INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC - FORM 10-K

Attached files

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EX-31.2 - ILTS FORM 10K EXHIBIT 31.2 30APR2011 FY2011 - INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC	iltsexhibit31230apr11fy2011.htm
EX-32 - ILTS FORM 10K EXHIBIT 32 30APR2011 FY2011 - INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC	iltsexhibit3230apr2011fy2011.htm
EX-21 - ILTS FORM 10K EXHIBIT 21 30APR2011 FY2011 - INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC	iltsexhibit2130apr2011fy2011.htm
EX-31.1 - ILTS FORM 10K EXHIBIT 31.1 30APR2011 FY2011 - INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC	iltsexhibit3130apr2011fy2011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2011

o	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)

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Shares, no par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act.

Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes o No ý

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 No o

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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K.

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)

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 July 7, 2011
Common Stock, no par value per share		12,962,999 shares

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of last business day of the registrant's most recently completed second fiscal quarter as reported on the OTC Bulletin Board ($0.29 per share), was approximately $1,078,128. Shares of the registrant's common stock held by each officer and director of the registrant and by each person or entity who is known to own beneficially 5% or more of the registrant's outstanding common stock have been excluded for purposes of the foregoing calculation on the basis that such persons and entities may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	9
ITEM 1B.	Unresolved Staff Comments	12
ITEM 2.	Properties	12
ITEM 3.	Legal Proceedings	12
ITEM 4.	Reserved	12
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
ITEM 6.	Selected Financial Data	13
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
ITEM 8.	Financial Statements and Supplementary Data	20
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36
ITEM 9A.	Controls and Procedures	36
ITEM 9B.	Other Information	36

PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	37
ITEM 11.	Executive Compensation	39
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	41
ITEM 14.	Principal Accounting Fees and Services	42
PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

SIGNATURES

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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.

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PART I

ITEM 1.

BUSINESS

The terms “ILTS,” “the Company,” “we,” “our” and “us” refer to International Lottery & Totalizator Systems, Inc. and its consolidated wholly-owned subsidiary, Unisyn Voting Solutions, Inc. (“Unisyn”), unless otherwise specified.

Organizational History

We are a leading supplier of computerized wagering systems for the lottery and pari-mutuel racing industries. In addition, in recent years, our company has developed 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.

ILTS was founded in 1978 and completed an initial public offering in 1981. Our subsidiary, Unisyn, was founded in 2003. Our operations and corporate headquarters are located in Vista, California.

Business Overview

We design, develop and provide secure, innovative and dependable gaming and voting processing systems for public and private organizations throughout the world. We provide a complete range of customized and technologically innovative software, hardware, technical support and site management for our customers’ gaming or voting operations. We believe our responsiveness to customer requirements in these mission critical operational areas is efficient, technologically superior, dependable and continuous over time. As a result, we are typically viewed more as a partner than a supplier to our customers.

Lottery and Pari-Mutuel Segment

We generate revenue by designing, manufacturing, licensing, managing, supporting, and servicing computerized wagering systems and terminals for the lottery and pari-mutuel racing industries worldwide. Although we are not presently doing so, we have also successfully demonstrated the capability to provide full facilities management services to customer organizations authorized to conduct lotteries.

Voting Segment

We generate revenue by developing, manufacturing, licensing and supporting voting systems for the governmental and non-governmental election jurisdictions in the United States under the name Unisyn Voting Solutions, Inc.

Products and Services

Wagering Systems

Our wagering systems include the following components:

A central computer installation that is comprised of computer hardware and a commercially available operating system used in conjunction with our proprietary DataTrak application software;

The Datamark and Intelimark families of point-of-sale terminals; and

The communication network to interface the terminals to the central computer installation.

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.

Our DataTrak gaming system controls the overall lottery operation. Although to date it has been sold only in conjunction with our terminals, DataTrak can also be sold as a stand-alone system that will interface to third-party terminals. Likewise, the terminals can be, and have been, sold separately to interface to a third-party lottery/tote central systems.

The point-of-sale, proprietary components of our systems are the Datamark and Intelimark families of ticketing terminals. These terminals are compact, reliable, microprocessor-based units, which scan marksense slips or interpret operator-input data in order to produce a ticket receipt to be retained by the customer. Our newest terminal models use touch screen and scanner technology.

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We sell these terminals separately or as part of a turnkey wagering system, or we modify a terminal's features or configurations and central system software to meet specific customer requirements.

Using commercially available hardware and software, we design the communication network to interface the DataTrak central system with the wagering terminals to best fit each customer’s specific telecommunications environment.

Our technology can also be modified for use in secure transaction-processing applications outside the gaming industry. For example, we previously provided a toll-road ticketing system utilizing automated ticket printers and readers.

Wagering Application Software

The principal component of our wagering system is the suite of applications that make up our DataTrak central system. The central system controls the operation of the entire lottery installation, and it performs the following functions:

Maintains communication with each point-of-sale terminal;

Ensures complete end to end security;

Logs all activity and wagers in multiple (redundant) locations;

Populates a commercially available database in real time with high level security;

Identifies tickets using the lottery game draw results;

Calculates the pari-mutuel prize pool amounts that are used to determine the dividend of a given winning ticket;

Allows the use of other third party software products to analyze and compile management data; and

Provides mission critical fault tolerance.

Development of this software has been an evolutionary process. We continually strive to incorporate new and improved technologies as they become available in the marketplace. This allows us to take advantage of the latest technology trends to enhance existing features of our system, and also to provide new distribution channels and operational features so that our customers can reach new or expanding markets. Since our software architecture is non-proprietary, it can be interfaced with our customers' choice of third party reporting and analysis software tools. The DataTrak system employs a client-server architecture. This gives customers the advantage of configuring the system economically to meet current requirements, while maintaining the ability to expand or contract the system as their operation demands.

Datamark and Intelimark Terminals

We have supplied in excess of 50,000 terminal products to the wagering industry since our first unit was sold in 1980. We currently have two families of full feature terminals in production: the Datamark and the Intelimark, both of which are:

· Based on PC architecture and utilize commercially available software operating systems;

· Small, lightweight, and highly reliable; and

· Programmed using standard software languages.

We have developed many models of Datamark terminals throughout our company’s history. Our current version in the Datamark family is the XClaim terminal. Its optical mark reader and thermal printer require little or no adjustments or maintenance. It is economically priced and extremely easy to use with features that increase operator efficiency and reduce transaction time. The XClaim can be programmed to meet the specific operating requirements of each individual customer. A keyboard is provided for operator input and an LCD displays the wagering details.

The Intelimark family was introduced in 1999 and incorporates commercially available hardware and software from strategic partners. Our current version is the Intelimark FLX terminal which is a modular touch screen lottery terminal, packaged to offer maximum flexibility for retailer convenience. All components that make up the complete terminal are freestanding modules that can be arranged to meet the unique physical requirements of each retailer location. Driven by the market demand for enhanced ticket reading capability, the Intelimark FLX is equipped with a high-speed contact image scanner that will accept up to A4 size slips and is capable of character recognition and signature capture. Its modular design, open architecture and PC-based technology provide a flexible platform that is intended to quickly and economically respond to the dynamic needs of both players and retailers.

Spare Parts

In addition to sales of terminals and central system software and hardware systems, we also realize ongoing revenue from the sale of spare parts for use in the repairs and maintenance of the terminal population.

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Software and Technical Support Agreements

We offer software maintenance agreements which feature:

telephone hotline and e-mail support;

standard upgrades and patches; and

primary technical support for third party software products purchased through ILTS.

Additionally, we offer software modifications and enhancements to satisfy specific customer requirements.

In recent years, Unisyn has devoted significant resources in developing certified end-to-end optical scan voting systems and a full-featured Election Management Software (“EMS”) 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”), our company recently received the 2005 Voluntary Voting System Guidelines (“VVSG”) certification from the 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, we provide the OpenElect® products’ source code for independent review.

Our OpenElect® voting systems consist of the following components:

·	OpenElect® Central Suite is a Linux-based suite of software applications including the Ballot Layout Manager, Election Manager , Election Server, Tabulator Client, Tabulator and Tabulator Reports all working together to define and configure an election;

·	OpenElect® Voting Optical Scan is a comprehensive and secure paper-based digital optical scan voting system that both validates and tabulates ballots at each precinct, providing integrity, confidence and high levels of physical and software security;

·	OpenElect® Voting Interface is a multi-faceted and robust voting device which has features to accommodate voters with disabilities and facilitate early voting, ranked choice voting and non-geographical use. This device meets or exceeds all the requirements of the Help America Vote Act (“HAVA”); and

·	OpenElect® Voting Central Scan is a high-speed digital scan voting unit designed to tabulate early vote, absentee, provisional and recounted ballots at a jurisdiction’s central operation center.

The OpenElect® 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

The InkaVote Plus optical scan voting system is a unique application consisting of our PBC and EMS components. InkaVote utilizes a vote recorder that functions the same as the punch card systems. However, it replaces the punch with the stylus, thereby, eliminating the controversies and maintaining the traditional vote experience. The completed ballot card provides a permanent physical record of voter choices, and accommodates traditional recounting procedures.

Election Management Software

The EMS, consisting of the Ballot Data Generator and the Vote Tabulator software applications that work together to perform the following functions:

·	Define and configure an election;

·	Program the InkaVote Plus PBCs;

·	Provide camera ready ballot pages in PDF format;

·	Compile and tabulate vote results; and

·	Generate required reports.

The EMS is intended to provide complete control of each step of the election process from ballot layout to report generation. It utilizes streamlined menus and prompts to provide maximum flexibility and customization while guiding the user through every step in the process. The system has multilingual capabilities and supports numerous languages in both standard and audible ballots. The EMS creates the election specific database from information that can be imported manually and/or from an .XML file.

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Precinct Ballot Counter

The PBC, designed to read and validate ballots, is a precinct based optical scan device which includes a color touch screen operator interface, InkaVote ballot reader and validator, and precinct report printer. With an integrated HAVA compliant voting station, special needs voters may cast their ballots independently and privately through a variety of methods, including wheelchair access, portable voter recorders and audio assistance through earphones and special keyboards. The PBCs set up is fast and simple with minimal assembly and interface required. Poll workers need no special knowledge to set up or operate the system. Election officials can quickly prepare polls and train poll workers.

Product Markets

Our revenue from the sale of lottery and horse racing systems is almost exclusively derived from contracts with international customers.

Revenue for software support and onsite technical support services presently comes from providing the said services to voting partner’s end customers. We also derive revenue from selling our products and services directly to county election jurisdictions and distributors.

Competitive Business Conditions

We compete primarily in the lottery and horse racing industries by providing high-quality wagering systems and terminals that are reliable, secure and fast. In addition, we believe that we offer our customers greater flexibility in design and custom options than do our competitors. The market for lottery system contracts is highly competitive. In general, our competitors have significantly greater resources than we do. Although our sales in the United States have been insignificant, we believe that our company has been a substantial factor in the international marketplace for lottery systems.

Our principal competitors in the markets we operate are as follows:

Gaming:

· GTech Corporation, a subsidiary of Lottomatica, SpA (an Italian company);

· Scientific Games Corporation (a U.S. company);

· IntraLot, S.A. (a Greek company);

· Wincor-Nixdorf (a German company);

· KEBA, AG (an Austrian company);

· Morpho (a French company); and

· Olivetti Tecnost (an Italian company).

Voting:

· Election Systems & Software, Inc.;

· Dominion Voting Systems Corporation; and

· Hart InterCivic.

Manufacturing Processes

We assemble terminals, repair modules, and supply spare parts from our domestic facility located in Vista, California. During recent years, the design of certain high-production units has been streamlined. This cost saving measure has allowed us to easily outsource the assembly of these units to local manufacturers based on production volume, while maintaining control over the materials and quality. In some cases, we have delivered terminal kits to customers who have purchased a license to assemble the terminals at their own location. Extensive training is provided to ensure high quality manufacturing.

Materials and Suppliers

For terminal components and spare parts, we generally have multiple sources, but a limited number of items are available only from a single supplier. Accordingly, those items could from time to time, be in short supply or on allocation due to their limited availability. For the year ended April 30, 2011, three vendors accounted for approximately 67% of the Company’s lottery product purchases (or 25%, 24% and 18% individually). For the year ended April 30, 2010, three vendors accounted for approximately 57% of the Company’s lottery component purchases (or 27%, 19% and 11% individually).

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Dependence upon a Few Customers

Our business to date has been dependent on major contracts from a specific pool of lottery operators and limited customer base in the voting segment. Failure to obtain new contracts from existing and new customers would have a materially adverse effect on our financial performance.

	April 30, 2011	April 30, 2010
Revenue:
From unrelated customers	Two customers accounted for more than 26% of total revenue or 15% and 11% individually.	No individual customer accounted for more than 10% of total revenue.

From related customers	Two customers accounted for 56% of total revenue or 40% and 16% individually.	Two customers accounted for 77% of total revenue or 39% and 38% individually.

Patents, Trademarks and Licenses

We have three U.S. patents issued on our products. We believe that our technical expertise, trade secrets and the creative skills of our personnel are of substantially greater importance to our company’s success than the benefits of patent protection. We typically require customers, employees, licensees, subcontractors, strategic partners, and joint venture partners who have access to proprietary information concerning our products to sign nondisclosure agreements. We rely on such agreements, other security measures, and trade-secret law to protect our proprietary information.

International Lottery & Totalizator Systems, Inc.®, ILTS® and Unisyn Voting Solutions, Inc.® are registered trademarks of our company. We have other products that have been trademarked, such as DataTrak®, Intelimark® and OpenElect®, all mentioned herein.

Regulations

The countries in which we market our products generally implement regulations to govern lottery or horseracing operations, and the appropriate governing body could restrict or ban operations in these countries. Any such action could have a material adverse effect on our company. Additionally, the purchaser of voting systems by governments and municipalities are typically conducted through procurement regulations with which we must comply.

Foreign countries often impose restrictions on corporations seeking to do business within their borders, including foreign exchange controls, and in some jurisdictions, requirements for domestic manufacturing content. In addition, laws and legal procedures in these countries may differ from those generally existing in the United States. Conducting business in these countries may involve additional risks in protecting our business and assets, including proprietary information. Changes in foreign business restrictions or laws could have a significant impact on our operations.

Research and Development

We are dedicated to ongoing research and development (“R&D”) to take advantage of new technologies, stay competitive in our market, and explore new markets where our core competency can be applied.

We continue to examine various new and emerging technologies based upon current industry developments with the intention to increase our customers’ market share. For example, we have in the past invested resources to expand specific applications to run on the Linux operating system. These Linux based applications are targeted at products used in both wagering and voting markets.

We dedicate our efforts to applying cutting-edge technology and developing innovative and secure voting solutions.

For the year ended April 30, 2011, we did not incur any R&D expenses, compared to $1.3 million in the prior year 2010. None of the R&D expenses were borne by our customers.

Environment Effects

There are no significant capital expenditures required to comply with laws relating to the protection of the environment.

Employees

As of April 30, 2011, we had 32 employees employed on a full-time equivalent basis. We have no employees that are members of labor unions. We believe our relationship with our employees is satisfactory.

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Additional Information

As a public company, we file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”). Our electronic filings with the SEC (including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available, free of charge, on the SEC’s website at http://www.sec.gov. On the investor relations section of our corporate website, www.ilts.com, we also make available, free of charge, our Annual Reports on Form 10-K, as soon as reasonably practicable, after we electronically file them with the SEC. The contents of and the information on or accessible through our corporate website and our investor relations website is not a part of, and is not incorporated into, this report or any other report or document we file with or furnish to the SEC.

ITEM 1A.

RISK FACTORS

Our business faces risks and uncertainties, including but not limited to, those discussed below and elsewhere in this report. These factors represent risks and uncertainties that could have a material adverse effect on our business, results of operations and financial condition. Additional risks and uncertainties not presently known to us or that we do not presently consider significant may also impair our business or the trading price of our securities.

If we do not execute on our strategic initiatives, there could be a material adverse effect on our results of operations and financial condition.

The future success of our business will depend significantly on our ability to execute effectively and implement the strategic initiatives. These initiatives consist of executing our market strategy including designing products to meet market trends and ensuring that an appropriate infrastructure is in place to meet the needs of customers; continuing to reduce product costs; and further improving the efficiency of operations, including lowering operating costs and enabling higher value services.

Successful execution of these initiatives depends on a number of factors including:

The ability to attract and retain sufficient number of key technical employees and senior management personnel;

Retaining customers by providing the necessary levels of support and service our products require;

Our ability to develop and introduce new products or programs, because of the inherent risks and uncertainties associated with product development, particularly in response to government regulations;

The identification and introduction of the proper mix or integration of products that will be embraced by the marketplace;

Our business may be subject to changes in laws, regulations and certification requirements with respect to our voting products;

Due to the political nature of our voting business, there is a risk that election jurisdictions may decertify our voting products that had previously been certified; and

The ability of our products and services to differentiate us from our competitors and for us to demonstrate that our products and services result in enhanced product quality, functionality and reduced costs.

Further, our success will depend upon our ability to maintain proper internal control and to enhance the performance of the existing procedures and processes to adequately support our operations, strategies and business objectives.

We are dependent on a few customers.

Our business to date has been dependent on major contracts from a few different customers. The loss of one or more of these customers or failure to replace completed contracts with new contracts from existing customers would have a material adverse effect on our business.

Should we fail to successfully manage our key vendors, our financial results could be burdened.

Our arrangements with key vendors may make our operations vulnerable if those third parties fail to satisfy their obligations to our company due to changes in their own operations, financial condition, or other matters outside of our control.

If we fail to achieve favorable pricing from our vendors, our profitability could be adversely impacted.

Our profitability is affected by our ability to achieve favorable pricing with our vendors. Our inability to establish a cost and product advantage, or determine alternative means to deliver value to our customers, may adversely affect our revenues, and profitability.

We could experience manufacturing interruptions, delays, or inefficiencies if we are unable to procure in a timely and reliable manner components and products from single-source or limited-source suppliers.

We maintain several single-source or limited-source supplier relationships, either because multiple sources are not available or because the relationships are advantageous to us due to performance, quality, support, delivery, capacity, or price considerations. If the supply of a critical single- or limited-source product or component is delayed or curtailed, we may not be able to ship the related product in desired quantities and in a timely manner. Even where multiple sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of revenues, which could harm our operating results.

Significant supplier capacity constraints, supplier production disruptions, supplier quality issues or price increases could increase our operating costs and adversely impact the competitive positions of our products.

Our reliance on third-party suppliers for parts and components used in our products exposes us to volatility in the availability of these parts and components. A disruption in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or decreased availability of raw materials or commodities, could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. Quality issues experienced by third-party providers can also adversely affect the quality and effectiveness of our products and services and result in liability and reputational harm.

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If we are unable to develop and introduce new and enhanced products that achieve market acceptance in a timely and cost-effective manner, our operating results and competitive position may be harmed.

Our future success will depend on our ability, in a timely and cost-effective manner, to develop and introduce new products and enhancements to our existing products. We must also achieve market acceptance for these products and enhancements. If we do not successfully develop and achieve market acceptance for new and enhanced products, our ability to maintain or increase revenues will suffer. Even if new and enhanced products are introduced to the market, we may not be able to achieve market acceptance of them in a timely manner. The loss of a key customer, a reduction in sales to any key customer or our inability to attract new significant customers could materially and adversely affect our business, financial condition and results of operations.

Our operating results may fluctuate significantly from period to period.

In the highly competitive industries in which we operate, operating results may fluctuate significantly from period to period. Hence, comparative results between periods may not be indicative of trends in revenue. 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 April 30, 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.

Interpretations and applications of policies regarding revenue recognition could cause us to defer recognition of revenue or recognize lower revenue and profits.

Revenue associated with the sale and licensing of our company’s voting system products and services will be recognized in accordance with accounting principles generally accepted in the United States (U.S. GAAP). As our transactions increase in complexity with the sale of multi-element products and services, negotiation of mutually acceptable terms and conditions can extend the sales cycle and, in certain situations, may require us to defer recognition of revenue on such licenses. We believe that we are in compliance with U.S. GAAP; however these future, more complex, multi-product, multi-year license transactions may require additional accounting analysis to account for them accurately could lead to unanticipated changes in our current revenue accounting practices and may contain terms affecting the timing of revenue recognition.

Insurance

The Company maintains third party insurance coverage against various liability risks and risks of property loss. While we believe these arrangements are an effective way to insure against liability and property damage risks, the potential liabilities associated with those risks or other events could exceed the coverage provided by such arrangements.

The requirements of complying with Section 404 of the Sarbanes-Oxley Act of 2002 may strain the Company’s resources and distract management.

As the Company is not an accelerated filer as defined under relevant SEC regulations, management is only required pursuant to Section 404(a) of the Sarbanes-Oxley Act of 2002, to maintain and periodically certify that it has effective disclosure controls and procedures and internal control over financial reporting.

In order to continuously maintain and improve the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting and comply with Section 404 of the Sarbanes-Oxley Act, significant resources and management oversight may be required as the Company may need to devote additional time and personnel to legal, financial and accounting activities to ensure ongoing compliance. The costs associated therewith could be significant. In addition, the effort to prepare for these obligations and maintain effective internal controls may divert management’s attention from other business concerns, which could adversely affect the Company’s business, financial condition and results of operations.

The voting segment of our business is critically dependent on our ability to obtain federal and state certification for our newly developed voting system products.

The markets for our voting products and services are affected by changing technology and regulatory industry standards. Our ability to anticipate or respond to such changes and to develop and introduce new and enhanced products that meet all federal and state certifications on a timely basis will be a significant factor in our ability to expand, remain competitive and attract new customers. We can give no assurance that we will achieve the necessary technological advances or have the financial resources needed to introduce new products or services on a timely basis or that we will otherwise have the ability to compete effectively in the markets we serve.

Our cash and cash equivalents could be adversely affected if the financial institution in which we hold our cash and cash equivalents fail.

Our cash and cash equivalents consist of highly liquid investments and certificates of deposits with original maturities of three months or less at the time of purchase. However, the company’s investments in money market funds are not insured. In addition, the company’s cash balances in financial institutions may exceed the Federal Deposit Insurance Corporation (“FDIC”) limitation for coverage of $250,000. The company also reduces its exposure to credit risk by maintaining all of its cash balances with highly rated financial institutions. While we strive to monitor our cash and cash equivalent balances regularly, these balances could be impacted if the financial institution in which we deposit fails or is subject to other adverse conditions in the financial or credit markets. To date we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

We may not receive significant revenues from our research and development efforts for several years, if at all.

Developing new products is costly, and the investment in product development often involves a long payback cycle. We have and expect to continue investing in research and development and related product opportunities. Enhancing our products and pursuing new product developments require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate resources to our research and development efforts to maintain our competitive position. However, we might not expect to receive significant revenues from these investments for several years, if at all.

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Our business competes on the basis of the security and integrity of our systems and products.

We believe that our success depends, in part, on providing secure products and systems to our customers. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, employees and others. There can be no assurance that our business will not be affected by a security breach or lapse, which could have a material adverse impact on our results of operations, business or prospects.

Problems with product quality or product performance may cause us to incur substantial warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share.

Consistent with customary practice in our industry, we warrant our products and/or services to be free from defects in material and workmanship under normal use and service. The possibility of future product failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share and cause sales to decline.

Changes in domestic and foreign business restrictions or laws could have a significant impact on our operations.

The countries in which we market our products generally have regulations governing lottery or horseracing operations, and the appropriate governing body could restrict or ban operations in these countries. Any such action could have a material adverse effect on our company and our customers’ operations. Foreign countries often impose restrictions on corporations seeking to do business within their borders, including foreign exchange controls, and in some jurisdictions, requirements for domestic manufacturing content. In addition, laws and legal procedures in these countries may differ from those generally existing in the United States. Conducting business in these countries may involve additional risks in protecting our business and assets, including proprietary information. Changes in foreign business restrictions or laws could have a significant impact on our operations.

Competitive pressures we face could harm our revenues and profits.

We compete for business opportunities against many domestic and foreign businesses. In many cases, our competition has greater financial resources which may affect the outcome of a bid, regardless of the products and/or services that we have the capability of providing. Also, in order to be competitive, we may price our products and services to a point where it could translate to lower revenues and profitability for our company.

Our business transactions may be subject to foreign currency fluctuation.

Our 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.

We could become subject to litigation regarding intellectual property rights, which could seriously harm our business.

Although we have not been the subject of any such actions, third parties may in the future assert against us infringement claims or claims that we have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to them. Third parties may in the future assert claims against our suppliers that such suppliers have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to them. If such infringement by our suppliers or us were found to exist, a party could seek an injunction preventing the use of their intellectual property or require us to take a license for the use of their intellectual property, either of which would have an adverse impact on our revenues.

Our voting systems might face adverse publicity including legal and political challenges which may negatively impact our operating results.

Due to the sensitivity of the general public to the reliability and security of voting systems, our company might be vulnerable to adverse publicity posed by certain advocacy groups challenging our products’ integrity and dependability. These actions may negatively affect our financial results and customer relations.

Volatility of stock price

The Company’s common stock is currently quoted on the OTC Bulletin Board. Stocks quoted on the OTC Bulletin Board generally have limited trading volume and exhibit a wide spread between the bid/ask quotation. The Company’s stock price is affected by a number of factors, including quarterly variations in financial results, the competitive landscape, general economic and market conditions, and estimates and projections by the investment community.

The current global economic slowdown and credit crunch may adversely affect our business and financial condition in ways that we cannot predict.

The current global economic slowdown may have a negative effect on our business and financial condition. We cannot predict the effect that the economic slowdown will have on us as it also impacts our customers, vendors and business partners. We believe that the global credit crunch may negatively impact our potential and existing customers’ ability to obtain financing for lottery and voting projects which in turn may affect our ability to secure new contracts to generate revenue.

Our strategic alliances may not result in the materialization of the anticipated benefits.

Part of our corporate strategy is to pursue growth through strategic alliances to gain access to new and tactically important geographies, and business opportunities and to capitalize on existing business relationships. We may not realize the anticipated benefits of these alliances that we may enter into, or may not realize them in the timeframe expected. These arrangements pose significant risks that could have a negative effect on our operations, including the potential failure to realize anticipated synergies, unanticipated costs and other unanticipated events or circumstances; and our possible inability to achieve the intended objectives of the arrangements.

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We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology, we rely in part on confidentiality agreements with our corporate partners, employees, contractors, and consultants. These agreements may not effectively prevent the disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Our common stock is subject to penny stock rules.

Our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and "accredited investors" (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 (or $300,000 together with their spouse)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of such common stock. Additionally, our common stock is subject to the SEC regulations for "penny stock." Penny stock includes any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock which disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

Our headquarter facilities in Vista, California consist of approximately 18,514 square feet of leased office, warehouse and manufacturing space. In May 2009, we executed an amendment agreement to extend the lease for the facility in Vista, California to November 2012.

ITEM 3.

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 4.

RESERVED

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded under the symbol ITSI on the Over-the-Counter Bulletin Board. As of April 30, 2011, there were 12,962,999 common shares outstanding and approximately 930 shareholders of record. As of April 30, 2011, Berjaya Lottery Management (H.K.) Ltd. (“BLM”) owned 71.3% of the total outstanding shares while ILTS’s management and directors owned approximately 1% of the outstanding shares.

Solely for the purpose of calculating the aggregate market value of the voting stock held by non-affiliates of ILTS, as set forth on the cover of this report, it has been assumed that all executive officers and directors of ILTS and BLM are affiliated persons. All of ILTS’s common shares, the only voting stock outstanding, beneficially owned by each such person (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) have been assumed to be held by that person for this calculation.

	Market Price of ILTS Common Stock
	High		Low
Fiscal Year Ended April 30, 2011
First Quarter	$	0.29	$	0.13
Second Quarter		0.30		0.15
Third Quarter		0.30		0.18
Fourth Quarter		0.37		0.18

Fiscal Year Ended April 30, 2010
First Quarter	$	0.44	$	0.15
Second Quarter		0.25		0.16
Third Quarter		0.30		0.12
Fourth Quarter		0.30		0.16

Dividends

The Company paid no dividends during the last two fiscal years. We currently intend to retain any earnings for use in the business and therefore do not anticipate paying any dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

Presently the Company does not maintain any stock option plan.

Sales of Unregistered Securities

The Company had no sales of unregistered securities during the past two fiscal years.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The discussion in this filing contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by forward-looking statements. These risks and uncertainties include dependence on business from foreign customers sometimes in politically unstable regions, political and governmental decisions as to the establishment of lotteries and other wagering industries in which our products are marketed, fluctuations in period-to-period operating results, the absence of significant contract backlog, and other factors described in section 1A. Risk Factors in this Form 10-K.

Critical Accounting Policies

Use of Estimates

Our 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. The areas most sensitive to estimation are revenue recognition, warranty reserves, inventory valuation, the allowance for doubtful accounts and the deferred tax valuation allowance.

Revenue Recognition

We recognize revenue by applying various relevant revenue recognition policies depending on the nature of the sale and the terms of the contract.

Complete Systems

ILTS’s complete wagering systems include the point-of-sale terminals, a central computer installation and a commercially available operating system used in conjunction with ILTS’s proprietary application software, and a communication network to interface the terminals to the central computer installation. 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.

A complete system is comprised of both hardware and software. The hardware portion includes both central system servers and terminals. The software portion includes the application software for both the central system and terminals.

As directed by the Financial Accounting Standards Board (“FASB”) ASC 985-605, “Software Revenue Recognition,” the Company follows the guidance of FASB ASC 605-35, “Construction-Type and Production-Type Contracts” in accounting for the sale of complete systems. We recognize 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 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.

Each complete system contract is reviewed individually to determine the appropriate basis of recognizing revenue. If the contract does not fulfill the above criteria, revenues are recognized only when:

1. Persuasive evidence of an arrangement exists in the form of signed contracts or purchase orders;

2. The contract or purchase order contains a fixed or determinable selling price to the buyer;

3. Collectibility is reasonably assured through due diligence, historical payment practices or upfront payments; and

4. Delivery has occurred or services have been rendered in accordance with contract terms.

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Software – only

In addition to the software portion of a complete system, we develop software for our 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 we have previously developed for our customers. Each software contract is reviewed individually to determine the appropriate basis of recognizing revenue.

For software contracts involving significant development efforts that extend over long periods of time and fulfill the criteria as set out in FASB ASC 605-35, “Construction-Type and Production-Type Contracts,” the related revenues are recognized by using the percentage-of-completion method. Other software supply contract revenues are recognized upon delivery when all the conditions specified in FASB ASC 985-605, “Software Revenue Recognition” are met.

Hardware – only

Hardware in the form of assembled terminals, component kits or replacement parts (“spares”) may be sold separately to our customers. Revenues for the sale of hardware are recognized upon shipment in accordance with FASB ASC 605-10, “Revenue Recognition” only when:

1. The Company has evidence that arrangements exist;

2. The price to the buyer is fixed through signed contracts or purchase orders;

3.	Shipping documents illustrate that delivery of hardware has occurred, as stipulated in the terms of the customer contract; and

4.	Collectibility is reasonably assured through one or more of the following: due diligence prior to contract signing; historical payment practices; or required upfront payments.

Service Revenues

Service revenues include software support agreements. Revenues from software support agreements are recognized, provided collectability is reasonably assured, in accordance with FASB ASC 985-605, “Software Revenue Recognition,” depending on the nature of the associated expenses:

1. If costs are immaterial or incurred on a straight-line basis, revenue is recognized ratably over the term of the agreement;

2.	Otherwise, revenue is recognized over the period of the agreement in proportion to the amounts expected to be charged to expense for the services rendered during the period.

For the voting segment, service revenues are derived from technical product support services provided to end customers. Service revenues are recognized as the services are rendered, and the related costs of services are recognized on a time and materials basis.

Deferred Revenues

Deferred revenues of approximately $615,000 and $344,000 as of April 30, 2011 and 2010, respectively, represent prepayment for products and services which were related to the use of the PBC and OpenElect® voting systems, and other software and technical support services. The Company will recognize the revenues upon its fulfillment of the prescribed criteria for revenue recognition.

Allowance for Doubtful Accounts

The estimate for the allowance for doubtful accounts is based primarily upon our company’s historical bad debt experience with individual customers and any known specific issues or disputes that exist as of the balance sheet date.

Warranty Reserves

Estimated warranty costs are accrued as revenues are recognized. 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:

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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:

a. Hardware – The warranty phase for terminals or terminal kits commences upon shipment and can extend from six months to 12 months depending on the specific contract terms.

b. Software – The warranty phase typically represents a three to six-month period of time after delivery, as defined by the specific contract terms. For the voting segment, warranty phase represents a two-year period upon acceptance of the voting units by the end customers.

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.

Inventory Valuation

The Company periodically reviews inventory quantities on hand and records a provision for excess and obsolete inventories based on the following factors:

Terminal models still currently in the field;

The average life of the models; and

The requirement for replacement parts on older models.

Valuation of Deferred Tax Assets

We regularly evaluate our ability to recover the reported amount of our net deferred tax assets considering several factors, including our estimate of the likelihood that we will generate sufficient taxable income in future years in which temporary differences reverse. Due to the uncertainties related to, among other things, the extent and timing of future taxable income, we offset our deferred tax assets by an equivalent valuation allowance as of April 30, 2011 and 2010.

Results of Operations

Revenue Analysis


	Years Ended
(Amounts in thousands)	April 30,
Revenues		2011		2010		Change
Products:
Contracts		$	3,750	$	5,123	$	(1,373	)
Spares			1,147		1,236		(89	)
Total Products			4,897		6,359		(1,462	)
Services:
Software Support			732		702		30
Product Servicing and Support			257		58		199
Total Services			989		760		229
		$	5,886	$	7,119	$	(1,233	)

Significant fluctuations in year-to-year revenue are expected in both gaming and voting industries. Individual contracts are generally of considerable value, and the timing of contracts or sales of spare parts does not occur in a predictable trend. Contracts from the same customer may not recur or generally do not recur in the short-term. Accordingly, comparative results between periods 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 segment, due to the tightening of the credit markets, our potential and existing customers may not be able to secure financing for lottery projects which may effectively impact our revenue potential. For the voting segment, 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 year ended April 30, 2011 was $3.8 million, compared to $5.1 million for fiscal 2010, representing a 25% reduction. Fiscal 2010 contract revenue includes a turnkey lottery system sale that was more significant in value, compared to those in fiscal 2011.

Spares revenue for the year ended April 30, 2011 was $1.1 million, compared to $1.2 million for fiscal 2010, reflecting lower customer demand for spare parts in fiscal 2011. We derived spares revenue from various customers on the shipment of spares orders during the years ended April 30, 2011 and 2010. Customer demand for spare parts fluctuates from period to period and may not be indicative of trends in spares revenue.

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Software support revenue for fiscal 2011 increased modestly by $30,000 compared to that of fiscal 2010. We attribute the slight increases in 2011 to the timing of the signing of a software support agreement with an unrelated customer and higher software support fees with related customers.

Product servicing and support revenue for fiscal 2011 increased $199,000 compared to that of fiscal 2010 reflecting higher demand for onsite support services from both gaming and voting customers.

Related party revenue of approximately $3.7 million accounted for 63% of total revenue in the year ended April 30, 2011, compared to $6.1 million or 86% of total revenue in fiscal 2010.

Cost of Sales and Gross Profit Analysis

	Years Ended
	April 30,				April 30,
(Amounts in thousands)	2011				2010
Revenues:
Products	$	4,897	83	%	$	6,359	89	%
Services		989	17	%		760	11	%
Total revenues	$	5,886	100	%	$	7,119	100	%

Cost of sales:
Products	$	4,348	74	%	$	4,361	61	%
Services		159	3	%		100	2	%
Total costs of sales	$	4,507	77	%	$	4,461	63	%

Gross profit:
Products	$	549	9	%	$	1,998	28	%
Services		830	14	%		660	9	%
Total gross profit	$	1,379	23	%	$	2,658	37	%

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 periods may not be indicative of trends in gross profit margin.

Overall gross profit margins were at 23% for fiscal 2011, compared to 37% for fiscal 2010. The reductions in 2011 are largely due to higher execution costs incurred on certain contracts. In addition, cost of sales for the year ended April 30, 2011 reflects an impairment charge of approximately $340,000 associated with the kit inventory. Previously, we have reported that the Company had approximately $1.9 million in kit inventory related to previous orders from an unrelated international customer which it will not ship to the customer until it receives substantially all of the payments due and the required deposits are made. Based on our assessment of the marketing opportunities and the nonpayment by the said customer which increased 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 certain portion of this inventory was sold in recent years. As part of management’s periodic review and assessment of the marketability of this inventory and the Company’s current marketing efforts with the active prospects, we believe that the remaining kit inventory valued at approximately $340,000 remains sellable to those existing and prospective customers. Arising from this assessment, we recorded an impairment charge of approximately $340,000 during the quarter ended April 30, 2011.

Other Operating Expenses Analysis

	Years Ended
	April 30, 2011					April 30, 2010
(Amounts in thousands)			% of Revenue					% of Revenue
Research and Development	$	-		-	%	$	1,299		18	%
Selling, General and Administrative		2,357		40	%		1,940		27	%
Other Operating Expenses	$	2,357		40	%	$	3,239		45	%

Research and Development Expenses (“R&D”)

For the year ended April 30, 2011, we did not incur any R&D expenses, compared to $1.3 million in the prior fiscal 2010. We attribute the substantial decreases to the successful completion of the development of new voting system products. We anticipate that R&D expenses will increase modestly in the coming fiscal year as we continue to enhance our products and explore emerging technologies.

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

SG&A expenses for the year ended April 30, 2011 increased $417,000 compared to those of the prior fiscal 2010, reflecting increased expenses associated with our sales force in the voting segment, and marketing and proposal efforts in both gaming and voting segments. We anticipate that SG&A expenses will increase moderately in fiscal 2012 as we continue to increase our sales and marketing efforts.

Other Income (Expense)

Other income in the years ended April 30, 2011 and 2010 consisting primarily of interest and dividend income remained relatively insignificant. We derived interest and dividend income from certificates of deposit and cash and cash equivalent balances during the years ended April 30, 2011 and 2010.

Liquidity and Capital Resources

Liquidity

Our net working capital at April 30, 2011 was $3.6 million.

Contract backlog at April 30, 2011 was $1.8 million. Of this amount, approximately $1.2 million is attributable to two lottery product orders from related customers. The remaining contract backlog amount of approximately $600,000, which has already been paid by our customers, relates to executed gaming and voting contracts with unrelated customers.

Additional sources of cash through April 2012 are expected to be derived from spares revenue, software support and election support service revenues. Uses of cash are expected to be for normal operating expenses and costs associated with contract execution.

While we anticipate that we will be successful in obtaining additional product or service contracts to enable us to continue normal operations through April 30, 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 April 30, 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.

The following table summarizes our cash flow activities (in thousands):


	April 30, 2011		April 30, 2010			Increase (Decrease)
(Amounts in thousands)
Cash flow comparative:
Operating activities	$	422	$	(1,621	)	$	2,043
Investing activities		1,096		(57	)		1,153
Net increase (decrease) in cash and cash equivalents	$	1,518	$	(1,678	)	$	3,196

Cash Flow Analysis

Significant fluctuations in cash flows from operating, investing and financing activities are expected in the gaming and voting industries because factors such as working capital needs, value of contracts, and timing of contracts and payments do not occur in a predictable trend. Accordingly, comparative results between periods are not indicative of trends in cash flow activities.

Operating Activities

Net cash provided by operating activities was $422,000 in fiscal 2011, compared to net cash used in operating activities of $1.6 million in fiscal 2010. The primary factors contributing to the variability in the reported cash flow amounts relate to the timing of contract milestone billings, completion of contract deliverables and recognition of revenue on customer contracts. In addition, inventory balance and accounts payable amount at the end of fiscal 2011 decreased in comparison to those of the prior fiscal 2010 due to the timing of completion of contract deliverables.

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Investing and Financing Activities

Net cash provided by investing activities was $1.1 million in fiscal 2011, compared to net cash used in investing activities of $57,000 in 2010. During fiscal 2011, the redemption of certificates of deposits significantly exceeded the purchase of certificates of deposit.

Capital expenditures amounted to $157,000 in fiscal 2011, compared to $106,000 in fiscal 2010. Expenditures in both fiscals 2011 and 2010 consist of equipment intended for marketing purposes in the voting segment.

There were no financing activities for the years ended April 30, 2011 and 2010.

Capital Resources

As of April 30, 2011, there were no unused credit facilities.

Foreign Currency Fluctuation

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our balance sheet, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements

In October 2009, the FASB issued authoritative guidance on revenue recognition ASC ASU 2009-14, “Certain Revenue Arrangements that Include Software Elements,” that will become effective for the Company beginning May 1, 2011, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance.

Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We adopted this new guidance as of May 1, 2010. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

The FASB had issued certain other accounting pronouncements as of April 30, 2011 that will become effective in subsequent periods; however, the Company does not believe that any of those pronouncements are germane to our business or would have significantly affected our financial accounting measurements or disclosures had they been in effect during fiscal 2011.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Form 10-K
	(Page)


Report of Independent Registered Public Accounting Firm		21

Consolidated Financial Statements:

Balance Sheets as of April 30, 2011 and 2010		22

Statements of Operations for the years ended April 30, 2011 and 2010		23

Statements of Shareholders’ Equity for the years ended April 30, 2011 and 2010		24

Statements of Cash Flows for the years ended April 30, 2011 and 2010		25

Notes to Consolidated Financial Statements		26

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

International Lottery & Totalizator Systems, Inc.

We have audited the accompanying consolidated balance sheets of International Lottery & Totalizator Systems, Inc. (a 71.3%-owned subsidiary of Berjaya Lottery Management (H.K.) Ltd.) and Subsidiary as of April 30, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Lottery & Totalizator Systems, Inc. and Subsidiary as of April 30, 2011 and 2010, and their results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ J.H. Cohn LLP

San Diego, California

July 7, 2011

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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
	April 30,			April 30,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	3,881		$	2,363
Certificates of deposit		499			1,745
Accounts receivable, net of allowance for doubtful accounts of $75		203			500
Costs and estimated earnings in excess of billings on uncompleted contracts		145			804
Inventories		436			1,042
Other current assets		132			224
Total current assets		5,296			6,678
Equipment, furniture and fixtures, at cost, less accumulated depreciation of $1,874 and $1,765 in 2011 and 2010, respectively		432			405
Other noncurrent assets		65			73
Total assets	$	5,793		$	7,156

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	152		$	622
Billings in excess of costs and estimated earnings on uncompleted contracts		231			440
Accrued payroll and related taxes		326			349
Warranty reserves		31			42
Payable to Parent		251			250
Other current liabilities		67			44
Deferred revenues		615			344
Total current liabilities		1,673			2,091
Long-term liabilities		12			6
Total liabilities		1,685			2,097
Commitments

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		(52,262	)		(51,311	)
Total shareholders' equity		4,108			5,059
Total liabilities and shareholders' equity	$	5,793		$	7,156

The accompanying notes are an integral part of these consolidated financial statements.

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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
	Years Ended
	April 30,
	2011		2010
Revenues:
Sales of products	$	4,897	$	6,359
Services		989		760
		5,886		7,119
Cost of sales:
Cost of product sales		4,348		4,361
Cost of services		159		100
		4,507		4,461
Gross profit		1,379		2,658

Research and development expenses		-		1,299
Selling, general and administrative expenses		2,357		1,940
Loss from operations		(978)		(581)

Other income (expense):
Interest and dividend income		5		9
Other		12		(3)
Loss before benefit of income taxes		(961)		(575)
Benefit of income taxes		(10)		(10)
Net loss	$	(951)	$	(565)
Net loss per share:
Basic and diluted	$	(0.07)	$	(0.04)
Weighted average shares used in computation of net loss per share:
Basic and diluted		12,963		12,963

The accompanying notes are an integral part of these consolidated financial statements.

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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)

	Common Stock
	Shares		Amount			Accumulated Deficit				Total

Balance at May 1, 2009		12,963		$	56,370		$	(50,746	)	$	5,624
Net loss		-			-			(565	)		(565	)
Balance at April 30, 2010		12,963			56,370			(51,311	)		5,059
Net loss		-			-			(951	)		(951	)
Balance at April 30, 2011		12,963		$	56,370		$	(52,262	)	$	4,108

The accompanying notes are an integral part of these consolidated financial statements.

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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
	Years Ended
	April 30,
	2011		2010
Cash flows from operating activities:
Net loss	$	(951)	$	(565)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization		119		123
Impairment charge for inventory obsolescence		340		-
Warranty reserve expense		37		34
Impairment charge for patent write-off		12		-
Changes in operating assets and liabilities:
Accounts receivable		297		(384)
Costs and estimated earnings in excess of billings on uncompleted contracts		659		(801)
Inventories		266		(196)
Other current assets		92		(54)
Accounts payable		(470)		294
Billings in excess of costs and estimated earnings on uncompleted contracts		(209)		(42)
Accrued payroll and related taxes		(23)		(101)
Warranty reserves		(48)		(13)
Payable to Parent		1		-
Other liabilities		29		(12)
Deferred revenues		271		96
Net cash provided by (used in) operating activities		422		(1,621)

Cash flows from investing activities:
Purchases of certificates of deposit		(997)		(1,745)
Proceeds from redemption of certificates of deposit		2,243		1,803
Additions to equipment, furniture and fixtures		(157)		(106)
Additions to intangible assets		(7)		(9)
Proceeds from sale of equipment		14		-
Net cash provided by (used in) investing activities		1,096		(57)

Net increase (decrease) in cash and cash equivalents		1,518		(1,678)
Cash and cash equivalents at beginning of year		2,363		4,041
Cash and cash equivalents at end of year	$	3,881	$	2,363

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 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

We recognize revenue by applying various relevant revenue recognition policies depending on the nature of the sale and the terms of the contract.

Complete Systems

ILTS's complete wagering systems include the point-of-sale terminals, a central computer installation and a commercially available operating system used in conjunction with ILTS's proprietary application software, and the communication network to interface the terminals to the central computer installation. 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.

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As directed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition,” the Company follows the guidance of FASB ASC 605-35, “Construction-Type and Production-Type Contracts” in accounting for the sale of complete systems. We recognize 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 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 they become evident. The total estimated loss includes all costs allocable to the specific contract.

1. Persuasive evidence of an arrangement exists in the form of signed contracts or purchase orders;

2. The contract or purchase order contains a fixed or determinable selling price to the buyer;

3. Collectibility is reasonably assured through due diligence, historical payment practices or upfront payments; and

4. Delivery has occurred or services have been rendered in accordance with contract terms.

Software – only

Hardware – only

1. The Company has evidence that arrangements exist;

2. The price to the buyer is fixed through signed contracts or purchase orders;

3.	Shipping documents illustrate that delivery of hardware has occurred, as stipulated in the terms of the customer contract; and

4.	Collectibility is reasonably assured through one or more of the following: due diligence prior to contract signing; historical payment practices; or required upfront payments.

Service Revenues

Service revenues include software support and facility management agreements. Revenues from software support agreements are recognized, provided collectibility is reasonably assured, in accordance with FASB ASC 985-605, “Software Revenue Recognition” depending on the nature of the associated expenses:

1.	If costs are immaterial or incurred on a straight-line basis, revenue is recognized ratably over the term of the agreement;

2.	Otherwise, revenue is recognized over the period of the agreement in proportion to the amounts expected to be charged to expense for the services rendered during the period.

We did not have any facility management agreements as of April 30, 2011 or during fiscals 2011 and 2010, although we have had them at certain times in previous fiscal years.

For the voting segment, service revenues are derived from software and on-site product support services provided to end customers. Service revenues are recognized as the services are rendered, and the related costs of services are recognized on a time and materials basis.

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Deferred Revenues

Allowance for Doubtful Accounts

We determine our allowance for doubtful accounts by considering a number of factors:

Length of time trade accounts receivable are past due;

Our previous loss history;

The customer’s current ability to pay its obligations;

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

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, 2011. The Company maintained an allowance for doubtful accounts of $75,000 as of April 30, 2011 and 2010.

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, 2011 and 2010 is as follows:

(Amounts in thousands)

Balance at May 1, 2009	$	21
Additional reserves		34
Charges incurred		(13)
Balance at April 30, 2010		42
Additional reserves		37
Charges incurred		(48)
Balance at April 30, 2011	$	31

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:

a. Hardware – The warranty phase for terminals or terminal kits commences upon shipment and can extend from six months to 12 months depending on the specific contract terms.

b. Software – The warranty phase typically represents a six to twelve-month period of time after delivery, as defined by the specific contract terms. For the voting segment, warranty phase typically represents a two-year period upon acceptance of the voting units by the end customers.

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.

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Income Taxes and Valuation Allowance

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, 2011 and 2010 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, 2011 and 2010.

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,
	2011		2010
(Amounts in thousands)
Raw materials and subassemblies	$	436	$	1,038
Work-in-process		-		4
	$	436	$	1,042

Previously, the Company has reported that it had approximately $1.9 million in kit inventory related to previous orders from an unrelated international customer which it will not ship to the customer until it receives substantially all of the payments due and the required deposits are made.

The model related to this inventory remains in continuous use presently in several jurisdictions and is actively being marketed to several additional prospective customers. Based on management’s assessment of the marketing opportunities and the nonpayment by the said customer which increased 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 certain portion of this inventory was sold in recent years. As part of its periodic review and assessment of the marketability of this inventory and the Company’s current marketing efforts with the active prospects, the Company believes that the remaining kit inventory valued at approximately $340,000 remains sellable to those existing and prospective customers. Arising from this assessment, the Company recorded an impairment charge of approximately $340,000 during the quarter ended April 30, 2011.

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. In accordance with FASB ASC 360-10, “Property, Plant, and Equipment,” 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, 2011 and 2010, and during the years ended April 30, 2011 and 2010, no indicators of impairment were identified.

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

	April 30,			April 30,
	2011			2010
(Amounts in thousands)
Plant and machinery	$	674		$	678
Computer equipment		1,308			1,217
Leasehold improvement		183			183
Furniture, fixtures and equipment		91			91
Construction in progress		50			1
		2,306			2,170
Accumulated depreciation		(1,874	)		(1,765	)
Net equipment, furniture and fixtures	$	432		$	405

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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 Loss per Share

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

There were no outstanding options at April 30, 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.

2. BUSINESS SEGMENTS, GEOGRAPHIC REVENUES, MAJOR CUSTOMERS AND MAJOR VENDORS

Segment Information

FASB 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, manufactures and manages 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 Year Ended April 30, 2011
	Gaming Business			Voting Business				Totals
Total revenues		$	5,426		$	460			$	5,886
Income (loss) from operations			167			(1,145	)			(978	)
Depreciation and amortization			90			29				119
Costs and estimated earnings in excess of billings on uncompleted contracts			32			113				145
Equipment, furniture and fixtures, net			99			333				432
Deferred revenues			20			595				615

	As of and for the Year Ended April 30, 2010
	Gaming Business			Voting Business				Totals
Total revenues		$	6,747		$	372			$	7,119
Income (loss) from operations			1,382			(1,963	)			(581	)
Depreciation and amortization			108			15				123
Costs and estimated earnings in excess of billings on uncompleted contracts			803			1				804
Equipment, furniture and fixtures, net			168			237				405
Deferred revenues			15			329				344

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Geographic Revenues

Revenues by geographic area are as follows (in thousands):

	Years Ended
	April 30,
Customer Location	2011		2010

Asia	$	3,691	$	6,063
Europe		664		662
North America		1,531		375
Australia		-		19
	$	5,886	$	7,119

As of April 30, 2011 and 2010, substantially all of the Company's assets were held in the United States. During the fiscal years ended April 30, 2011 and 2010, a significant portion of the Company’s revenues was derived from exports from the United States to foreign countries.

Major Customers

	April 30, 2011	April 30, 2010
Revenue:
From unrelated customers	Two customers accounted for more than 26% of total revenue or 15% and 11% individually.	No individual customer accounted for more than 10% of total revenue.

From related customers	Two customers accounted for 56% of total revenue or 40% and 16% individually.	Two customers accounted for 77% of total revenue or 39% and 38% individually.

Major Vendors

For the year ended April 30, 2011, three vendors accounted for approximately 67%, or 25%, 24% and 18% individually, of the Company’s lottery product purchases. For the year ended April 30, 2010, three vendors accounted for approximately 57%, or 27%, 19% and 11% individually, of the Company’s lottery component purchases.

3. CREDIT RISK

Of the cash and cash equivalents amount of $3.9 million at April 30, 2011, approximately $3.5 million represents highly liquid money market funds which are not Federal Deposit Insurance Corporation (“FDIC”) insured. The Company maintains its other cash balances primarily in two financial institutions. As of April 30, 2011, such other cash balances exceeded the FDIC limitation for coverage of $250,000 by approximately $186,000. The Company reduces its exposure to credit risk by maintaining all of its cash balances with highly rated financial institutions.

4. INCOME TAXES

The following is a reconciliation of the expected income tax provision or benefit at the statutory federal income tax rate to the actual provision or benefit:

	Years Ended April 30,
	2011			2010
(Amounts in thousands)
Expected federal income tax provision	$	(326	)	$	(194	)
State taxes, net of federal benefit		(54	)		(32	)
Permanent differences		12			7
Change in valuation allowance		(5,264	)		(883	)
Research and development credits		22			197
Net operating loss carryover expiration		5,615			902
Refundable alternative minimum tax credits		(10	)		(10	)
Other		(5	)		3
	$	(10	)	$	(10	)

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes. As of April 30, 2011 and 2010, the Company had deferred tax assets of $14.9 million and $20.1 million, respectively, primarily attributable to its net operating loss carryforwards as further described below. The Company has provided a valuation allowance against the entire balance of its deferred tax assets at April 30, 2011 and 2010 due to the uncertainty regarding realization. The $5.3 million decrease in the deferred tax assets in 2011 was due primarily to the effects of the expiration of federal net operating loss carryforwards.

Significant components of the Company’s deferred tax assets are as follows:

(Amounts in thousands)	April 30, 2011			April 30, 2010
Deferred tax assets:
Net operating loss, general business credit and AMT carryforwards	$	13,466		$	18,866
Deferred revenue		84			84
Reserves and accruals		1,269			1,130
Other		42			45
Deferred tax assets		14,861			20,125
Valuation allowance		(14,861	)		(20,125	)
Net deferred taxes	$	-		$	-

As of April 30, 2011, the Company has approximately $37.4 million in Federal net operating loss carryforwards that will expire from 2011 through 2031, unless previously utilized. Additionally, as of April 30, 2011, the Company has approximately $2.4 million in California net operating loss carryforwards that will expire from 2031 through 2033, unless previously utilized. In addition, as of April 30, 2011, the Company has approximately $294,000 in Federal research and development credit carryforwards that begin to expire in 2020, and $320,000 of California research and development credit carryforwards that can be carried forward indefinitely. The Company also has approximately $110,000 in Federal alternative minimum tax credits that can be carried forward indefinitely.

Pursuant to the Tax Reform Act of 1986, Internal Revenue Code Section 382, utilization of the Company’s federal 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.

5. RELATED PARTY TRANSACTIONS

During the years ended April 30, 2011 and 2010, revenues from all related party agreements for sales of products and services totaled approximately $3.7 million (63% of total revenue) and $6.1 million (86% of total revenue), respectively. Included in accounts receivable at April 30, 2011 and 2010 was $145,000 and $463,000, respectively, from these customers. Descriptions of the transactions with the Company’s related parties in the years ended April 30, 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 April 30, 2011. Title to the inventory resides with BLM and is on consignment; therefore, no amounts are reflected in the Company’s 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 years ended April 30, 2011 and 2010;

There were no accounts receivable balances from BLM at April 30, 2011 and 2010;

Liabilities to BLM arising from the sale or use of the BLM inventory, recorded as “Payable to Parent,” were $251,000 and $250,000 as of April 30, 2011 and 2010, respectively.

Philippine Gaming Management Corporation

On January 11, 2010, the Company received from Philippine Gaming Management Corporation (“PGMC”), a related party and a subsidiary of BLM, an order valued at approximately $1.8 million for lottery products. Shipments of these products began in the first quarter of fiscal 2011 and were complete in the second quarter of fiscal 2011.

In addition, the Company provides terminal spare parts to PGMC on an ongoing basis.

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

Revenue recognized on the sale of lottery products and related support services totaled approximately $2.3 million during the year ended April 30, 2011. For the year ended April 30, 2010, revenue recognized on the sale of lottery products, software and related support services totaled approximately $2.7 million;

Net cost and estimated earnings in excess of billings relating to support services totaled approximately $32,000 as of April 30, 2011. As of April 30, 2010, billings in excess of costs and estimated earnings relating to the abovementioned lottery product order dated January 11, 2010 totaled $440,000;

There was no deferred revenue balance as of April 30, 2011. Deferred revenue on software support services totaled $6,000 as of April 30, 2010; and

Accounts receivable amounted to $47,000 and $10,000 as of April 30, 2011 and 2010, respectively.

Sports Toto Malaysia Sdn. Bhd.

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

Revenue of $326,000 was recognized on the sale of support services and lottery products during the year ended April 30, 2011. Revenue of $628,000 was recognized on the sale of support services and lottery products during the year ended April 30, 2010;

There were deferred revenues of $9,000 on support services as of April 30, 2011 and 2010;

There were no net billings in excess of costs and estimated earnings on uncompleted contracts as of April 30, 2011 and 2010; and

Accounts receivable totaled $16,000 as of April 30, 2011, compared to $13,000 as of April 30, 2010.

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 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:

•	During the year ended April 30, 2011, revenue of $969,000 was recognized on the performance of contract deliverables and sale of support services. Revenue of $2.8 million was recognized on the performance of contract deliverables and sale of support services during the year ended April 30, 2010;

•

Billings in excess of costs and estimated earnings relating to the abovementioned lottery system contract totaled approximately $105,000 as of April 30, 2011. Net cost and estimated earnings in excess of billings relating to the abovementioned lottery system contract totaled approximately $799,000 as of April 30, 2010; and

•	Accounts receivable totaled approximately $16,000 as of April 30, 2011, compared to $440,000 as of April 30, 2010.

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, 2011 and 2010, the Company incurred approximately $200,000 and $181,000, 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.

•	During the year ended April 30, 2011, the Company recognized revenue of $66,000 for software product development. There was no revenue recognized in the prior year.

•	Accounts receivable totaled approximately $66,000 as of April 30, 2011. There was no account receivable balance as of April 30, 2010.

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6. CONTRACTS IN PROCESS

The amounts by which total costs were less than billings on uncompleted contracts are as follows (in thousands):

	April 30,				April 30,
	2011				2010
Costs incurred and estimated earnings recognized on uncompleted contracts		$	6,800			$	5,121
Billings on uncompleted contracts			(6,886	)			(4,757	)
		$	(86	)		$	364

The amounts shown in the table above are included in the associated balance sheet as follows:

	April 30,				April 30,
	2011				2010
Costs and estimated earnings in excess of billings on uncompleted contracts		$	145			$	804
Billings in excess of costs and estimated earnings on uncompleted contracts			(231	)			(440	)
		$	(86	)		$	364

7. LEASES

On May 29, 2009, the Company entered into an amendment agreement to extend the term of its building lease to November 30, 2012. Commencing December 1, 2009, monthly base rent payments of $14,800 for the first year of the lease and $15,700 and $17,200 for years two and three, respectively, became effective. The agreement also provides for one month of free rent, annual rent increases and the Company’s payments of a portion of common area maintenance costs.

Future minimum lease payments for all operating leases are as follows (in thousands):

For Fiscal Year Ending April 30,	Minimum Lease Payments
2012	$	202
2013	$	123

Rent expense for all operating leases for the years ended April 30, 2011 and 2010 was $190,000 and $180,000, respectively.

8. EMPLOYEE 401(k) PLANS

The Company maintains a 401(k) plan (the “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, for each fiscal year, the Company, at the discretion of the Board of Directors, may contribute an amount of Company stock with a fair market value that does not exceed 5% of the annual compensation of all participants in the Plan. The Company made no contributions during the years ended April 30, 2011 or 2010. The Company also maintains another 401(k) plan in which long-tenured employees maintain accounts; however, the Company and its employees are no longer contributing to this plan.

9. STOCK OPTION PLANS

The Company had a stock option plan, the 2000 Equity Participation Plan (the “2000 Plan”), that was approved by the Board of Directors and shareholders, whereby options to purchase 200,000 shares of the Company’s common stock were initially authorized. The number of options authorized for grant may increase January 1 of each plan year by 3% of the total number of outstanding shares of the Company’s common stock on that date subject to the approval of the Board of Directors and the limitation that the total number of shares of common stock subject to all options granted shall not exceed 10% of the total number of outstanding shares of common stock on that date. The 2000 Plan expired and terminated on March 26, 2010 in accordance with the terms of the 2000 Plan, which was ten years from the date the Plan was adopted by the Board. Presently the Company does not maintain any stock option plan.

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A summary of the Company’s stock option activity and related information for the years ended April 30, 2011 and 2010 (shares in thousands) follows:

	2010
Stock Options	Shares			Weighted-Average Exercise Price
Options outstanding, beginning of year		84		$	1.00
Granted		-			-
Exercised		-			-
Forfeited/expired		(84	)		1.00
Options outstanding, end of year		-		$	-
Exercisable at end of year		-		$	-

The Company did not grant any stock options or warrants to employees in the years ended April 30, 2011 and 2010. There was no share-based compensation expense related to employee stock options recognized during the years ended April 30, 2011 and 2010.

10. 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 April 30, 2011 and 2010 due to the short-term maturity of the instruments.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued authoritative guidance on revenue recognition, ASC ASU 2009-14, “Certain Revenue Arrangements that Include Software Elements,” that will become effective for the Company beginning May 1, 2011, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We adopted this new guidance as of May 1, 2010. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

The FASB had issued certain other accounting pronouncements as of April 30, 2011 that will become effective in subsequent periods; however, the Company does not believe that any of those pronouncements are germane to our business or would have significantly affected the Company’s financial accounting measurements or disclosures had they been in effect during 2011 or 2010.

Subsequent Event

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.

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible 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.

MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining an adequate system of internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, 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 (“GAAP”).

Our internal controls over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our business are being made only in accordance with authorizations of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Management has conducted, with the involvement of our Chief Executive Officer, Chief Financial Officer, and our Director of Corporate Affairs, an assessment, including testing of the effectiveness of our internal controls over financial reporting as of April 30, 2011. Management’s assessment of internal controls over financial reporting was based on the framework in Internal Control over Financial Reporting – Guidance for Smaller Public Companies (2006) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our system of internal controls over financial reporting was effective as of April 30, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

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 April 30, 2011 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors of the Registrant

The Board presently consists of the following six directors: Theodore A. Johnson, Chan Kien Sing, Martin J. O’Meara, Jr., Alain K. Lee, Ooi Lee Meng and Rayvin Yeong Sheik Tan. There is one vacant board seat as of the date of this report. The current directors will serve until their respective successors have been duly elected and qualified.

Theodore A. Johnson, 71, has been Chairman of the Board since 1994. He is also Chairman of the Executive Committee, Audit Committee and a member of the Executive Compensation Committee, Nominating Committee and Affiliations Committee. Mr. Johnson served as Director from 1979 to 1993. He has been President and Chief Executive Officer of TJ Ventures, Inc., a venture capital consulting company since 1992. Mr. Johnson also holds directorships in other private corporations, including an applied research organization which is run by the University of Minnesota.

Chan Kien Sing, 55, has been Director since 1993. He is Chairman of the Executive Compensation Committee and Nominating Committee. In addition, Mr. Chan is a member of the Executive Committee. He also serves as Executive Director of Berjaya Group Berhad, a Malaysian holding company since July 1993. In addition, he is an Executive Director of Berjaya Corporation Berhad and Berjaya Sports Toto Berhad, a Director of Berjaya Lottery Management H.K. Limited (“BLM”), Cosway Corporation Limited, a listed company in Hong Kong and holds directorships in several other subsidiaries in the Berjaya Corporation group of companies.

Martin J. O’Meara, Jr., 83, has been Director since 1979. He is Chairman of the Affiliations Committee and a member of the Audit Committee. Mr. O’Meara, Jr. is presently a retired businessman. Previously he served as President of The Budget Plan, Inc., a privately owned company engaged in the consumer loan business for over five years.

Alain K. Lee, 54, has been Director since 1999. He is a member of the Executive Committee, Executive Compensation Committee and Audit Committee. Presently, Mr. Lee serves as a business consultant since 2007. He served as Executive Vice President and Director of Roadhouse Grill, Inc. from 1998 to 2007.

Ooi Lee Meng, 50, has been Director since January 2006. He is a member of the Executive Committee and Nominating Committee. Mr. Ooi holds directorships in several other subsidiaries in the Berjaya group of companies, including Berjaya-ILTS Ltd. He serves as Senior General Manager (Business Development) of Sports Toto Malaysia Sdn Bhd, a related company of ILTS, since October 2005. Previously he served as Executive Vice President of ILTS from September 2002 to April 2005.

Rayvin Yeong Sheik Tan, 32, became Director of the Company on July 15, 2008. He serves as an Executive Director of the Board of Berjaya Corporation Berhad, a diversified business entity based in Kuala Lumpur, Malaysia, since September 2005. Mr. Tan joined the Berjaya Group of Companies in May 2001 as Senior Manager (Corporate Affairs) of Kota Raya Development Sdn Bhd and Noble Circle Management Sdn Bhd. Presently, he is also a Director of Berjaya Lottery Management (HK) Limited and an Executive Director of Berjaya Sports Toto Berhad. In addition, Mr. Tan serves as Executive Director of Cosway Corporation Limited, a listed company in Hong Kong and a subsidiary company in the Berjaya Corporation group of companies.

Director Nomination Process

In evaluating director nominees, our nominating and governance committee considers, among others, the following factors: integrity, independence, diversity of viewpoints and backgrounds, extent of experience, length of service, number of other board and committee memberships, leadership qualities and ability to exercise sound judgment.

Director Qualifications

In addition to the information above regarding each director’s business experience and service on the boards of directors of other companies, our board of directors considered the following experience, qualifications or skills of each of the directors in concluding that each director is qualified to serve on our board. The information below is not intended to be an exhaustive list of the qualifications that the board of directors considered with respect to the directors.

Mr. Johnson has a broad background in managing and serving on the boards of directors of small companies. He has served as Chairman and CEO of another public company in the past and has served on the boards of directors of over 20 companies and venture capital funds. In addition, when he ran a venture capital operation, he was involved in the structuring, managing and financing of over 46 companies during a 20-year period. He is currently CEO and President of TJ Ventures, Inc. which provides consulting services to a variety of early stage companies. Presently, he is on the board of directors of two private companies and an applied research organization run by the University of Minnesota.

Mr. Chan has significant business experience with leadership of strategic business groups as senior executive of various public companies in Malaysia. He also has in-depth knowledge of accounting and financial issues related to public companies due to his previous experience as an auditor of public companies. He brings his specialized knowledge of merchant banking and corporate finance to our board and has outside board experience at several subsidiary companies related to ILTS’s parent company. He also has affiliation with the Risk Management Committee of Berjaya Corporation Berhad, a diversified public corporation based in Kuala Lumpur, Malaysia.

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Mr. O’Meara, Jr. brings to our board his profound business experience in serving as President of The Budget Plan and Owner and Director of Connecticut Yankee Greyhound Park and New England Harness Raceway. In addition, he has specialized and extensive knowledge and experience in the consumer loan business and automobile dealerships. During his 50-year career in financing business, Mr. O'Meara, Jr. has dealt extensively with purchase agreements, commercial and residential real estate mortgages, unsecured and secured loans.

Mr. Lee has extensive business and leadership experience in an executive and management capacity in both private and public companies including most recently serving as Executive Vice President and Director of Roadhouse Grill, Inc. He is a certified and chartered accountant from the United Kingdom. He brings financial and accounting expertise to our board due to his previous training and experience with the big 4 public accounting practice and as a financial executive in both private and public companies.

Mr. Ooi has significant business development and leadership experience in the lottery and related gaming industries in serving as senior executive of ILTS and other related companies. In addition to the in-depth knowledge of finance and accounting due to his educational training and previous experience as an auditor of public companies in the United Kingdom, Mr. Ooi has outside board experience at several subsidiary companies related to ILTS’s parent company.

Mr. Tan has extensive experience in the field of research covering the various sectors of property, commodities, telecommunications and transport. He brings finance and accounting expertise to our board due to his education at the London School of Economics, United Kingdom. In addition to his outside board experience and global business experience in other public and private corporations in Malaysia, Hong Kong, Canada and the U.S., Mr. Tan has affiliation with the Risk Management Committee of Berjaya Corporation Berhad, a diversified public corporation based in Kuala Lumpur, Malaysia.

Leadership Structure

The chairman of our board of directors and the president of our company serve different functions. Our board of directors has determined that its leadership structure is appropriate and effective for the size of our company. Our board of directors believes that having the chairman and president serve separate functions provides clear leadership, accountability and promotes strategic development and execution as our company executes our strategy and objectives. Our board of directors and the nominating committee also believe that there is a high degree of transparency among directors and company management. Three of the six members of our board are independent directors and all of those individuals serve on the committees of our board of directors.

Risk Oversight

Our board of directors is responsible for consideration and oversight of the risks facing the Company and its subsidiary. Our board of directors regularly reviews information provided by management in order to ensure that material risks are identified and managed appropriately. Our board considers, as appropriate, risks among other factors in reviewing our strategy, business plan, budgets and major transactions. Our board committees assist the full board of directors’ oversight of our material risks by focusing on risks related to the particular area of concentration of the relevant committee. For example, the compensation committee oversees risks related to our executive compensation plans and arrangements, the audit committee oversees the financial reporting and control risks and the nominating committee oversees risks associated with the independence of our board of directors and potential conflicts of interest, the affiliations committee oversees the related party activities to ensure fair and equitable pricing strategies. The full board of directors incorporates the insight provided by these reports into its overall risk oversight analysis.

Board Diversity

Although the nominating committee may consider whether nominees assist in achieving a mix of board members that represents a diversity of background and experience, which is not only limited to race, gender or national origin, we have no formal policy regarding board diversity.

Executive Officers of the Registrant

Jeffrey M. Johnson, 50, was appointed as President effective January 2007. He served as Director of Technical Operations and held various positions in the Technical Operations capacity at ILTS for over 20 years.

T. Linh Nguyen, 42, was appointed as Acting Chief Financial Officer and Corporate Secretary in January 2006 and presently serves as Chief Financial Officer and Corporate Secretary since January 2007. She served as Director of Finance and held various finance and accounting positions at ILTS since November 1999.

There are no family relationships among members of our executive officers or our Board of Directors.

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Audit Committee and Audit Committee Financial Expert

The Board of Directors has an Audit Committee consisting of Messrs. Johnson, O’Meara, Jr. and Lee. The Audit Committee held four meetings during the year.

The responsibilities of the Audit Committee include the appointment, compensation, retention and oversight of any independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The Committee reviews with such auditors the periodic SEC filings, the scope and result of their audit and the result of the auditors’ evaluation of internal controls. During fiscal years 2011 and 2010, all services were pre-approved by the Audit Committee. The Chairman of the Audit Committee reviews and approves all engagement services provided by the Company’s Independent Registered Public Accounting Firm.

The Board of Directors has determined that the Audit Committee does not have an “audit committee financial expert” as defined under the applicable SEC rules and regulations because none of the current members of the Audit Committee meet the criteria required for an audit committee financial expert.

Other Committees

The Board of Directors has an Executive Compensation Committee, Executive Committee, Nominating Committee and Affiliations Committee.

Shareholder Communications

The Company has a procedure by which shareholders can communicate with Board members. Shareholders may communicate with the Board by writing to the Chairman of the Board or individual Board members as follows: International Lottery & Totalizator Systems, Inc., Attention: Corporate Secretary, 2310 Cousteau Court, Vista, CA 92081. The Corporate Secretary will forward any shareholder communications as requested by the shareholder.

Code of Ethics

The Company has adopted an amended and restated Code of Conduct and Ethics that applies to all of its employees, officers, directors and consultants.

Shareholders may obtain a copy of the Code of Conduct and Ethics by writing to the Company: Attention: Corporate Secretary, 2310 Cousteau Court, Vista, CA 92081.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership of our equity securities with the SEC. Officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) filings. Based solely on our review of the Section 16(a) filings, we believe that all required Section 16(a) reports were timely filed during our most recent fiscal year.

ITEM 11.

EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal years ended April 30, 2011 and 2010, the compensation earned by the principal executive officer, the principal financial officer of the Company, and one other individual earning in excess of $100,000 during such years (the “Named Executive Officers”).

Summary Compensation Table

															Non-Equity			Non-Qualified
															Incentive			Deferred
									Stock Awards			Option Awards			Plan			Compensation			All Other
Name And		Salary				Bonus			Stock Awards			Option Awards			Compensation			Earnings			Compensation					Total
Principal Position	Year	($)				($)			($)			($)			($)			($)			($)					($)

Jeffrey M. Johnson	2011		$	160,000			$	-		$	-		$	-		$	-		$	-		$	8,405	(1	)		$	168,405
President	2010		$	160,000			$	-		$	-		$	-		$	-		$	-		$	8,405	(1	)		$	168,405

T. Linh Nguyen	2011		$	115,000			$	-		$	-		$	-		$	-		$	-		$	-				$	115,000
Chief Financial Officer and Corporate Secretary	2010		$	115,000			$	-		$	-		$	-		$	-		$	-		$	-				$	115,000

Barry Herron	2011		$	137,500	(2)		$	-		$	-		$	-		$	-		$	-		$	-				$	137,500
Director of Sales	2010		$	-			$	-		$	-		$	-		$	-		$	-		$	-				$	-

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There were no Company matching contributions to the Named Executive Officers from the 401(k) plan or other Long Term Compensation Awards during the fiscal years 2011 and 2010.

There were no stock options or stock appreciation rights granted to the Named Executive Officers during the fiscal years 2011 and 2010.

(1)	Other compensation of $8,405 represents car allowance perquisites which did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus for any such officer.

(2)	Mr. Herron’s annual compensation of $150,000 was prorated to reflect his employment beginning on June 1, 2010.

Options Exercise During Fiscal Year Ended April 30, 2011

	Option Awards
Name	Number of Shares Acquired on Exercise	Value Realized on Exercise		Number of securities underlying unexercised options exercisable	Number of securities underlying unexercised options unexercisable

	(#)	($)		(#)		(#)
Jeffrey M. Johnson	-		-	-		-
T. Linh Nguyen	-		-	-		-
Barry Herron	-		-	-		-

Outstanding Equity Awards as of April 30, 2011

		Options awards					Stock awards
Name	Number of securities underlying unexercised options exercisable		Number of securities underlying unexercised options unexercisable	Equity incentive plan awards: Number of securities underlying unexercised unearned options	Option exercise date	Option expiration date	Number of shares or units of stock that have not vested	Market value of shares or units of stock that have not vested	Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested	Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested

	(#)		(#)	(#)	($)		(#)	($)	(#)	($)
Jeffrey M. Johnson	-		-	-	-	n/a	-	-	-	-
T. Linh Nguyen	-		-	-	-	n/a	-	-	-	-
Barry Herron	-		-	-	-	n/a	-	-	-	-

The Company does not have any employment agreements or change in control arrangements with its executive officers.

Compensation of Directors

The following table summarizes the compensation earned by directors for the year ended April 30, 2011.
												Change in
												Pension Value
												and
	Fees								Non-Equity			Nonqualified
	Earned								Incentive			Deferred
	or Paid		Stock			Option			Plan			Compensation			All Other
	in Cash		Awards			Awards			Compensation			Earnings			Compensation
Name	($)		($)			($)			($)			($)			($)
Theodore A. Johnson	$	7,000		$	—		$	—		$	—		$	—		$	—
Chan Kien Sing	$	—		$	—		$	—		$	—		$	—		$	—
Martin J. O'Meara, Jr.	$	6,000		$	—		$	—		$	—		$	—		$	—
Alain K. Lee	$	5,000		$	—		$	—		$	—		$	—		$	—
Ooi Lee Meng	$	—		$	—		$	—		$	—		$	—		$	—
Rayvin Yeong Sheik Tan	$	—		$	—		$	—		$	—		$	—		$	—

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During the fiscal year ended April 30, 2011, independent Directors received an annual retainer fee of $4,000 and a fee of $500 for each Board meeting attended. In addition, each committee’s Chairman received an annual retainer of $1,000 for services as Chairman of such committee. Directors who were employees of the affiliates of ILTS’ Parent company, BLM, opted not to receive director remuneration and meeting fees in the year ended April 30, 2011. All Directors are reimbursed for reasonable out-of-pocket expenses incurred for travel and attendance for Board meetings.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial ownership of the Company’s common shares as of July 7, 2011 by:

i. each director;

ii. each executive officer;

iii. the executive officers and directors of the Company as a group; and

iv. each person or entity who is a beneficial owner of more than 5% of the Company’s outstanding common shares.

Beneficial ownership of securities is defined in accordance with the rules of the Securities and Exchange Commission and means generally the power to vote or exercise investment discretion with respect to securities, regardless of any economic interests therein. Except as otherwise indicated, the Company believes that the beneficial owners of the securities listed below have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

Title of Class		Name of Directors, Executive Officers and Beneficial Owners	Shares of Common Stock
		Number			Percent of Class
Common Stock		Theodore A. Johnson, Chairman of the Board	18,606			*
	n/a	Chan Kien Sing, Director	-	(a)
Common Stock		Martin J. O’Meara, Jr., Director	112,091			*
	n/a	Alain K. Lee, Director	-
	n/a	Ooi Lee Meng, Director	-	(a)
	n/a	Rayvin Yeong Sheik Tan, Director	-	(a)
Common Stock		Jeffrey M. Johnson, President	1,650			*
	n/a	T. Linh Nguyen, Chief Financial Officer and Corporate Secretary	-

		All directors and executive officers as a group (8 persons)	132,347			1.0	%

		Berjaya Lottery Management H.K. Limited, a subsidiary of Berjaya Sports Toto Berhad.	9,245,317	(a)		71.32	%

(a) Employees of affiliates of BLM. All three individuals disclaim beneficial ownership of such shares.

BLM’s correspondence address is:

Level 12 (East Wing)

Berjaya Times Square

No.1, Jalan Imbi

55100 Kuala Lumpur, Malaysia.

* Less than one percent of the outstanding common shares.

Securities Authorized for Issuance under Equity Compensation Plans

The Company does not currently have any securities authorized for issuance under an equity compensation plan. See the discussion under the heading “Securities Authorized for Issuance under Equity Compensation Plans” in Item 5 of page 14 of this report which is hereby incorporated by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

During the fiscal years ended April 30, 2011 and 2010, the Company derived revenues from sales of products and services under agreements with three related parties which totaled approximately $3.7 million (63% of total revenue) and $6.1 million (86% of total revenue), respectively. The Company also had outstanding accounts receivable at April 30, 2011 and 2010 of $145,000 and $463,000, respectively, from these related customers. A more detailed description of the transactions with the Company’s related parties in the years ended April 30, 2011 and 2010 are presented in Note 5 entitled “RELATED PARTY TRANSACTIONS” in our Consolidated Financial Statements beginning on page 35 of this report.

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Parent Company

As of April 30, 2011, Berjaya Lottery Management (H.K.) Ltd. (“BLM”) owned 71.3% of the total outstanding shares of the Company, and is the Parent company of the Company.

Director Independence

The Board has determined that the following directors are not considered to be independent directors under the NASDAQ listing standards: Chan Kien Sing, Ooi Lee Meng and Rayvin Yeong Sheik Tan. The Board has determined that the following directors are independent directors under the NASDAQ listing standards: Theodore A. Johnson, Martin J. O’Meara, Jr. and Alain K. Lee.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the approximate aggregate fees billed for each of the last two fiscal years for professional services rendered by our principal accountant. J.H. Cohn LLP was the principal accountant for the years ended April 30, 2011 and 2010.

	Fiscal Year			Fiscal Year
	Ended			Ended
	April 30, 2011			April 30, 2010

Audit Fees		$	107,800		$	120,000
Audit Related Fees (a)			9,347			13,121
Tax Fees (b)			9,000			11,050
All Other fees						-
		$	126,147		$	144,171

(a) Audit Related Fees in the amount of $9,347 and $13,121 in fiscal 2011 and 2010, respectively, primarily related to the review of the financial information requested by the Parent company’s principal accountant.

(b) Fees in the amount of $9,000 and $11,050 in fiscal 2011 and 2010, respectively, related to professional services rendered for tax compliance.

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. Exhibits

(3) (a) Articles of Incorporation, as amended September 13, 1994, reflecting corporate name change, and as amended January 7, 1998, reflecting authorization for 20 million shares of preferred stock and By-laws (incorporated by reference to Form 10-KSB for the year ended December 31, 1994, File No. 0-10294).

(b) Articles of Incorporation as amended June 2, 1998 (incorporated by reference to Form 10-KSB for the year ended December 31, 1998, File No. 0-10294).

(c) A By-law Amendment effective June 2, 1998, relating to officers and directors indemnification and number of directors (incorporated by reference to Form 10-KSB for the year ended December 31, 1998, File No. 0-10294).

(d) Stock Purchase Agreement dated as of September 8, 1999 between ILTS and BLM which increased Berjaya's stock ownership from 38.5% to 71.3% (incorporated by reference from ILTS's Form 8-K filed on October 18, 1999).

(14) The Company’s Amended and Restated Code of Conduct and Ethics (incorporated by reference to Form 10-KSB for the year ended April 30, 2009, File No. 0-10294).

(21) * Subsidiary of the Registrant

(31.1) * Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2) * Certification 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.

* Filed as an exhibit to this report

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.

By: /s/ Jeffrey M. Johnson

Jeffrey M. Johnson

President

/s/ T. Linh Nguyen

T. Linh Nguyen

Chief Financial Officer and Corporate Secretary

Dated: July 7, 2011

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Theodore A. Johnson Theodore A. Johnson	Chairman of the Board	July 7, 2011
/s/ Martin J. O’Meara, Jr. Martin J. O’Meara, Jr.	Director	July 7, 2011
/s/ Chan Kien Sing Chan Kien Sing	Director	July 7, 2011
/s/ Alain K. Lee Alain K. Lee	Director	July 7, 2011
/s/ Ooi Lee Meng Ooi Lee Meng	Director	July 7, 2011
/s/ Rayvin Yeong Sheik Tan Rayvin Yeong Sheik Tan	Director	July 7, 2011

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