UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q


(Mark
One)


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




For
      the quarterly period ended:
                  March
      31, 2009




OR




TRANSITION
      REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT




For
      the transition period from:
            
            to





Commission
      file number:
            000-30375





Las
      Vegas Gaming, Inc.(Exact
      name of small business issuer as specified in its
  charter)Nevada
                                  
                                  88-0392994(State
      or other jurisdiction of incorporation or organization)
                                  
                                  (I.R.S.
      Employer Identification No.)4000
      West Ali Baba Lane, Suite D, Las Vegas, Nevada 89118(Address
      of principal executive offices)(702)
      871-7111(Issuer’s
      telephone number)_________________________________________________________(Former
      name, former address and former fiscal year, if changed since last
      report)Check
      whether the issuer (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 x  No 
      oIndicate
      by check mark whether the registrant has submitted electronically and
      posted on its corporate Web site, if any, every Interactive Data File
      required to be submitted and posted pursuant to Rule 405 of Regulation S-T
      (§232.405 of this chapter) during the preceding 12 months (or for such
      shorter period that the registrant was required to submit and post such
      files). Yes  oNo  oIndicate
      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    (do
      not check if smaller reporting
      company)                           Smaller
      reporting company  xIndicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes  o  No 
      xAPPLICABLE
      ONLY TO CORPORATE ISSUERSIndicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latestpracticable
      date:
                                  15,094,690 shares
      of Common Stock Series A, $.001 par value, as of March 31,
      2009





LAS
VEGAS GAMING, INC.





FORM
10-Q


TABLE OF CONTENTS


PagePART I – FINANCIAL INFORMATIONItem
      1.
                      Financial Statements
                      3Consolidated Balance Sheets
                      3Consolidated Statements of Operations
                      4Consolidated Statements of  Stockholders’
      Equity
                      5Consolidated Statements of Cash
    Flows
                      6Notes to Unaudited Consolidated Financial
      Statements
                      7Item
      2.
                      Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                      18Item
      3.
                      Quantitative and Qualitative Disclosures About Market
      Risk
                      23Item
      4T.
                      Controls and Procedures
                      23PART II – OTHER INFORMATIONItem
      1.
                      Legal Proceedings
                      24Item
      1A.
                      Risk Factors
                      24Item
      2.
                      Unregistered Sales of Equity Securities
                      24Item
      3.
                      Defaults Upon Senior Securities
                      24Item
      4.
                      Submission of Matters to a Vote of Security
      Holders
                      24Item
      5.
                      Other Information
                      24Item
      6.
                      Exhibits
                      25


______________




PlayerVision,
RoutePromo, NumberVision, WagerVision, AdVision, Nevada Numbers, The Million
Dollar Ticket, and Nevada Keno are our trademarks.  This report may
contain trademarks and trade names of other parties, corporations, and
organizations.





- 2
-


PART
I – FINANCIAL INFORMATION


Item
1. Financial
Statements.




LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


December
      31, 2008
                  
                  
                  March
      31, 2009ASSETS
                  
                  
                  
                  
                  (unaudited)Current
      assetsCash
                  
                  $
                  497,529
                  
                  
                  $
                  163,041Investment
      in marketable securities
                  
                  
                  5,068
                  
                  
                  
                  -Accounts
      receivable, net of allowance of $578 and $27,626
                  
                  
                  576,847
                  
                  
                  
                  364,241Finished
      goods inventory
                  
                  
                  454,026
                  
                  
                  
                  456,734Prepaid
      expenses, deposits and other
                  
                  
                  79,881
                  
                  
                  
                  174,289Jackpot
      reserve deposits
                  
                  
                  1,230,761
                  
                  
                  
                  1,093,2882,844,112
                  
                  
                  
                  2,251,593Equipment,
      net of accumulated depreciation of $1,238,739 and
    $1,309,210
                  
                  
                  924,256
                  
                  
                  
                  887,467Other
      assetsGoodwill
                  
                  
                  2,371,178
                  
                  
                  
                  2,371,178Other
      intangibles, net of accumulated amortization of $1,165,743 and
      $1,231,212
                  
                  
                  278,330
                  
                  
                  
                  533,467Other
      long term assets
                  
                  
                  56,451
                  
                  
                  
                  55,570$
                  6,474,327
                  
                  
                  $
                  6,099,275LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAdvances
      from principal stockholders
                  
                  $
                  600,000
                  
                  
                  $
                  1,500,000Accounts
      payable and accrued expenses
                  
                  
                  1,624,740
                  
                  
                  
                  1,307,074Current
      portion of long-term debt
                  
                  
                  11,957
                  
                  
                  
                  12,070Progressive
      jackpot liability
                  
                  
                  1,555,360
                  
                  
                  
                  1,579,6103,792,057
                  
                  
                  
                  4,398,754Long-term
      debt, net of current portion
                  
                  
                  23,119
                  
                  
                  
                  20,370Conditionally
      redeemable equitySeries
      B convertible preferred stock, $.001 par, 50,000 shares issued and
      outstanding
                  
                  
                  250,000
                  
                  
                  
                  250,000Stockholders'
      equityConvertible
      preferred stock, $.001 par, 10,000,000 shares authorized:Series
      E:  810,800 shares authorized, 810,800 shares issued and
      outstanding
                  
                  
                  811
                  
                  
                  
                  811Series
      F: 200,000 shares authorized, 200,000 shares issued and
      outstanding
                  
                  
                  200
                  
                  
                  
                  200Series
      G: 150,000 shares authorized, 150,000 shares issued and
      outstanding
                  
                  
                  150
                  
                  
                  
                  150Series
      H: 98,500 shares authorized, 98,500 shares issued and
      outstanding
                  
                  
                  99
                  
                  
                  
                  99Series
      I:  4,693,878 shares authorized, 4,693,878 shares issued and
      outstanding
                  
                  
                  4,694
                  
                  
                  
                  4,694Common
      stock (including Series A): $.001 par, 90,000,000 shares authorized,
      14,849,690 and 15,094,690 shares issued and outstanding
                  
                  
                  14,850
                  
                  
                  
                  15,095Additional
      paid-in capital
                  
                  
                  44,160,702
                  
                  
                  
                  44,862,704Less
      due from officers and stockholders
                  
                  
                  (188,245
                  )
                  
                  
                  (185,245
                  )Deficit
                  
                  
                  (41,584,110
                  )
                  
                  
                  (43,268,357
                  )2,409,151
                  
                  
                  
                  1,430,151$
                  6,474,327
                  
                  
                  $
                  6,099,275The
      accompanying notes are an integral part of these consolidated financial
      statements.


- 3
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


THREE
MONTHS ENDED MARCH 31, 2008 AND 2009 (UNAUDITED)





2008
                        
                        
                        2009RevenuesCasino
      games
                        
                        $
                        543,094
                        
                        
                        $
                        557,907Product
      sales
                        
                        
                        324,014
                        
                        
                        
                        279,875Other
                        
                        
                        272,020
                        
                        
                        
                        286,5321,139,128
                        
                        
                        
                        1,124,314Costs
      and expensesCasino
      games
                        
                        
                        769,019
                        
                        
                        
                        507,717Product
      costs
                        
                        
                        152,620
                        
                        
                        
                        137,165Other
                        
                        
                        342,208
                        
                        
                        
                        280,0491,263,847
                        
                        
                        
                        924,931Gross
      operating income (loss)
                        
                        
                        (124,719
                        )
                        
                        
                        199,383Other
      operating expensesSelling,
      general, and administrative
                        
                        
                        1,594,087
                        
                        
                        
                        1,489,142Research
      and development
                        
                        
                        301,220
                        
                        
                        
                        20,458Depreciation
      and amortization
                        
                        
                        217,396
                        
                        
                        
                        135,9432,112,703
                        
                        
                        
                        1,645,543Operating
      loss
                        
                        
                        (2,237,422
                        )
                        
                        
                        (1,446,160
                        )Other
      income (expense)Finance
      costs
                        
                        
                        (542,071
                        )
                        
                        
                        (11,541
                        )Interest
      income and other
                        
                        
                        (20,071
                        )
                        
                        
                        (2,614
                        )Net
      loss
                        
                        
                        (2,799,564
                        )
                        
                        
                        (1,460,315
                        )Preferred
      stock dividends
                        
                        
                        -
                        
                        
                        
                        (223,932
                        )Net
      loss attributed to common stockholders
                        
                        $
                        (2,799,564
                        )
                        
                        $
                        (1,684,247
                        )Net
      loss per share attributed to common stockholders
                        
                        $
                        (0.22
                        )
                        
                        $
                        (0.11
                        )Weighted
      average shares outstanding
                        
                        
                        12,692,329
                        
                        
                        
                        15,023,440The
      accompanying notes are an integral part of these consolidated financial
      statements.


- 4
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


THREE
MONTHS ENDED MARCH 31, 2009 (UNAUDITED)





Series
      E Convertible
                                                                                    Preferred
                                                                                    Stock
                                                                                  
                                                                                  Series
      F Convertible
                                                                                    Preferred
                                                                                    Stock
                                                                                  
                                                                                  Series
      G Convertible
                                                                                    Preferred
                                                                                    Stock
                                                                                  
                                                                                  Series
      H Convertible
                                                                                    Preferred
                                                                                    Stock
                                                                                  
                                                                                  Series
      I Convertible
                                                                                    Preferred
                                                                                    Stock
                                                                                  
                                                                                  Common
                                                                                    Stock
                                                                                    (Including
                                                                                    Series
      A)
                                                                                  
                                                                                  Additional
                                                                                    Paid-In
                                                                                    Capital
                                                                                  
                                                                                  Less
      Due From
                                                                                    Officers
      and
                                                                                    Stockholders
                                                                                  
                                                                                  DeficitBalances,
      January 1, 2009
                                                                                  
                                                                                  $
                                                                                  811
                                                                                  
                                                                                  $
                                                                                  200
                                                                                  
                                                                                  $
                                                                                  150
                                                                                  
                                                                                  $
                                                                                  99
                                                                                  
                                                                                  $
                                                                                  4,694
                                                                                  
                                                                                  $
                                                                                  14,850
                                                                                  
                                                                                  $
                                                                                  44,160,702
                                                                                  
                                                                                  $
                                                                                  (188,245
                                                                                  )
                                                                                  $
                                                                                  (41,584,110
                                                                                  )Net
      loss
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,460,315
                                                                                  )Dividends
      payable Preferred Stock Series F, G and I
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (223,932
                                                                                  )Issuance
      of warrants for services
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  139,747Other
      stock based compensation
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  20
                                                                                  
                                                                                  
                                                                                  (20
                                                                                  )Redemption of
      Series F Preferred Stock
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (200
                                                                                  )
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (999,800
                                                                                  )Reissuance of
      Series F Preferred Stock
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  200
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  999,800Cash
      received from employees and stockholders
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,000Sale
      of Common Stock
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  225
                                                                                  
                                                                                  
                                                                                  562,275Balances,
      March 31, 2009
                                                                                  
                                                                                  $
                                                                                  811
                                                                                  
                                                                                  $
                                                                                  200
                                                                                  
                                                                                  $
                                                                                  150
                                                                                  
                                                                                  $
                                                                                  99
                                                                                  
                                                                                  $
                                                                                  4,694
                                                                                  
                                                                                  $
                                                                                  15,095
                                                                                  
                                                                                  $
                                                                                  44,862,704
                                                                                  
                                                                                  $
                                                                                  (185,245
                                                                                  )
                                                                                  $
                                                                                  (43,268,357
                                                                                  )




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





- 5
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOW


THREE
MONTHS ENDED MARCH 31, 2008 AND 2009 (UNAUDITED)





2008
                    
                    
                    2009Operating
      activitiesNet
      loss
                    
                    $
                    (2,799,564
                    )
                    
                    $
                    (1,460,315
                    )Marketable
      security received for licensing fee
                    
                    
                    26,033
                    
                    
                    
                    5,068Depreciation
      and amortization of equipment
                    
                    
                    96,721
                    
                    
                    
                    70,473Amortization
      of debt issuance cost and intangibles
                    
                    
                    671,633
                    
                    
                    
                    65,470Fair
      market value adjustment of debt derivative liability
                    
                    
                    (91,734
                    )
                    
                    
                    -Stock-based
      compensation to employees and consultants
                    
                    
                    220,784
                    
                    
                    
                    139,747Other
                    
                    
                    (5,324
                    )
                    
                    
                    880Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    109,377
                    
                    
                    
                    212,607Finished
      goods inventory
                    
                    
                    (12,498
                    )
                    
                    
                    (2,708
                    )Prepaid
      expenses, deposits and other
                    
                    
                    (3,031
                    )
                    
                    
                    (94,408
                    )Accounts
      payable and accrued expenses
                    
                    
                    262,703
                    
                    
                    
                    (508,720
                    )Progressive
      jackpot liability
                    
                    
                    398,411
                    
                    
                    
                    24,250Net
      cash used in operating activities
                    
                    
                    (1,126,489
                    )
                    
                    
                    (1,547,656
                    )Investing
      activitiesPurchase
      of property and equipment
                    
                    
                    (22,638
                    )
                    
                    
                    (33,684
                    )Capitalize
      PlayerVision 3 engineering costs
                    
                    
                    -
                    
                    
                    
                    (320,607
                    )Jackpot
      reserve deposits
                    
                    
                    (121,980
                    )
                    
                    
                    137,473Net
      cash used in investing activities
                    
                    
                    (144,618
                    )
                    
                    
                    (216,818
                    )Financing
      activitiesDividend
      payments on Series F Preferred Stock
                    
                    
                    -
                    
                    
                    
                    (32,877
                    )Redemption
      of Series F Preferred Stock
                    
                    
                    -
                    
                    
                    
                    (1,000,000
                    )Re-issuance
      of Series F Preferred Stock
                    
                    
                    -
                    
                    
                    
                    1,000,000Repayment
      of debt
                    
                    
                    (21,264
                    )
                    
                    
                    (2,637
                    )Sale
      of Series E Convertible Preferred Stock
                    
                    
                    335,000
                    
                    
                    
                    -Advances
      from principal stockholders
                    
                    
                    250,000
                    
                    
                    
                    1,500,000Repayment
      of advances from principal stockholders
                    
                    
                    -
                    
                    
                    
                    (600,000
                    )Exercise
      of warrants and options for common stock
                    
                    
                    105,387
                    
                    
                    
                    -Collection
      of stock subscription receivables
                    
                    
                    3,000
                    
                    
                    
                    3,000Sale
      of common stock
                    
                    
                    109,722
                    
                    
                    
                    562,500Net
      cash provided by financing activities
                    
                    
                    781,845
                    
                    
                    
                    1,429,986Net
      decrease in cash
                    
                    
                    (489,262
                    )
                    
                    
                    (334,488
                    )Cash,
      beginning of period
                    
                    
                    489,262
                    
                    
                    
                    497,529Cash,
      end of period
                    
                    $
                    -
                    
                    
                    $
                    163,041Non-cash
      investing and financing activitiesConversion
      of Series B Convertible Preferred Stock to Common Stock Series
      A
                    
                    $
                    19,000
                    
                    
                    $
                    -Exercise
      of stock warrants and options by increasing subscriptions
      receivable
                    
                    
                    6,000
                    
                    
                    
                    -Equipment
      acquired directly with proceeds of new borrowing
                    
                    
                    34,025
                    
                    
                    
                    -Debt
      retired through issuance of Common Stock Series A
                    
                    
                    107,500
                    
                    
                    
                    -Prepayment
      of lease costs through issuance of Common Stock Series A
                    
                    
                    106,000
                    
                    
                    
                    -Dividends
      declared, but unpaid on Series F, G and I Preferred Stock
                    
                    
                    -
                    
                    
                    
                    223,932The
      accompanying notes are an integral part of these consolidated financial
      statements.


- 6
-


LAS VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.  Nature
of operations:




Our current principal business is the
delivery of new, linked-progressive, mega jackpot games to the worldwide gaming
industry.  Our offering of these types of games includes Nevada
Numbers, Super Bonanza Bingo, Million Dollar Ticket and Gamblers Bonus Million
Dollar Ticket.  On March 31, 2009 we shut down Nevada Numbers and
Million Dollar Ticket.  During the second quarter of 2008, we launched
Gamblers Bonus Million Dollar Ticket in cooperation with one of the larger slot
route operators in Nevada.  We subsequently shut this game down on
January 31, 2009.  Although we have focused our business on the
development of our proprietary multimedia delivery system, known as
PlayerVision, PlayerVision has not had a significant revenue effect on our
financial statements to date.  We continue to provide equipment,
supplies and casino games for use by our customers in the keno and bingo
segments of the gaming industry.




2.  Basis of
Presentationand
Accounting:





The accompanying consolidated financial
statements have been prepared by us pursuant to the rules and regulations of the
Securities and Exchange Commission, or the SEC, relating to interim financial
statements. Accordingly, certain information normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. For further information, please refer
to our annual financial statements and the related notes included within our
Annual Report on Form 10-K for the year ended December 31, 2008, previously
filed with the SEC, from which the information as of that date is
derived.





The consolidated financial statements
include the accounts of our wholly-owned subsidiaries and an inactive 85%-owned
subsidiary. All significant intercompany transactions and balances have been
eliminated in consolidation.





The unaudited interim consolidated
financial statements included herein reflect all adjustments that are, in the
opinion of management, necessary to present fairly the financial position and
results of operations for the interim periods presented.  The results
of operations for the three months ended March 31, 2009, are not necessarily
indicative of results to be expected in 2009.





3.  Jackpot Reserve
Deposits:





At
December 31, 2008 and March 31, 2009, as required by gaming regulators, we had
deposit cash amounts of $1,230,761, and $1,093,288 respectively, that are
restricted for funding our various jackpot-oriented games.





4.
Equipment:





Equipment consists of the
following:




December
      31, 2008
                
                
                March
      31, 2009
                  (Unaudited)Production
      equipment
                
                $
                1,561,513
                
                
                $
                1,583,939Equipment,
      furniture, and fixtures
                
                
                557,855
                
                
                
                569,111Leasehold
      improvements
                
                
                43,627
                
                
                
                43,6272,162,995
                
                
                
                2,196,677Less
      accumulated depreciation and   amortization
                
                
                1,238,739
                
                
                
                1,309,210$
                924,256
                
                
                $
                887,467





- 7
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





5.  Other
Intangible Assets:





Other intangible assets consist of the
following:





December
      31, 2008
                
                
                March
      31, 2009
                  (Unaudited)Capitalized
      PlayerVision engineering costs
                
                
                -
                
                
                $
                340,607PlayerVision
      technology patents
                
                $
                1,016,236
                
                
                
                996,236Software
                
                
                427,836
                
                
                
                427,8361,444,072
                
                
                
                1,764,679Less
      accumulated amortization
                
                
                1,165,742
                
                
                
                1,231,212$
                278,330
                
                
                $
                533,467





The intangible assets are amortized
over their estimated useful lives, which are currently 5 years with the
exception of software which is amortized over three years.  We have
not begun amortizing PlayerVision costs as yet and will begin when we get our
product to market. Total amortization for other intangible assets amounted to
$135,861 and $65,469, respectively, for the three months ended March 31, 2008
and 2009.  The estimated aggregate amortization for the remaining nine
months of calendar 2009 and the next five years is as follows (assuming we begin
deployment of PlayerVision 3 in July 2009):





2009
                      
                      $
                      237,3542010
                      
                      
                      132,5772011
                      
                      
                      110,1022012
                      
                      
                      53,4342013
                      
                      
                      -2014
                      
                      
                      -$
                      533,467





6.  Debt:





Long term
debt is as follows:





December
      31, 2008
                
                
                March
      31, 2009Other
      notes
      payable
                
                $
                35,076
                
                
                $
                32,440Less
      amounts due within one year
                
                
                11,957
                
                
                
                12,070$
                23,119
                
                
                $
                20,370





The $600,000 advance from shareholder
at December 31, 2008 was paid back in January 2009.





On February 13, 2009, we signed a
binding term sheet (“Term Sheet”) with IGT whereby IGT advanced $1.5 million
(“Advance”) to the Company. If the Company and IGT do not execute an investment
agreement (“Second Investment Agreement”) on or before August 15, 2009, IGT will
have the option of (i) converting the Advance into shares of preferred stock
of the Company, or (ii) having the Company repay the Advance. If IGT elects
to convert the Advance into preferred stock, the Advance shall be converted into
shares of the same series of the Company’s preferred stock as is being offered
in the Company’s private placement (the “Private Placement”) as previously
disclosed in the Company’s Form 8-K dated January 16, 2009.  The
number of shares to be issued shall be based on the closing price of the Private
Placement, or $3.25 per share if the Private Placement is not
completed.  If the Private Placement is not completed prior to August
15, 2009, the Advance shall become immediately due and payable to IGT. The
Company granted a security interest in all of its present and future assets as
security for such obligation.


- 8
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)








Pursuant to the Term Sheet, the Company
and IGT shall endeavor to enter into the Second Investment Agreement for a total
investment in the Company of $3.0 million inclusive of the Advance (the “$3.0
million investment”). In consideration of the $3.0 million investment, the
Company intends to issue to IGT a new series of preferred stock convertible into
shares of the Company’s Common Stock Series A at the price of the Private
Placement, or, if the Private Placement does not close, $3.25 per share.
The preferred stock will be entitled to a mandatory annual 5% cash
dividend. The annual dividend will be personally guaranteed by our Chairman of
the Board of Directors and Chief Financial Officer. The Company and IGT also
agreed to amend the License and Application Support Agreement dated September
30, 2008 between the Company and IGT (the “LASA”), and the Intellectual Property
Access Agreement dated September 30, 2008 between the Company and IGT (the
“IPAA”).  See Note 11 for subsequent event.





The amendments to the LASA include: (i)
a requirement that the Company use its best efforts to utilize IGT’s sb (server
based) Media Manager as the default infrastructure for the delivery of the
Company’s PlayerVision® applications, where feasible, (ii) a requirement that
the Company provide development support for IGT sb (server based) applications
requested by IGT, (iii) an amendment to the amount of distribution fees, (iv) a
granting to IGT of a “most favored distributor” status so that IGT is granted
the most favorable terms on the Company’s software distributor rates for its
server-based applications, and (v) a requirement that the Company escrow the
source code for the applications that connect to IGT systems. IGT will have the
right to access the source code only if the Company becomes insolvent, and
IGT’s rights to utilize such software (if released) will be unlimited. The
amendments to the IPAA include the Company’s agreement that IGT will have the
right to initiate, coordinate, finance and assist in the prosecution, defense
and enforcement of all Company owned intellectual property to which the Company
has granted a right of first refusal to IGT.





7.  Stockholders'
Equity:





From  time to time, the
Company issues shares of common stock and preferred stock through transactions
that are exempt from registration under the Securities Act of 1933 (Securities
Act), either pursuant to Section 4(2) of the Securities Act and/or Rule 506 of
Regulation D.  For the three months ended March 31, 2008, we issued
92,129 shares of Common Stock Series A as a result of the exercise of options
and warrants.  Additionally, we issued 19,000 shares of Common Stock
Series A pursuant to the conversion of 3,800 shares of Series B Convertible
Preferred Stock.  During the three months ended March 31, 2008, we
also issued 231,528 shares of Common Stock Series A for salaries, bonuses, and
board of director fees.  During the three months ended March 31, 2009,
we issued 225,000 shares of Common Stock Series A to an investor in return for
cash used for working capital (this is the same investor who invested $1,000,000
in Series E Convertible Preferred Stock, $1,000,000 in Series F Convertible
Preferred Stock, and $750,000 in Series G Convertible Preferred
Stock).





In February 2008, we received an
advance from a shareholder of $250,000. In May 2008, this same shareholder
purchased 200,000 shares of Series F Convertible Preferred Stock for $5 per
share and 150,000 shares of Series G Convertible Preferred Stock for $5 per
share for an aggregate purchase price of $1,750,000.  Both Series F
and Series G Convertible Preferred Stock are convertible into Common Stock
Series A at the lower of $3.50 or 30% off the IPO price, where “IPO price” means
the per share price to the public of any common shares offered by us that in the
aggregate results in capital in excess of $10.0 million being raised and the
shares of a class of our common stock being listed and traded on a national
stock exchange.  The proceeds of the Series F Convertible Preferred
Stock were used to fund the $1,000,000 jackpot bankroll for our Gamblers Bonus
Million Dollar Ticket game which launched on April 14, 2008. The proceeds of
Series G Convertible Preferred Stock were used for general operating purposes,
and the advance of $250,000 was offset against the Series G purchase price.
As an incentive to do these transactions, the same shareholder was issued
500,000 shares of Common Stock Series A.  Additionally, if our Common
Stock Series A, as a result of a qualified financing, commences trading at less
than $5 per


- 9
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


share,
the shareholder will receive additional shares of Common Stock Series A prorated
for the percentage shortfall from $5 per share measured against the 500,000
shares, where a “qualified financing” is a capital raise of $10 million or more
or a transaction at less than $5 per share resulting in a change in control of
the Company.  In addition, the Series F Convertible Preferred Stock
shareholder was granted a security interest and other additional rights in
connection with our separate account (and related insurance policy), and $1
million is set aside  solely to satisfy our jackpot security
requirements relating to the Gamblers Bonus Million Dollar Ticket
game.





In the first quarter of 2009, we closed
the Gamblers Bonus Million Dollar game due to a lack of ticket
sales.  Accordingly, we redeemed the $1,000,000 of Series F Preferred
Stock from our investor. We closed our Million Dollar Ticket Game as
well for the same reason.  We also temporarily suspended our
Nevada Numbers game to change the draw to hourly rather than
daily.  We restarted the Nevada Numbers game on March 1, 2009 but
again suspended it on March 31, 2009 due to a lack of funds to meet our Nevada
Gaming bankroll requirements.  This suspension resulted from the
change in ownership at Treasure Island and the new ownership’s decision to not
continue bankrolling our game.  The game will remain suspended until
we can find approximately $4 million for the bankroll.  When we
restarted Nevada Numbers on March 1, 2009, we restored Series F Convertible
Preferred Stock for $1,000,000 to be used as additional bankroll needed for
Nevada Numbers. Due to the March 31 suspension, the Nevada Numbers bankroll
funds associated with Series F Convertible Preferred Stock were no longer
needed.  Therefore, in April 2009 we again redeemed the Series F
Convertible Preferred Stock and the $1,000,000 was returned to the
investor.  In addition, in March 2009, the same investor received
20,000 shares of Common Stock Series A and in April 2009, he received another
7,156 shares of Common Stock Series A.  These shares were awarded as
an incentive for the restoration of Series F Convertible Preferred Stock
for $1,000,000 to support the restarting of Nevada Numbers and cash dividends
due on Series F Convertible Preferred Stock.





Series B Convertible Preferred
Stock.  Each share of Series B Convertible Preferred Stock is
convertible at any time into Common Stock Series A at the election of the
holders of the Series B


Convertible
Preferred Stock on a one-to-five basis.





A certain portion of the proceeds
derived from the sale of Series B Convertible Preferred Stock provided jackpot
security for two of our game products, Nevada Numbers and The Million Dollar
Ticket. The terms of Series B Convertible Preferred Stock provide that if at any
time we determine that these proceeds are no longer used by us to provide
jackpot security for either our Nevada Numbers or Million Dollar Ticket game
then, in each case, each holder of Series B Convertible Preferred Stock
will have the option, for 90 calendar days from the date the holders of Series B
Convertible Preferred Stock are noticed that such funds are no longer being so
used, to put to us up to 50% of such holder's Series B Convertible Preferred
Stock for $5.00 per share or convert on a one-to-five basis for Common Stock
Series A.





On
February 12, 2007, because Treasure Island began maintaining the required
base jackpot bankroll for Nevada Numbers, the holders of Series B Convertible
Preferred Stock were notified pursuant to the terms and conditions of our Series
B Convertible Preferred Stock of the ability to: exchange one-half of their
shares of Series B Convertible Preferred Stock for either (a) their original
investment in the shares exchanged, i.e., $5.00 per share, or (b) shares of
Common Stock Series A at the rate of five shares of Common Stock Series A for
each share of Series B Convertible Preferred Stock; or to exchange all of their
shares of Series B Convertible Preferred Stock for shares of Common Stock Series
A at the rate of five shares of Common Stock Series A for each share of Series B
Convertible Preferred Stock.  The holders of Series B Convertible
Preferred Stock had until May 13, 2007 to make their decision.




On
January 18, 2008, because Treasure Island began maintaining the required
base jackpot bankroll for The Million Dollar Ticket, the holders of Series B
Convertible Preferred Stock were notified pursuant to the terms and conditions
of our Series B Convertible Preferred Stock of the ability to
exercise




- 10
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)







the above
options.  The holders of Series B Convertible Preferred Stock had
until April 17, 2008 to make their decision.  At March 31, 2008
holders of 183,690 shares of Series B Convertible Preferred Stock had converted
their shares on a one-to-five basis for 918,450 shares of Common Stock Series
A.  We also redeemed 35,900 shares of Series B Convertible Preferred
Stock at $5 per share for a total redemption of $179,500 through March 31,
2008.  In the second quarter of 2008, we redeemed 27,900 shares of
Series B Convertible Preferred Stock, and holders of 98,650 shares of Series B
Convertible Preferred Stock elected to convert on a one-to-five basis into
493,250 shares of Common Stock Series A.  As of March 31, 2009,
there were 50,000 outstanding shares of Series B Convertible Preferred
Stock.




Series E Convertible Preferred
Stock.  Holders of Series E Convertible Preferred Stock are
entitled to receive $5 per share as a liquidation preference after payment of
all existing and future indebtedness and the liquidation preference of Series F,
I, and B Convertible Preferred Stock. Series E and Series G Convertible
Preferred Stock are pari passu in liquidation preference. Series E Convertible
Preferred Stock has a liquidation preference over Series H Convertible
Preferred Stock.  During the year ended December 31, 2008, we issued
67,000 shares of our Series E Convertible Preferred Stock raising
$335,000.  In February 2008, we closed our Series E Convertible
Preferred Stock offering with a total of 810,800 shares issued and $4,054,000
raised.





Series F Convertible Preferred
Stock.  The holder of Series F Convertible Preferred Stock is
entitled to receive $5 per share as a liquidation preference after payment of
all existing and future indebtedness and before Series I, Series B, Series E,
Series G and Series H Convertible Preferred Stock as to the $1,000,000 jackpot
bankroll reserve for our Gamblers Bonus Million Dollar Ticket
game.  On January 31, 2009, we discontinued the Gamblers Bonus Million
Dollar Ticket game and the jackpot bankroll reserve of $1,000,000 was
transferred to our Nevada Numbers game. On May 9, 2008, we issued 200,000 shares
of Series F Convertible Preferred Stock which carries a cumulative 12% dividend
rate payable on January 1, 2010 immediately after paying IGT their 6.5% dividend
on Series I Preferred Stock.  Series F Convertible Preferred Stock is
convertible into Common Stock Series A at the lower of $3.50 or 30% off of the
IPO price, where “IPO price” means the per share price to the public of any
common shares offered by us that in the aggregate results in capital in excess
of $10.0 million being raised and the shares of a class of our common stock
being listed and traded on a national stock exchange.  As explained
above, in April 2009 all shares of Series F Convertible Preferred Stock were
redeemed.





Series G Convertible Preferred
Stock.  The holder of Series G Convertible Preferred Stock is
entitled to receive $5 per share as a liquidation preference pari passu with the
liquidation preference of Series E Convertible Preferred Stock and after payment
of all existing and future indebtedness and the liquidation preference of Series
F, I, and B Convertible Preferred Stock.  Series G Convertible
Preferred Stock has a liquidation preference over Series H Convertible Preferred
Stock.  On May 9, 2008, we issued 150,000 shares of Series G
Convertible Preferred Stock which carries a cumulative 12% dividend rate payable
on January 1, 2010 immediately after paying IGT their 6.5% dividend on Series I
Preferred Stock.  Series G Convertible Preferred stock is convertible
into Common Stock Series A at the lower of $3.50 or 30% off of the IPO price,
where “IPO price” means the per share price to the public of any common
shares offered by us that in the aggregate results in capital in excess of $10.0
million being raised and the shares of a class of our common stock being listed
and traded on a national stock exchange.





Series HConvertiblePreferred Stock.The holders of
Series H Convertible Preferred Stock are entitled to receive $5 per share as a
liquidation preference after payment of all existing and future indebtedness and
the liquidation preference of Series F, Series I, Series B, Series E, and Series
G Convertible Preferred Stock.  During the year ended December 31,
2008, we issued 98,500 shares of Series H Convertible Preferred Stock at a price
of $5 per share for a total capital raise of $492,500.  The Series H
Convertible Preferred offering closed June 21, 2008.  Series H
Convertible Preferred stock is convertible into Common Stock Series A at the
lower of $2.50 or 30% off of the IPO price, where “IPO price” means the per
share price to the public of any common shares offered by us that in the
aggregate results in capital in excess of $10.0 million being raised and the
shares of a class of our common stock being listed and traded on a national
stock exchange.


- 11
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)








Series I Preferred
Stock.  On October 1, 2008, IGT signed an investment agreement
as of September 30, 2008, with us for 4,693,878 shares of our Series I Preferred
Stock at $2.45 per share, or a total investment of $11.5 million.  The
Series I Preferred Stock is convertible into shares of Common Stock Series A on
a one-for-one basis. The transaction closed on October 24, 2008.  IGT
had previously advanced $1.5 million of this total investment pursuant to an
agreement dated July 17, 2008, as amended, so the net proceeds received by the
Company on October 24, 2008 was $10 million.  IGT also received a
warrant to purchase 1.5 million shares of Common Stock Series A at an exercise
price of $2.45 per share.  The warrant has a three-year term and is
fully vested.  The shares of Series I Preferred Stock carry a dividend
rate of 6.5% payable initially on January 1, 2010 and vote on an as converted
basis, on all matters submitted to the Company’s stockholders.  Based
on the fully diluted outstanding shares of the Company, IGT is entitled to one
seat on the Company’s Board of Directors, which to date they have not chosen to
fill.  In addition, IGT forgave a receivable from the Company from a
prior legal settlement for $614,027.  Also on October 1, 2008, we
signed three agreements with IGT which became part of the legal settlement with
IGT: 1) the Retrofit License Agreement, 2) the License and Application Support
Agreement and 3) the Intellectual Property Access Agreement.  On
October 14, 2008, the legal case with IGT was dismissed by the Court with
prejudice.





With the additional $10 million of
funding from IGT, we paid in full the CAMOFI note for $6,051,250, together with
accrued interest and a payment penalty amounting to $1,567,272.  We
were released from any and all liens and claims that CAMOFI may have against us
and the Registration Rights Agreement was terminated.  CAMOFI has
2,675,000 warrants, with “piggy back” registration rights for its 300,000 shares
of our common stock and underlying shares of common stock underlying its
warrants, which registration rights are junior to the registration rights
granted to IGT as part of the Series I Preferred Stock transaction.





In connection with the IGT transaction,
we filed Amended and Restated Certificates of Designation with the Nevada
Secretary of State with respect to our Series B, Series E, Series F, Series G
and Series H Convertible Preferred Stock on October 22, 2008.  We also
filed Certificates of Withdrawal of Certificate of Designation with the Nevada
Secretary of State with respect to our Series A, Series C, and Series D
Convertible Preferred Stock on October 3, 2008, as no shares of such series
were then issued or outstanding.





Stock Warrants and Options.
Our 2009 Stock Option Plan (2009 Plan), adopted by our Board of Directors, but
not yet approved by our shareholders, allows for the issuance of both qualified
and non-qualified options. The Stock Option Committee of our Board of Directors
administers the 2009 Plan. The 2009 Plan succeeds the 2000 Stock Option Plan
(2000 Plan) that will expire later this year except as to options outstanding
under the 2000 Plan.  As of March 31, 2009, there were 214,428 qualified
and 9,600 non-qualified options outstanding under the 2009 Plan.  As of
March 31, 2008 and 2009, respectively, there were 1,121,900 and 1,995,900
options outstanding under the 2000 Plan.  As of March 31, 2008 and
2009, respectively, thre were 425,000 and 650,000 non-qualified options
outstanding that were issued outside of the plans.  The exercise price of
options issued pursuant to either plan cannot be less than the fair market value
at the time of the grant and vesting is at the discretion of the Stock Option
Committee, though limited to ten years. Only employees and board members are
qualified to receive options.  The stock subject to the 2000 Plan is
limited to 2,500,000 shares of Common Stock Series A. The stock subject to the
2009 Plan is limited to 4,260,274 shares of Common Stock Series A which is 20%
of the sum of the currently outstanding shares of Common Stock Series A and the
outstanding shares of our preferred stock convertible into Common Stock Series A
as of January 13, 2009, the date of adoption of the 2009 Plan by our Board of
Directors.





We
have, from time to time, granted common stock, warrants and options to employees
and others as employment incentives, in return for successful capital-raising
efforts or as an inducement to invest in our common or preferred securities, in
return for other services, and in conjunction with the




- 12
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)







initial
capitalization of our company and business acquisitions.  Warrants and
options to purchase 410,000 and 234,028 shares of Common Stock Series A were
issued to officers, employees and directors during the three months ended
March 31, 2008 and 2009, respectively. Total compensation cost recognized in
operations from grants of options and warrants amounted to $220,784 and $139,747
for the three months ended March 31, 2008 and March 31, 2009,
respectively.  Unrecognized costs related to employee stock options
and warrants outstanding at March 31, 2009 totaled $591,436 and are expected to
be amortized over a weighted average period of three years.




The weighted average exercise price of
our outstanding options and warrants at March 31, 2009, was $2.48. The following
table summarizes our stock option and warrant activity followed by the
applicable weighted average prices during the quarter ended March 31,
2009:





Options/Warrants
              
              
              Weighted
                Average
      PriceBalance,
      January 1, 2009
              
              
              8,656,209
              
              
              $
              2.46Granted
              
              
              234,028
              
              
              
              2.50Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              (100,000
              )
              
              
              1.00Balance,
      March 31, 2009
              
              
              8,790,237
              
              
              $
              2.48





As of March 31, 2009, 1,455,771 options
and warrants are outstanding, but have not vested. The aggregate intrinsic value
of options and warrants at March 31, 2009 is $595,244.





Non-vested
      Options
                
                
                Weighted
                  Average
      PriceBalance,
      January 1, 2009
                
                
                1,393,210
                
                
                $
                3.45Granted
                
                
                66,771
                
                
                
                2.50Vested
                
                
                (107,960
                )
                
                
                (4.92
                )Forfeited
                
                
                -
                
                
                
                -Balance,
      March 31, 2009
                
                
                1,352,021
                
                
                $
                3.29








Non-vested
      Warrants
                
                
                Weighted
                  Average
      PriceBalance,
      January 1, 2009
                
                
                110,417
                
                
                $
                2.52Granted
                
                
                -
                
                
                
                -Vested
                
                
                (6,667
                )
                
                
                (5.00
                )Forfeited
                
                
                -
                
                
                
                -Balance,
      March 31, 2009
                
                
                103,750
                
                
                $
                2.36





- 13
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





The
following table summarizes stock options and warrants outstanding at March 31,
2009, as to number exercisable and average remaining life in years:




Weighted
      Average
                
                
                
                
                
                Weighted
      AverageExercise
                
                
                Number
                
                
                Remaining
                
                
                Number
                
                
                RemainingPrice
                
                
                Outstanding
                
                
                Life
      in years
                
                
                Exercisable
                
                
                Life
      in yearsOptions
                
                $
                1.00
                
                
                
                270,000
                
                
                
                0.75
                
                
                
                270,000
                
                
                
                0.75$
                2.00
                
                
                
                460,000
                
                
                
                4.04
                
                
                
                158,500
                
                
                
                4.04$
                2.50
                
                
                
                891,028
                
                
                
                4.48
                
                
                
                324,007
                
                
                
                4.61$
                3.00
                
                
                
                100,900
                
                
                
                0.92
                
                
                
                100,900
                
                
                
                0.92$
                4.55
                
                
                
                25,000
                
                
                
                0.75
                
                
                
                25,000
                
                
                
                0.75$
                5.00
                
                
                
                1,123,000
                
                
                
                3.47
                
                
                
                637,690
                
                
                
                3.45Warrants
                
                $
                1.00
                
                
                
                267,500
                
                
                
                1.56
                
                
                
                257,500
                
                
                
                1.38$
                1.48
                
                
                
                2,675,000
                
                
                
                2.07
                
                
                
                2,675,000
                
                
                
                2.07$
                1.50
                
                
                
                30,000
                
                
                
                4.10
                
                
                
                30,000
                
                
                
                4.10$
                2.00
                
                
                
                185,000
                
                
                
                1.40
                
                
                
                185,000
                
                
                
                1.40$
                2.10
                
                
                
                23,809
                
                
                
                1.62
                
                
                
                23,809
                
                
                
                1.62$
                2.45
                
                
                
                1,510,000
                
                
                
                2.57
                
                
                
                1,510,000
                
                
                
                2.57$
                2.50
                
                
                
                125,000
                
                
                
                4.36
                
                
                
                31,250
                
                
                
                4.36$
                3.00
                
                
                
                854,000
                
                
                
                1.81
                
                
                
                854,000
                
                
                
                1.81$
                4.00
                
                
                
                100,000
                
                
                
                0.87
                
                
                
                100,000
                
                
                
                0.87$
                5.00
                
                
                
                150,000
                
                
                
                2.03
                
                
                
                150,000
                
                
                
                2.038,790,237
                
                
                
                2.59
                
                
                
                7,332,656
                
                
                
                2.31





There are
1,455,771 options and warrants that have been issued but not
vested.  Of these options and warrants 518,000 will vest during the
remainder of 2009, 607,757 in 2010, 307,757 in 2011 and 22,257 in
2012.




8.  Commitments
and Contingencies:





Economic conditions and related risks
and uncertainties. The United States is currently experiencing a
recession accompanied by, among other things, weakness in the commercial and
investment banking systems resulting in reduced credit and capital financing
availability, and highly curtailed gaming, other recreational activities and
general discretionary consumer spending, and is also engaged in war, all of
which are likely to continue to have far-reaching effects on economic conditions
in the country for an indeterminate period.  The effects and duration
of these developments and related risks and uncertainties on our future
operations and cash flows, including our access to capital or credit financing,
cannot be estimated at this time but may likely be significant.





We often carry cash and cash
equivalents, including jackpot reserves, on deposit with financial institutions
substantially in excess of federally-insured limits, and the risk of losses
related to such concentrations may be increasing as a result of recent economic
developments and uncertainties discussed in the foregoing
paragraph.  The extent of a future loss as a result of uninsured
deposits in the event of a future failure of a bank or other financial
institution, if any, is not subject to estimation at this time.





We purchase insurance to fund the base
progressive jackpots for Nevada Numbers and The Million Dollar Ticket. We fund
any uninsured portion plus increases to the progressive jackpot through
operations. We are ultimately liable for the entire jackpot. The following table
presents details of our liability for progressive jackpots at March 31, 2009,
and related assumptions:


- 14
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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)







March
      31, 2009Present
      value of Nevada Numbers $5.0 million base progressive jackpot, payable in
      20 equal annual installments using a 3.25% discount rate, the prevailing
      prime rate
                
                $
                3,752,968Present
      value at 3.25% of the progressive jackpot meter for Nevada
      Numbers
                
                
                85,125Less
      portion insured through conventional insurers
                
                
                (2,900,000
                )Other
      games
                
                
                641,517$
                1,579,610








Legal Matter. A lawsuit is
pending against LVGI and certain other defendants concerning their provisional
patent for “Slot Lottery.”  We are unable to estimate minimum
costs, if any, to be incurred by LVGI upon the ultimate disposition of this
matter and, accordingly, no provision has been made, but we believe the case is
without merit and will vigorously defend ourselves.




Gaming Regulation and
Licensing.  We are licensed
with the State of Nevada as an operator of inter-casino-linked systems, supplier
and distributor of keno and bingo products, parts, and service, and as a keno
route operator.  From time to time, we seek licensure in other gaming
jurisdictions so that we may similarly participate in the gaming revenue
produced by customers from our products in those
jurisdictions.  Failure to comply with applicable gaming regulations,
retain our Nevada licenses, or obtain and retain the necessary licenses in other
jurisdictions, would likely have a material adverse effect on our future
operations and cash flows.




Adopted
amendments to Regulation 5.115 of the Nevada Gaming Commission, as amended on
November 18, 1999, allow licensees to use the “reserve method” to fund periodic
payments of any game, including a race book or sports pool, tournament, contest,
or promotional activity provided that the licensee complies with certain
financial monitoring and reporting requirements as follows:  1)
current ratio of 2:1 and 2) interest coverage ratio of 3:1.  We have
frequently found it impossible, primarily due to the absence of earnings, to be
in compliance with these ratios and in the past have been successful in
presenting an alternative plan acceptable to the Nevada Gaming Commission to
satisfactorily meet the objectives of the Regulation if not cure the situation
prospectively through expected future raises of capital.  In our
eleven-year history, all of our jackpot liabilities have been paid by us or
through insurance coverage, and we have no reason to believe that it will not
continue to be the case in the future.  The Nevada Gaming Commission
has the right to demand that a one-year letter of credit be posted when a
company is not in compliance with the foregoing financial ratios but has not
made any such demand to date.




The
forgoing notwithstanding, in July, 2008, we received two “Orders to Show Cause”
from the Nevada Gaming Control Board (NGCB).  One order dealt with
deficiencies in meeting the financial requirements of Regulation 5.115 as to 1)
resources in restricted accounts; 2) current ratio or working capital; 3)
interest coverage ratio or debt to EBITDA ratio; and 4) bankroll.  For
this matter we have paid a fine of $10,000 in full settlement and satisfaction
of the allegations.  The second order dealt with deficiencies in
filing timely reports with the NGCB as to new hires and termination of
personnel.  Our response set forth some remedial action taken by us
which was deemed adequate during the three months ended March 31, 2009 and no
further disciplinary action was taken.




- 15
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)







9.
 Income Taxes:





As of
March 31, 2009, net operating loss carryovers for federal income tax reporting
purposes total approximately $39.9 million and expire between 2013 and 2028.
However, because we have not achieved a satisfactory level of operations,
realization of any future income tax benefit of the net operating loss
carryovers accumulated to date is not yet viewed by management at this time as
more likely than not.  Therefore, the related deferred tax asset of
$14.0 million has been effectively reduced by a 100% valuation
allowance.  In addition, we may be limited in our ability to fully
utilize our net operating loss carryforwards and realize any benefit therefrom
in the event of any of certain ownership changes described in Internal Revenue
Code Section 382.




10. 
Segment Information:




We conduct our operations in three
primary business segments: “Casino Games,” Products” and “Other.” The “Casino
Games” segment generates income from four games which are played in 25 casinos
and 100 bars and convenience stores in Nevada and another 14 casinos outside
Nevada.





Operating results, certain unallocated
expenditures, and identifiable assets for these segments are set forth
below.







Three
      months ended March 31,2008
                
                
                2009RevenueCasino
      Games
                
                $
                543,094
                
                
                $
                557,907Product
      Sales
                
                
                324,014
                
                
                
                279,875Other
                
                
                272,020
                
                
                
                286,532$
                1,139,128
                
                
                $
                1,124,314Operating
      income (loss)Casino
      Games
                
                $
                (225,925
                )
                
                $
                50,190Product
      Sales
                
                
                171,394
                
                
                
                142,710Other
                
                
                (70,188
                )
                
                
                6,483Unallocated
                
                
                (2,112,703
                )
                
                
                (1,645,543
                )$
                (2,237,422
                )
                
                $
                (1,446,160
                )Identifiable
      assetsCasino
      Games
                
                
                
                
                
                $
                2,465,966Product
      Sales
                
                
                
                
                
                
                355,722Other
                
                
                
                
                
                
                296,413Unallocated
                
                
                
                
                
                
                2,981,174$
                6,099,275





- 16
-


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





Identifiable
assets of $6,099,275 at March 31, 2009, included recorded goodwill of $2,371,178
that relates to the Product Sales segment from prior acquisitions.




Three
      months ended March 31,Capital
      expenditures
                
                2008
                
                
                2009Casino
      Games
                
                $
                197,790
                
                
                $
                12,472Product
      Sales
                
                
                -
                
                
                
                754Other
                
                
                109,034
                
                
                
                -Unallocated
                
                
                134,504
                
                
                
                20,458$
                441,328
                
                
                $
                33,684





11.    Subsequent
Event:
  On May
15, 2009, IGT informed the Company that the final round of funding for $1.5
million for the Second Investment as disclosed in Note 6 would not be completed.
We are presently in negotiation with IGT to extend the term of the $1.5 million
advance beyond August 15, 2009 and make it a longer term, interest only note
payable.





- 17
-





Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.




The following discussion and analysis
should be read together with our unaudited consolidated financial statements and
the accompanying notes.  This discussion contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995, including statements regarding
our expected realization of more significant revenue from PlayerVision during
the third quarter of 2009 and our expected financial position, business and
financing plans. Some of the forward-looking statements can be identified by the
use of forward-looking terms such as “believes,” “expects,” “may,” “will,”
“should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or
other comparable terms. Forward-looking statements involve inherent risks and
uncertainties which could cause actual results to differ materially from those
in the forward looking statements.  Such risks and uncertainies include any
adverse judgment, ruling or order, lack of market acceptance of our
PlayerVision system, our inability to secure additional third-party
financing, the current economic recession, the lack of operating history of our
PlayerVision system, the ability of our competitors to introduce products having
advantages over our PlayerVision system, the failure to obtain regulatory
approval for our PlayerVision modules, restrictrictions on our ability to
install our PlayerVision system on existing gaming machines, our failure to
protect our intellectual property rights, and additional risks discussed
herein and elsewhere in our Form 10-K for the year ended December 31,
2008.  We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date
made.  These historical financial statements may not be indicative of
our future performance.





Overview





Historically, we have been one of the
leading suppliers of keno and bingo games, systems, and supplies, a relatively
small market associated with nominal growth and smaller
companies.  Our current principal business is the delivery of new,
linked-progressive, mega jackpot games to the worldwide gaming
industry.  However, to date, we have devoted a significant portion of
our resources toward the development, regulatory approval, and marketing of our
PlayerVision system.  In comparison to the keno and bingo market, the
potential market for our PlayerVision system, i.e., the gaming machine
market, is much larger and more dynamic.  While we continue to provide
equipment, supplies and games for use by our customers in the keno and bingo
segments of the gaming industry, we anticipate these revenues will continue to
decline as we focus on our current principal business.  PlayerVision
has not had a significant revenue effect on our financial statements to
date.  Due to our focus on the development of our PlayerVision system,
we have incurred expenses in excess of our revenue and have generated losses to
date.





In early May 2009, we received oral
approval for nine software applications on our more robust and scalable
PlayerVision 3 platform from the Nevada Gaming Control Board laboratory and
expect to have written approval by the end of May 2009.  These
software applications include Beverage-on-Demand, ServiceVision, VoyeurVision,
Live TV, AdVision, YouTube, CasinoTunes, ValetVision, and
BlastVision.  We submitted these same applications for Gaming
Laboratories International (GLI) approval, an independent accredited testing
laboratory, in May 2009.





Based on the foregoing, and other than
the insignificant revenue realized from our early adoption agreements, and
subject to economic uncertainties discussed herein, we expect to begin to
realize more significant revenue from our PlayerVision system during the third
quarter of 2009 that would mark a significant shift in the type of revenue
recognized by us.  The anticipated revenue would be from the
installation of our nine software applications on the PlayerVision 3 platform in
the United States, primarily Nevada for now.  No assurance can be given,
however, that we will begin installing our PlayerVision 3 applications or begin
realizing revenue from our PlayerVision system during the third quarter of 2009
or at all.





We expect to continue for the remainder
of 2009 to incur expenses related to the development and regulatory approval for
the remaining PlayerVision modules, and we expect to face competition from
larger, more formidable competitors as we attempt to enter the gaming machine
market.  Due to continuing expenses related to our PlayerVision
system, we expect to continue to rely on funds from third party financing
sources, in addition to funds from operations to sustain our operations in 2009
and 2010.  See discussion in “Liquidity – Outlook”
below.


- 18
-




Critical
Accounting Policies and Estimates




The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with generally
accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, and expenses and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates and
assumptions provide a basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions, and these differences may be material.





We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.





Revenue
Recognition





PlayerVision. The revenue from
PlayerVision will result from installation fees, activation fees, fees for
services, and revenue sharing arrangements. We will recognize installation and
activation fees for PlayerVision upon installation and recognize the costs
associated with the installation (labor and supplies) at that time. We will
recognize revenue from the revenue sharing arrangements as earned and recognize
maintenance expenses as incurred against the corresponding
revenue.  Manufacturing costs will be capitalized and depreciated
over the life of the asset.





Casino Games. As wagers are made within
our inter-linked systems, we recognize our share of each wager made as revenue.
Based on the revenue proceeds, we purchase insurance to fund the base jackpot.
We also estimate the cost for any uninsured base jackpot and the expense for any
progressive jackpot and, accordingly, establish a liability on our balance sheet
as a progressive jackpot liability. For our other casino games, we recognize our
share of revenue upon the sale of each ticket. We have the discretion to
purchase insurance to fund jackpots. We recognize costs associated with
uninsured jackpots as each ticket is sold based on mathematical probabilities
dictated by the odds of the game.





Products. We generally recognize sales
of bingo and keno equipment when installed and sales of supplies when the
products are shipped. Warranty costs and related liabilities associated with
product sales have not been material. We recognize fees from equipment
maintenance contracts sold separately (with no bundled deliverables) evenly over
the term of the contract. Prior to shipment, we include equipment and supplies
in inventories and stated at the lower of cost, as determined on a “first-in
first-out’’ basis, or market.





Other. We include keno revenue from the
operation of a keno route subject to multiple participation agreements in other
revenue in an amount equal to the net win from such gaming activities, which is
the difference between gaming handle and amounts paid to customers. We
reflect amounts due to the owners of the facilities in which the keno games are
conducted (effectively contingent rent) as an expense.





Goodwill
and other Intangible Assets





We review goodwill and other intangible
assets for impairment annually, and whenever events or circumstances indicate
the carrying value may not be recoverable or warrant a revision to the estimated
remaining useful life, in accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and SFAS 142, Goodwill and Other Intangible
Assets.


- 19
-





Our forecasted future cash flows used
to test the recoverability or determine the fair value of intangibles are based
on assumptions that are consistent with plans used to manage the underlying
business.  Factors used in our evaluations of potential impairment and
fair value require significant judgments about respective estimated useful
lives, risk rates, forecasted growth rates, brand history, expected market
growth, competitive environment, market share, future business prospects and
success of our products.  Changes in these estimates and assumptions
could materially affect the determination of recoverability or fair value. While
we believe that our estimates of future revenues and cash flows are reasonable,
different assumptions could materially affect our assessment of useful lives,
recoverability and fair values.  Application of the goodwill
impairment test requires judgment, including the identification of reporting
units, allocation of related goodwill, assignment of corporate shared assets and
liabilities to reporting units, and determination of the fair value of each
reporting unit. We determine the fair value of our reporting units using the
discounted cash flow method, and compare the implied valuation multiples to
a group of guideline public companies under the Market approach to test the
reasonableness of the discounted cash flow results.





Our intangible assets consist of key
patents with a five year life and software with a three year
life.  PlayerVision 3 costs are being capitalized as we have proven
technological feasibility and will be depreciated as soon as we get our product
to market in the third quarter of 2009.  We recorded no goodwill
impairment charges during the three months ended March 31, 2008 and
2009.





Income
Taxes





We have effectively provided a full
100% valuation allowance for the deferred tax effects of our net operating
losses at March 31, 2008 and 2009. We have effectively recorded a 100% valuation
allowance to offset the deferred tax asset resulting from operating loss
carryforwards arising in the current and prior periods that might otherwise have
been recognized since, because of our history of operating losses, management is
unable to conclude at this time that realization of such benefit is currently
more likely than not.  Although Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes─An Interpretation of FASB Statement
No. 109, became effective in 2007, based on its evaluation, management
determined that FIN 48 did not have a material effect on our financial
statements or either our net operating loss carryovers or the related deferred
tax assets or valuation allowance.





Recent
Accounting Pronouncements




In December 2007, the FASB issued SFAS
141R, Business
Combinations, which will significantly change the accounting for business
combinations and certain other covered transactions. Also, in April of 2008, the
FASB issued FSP SFAS141R-1, Accounting for Assets Acquired and Liabilities Assumed
in a Business Combination That Arise from Contingencies. Both SFAS 141R
and FSP SFAS 141R-1 will be applicable for us prospectively only to business
combinations and other covered transactions for which the acquisition date
occurs during or after 2009. Because we are not now contemplating any covered
transactions after their effective date, we currently do not expect either SFAS
141R or FSP SFAS 141R-1 to have a material effect on our future financial
position, results of operations, and operating cash flows.




Results
of Operations





Three
Months Ended March 31, 2009, Compared with Three Months Ended March 31,
2008.





Revenue.  Casino
games revenue for the three months ended March 31, 2009, increased $15,000 or
2.8%, compared to the three months ended March 31, 2008.  The higher
casino games revenue principally resulted from higher revenue from Super
Coverall Bingo of $48,000 and from $17,000 of revenue for Gamblers Bonus Million
Dollar Ticket which was in existence in January 2009 but not in the first
quarter of 2008, offset by the decline of Nevada Numbers of
$46,000.


- 20
-





Product sales for the three months
ended March 31, 2009, decreased by $44,000 or 13.6% compared to the three months
ended March 31, 2008. Keno equipment sales amounted to $51,000 for the three
months ended March 31, 2009 compared to $94,000 during the three months ended
March 31, 2008. This decrease in Keno equipment sales was due to a delay by
customers to buy new keno systems due to the state of the economy.




Other revenue for the three months
ended March 31, 2009, increased by $15,000 or 5.3% compared to the three months
ended March 31, 2008.  Revenue from Keno route and participation
agreements increased for the three months ended March 31, 2008, compared to
the three months ended March 31, 2009, as we closed our Keno route business on
February 29, 2008, due to renovation at one of our key customer locations. We
reopened the Keno route operations in September 2008 at two
locations.





Cost and Expenses. Cost and
expenses of casino games for the three months ended March 31, 2009, decreased by
$261,000 or 34.0% compared to the three months ended, March 31, 2008.
The decrease resulted primarily from a favorable interest rate affect on our
jackpot expense of $327,000 versus the prior year (interest rates declined by
200 basis points during the three months ended March 31, 2008) offset by an
increase in jackpot expense of our Super Bingo Games of $56,000 due to growth of
Super Bingo Games.





Product cost and expenses for the three
months ended March 31, 2009, decreased $15,000 or 10.1% compared to the three
months ended March 31, 2008, consistent with decline in Keno equipment
sales.





Other cost and expenses for the three
months ended March 31, 2009, decreased $62,000 or 18.1% compared to the three
months ended March 31, 2008 as we had a higher hold percentage on our Keno
route and participation games by $13,000, and we reduced salary expenses by
$55,000 through headcount reductions in our Keno service staff.





Other Operating Expenses. Although
selling, general and administrative expenses for the three months ended March
31, 2009, decreased by $105,000 or 6.6%, professional fees decreased
by $213,000 during the three months ended March 31, 2009, compared to the same
period in 2008 primarily as a result of a reduction in legal fees resulting from
settlement of the IGT lawsuit in October, 2008. This was offset by additional
stock-based compensation and compensation expense of $81,000.





Research and development costs for the
three months ended March 31, 2009, have decreased by $281,000 or 93.2% compared
to the three months ended March 31, 2008, as we began capitalizing
development costs of our PlayerVision 3 platform.





Depreciation and amortization for the
three months ended March 31, 2009, decreased $81,000 or 37.3% compared to the
three months ended March 31, 2008, as a result of significantly reduced capital
expenditures during each of the last two years.





Finance Costs. Finance costs
for the three months ended March 31, 2009, decreased $530,000 or 97.8% compared
to the three months ended March 31, 2008, due to the payoff of our primary
third party lender, CAMOFI, in October 2008 with proceeds from equity
capital invested.





Interest and Other Income.
Interest and other income for the three months ended March 31, 2009, increased
by $17,000 or 85.0% compared to the three months ended March 31,
2008.  The increase was a result of higher cash balances outstanding
offset by a loss in fair value incurred on our marketable
securities.





Liquidity
and Capital Resources




Cash
Flows




Cash used in operating activities
increased by $421,000 for the three months ended March 31, 2009 primarily
because of accounts receivable and inventory decreases of $229,000 offset by
increases in accounts payable and accrued expenses of $503,000. Investing
activities consisted principally of net cash out flows in connection with
$354,000 of capital expenditures offset by $137,000 decrease in jackpot reserve
deposits.  Our cash inflows from financing activities in the three
months ended March 31, 2009, consisted principally of $562,500 of new capital
from the sale of Common Stock Series A and net proceeds of advances from
shareholders of $900,000.





- 21
-


Capital
Expenditures





Capital expenditures increased by
$298,000 for the three months ended March 31, 2009 compared to the same period
in the prior year as we began capitalizing our PlayerVision 3 engineering costs
prior to the rollout to the marketplace of nine new software applications. For
2009, other than our obligation to pay any jackpots that may be won, we
anticipate that our most significant capital resource requirement will relate to
the purchase of approximately $10 million of PlayerVision control units for the
rollout of our PlayerVision System.





We believe that we will be able to pay
for these capital expenditures from our existing cash balances, from funds
generated from future operations, and from funds generated by additional
third-party financings, including the establishment of a master equipment lease
agreement with financing sources that we have used in the past.  No
assurance can be given, however, that we will be able to secure any third-party
financing or that such financing will be available to us on acceptable
terms.  As discussed further under the heading Outlook below, it may be
difficult for us to secure additional third-party financing at this
time.





Sources
of Capital





We have traditionally relied on various
forms of third party financing in order to sustain our operations.  On
February 13, 2009, we signed a binding term sheet (“Term Sheet”) with IGT
whereby IGT advanced $1.5 million (“Advance”) to the Company. If the Company and
IGT do not execute an investment agreement (“Second Investment Agreement”) on or
before August 15, 2009, IGT will have the option of (i) converting the Advance
into shares of preferred stock of the Company, or (ii) having the Company
repay the Advance. If IGT elects to convert the Advance into preferred
stock, the Advance shall be converted into shares of the same series of the
Company’s preferred stock as is being offered in the Company’s private placement
(the “Private Placement”) as previously disclosed in the Company’s Form 8-K
dated January 16, 2009.  The number of shares to be issued shall be
based on the closing price of the Private Placement, or $3.25 per share if the
Private Placement is not completed.  If the Private Placement is not
completed prior to August 15, 2009, the Advance shall become immediately due and
payable to IGT. The Company granted a security interest in all of its present
and future assets as security for such obligation.  On May
15, 2009, IGT informed us that the final round of funding for $1.5 million for
the Second Investment would not be completed. We are presently in negotiation
with IGT to extend the term of the $1.5 million Advance beyond August 15, 2009
and make it a longer term, interest only note payable.





Outlook





The United States has been experiencing
a severe economic recession that, among other things, has curtailed casino
gaming development, activity and profitability, both nationwide and particularly
in our local market, and has resulted in highly reduced availability of credit
and capital financing and heightened economic risks. The effects and duration of
these developments and related uncertainties on the Company’s future operations
and cash flows cannot be estimated at this time but may likely be
significant.





Subject to unforeseen effects of the
economic risks and uncertainties discussed in the foregoing paragraph, we expect
to continue for at least the calendar year 2009 to incur expenses related to the
development and regulatory approval for the remaining PlayerVision modules and
additional modules presently in development.  We also expect to continue to
rely on funds from third-party financing sources, in addition to funds from
operations, to sustain our operations into 2009.  We believe
that


- 22
-


existing
cash balances, together with additional third-party financing and future cash
generated from the PlayerVision product rollout, will be sufficient to fund our
anticipated working capital requirements and our business expansion plans for at
least the next year.  If the PlayerVision product rollout is delayed,
we fail to complete or obtain additional third-party financing, or we are
unable to establish a master equipment lease agreement, this would have a
material adverse effect on our cash flow, results of operations and financial
condition.  No assurance can be given, however, that we will be able
to secure any third party financing or that such financing will be available to
us on acceptable terms. Given the current financial market disruptions, credit
crisis and economic recession, including the current downturn in the gaming
industry, it may be particularly difficult at this time to obtain any
third-party financing on acceptable terms, whether public or private equity or
debt, strategic relationships, capital leases or other
arrangements.  In addition, we have significant restrictive covenants
under our recent financing with IGT that may prohibit us in certain
circumstances from obtaining third party financing without IGT’s prior written
consent.  In the event we are unable to raise additional funding, we may be
unable to satisfy our obligations as they become due.  Furthermore,
any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants.  Strategic
arrangements, if necessary to raise additional funds, may require that we
relinquish rights to certain of our technologies or products or agree to other
material obligations and covenants.





Although casino gaming development,
activity and profitability for 2008 were down and are expected to be down for
2009,  also subject to unforeseen effects of the economic risks and
uncertainties discussed above, we believe that our PlayerVision system will
provide casinos with an additional revenue source or cost reduction with
minimal, if any, upfront capital expenditure.  Other than the
insignificant revenue realized from our early adoption agreements, we do not
expect to begin to realize revenue from our PlayerVision system until the third
quarter of 2009.  We cannot provide assurance that the market will
accept our PlayerVision system.  Any failure by us to install our
PlayerVision system within our expected schedule or on terms acceptable to us
will likely have a material adverse impact on our cash flow, results of
operations and financial condition.  In addition, we expect to face
competition from larger, more formidable competitors as we enter the gaming
machine market.  An unexpected lack of market acceptance of our
PlayerVision system, failure to obtain additional financing, or unforeseen
adverse competitive, economic, or other factors may adversely impact our cash
position, and thereby materially adversely affect our financial condition
and business operations.





We presently do not use any derivative
financial instruments to hedge our exposure to adverse fluctuations in
interest rates, foreign exchange rates, fluctuations in commodity prices, or
other market risks, nor do we invest in speculative financial
instruments.





Off
Balance Sheet Financing Arrangements




We have operating leases totaling
$748,420 that have the following payment schedule by calendar
year: $197,439 in 2009, $190,686 in 2010, $162,597 in 2011, $147,804 in
2012, and $49,894 in 2013.





Item 3.       Quantitative and
Qualitative Disclosures About Market Risk.




Not required.





Item 4(T).   Controls and Procedures.




We evaluated the effectiveness of our
disclosures controls and procedures as of the end of the period covered by this
report.  This evaluation was carried out under the supervision, and
with the participation, of Jon D. Berkley, our Chief Executive Officer, and
Bruce A. Shepard, our Chief Financial Officer. Based on this evaluation, Mr.
Berkley and Mr. Shepard concluded that our disclosure controls and procedures
are effective to ensure the information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934, or the
Exchange Act, is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms.





Mr. Berkley and Mr. Shepard also
concluded that there have been no significant changes in internal controls or in
other factors that have materially affected, or would be reasonably likely to
materially affected, our internal control over financial reporting during the
quarter most recently ended.





- 23
-





PART
II – OTHER INFORMATION




Item 1.   Legal
Proceedings.




On
September 15, 2008, Steven Brandstetter and J & S Gaming filed a lawsuit
against us, among other defendants, in Department 11 of the Nevada Eighth
Judicial District Court captioned Brandstetter, et al. v. Bally Gaming, Inc., et
al., case no. 08-A-571641-C alleging against us claims of breach of contract,
misrepresentation, breach of fiduciary duty and unjust enrichment regarding a
non-disclosure agreement executed in May 2002 pertaining to the plaintiffs’
gaming concepts.  The plaintiffs are seeking monetary damages,
including attorney’s fees and costs.   We filed an answer to the
complaint on December 8, 2008 citing eighteen affirmative
defenses.  Depositions have been scheduled for some of the executives
of the larger company defendants.  No depositions have been requested
of any of our executives. We are unable to estimate minimum costs, if any, to be
incurred by us upon the ultimate disposition of this matter an accordingly, no
provision has been made, but we believe the case is without merit, and we intend
to defend ourselves vigorously.





Item 1A. Risk Factors.




Not required.





Item 2.      Unregistered Sales of
Equity Securities.




During
the quarter ended March 31, 2009, we issued 225,000 shares of Common Stock
Series A at $2.50 per share for a total investment of $562,500 to the holder of
our Series F and G Convertible Preferred Stock.  We also issued 20,000
shares of Common Stock Series A to this investor as an inducement to make the
Common Stock investment in January 2009 and for the restoration of Series F
Convertible Preferred Stock to be used as additional bankroll for Nevada
Numbers.  These issuances were deemed to be exempt from registration
under the Securities Act in reliance on Section Section 4(2) of the Securities
Act in that the issuance did not involve a public offering.




During
the quarter ended March 31, 2009, we issued options and warrants to purchase a
total of 234,028 shares of Common Stock Series A to our employees and members of
our board of directors, all with an exercise price of $2.50 per share, primarily
with a three-year vesting schedule and a five-year life.  These
issuances were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act in that the issuance did not
involve a public offering.




Item 3.   Defaults Upon Senior
Securities.




None.




Item 4.  Submission of Matters to
a Vote of Security Holders.




Not
applicable.




Item 5.    Other
Information.




None.




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-




Item 6.   Exhibits




10.1*
            
            Binding
      Term Sheet between registrant and IGT dated February 13, 2009,
      incorporated by reference to registrant’s Annual Report on Form 10-K filed
      with the Securities and Exchange Commission on April 8,
      200931.1
            
            Certifications pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certifications pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            
            Certifications pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*
      Confidential treatment has been granted by the SEC for portions of this
      exhibit.  These portions have been omitted from the exhibit as
      filed with the registrant’s Annual Report on Form 10-K, as filed with the
      SEC on April 8, 2009.







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SIGNATURE




In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




Las
      Vegas Gaming, Inc.(Registrant)Date:
            May
      20, 2009
            By:
            /s/
      Jon D. BerkleyJon
      D. BerkleyIts:
            President
      and Chief Executive Officer(Principal
      Executive Officer)Date:
            May
      20, 2009
            By:
            /s/
      Bruce A. ShepardBruce
      A. ShepardIts:
            Chief
      Financial Officer(Principal
      Financial Officer)










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EXHIBIT
INDEX







Exhibit
            
            Document
      Description10.1*
            
            Binding
      Term Sheet between registrant and IGT dated February 13, 2009,
      incorporated by reference to registrant’s Annual Report on Form 10-K filed
      with the Securities and Exchange Commission on April 8, 200931.1
            
            Certifications pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certifications pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            
            Certifications pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*
      Confidential treatment has been granted by the SEC for portions of this
      exhibit.  These portions have been omitted from the exhibit as
      filed with the registrant’s Annual Report on Form 10-K, as filed with the
      SEC on April 8, 2009.





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