Deferred revenues			273			1,204			1,477
Inventories, net			684			223			907
	As of and for the Three Months Ended
	July 31, 2010
	Gaming Business			Voting Business			Totals
Total revenues		$	1,569		$	143		$	1,712
Income (loss) from operations			178			(294)			(116)
Depreciation and amortization			18			6			24
Equipment, furniture and fixtures, net			149			246			395
Deferred revenues			229			269			498
Inventories, net			1,116			94			1,210

XML



Related Party Transactions

3 Months Ended

Jul. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

During the three months ended July 31, 2011 and 2010, revenues from all related party agreements for sales of products and services totaled approximately $225,000 (37% of total revenue) and $1.4 million (82% of total revenue), respectively.  Included in accounts receivable at July 31, 2011 was approximately $15,000 from these customers.  Descriptions of the transactions with the Company's related parties in the three months ended July 31, 2011 and 2010 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 July 31, 2011.  Title to the inventory resides with BLM and is on consignment; therefore, no amounts are reflected in the Company's condensed consolidated balance sheets for inventory purchased on BLM's behalf.

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 three months ended July 31, 2011 and 2010;

•   There were no accounts receivable balances from BLM as of July 31, 2011 and April 30, 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 July 31, 2011 and April 30, 2011, respectively.

Philippine Gaming Management Corporation

On May 3, 2011, the Company received from Philippine Gaming Management Corporation (“PGMC”), a related party and a subsidiary of BLM, an order valued at approximately $1.1 million for lottery products.  Shipments of these products are expected to begin in the second quarter of fiscal 2012 and be complete in the third quarter of fiscal 2012.

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 service during the three months ended July 31, 2011 and 2010 totaled approximately $96,000 and $924,000, respectively; 

•   There was no billing in excess of costs and estimated earnings balance as of July 31, 2011. Net cost and estimated earnings in excess of billings relating to support services totaled approximately $32,000 as of April 30, 2011;

•   In connection with the lottery product order dated May 3, 2011 mentioned above, there was a deferred revenue balance of approximately $264,000 as of July 31, 2011. There was no deferred revenue balance as of April 30, 2011; and    

•   Accounts receivable from the sale of lottery products totaled $4,000 as of July 31, 2011, 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.  

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

•   Revenues of $78,000 were recognized on the sale of support services during each of the three months ended July 31, 2011 and 2010;

•   There were deferred revenues of $9,000 on software support services as of July 31, 2011 and April 30, 2011; and

•   There was no accounts receivable balance from STM as of July 31, 2011, 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 products and support services.  

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 is scheduled to be completed by the fourth quarter of fiscal 2012.

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

•   Revenues of $51,000 and $420,000 were recognized on the performance of contract deliverables and sale of support services during the three months ended July 31, 2011 and 2010, respectively;

•   Net billings in excess of costs and estimated earnings relating to the abovementioned contract dated December 16, 2009 totaled approximately $85,000 as of July 31, 2011, compared to $105,000 as of April 30, 2011; and

•   Accounts receivable totaled approximately $11,000 as of July 31, 2011, 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 three months ended July 31, 2011 and 2010, the Company incurred services of approximately $51,000 and $58,000, respectively.  

XML



Basis of Presentation

3 Months Ended

Jul. 31, 2011

Basis of Presentation [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the Securities and Exchange Commission's (“SEC”) instructions to Form 10-Q.  Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows have been included.

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.  The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2011 filed with the SEC on July 7, 2011.  The condensed consolidated balance sheet as of April 30, 2011 has been derived from the audited financial statements included in the Form 10-K for that year.

XML



Equipment, Furniture and Fixtures

3 Months Ended

Jul. 31, 2011

Equipment, Furniture and Fixtures [Abstract]

Equipment, Furniture and Fixtures

Equipment, Furniture and Fixtures

Net equipment, furniture and fixtures consisted of the following (in thousands):

	July 31,			April 30,
	2011			2011
(Amounts in thousands)
Plant and machinery	$	680		$	674
Computer equipment		1,375			1,308
Leasehold improvement		183			183
Furniture, fixtures and equipment		91			91
Construction in progress		1			50
		2,330			2,306
Accumulated depreciation and amortization		(1,906	)		(1,874	)
Net equipment, furniture and fixtures	$	424		$	432

XML



Subsequent Events

3 Months Ended

Jul. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On August 12, 2011, the Company received from PGMC an order valued at approximately $1.4 million for lottery products.  Shipments of these products are expected to be complete by the third quarter of fiscal 2012.

On September 9, 2011, the Company received from PGMC an order valued at approximately $705,000 for lottery products.  Shipments of these products are expected to be complete by the fourth quarter of fiscal 2012.

XML



Net Loss per Share

3 Months Ended

Jul. 31, 2011

Net Loss per Share [Abstract]

Net Loss per Share

Net Loss per Share

Basic and diluted net loss per share is based on the weighted average number of shares outstanding during the periods.  

XML



Inventories

3 Months Ended

Jul. 31, 2011

Inventories [Abstract]

Inventories

Inventories

Inventories are stated at the lower of cost or the current estimated market values.  Cost is determined using the first-in, first-out method.  

Inventories consisted of the following:

	July 31,		April 30,
	2011		2011
(Amounts in thousands)
Raw materials and subassemblies	$	906	$	436
Work-in-process		1		-
	$	907	$	436

XML



Description of the Business

3 Months Ended

Jul. 31, 2011

Description of the Business [Abstract]

Description of the Business

Description of the Business

International Lottery & Totalizator Systems, Inc. (“ILTS” or the “Company,” together with its subsidiary,) designs, manufactures, sells, manages, supports and services computerized wagering systems and terminals for the global lottery and pari-mutuel racing industries.  The wagering system features include real-time, secure processing of data received from multiple locations, hardware redundancy and complete communications redundancy in order to provide the highest level of fault tolerant operation. In addition, although the Company is not presently doing so, ILTS has demonstrated capability to provide full facilities management services to customer organizations authorized to conduct lotteries.  The Company is largely dependent upon significant contracts for its revenue, which typically include a deposit upon contract signing and up to six months lead time before delivery of hardware begins.

In recent years, the Company, through its wholly-owned subsidiary Unisyn Voting Solutions, Inc. (“Unisyn”), has devoted significant resources to developing federally certified end-to-end optical scan voting systems and a full-featured Election Management Software that provides precinct tabulation, ballot review and audio voting capability.  In addition to the InkaVote Plus Precinct Ballot Counter (“PBC”) system certified to the National Association of State Election Directors (“NASED”) 2002 Voting System Standards (“VSS”), the Company recently received the 2005 Voluntary Voting System Guidelines (“VVSG”) certification from the United States Election Assistance Commissions (“EAC”) for its OpenElect® digital optical scan election system – a digital scan voting system built with Java on a streamlined and hardened Linux platform.  As part of a jurisdiction's procurement process, the Company will provide the OpenElect® products' source code for independent review.

These efforts leverage the Company's extensive experience to develop highly secure, mission-critical solutions that meet the NASED 2002 VSS and the EAC 2005 VVSG standards.  In addition, the Company's voting systems offer the following features:

·   High level of security and vote encryption to ensure integrity and voter privacy;

·   Electronic and paper audit trails that offer added security and redundancy for recounts;

·   Minimal training required for poll workers to set-up and operate; and

·   Minimal voter re-education required.

Berjaya Lottery Management (H.K.) Ltd. (“BLM” or the “Parent”) owns 71.3% of the outstanding voting stock of ILTS.

XML



Use of Estimates

3 Months Ended

Jul. 31, 2011

Use of Estimates [Abstract]

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions.  Actual results could differ from those estimates.  Estimates may affect the reported amounts of assets and liabilities and revenues and expenses, and the disclosure of contingent assets and liabilities.

XML



Deferred Revenues

3 Months Ended

Jul. 31, 2011

Deferred Revenues [Abstract]

Deferred Revenues

Deferred Revenues and Deferred Cost of Revenues

Deferred revenues of approximately $1.5 million as of July 31, 2011 represent prepayments for products and services which were related to the use of the OpenElect® and PBC voting systems, and other software and technical support services.  

Deferred cost of revenues of approximately $75,000 as of July 31, 2011 consists of costs associated with the use of the OpenElect® voting systems, and other software and technical support services for which revenues have been deferred.  The Company will recognize the revenues and related cost of revenues upon its fulfillment of the prescribed criteria for revenue recognition.

Certain amounts included in the costs and earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts as of April 30, 2011 and July 31, 2010 have been reclassified to deferred cost of revenue to conform with the current presentation.

XML



Fair Value of Financial Instruments

3 Months Ended

Jul. 31, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company's material financial instruments consist of its cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable and related party payables.  The carrying amounts of the Company's financial instruments generally approximated their fair values at July 31, 2011 and April 30, 2011 due to the short-term maturity of the instruments.

XML



Warranty Reserves

3 Months Ended

Jul. 31, 2011

Warranty Reserves [Abstract]

Warranty Reserves

Warranty Reserves

Estimated warranty costs are accrued as revenues are recognized.  Included in the warranty cost accruals are costs for basic warranties on products sold.  A summary of product warranty reserve activity for the three months ended July 31, 2011 is as follows:

(Amounts in thousands)
Balance at May 1, 2011	$	31
Additional reserves		4
Warranty reserve expense adjustments		(2)
Charges incurred		(9)
Balance at July 31, 2011	$	24

XML



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands	3 Months Ended
	Jul. 31, 2011	Jul. 31, 2010
Cash flows from operating activities:
Net loss	$ (752)	$ (103)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	32	24
Warranty reserve expense	2	6
Accounts receivable	128	(885)
Costs and estimated earnings in excess of billings on uncompleted contracts	32	778
Deferred cost of revenue	38	0
Inventories	(471)	(168)
Other current assets	(101)	117
Accounts payable	401	(120)
Billings in excess of costs and estimated earnings on uncompleted contracts	(85)	92
Accrued payroll and related taxes	55	56
Warranty reserves	(9)	(12)
Other current liabilities	(13)	(3)
Deferred revenues	862	154
Net cash provided by (used in) operating activities	119	(64)
Cash flows from investing activities:
Purchases of certificates of deposit	(250)	(747)
Proceeds from redemption of certificates of deposit	499	995
Additions to equipment, furniture and fixtures	(24)	(13)
Net cash provided by investing activities	225	235
Net increase in cash and cash equivalents	344	171
Cash and cash equivalents at beginning of period	3,881	2,363
Cash and cash equivalents at end of period	$ 4,225	$ 2,534

XML



Principles of Consolidation

3 Months Ended

Jul. 31, 2011

Principles of Consolidation [Abstract]

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of ILTS and its wholly-owned subsidiary, Unisyn Voting Solutions, Inc.  All significant inter-company accounts and transactions are eliminated in consolidation.

XML



Major Customers

3 Months Ended

Jul. 31, 2011

Major Customers [Abstract]

Major Customers

Major Customers

The following table summarizes major customers who individually accounted for more than 10% of revenues for the periods presented.

	July 31, 2011	July 31, 2010
Revenue:
From unrelated customers	Three customers accounted for 55% of total revenue or 32%, 12% and 11% individually.	No individual customer accounted for more than 10% of total revenue.
From related customers	Two customers accounted for 29% of total revenue or 16% and 13% individually.	Two customers accounted for 79% of total revenue or 54% and 25% individually.

XML



CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands	Jul. 31, 2011	Apr. 30, 2011
Current assets:
Cash and cash equivalents	$ 4,225	$ 3,881
Certificates of deposit	250	499
Accounts receivable, net of allowance for doubtful accounts of $75	75	203
Costs and estimated earnings in excess of billings on uncompleted contracts	0	32
Deferred cost of revenue	75	113
Inventories, net	907	436
Other current assets	233	132
Total current assets	5,765	5,296
Equipment, furniture and fixtures, net	424	432
Other noncurrent assets	65	65
Total assets	6,254	5,793
Current liabilities:
Accounts payable	553	152
Billings in excess of costs and estimated earnings on uncompleted contracts	146	231
Accrued payroll and related taxes	381	326
Warranty reserves	24	31
Payable to Parent	252	251
Other current liabilities	58	67
Deferred revenues	1,477	615
Total current liabilities	2,891	1,673
Long-term liabilities	7	12
Total liabilities	2,898	1,685
Commitments and contingencies
Shareholders' equity:
Preferred shares, no par value; 20,000 shares authorized; no shares issued or outstanding	0	0
Common shares, no par value; 50,000 shares authorized; 12,963 shares issued and outstanding	56,370	56,370
Accumulated deficit	(53,014)	(52,262)
Total shareholders' equity	3,356	4,108
Total liabilities and shareholders' equity	$ 6,254	$ 5,793