UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549








FORM 10-QSB





[X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the quarterly period ended June 30, 2004





[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934







For the transition period from __________ to __________







Commission File Number 0-30375





LAS VEGAS GAMING, INC.


(Exact name of Small Business Issuer as specified in its charter)





Nevada ______       88-0392994


(State or other jurisdiction of        (IRS Employer


incorporation)          Identification No.)





4000 WEST ALI BABA, 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) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [ X ] Yes [ ] No





State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 7,088,955 shares of Common Stock as of July 31, 2004.





Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]




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PART I. FINANCIAL INFORMATION





Item 1.   Financial Statements





GENERAL





The Companys general unaudited financial statements included with the Form 10QSB are as follows:





(a) Balance Sheets as of June 30, 2004 (unaudited), and December 31, 2003;





(b) Statements of Operations three months ended June 30, 2004, and 2003;





(c) Statement of Operations six months ended June 30, 2004, and 2003;





(d) Statement of Stockholders Equity  January 1, 2004 to June 30, 2004;





(e) Statement of Cash Flow  six months ended June 30, 2004 and 2003;





(f) Notes to Unaudited Financial Statements.





The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for this interim period are not necessarily indicative of the results that can be expected for the full year.




2





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


BALANCE SHEET


JUNE 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003


__________________________________________________________________________________________________________________________








**ASSETS**

2004


2003Current assetsCash and equivalents
$
1,297,647

$
1,005,561Accounts receivable, net of allowance

304,570


454,679Inventory

419,716


349,604Jackpot reserve deposits

3,797,246


3,812,9635,819,179


5,622,807Equipment and software, net of accumulated depreciation

671,001


724,832Other assetsGoodwill

955,277


955,277Trademarks, copyrights, patents and other intangibles, net of accumulated
amortization of $17,727 and $258,100

35,455


108,227Due from officers, including accrued interest

49,146


50,392Deposits and other

217,106


234,595$
7,747,164

$
7,696,130LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
$
507,407

$
466,116Note payable

320,000Progressive jackpot liability

962,459


850,9881,789,866


1,317,104Stockholders' equitySeries A convertible preferred stock, $.001 par, 5,000,000 shares authorized,
541,400 shares issued and outstanding

541


541Series B convertible preferred stock, $.001 par, 5,000,000 shares authorized,
337,640 and 316,540 shares issued and outstanding

338


317Series C convertible preferred stock, $.001 par, 5,000,000 shares authorized,
48,000 and no shares issued and outstanding

48Common stock $.001 par, 25,000,000 shares authorized, 6,807,955 and
6,688,955 shares issued and outstanding

6,808


6,689Additional paid-in capital

15,336,271


14,830,975Less due from officers and stockholders

(420,000
)

(420,000)Deficit

(8,966,708
)

(8,039,496)5,957,298


6,379,026$
7,747,164

$
7,696,130









3





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


STATEMENTS OF OPERATIONS (UNAUDITED)


THREE MONTHS ENDED JUNE 30, 2004 AND 2003


_________________________________________________________________________________________________________________________







2004


2003**Revenues**Casino games
$
288,644

$
221,014Product sales

363,788


301,816Other costs

347,416


129,253999,848


652,083Costs and expensesCasino games - net of progressive liability interest rate changesof $(107,885) and $71,730 in 2004 and 2003

172,352


288,692Product costs

241,637


231,299Other

388,565


46,265Selling, general, and administrative expenses

473,351


490,568Research and development

74,574


23,327Depreciation and amortization

59,097


76,2001,409,576


1,156,351Operating loss

(409,728
)

(504,268)Other income (expense)Interest, officers

5,525


23,732Interest, others

5,208


10,019Net loss
$
(398,995
)
$
(470,517)Net loss per share, basic and diluted
$
(0.06
)
$
(0.08)Weighted average shares outstanding, basic and diluted

6,988,955


6,135,455





See notes to unaudited financial statements.




4





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


STATEMENTS OF OPERATIONS (UNAUDITED)


SIX MONTHS ENDED JUNE 30, 2004 AND 2003







2004


2003RevenuesCasino games
$
574,277

$
448,440Product sales

700,673


303,733Other

669,964


136,8371,944,914


889,010Costs and expensesCasino games - progressive liability, interest rate changesof $(48,168) and $63,981 in 2004 and 2003

505,425


517,330Product costs

468,425


237,334Other costs

638,858


47,389Selling, general, and administrative expenses

936,030


710,685Impairment write-down, game rights

55,829Research and development

157,403


61,702Depreciation and amortization

132,258


152,4002,894,228


1,726,840Operating loss

(949,314
)

(837,830)Other income (expense)Interest, officers

10,782


29,291Interest, others

11,320


20,754Net loss
$
(927,212
)
$
(787,785)Net loss per share, basic and diluted
$
(0.14
)
$
(0.13)Weighted average shares outstanding, basic and diluted

6,860,384


6,011,169









5





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)


FOR THE PERIOD FROM JANUARY 1, 2004 TO JUNE 30, 2004


_________________________________________________________________________________________________________________________







Series A
Preferred
Stock
Par Value


Series B
Preferred
Stock
Par Value


Series C
PreferredStock
Value

****
**Common**
**Stock**
Par Par
Value

Addl
Paid-in
Capital


Due
From
Officer /
Share-
holders


DeficitBalances, January 1, 2004
**$**
541

**$**
317




$6,689
$
14,830,975

$
(420,000
)
$
(8,039,496)Net loss

















(927,212)Sale of 188,000 shares




21

**$**
48

**119**

345,311Stock-based compensation











70,192Stock-based compensation











89,793Balances, June 30, 2004
$
541

**$**
338

$
48

**$          6,808**
$
15,336,271

$
(420,000
)
$
(8,966,708)





See notes to unaudited financial statements.





6







LAS VEGAS GAMING, INC. AND SUBSIDIARIES


STATEMENT OF CASH FLOW (UNAUDITED)


FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 200 3








2004


2003Operating activitiesNet cash in operating activities
$
(383,475
)
$
(86,278)Investing activitiesJackpot reserve deposits

15,717


(119,708)Purchase of property and equipment

(57,451
)

(82,965)Disposition of intangibles

51,796Net cash used in investing activities

10,062


(202,673)Financing activitiesProceeds from borrowings

320,000Proceeds from sale of Series "B" convertible preferred stock

105,499Proceeds from sale of Series "C" convertible preferred stock

240,000Net cash provided by financing activities

665,499Net increase (decrease) in cash

292,086


(288,951)Cash, beginning of period

1,005,561


1,050,610Cash, end of period
$
1,297,647

$
761,659Non-cash investing and financing activitiesWarrants issued to acquire game rights



$
5,145





See notes to unaudited financial statements.





7







LAS VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED FINANCIAL STATEMENTS


THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003





1.  Basis of Presentation:





The accompanying financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission relating to interim financial statements. Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For further information, please refer to the annual financial statements of the Company, and the related notes, included within the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003, previously filed with the Securities & Exchange Commission, from which the balance sheet information as of December 31, 2003, is derived.





In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results for the interim period are not necessarily indicative of the results to be expected for the full year.





Certain amounts, as previously reported, have been reclassified to conform to the current period presentation.





2.  Segment Information:





The Company divides its operations into three business units, Games, Products and Other. Its Games Unit has its proprietary games in approximately 40 locations throughout Nevada and five outside of Nevada. The Products Unit has approximately 45 recurring customers in Nevada and 11 outside of Nevada. The Other Unit operates, installs, and maintains keno and bingo systems for the casino industry, in addition to selling keno and bingo related supplies. Results for these units and certain unallocated selling, general, and administrative costs (SG&A) for the three months ended June 30, 2004 and 2003, are set forth below:




2004 2003








347,416 129,253














9,469 11,681







8





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED FINANCIAL STATEMENTS


THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003





Segment Information continued





2004 2003








(41,149) 82,988












3.  Contingencies and Commitment:





Gaming regulations and licensing . The Company is licensed with the State of Nevada as an operator of inter-casino-linked systems. From time to time, the Company has sought and will continue to seek licensure in other gaming jurisdictions so that the Company may offer its products in those jurisdictions. Failure to retain its Nevada licenses and to obtain and retain the necessary licenses in other jurisdictions would prevent the Company from fully implementing its business plans and could have a material adverse effect on the Company.




Litigation . In connection with the acquisition of Imagineering Systems, Inc. (ISI), the Company, in effect, purchased for $150,000 an interest in a judgment (included in other current assets) that ISI and its shareholders had against American Wagering, Inc. (AWI), an owner/operator of race and sports books that is currently operating under the protection of the United States Bankruptcy Code. A subsidiary of AWI (not in bankruptcy proceedings) has loaned the Company $320,000. This interest-free loan is expected to be repaid out of the proceeds the Company is due to receive once the AWI bankruptcy is settled. While it is expected that AWI will emerge from bankruptcy by the end of the calendar year, no such assurance has been given by AWI and the Company has no assurance that AWI will then be able to pay the Company the remaining amount due. The Company has agreed to accept the remaining amount due (approximately $680,000 plus interest) in installments over the next two to three years. To the extent the Company recovers more than $275,000, nearly 100% will be payable to the prior shareholders of ISI and/or their prior creditors.





9





LAS VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED FINANCIAL STATEMENTS


THREE MONTHS ENDED JUNE 30, 2004 AND 2003





Progressive jackpots TM TM











TM       Liability   Obligation






















TM















TM 135,677 135,677












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I tem 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations





This report on Form 10-QSB contains certain forward-looking statements within the meaning of section 21(e) of the Securities Exchange Act of 1934, as amended, and other applicable securities laws. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance, statements of belief, and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.




Overview





Las Vegas Gaming, Inc. is in the business of providing equipment, supplies and casino games for use by its customers in the keno and bingo segments of the gaming industry. We earned our revenue almost entirely by charging a royalty to casinos that utilize the Companys casino games.





Our primary mission is to profit from the sale of new, linked-progressive, mega jackpot games to the worldwide gaming industry. Our "flagship" casino game is a keno-style game known as Nevada NumbersTM. Nevada NumbersTM is a wide-area progressive jackpot game in which players select five numbers instead of 20 as in classic keno. Our other keno-style or bingo-style games are in various stages of development and operation.





Liquidity and Capital Resources





As of June 30, 2004, we maintained $1,297,647 and $3,797,246 in jackpot reserve deposits (collectively, "Liquid Resources). Management anticipates that we will, for the first time in our history, operate at a cash flow surplus sometime in the next several months as we roll out Gamblers Bonus GiveawayTM. Management also anticipates significant equipment sales (due to the completion of our new keno system OptimaTM) and increased distribution outlets for our new Super BonanzaTM game. Rising interest rates, resulting in a decrease in our jackpot liability during this interval, will also positively impact cash flows.





The Company closed its last private offering, Series C preferred stock, during the reported period at the end of June 2004. The Series C preferred stock was being offered at $5 per share. It possesses a conversion right to our common stock at a rate of five shares of LVGI common stock for each share of Series C preferred stock at any time.





Management anticipates that future losses should be less than historical levels in the next quarter and be eliminated by next year. While no assurances can be given, the combination of new games, expansion of current games, a somewhat better keno equipment market and generally higher long term interest rates, all help in managements positive, but guarded expectations of the Companys future earnings. Of course, catastrophic events, mergers or vastly lower interest rates could derail





11


managements goal of positive operating cash flows. Management believes, however, absent unexpected events of this sort, we will start to achieve positive cash flow over the next several months.





Results of operations





Revenues for the six months ended June 30, 2004, increased to $1,944,914 from $889,010 for the six months ended June 30, 2003. Operating costs and expenses directly associated with the production of this revenue increased to $1,612,708 from $802,053. These increased revenues and related costs were largely due to the acquisition of ISI and the introduction of Nevada Keno and Super BonanzaTM.





We had net losses of $(972,212) for the six months ended June 30, 2004, up from $(787,785) for the period ended June 30, 2003. The loss is due to increased SG&A merger-related expenses, the absence of Station Casino business (which severely reduced our bingo earnings), and costs relating to the launching of our two new games (Nevada Keno and Super BonanzaTM). The basic and diluted net loss per share for the six months ended June 30, 2004, was $(0.14) up from a loss of $(0.13) per share for the same period in 2003.




Critical accounting estimates and policies





The preparation of financial statements in conformity with generally accepted accounting principles requires the Companys management to make estimates and assumptions that affect reported amounts and disclosures, some of which may require revision in future periods.





Significant estimates involve the selection of an appropriate interest rate for the calculation of the present value of the Nevada NumbersTM jackpot, the values assigned to individual assets and liabilities in allocating the purchase price in recent acquisitions and the value of the Company's common shares issued in connection with such acquisitions. The common share value was estimated at $1.00 based upon the contemporaneous offer of convertible preferred shares at $5.00 that are convertible to five common shares.





The following is a summary of what management believes are the critical accounting policies related to the Company.




Revenue and cost recognition. The operation of casino inter-linked systems varies slightly among jurisdictions as a result of different gaming regulations. However, in all jurisdictions, the linked progressive jackpot increases based on the amount wagered. In accordance with industry practices, a percentage of the wagers are recognized as revenue by the Company (and by the participating casinos) and a portion is used to purchase insurance to fund the base progressive jackpot. The Company recognizes a liability and a cost for the present value of the increase in the progressive meter for jackpots not yet won.





The winner of a progressive jackpot is paid the amount of the progressive meter in equal installments over a period of 20 years. At our sole discretion, we may offer the winner an option to receive a discounted value immediately. Once an inter-linked Nevada NumbersTM progressive jackpot is won (none as of June 30, 2004), the Company purchases discounted US Treasury Securities to meet the obligation for the annual payments, unless a discounted value is paid immediately. The Company will




12


classify these investments as "held-to-maturity," stated at cost adjusted for the amortization of premiums and accretion of discounts over the term of the security using the interest method.




Jackpot reserve deposits. This amount is used in accordance with regulatory requirements for funding the Companys various jackpot games. Because these funds are used to support operations, they are classified in the financial statements as current assets.





Item 3.  Controls and Procedures





As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2004. This evaluation was carried out under the supervision, and with the participation, of the Chief Executive and Financial Officer, Mr. Russell Roth. Based upon that evaluation, the Chief Executive and Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting management to material information required to be included in our periodic SEC filings. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date the evaluation was performed.




Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive and Financial Officer, to allow timely decisions regarding required disclosure.




13






PART II  OTHER INFORMATION




Item 1.  Legal Proceedings





None.





Item 2. Changes in Securities and Use of Proceeds





The Company issued 32,500 shares of restricted series B and C preferred stock during the quarter ended June 30, 2004. These sales were exempt under Rule 506 of Regulation D of the Securities Act of 1933.




Item 3.  Defaults upon Senior Securities





None





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





None





Item 5.  Other Information





None





Item 6.  Exhibits and Reports on Form 8-K.





None.




Exhibit Number
Description of Exhibit31.1


32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
toSection 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
toSection 906 of the Sarbanes-Oxley Act of 2002








14






SIGNATURES





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






LAS VEGAS GAMING, INC.





/s/ Russell R. Roth


Russell R. Roth


Chairman of the Board and Chief and Principal Executive


and Financial Officer






15