1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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 received the 2005 Voluntary Voting System Guidelines ("VVSG") certification from the United States Election Assistance Commission ("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;

Reduce the cost of ballot printing while offering operational efficiencies;

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 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.

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.

Revenue Recognition

The Company derives its revenues primarily from the sales of complete wagering systems, lottery terminals, the OpenElect® and PBC voting systems, other software and software support services. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and the title and risk of loss have been transferred. Service revenues are recognized as the services are rendered, and the related costs of services are recognized on a time and materials basis.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include hardware products containing software essential to the hardware product's functionality, undelivered software elements that relate to the hardware product's essential software, and undelivered non-software services, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of selling price ("TPE") and (iii) best estimate of the selling price ("ESP"). VSOE generally exists only when the Company sells the deliverable separately and VSOE is the price actually charged for that deliverable. TPE is determined based on competitor prices for similar deliverables when sold separately. ESPs reflect the Company's best estimates of what the selling prices of elements would be if they were sold regularly on a standalone basis.

For sales of hardware products, the Company provides various hardware components containing software essential to the hardware product's functionality, and other components depending on the customers' needs. The Company allocates revenue to these deliverables using the relative selling price method. Because the Company has not established VSOE or TPE for the hardware, revenue is allocated based on ESPs. Revenue is recognized upon shipment of the hardware and the related essential software, provided the other conditions for revenue recognition have been met. The Company also provides software support and product support services on a standalone basis from the sales of the hardware. Amounts allocated to software support and product support services are based on VSOE using hourly or daily billing rates. Revenue is deferred until the services are performed. For annual software licenses, the Company uses VSOE. Amounts allocated to annual software licenses are deferred and recognized on a straight-line basis over the service period, which is typically one year.

The Company considers multiple factors depending on the unique facts and circumstances related to each deliverable when determining ESPs for deliverables without VSOE or TPE. Key factors considered by the Company in developing the ESPs for the hardware include the costs of manufacture and what a customer would reasonably pay based on the features being offered, trends in the market place, size of the territory, and competitive prices. If the facts and circumstances underlying the factors change, including the estimated or actual costs incurred to provide the hardware with the essential software, or should future facts and circumstances lead the management to consider additional factors, the Company's ESP for the hardware with essential software related to future sales could change.

Revenue Recognition for Percentage-of-Completion Method

For the complete wagering and lottery systems, the Company recognizes revenue by using the percentage-of-completion method when the contracts for complete systems fulfill the following criteria:

1.	Contract performance extends over long periods of time;

2.	The software portion involves significant production, modification or customization;

3.	Reasonably dependable estimates can be made on the progress towards completion, contract revenues and contract costs; and

4.	Each element is essential to the functionality of the other elements of the contracts.

Under the percentage-of-completion method, sales and estimated gross profits are recognized as work progresses. Progress toward completion is measured by the ratio of costs incurred to total estimated costs. Revenue and gross profit may be adjusted prospectively for revisions in the estimated total contract costs. If the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is recorded in the period in which it becomes evident. The total estimated loss includes all costs allocable to the specific contract.

In addition to the software portion of a complete system, the Company develops software for its customers in accordance with the specifications stipulated in a software supply contract. Generally, these contracts are related to additional features or modules to be added to the application software that the Company has previously developed for its customers. Each software contract is reviewed individually to determine the appropriate basis of recognizing revenue.

Deferred Revenues and Deferred Cost of Revenues

Deferred revenues of approximately $687,000 and $615,000 as of April 30, 2012 and 2011, respectively, represent prepayments for products and services related to the use of the OpenElect® and PBC voting systems, lottery terminals and other software and technical support services. Deferred cost of revenues of approximately $6,000 and $113,000 as of April 30, 2012 and 2011, respectively, consist of direct costs associated with the software support and manufacture of voting systems. The Company will recognize the revenues and related cost of revenues upon the fulfillment of the prescribed criteria for revenue recognition.

Allowance for Doubtful Accounts

The Company determines its allowance for doubtful accounts by considering a number of factors:

1.	Length of time trade accounts receivable are past due;

2.	The Company's previous loss history;

3.	The customer's current ability to pay its obligations;

4.	Known specific issues or disputes which exist as of the balance sheet date; and

5.	The condition of the general economy and the industry as a whole.

Based on its evaluation, the Company determined that no additional allowance was required as of April 30, 2012. The Company maintained an allowance for doubtful accounts of $75,000 as of April 30, 2012 and 2011.

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 fiscal years ended April 30, 2012 and 2011 is as follows:

(Amounts in thousands)

Balance at April 30, 2010	$	42
Additional reserves		37
Charges incurred		(48	)
Balance at April 30, 2011		31
Additional reserves		159
Charges incurred		(21	)
Balance at April 30, 2012	$	169

Warranty reserves are based on historical trends and are adjusted periodically to reflect actual experience. Customers do not have a right to return, except for defective products. The most recent inventory cost is used to determine the value of potential warranty costs. Estimated reserves for warranty obligations are accrued as follows:

1.	Contracts - Contract warranties are specific to the individual contracts. Estimated reserves for warranty obligations are accrued as revenue is recognized. Hardware and software components may be warranted separately:

Hardware - The warranty phase for terminals or terminal kits commences upon shipment and can extend from six months to twelve months depending on the specific contract terms.

Software - The warranty phase typically represents a six to twelve-month period of time after delivery, as defined by the specific contract terms.

2.	Spares - Terminal replacement parts are warranted to be free from defects for 90 days from the date of shipment. Based on historical experience, warranty costs for spares have been immaterial.

3.	Other - Specific provisions have been made to cover a small number of particular replacement parts for specific customers.

Income Taxes and Valuation Allowance

The Company recognizes tax benefits associated with uncertain tax positions when, in management's assessment, it is more likely than not that the positions will be sustained upon examination by a taxing authority. For tax positions that meet the more likely than not recognition threshold, the Company measures the tax benefits as the largest amount that the Company evaluates to have a greater than 50% likelihood of being realized upon ultimate settlement. The Company reviewed its tax positions and determined that an adjustment to the tax provision is not considered necessary nor is a reserve for income taxes required.

The Company accounts for income taxes pursuant to the asset and liability method. This requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has provided a valuation allowance against the entire balance of its net deferred tax assets at April 30, 2012 and 2011 as it is deemed that the recovery of the deferred tax assets is less than probable.

Foreign Currency Fluctuation

The Company's reporting currency is the U.S. dollar. Sales are denominated almost exclusively in U.S. dollars. Occasionally, sales have been effected in foreign currencies. Fluctuations in exchange rates from reporting period to reporting period between various foreign currencies and the U.S. dollar may have an impact on revenue and expense. Such effect may be material in any individual reporting period. No material foreign currency transactions occurred during the years ended April 30, 2012 and 2011.

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:

	April 30,		April 30,
	2012		2011
(Amounts in thousands)
Raw materials and subassemblies	$	1,775	$	436
Work-in-process		63		-
Finished goods		821		-
	$	2,659	$	436

Previously, the Company has reported approximately $1.9 million in kit inventory related to previous orders from an unrelated international customer, which the Company will not ship to the customer until it receives substantially all of the payments due and the required deposits are made. Based on the Company's assessment of the marketing opportunities and the uncertainty relating to customer's financial ability to purchase additional kit inventory, the Company recorded an impairment charge of approximately $1.1 million during the quarter ended April 30, 2008. A portion of this inventory was sold prior to fiscal 2011. As part of management's periodic review and assessment of the marketability of this inventory and the Company's current marketing efforts with active prospects, the Company recorded impairment charges of approximately $334,000 and $340,000 during the years ended April 30, 2012 and 2011, respectively, for the remaining balance of the kit inventory.

Equipment, Furniture and Fixtures

Equipment, furniture and fixtures are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets which approximate three to seven years. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the lease term. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, or when the net book value of such assets exceeds the future undiscounted cash flow attributed to such assets. At April 30, 2012 and 2011, and during the years ended April 30, 2012 and 2011, no indicators of impairment were identified.

Net equipment, furniture and fixtures consisted of the following:

	April 30,			April 30,
	2012			2011
(Amounts in thousands)
Plant and machinery	$	724		$	674
Computer equipment		1,482			1,308
Leasehold improvement		190			183
Furniture, fixtures and equipment		91			91
Construction in progress		-			50
		2,487			2,306
Accumulated depreciation		(2,005	)		(1,874	)
Net equipment, furniture and fixtures	$	482		$	432

Research and Development Costs

Research and development costs are expensed as incurred. Substantially, all research and development expenses are related to new product development and designing significant improvements.

Net Income (Loss) per Share

Basic net income (loss) per share is based on the weighted average number of shares outstanding during the periods.

There were no outstanding options or other dilutive securities at April 30, 2012 and 2011.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the purchase date to be cash equivalents.