UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


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




For
      the quarterly period ended:
            March
      31, 2008




OR




o
            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 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:
            12,905,310
      shares of Common Stock Series A, $.001 par value, as of March 31,
      2008





Table of Contents


LAS
      VEGAS GAMING, INC.
                
                FORM
      10-Q
                
                TABLE OF CONTENTS
              PagePART
      I – FINANCIAL INFORMATION
              2Item
      1.
              Financial Statements
              2Consolidated Balance Sheets
              2Consolidated Statements of Operations
              3Consolidated Statements of Stockholders’
    Equity
              4Consolidated Statements of Cash Flow
              5Notes to Unaudited Consolidated Financial
      Statements
              6Item
      2.
              Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              17Item
      3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              24Item
      4T.
              Controls and Procedures
              24PART II – OTHER
      INFORMATION
              26Item
      1.
              Legal Proceedings
              26Item
      1A.
              Risk Factors
              26Item
      2.
              Unregistered Sales of Equity Securities
              26Item
      3.
              Defaults Upon Senior Securities
              26Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              26Item
      5.
              Other Information
              27Item
      6.
              Exhibits
              27





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.






- i
-
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PART I –
FINANCIAL INFORMATION




Item 1.Financial Statements.




LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS




December
      31, 2007
            
            
            March
      31, 2008ASSETS
            
            
            
            
            (unaudited)Current
      assetsCash
            
            $
            489,262
            
            
            $
            -Investment
      in marketable securities
            
            
            87,881
            
            
            
            61,848Accounts
      receivable, net of allowance of $708 and $665
            
            
            567,186
            
            
            
            457,809Inventories
            
            
            1,161,707
            
            
            
            1,174,205Prepaid
      expenses, deposits and other
            
            
            149,596
            
            
            
            827,334Jackpot
      reserve deposits
            
            
            276,012
            
            
            
            397,9942,731,644
            
            
            
            2,919,190Equipment
      and software, net of accumulated depreciation of
              $1,565,560
      and $1,656,756
            
            
            1,033,349
            
            
            
            993,291Other
      assetsGoodwill
            
            
            955,277
            
            
            
            955,295Trademarks,
      copyrights, patents and other identifiable intangibles,
              net
      of accumulated amortization of $1,098,867 and $1,219,543
            
            
            1,317,369
            
            
            
            1,196,693Other
      long term assets
            
            
            884,350
            
            
            
            62,978$
            6,921,989
            
            
            $
            6,127,447LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
            
            $
            1,453,525
            
            
            $
            1,367,528Current
      portion of long-term debt
            
            
            787,550
            
            
            
            918,183Progressive
      jackpot liability
            
            
            375,508
            
            
            
            773,9192,616,583
            
            
            
            3,059,630Long-term
      debt
            
            
            5,940,925
            
            
            
            6,515,507Conditionally
      redeemable equitySeries
      B convertible preferred stock, $.001 par, 130,350 and 126,550
              shares
      issued  and outstanding
            
            
            651,750
            
            
            
            632,750651,750
            
            
            
            632,750Stockholders'
      equityConvertible
      preferred stock, $.001 par, 10,000,000 shares authorized:Series
      A: 0 shares issued and outstanding
            
            
            -
            
            
            
            -Series
      C: 35,000 shares issued and outstanding
            
            
            35
            
            
            
            35Series
      D: 125,000 shares issued and outstanding
            
            
            125
            
            
            
            125Series
      E:  743,800 and 810,800 shares issued and
      outstanding
            
            
            744
            
            
            
            811Common
      stock (including Series A): $.001 par, 90,000,000 shares
              authorized,
      12,562,653 and 12,905,310 shares issued and outstanding
            
            
            12,563
            
            
            
            12,906Additional
      paid-in capital
            
            
            26,497,097
            
            
            
            27,454,080Less
      due from officers and stockholders
            
            
            (235,414
            )
            
            
            (186,414
            )Deficit
            
            
            (28,562,419
            )
            
            
            (31,361,983
            )(2,287,269
            )
            
            
            (4,080,440
            )$
            6,921,989
            
            
            $
            6,127,447The
      accompanying notes are an integral part of these financial
      statements.


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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


THREE
MONTHS ENDED MARCH 31, 2007 AND 2008 (UNAUDITED)





2007
            
            
            2008RevenuesCasino
      games
            
            $
            430,708
            
            
            $
            543,094Product
      sales
            
            
            412,025
            
            
            
            324,014Other
            
            
            413,319
            
            
            
            272,0201,256,052
            
            
            
            1,139,128Costs
      and expensesCasino
      games
            
            
            322,610
            
            
            
            769,019Product
      costs
            
            
            287,824
            
            
            
            152,620Other
            
            
            340,436
            
            
            
            342,208950,870
            
            
            
            1,263,847Gross
      operating income
            
            
            305,182
            
            
            
            (124,719
            )Other
      operating expensesSelling,
      general, and administrative
            
            
            1,595,036
            
            
            
            1,594,087Research
      and development
            
            
            324,046
            
            
            
            301,220Depreciation
      and amortization
            
            
            216,159
            
            
            
            217,3962,135,241
            
            
            
            2,112,703Operating
      loss
            
            
            (1,830,059
            )
            
            
            (2,237,442
            )Other
      income and expenseFinance
      costs
            
            
            (485,749
            )
            
            
            (542,071
            )Interest
      and other income
            
            
            62,458
            
            
            
            (20,071
            )Net
      loss
            
            $
            (2,253,350
            )
            
            $
            (2,799,564
            )Net
      loss per share
            
            $
            (0.22
            )
            
            $
            (0.22
            )Weighted
      average shares outstanding
            
            
            10,305,972
            
            
            
            12,692,329The
      accompanying notes are an integral part of these financial
      statements.





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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATEDSTATEMENTSOF STOCKHOLDERS’ EQUITY


THREE
MONTHS ENDED MARCH 31, 2008 (UNAUDITED)








Series
      A Convertible
              Preferred
              Stock
            
            
            Series
      C Convertible
              Preferred
              Stock
            
            
            Series
      D Convertible
              Preferred
              Stock
            
            
            Series
      E Convertible
              Preferred
              Stock
            
            
            Common
              Stock
              (Including
      Series A)
            
            
            Additional
              Paid-In
              Capital
            
            
            Less
      Due From
              Officers
      and
              Stockholders
            
            
            DeficitBalances,
      December 31, 2007
            
            $
            -
            
            
            $
            35
            
            
            $
            125
            
            
            $
            744
            
            
            $
            12,563
            
            
            $
            26,497,097
            
            
            $
            (235,414
            )
            
            $
            (28,562,419
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,799,564
            )Exercise
      of warrants and options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            92
            
            
            
            111,295
            
            
            
            (6,000
            )Issuance
      of warrants
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            28,949Other
      Stock based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            166
            
            
            
            332,168
            
            
            
            52,000Issuance
      of Common Stock Series A to Officer and Board Member
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11
            
            
            
            20,990Cash
      received from Employees and Stockholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,000Conversion
      of Series A Convertible Preferred Stock to Common Stock Series
      AConversion
      of Series B Convertible Preferred Stock to Common Stock Series
      A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19
            
            
            
            18,981Sale
      of Series E Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            67
            
            
            
            
            
            
            
            334,933Sale
      of Common Stock Series A to Employees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            55
            
            
            
            109,667Balances,
      March 31, 2008
            
            $
            -
            
            
            $
            35
            
            
            $
            125
            
            
            $
            811
            
            
            $
            12,906
            
            
            $
            27,454,080
            
            
            $
            (186,414
            )
            
            $
            (31,361,983
            )


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





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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTSOF CASH FLOW


FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2008 (UNAUDITED)





2007
            
            
            2008Operating
      activitiesNet
      loss
            
            $
            (2,253,350
            )
            
            $
            (2,799,564
            )Marketable
      security received for licensing fee
            
            
            7,470
            
            
            
            26,033Depreciation
      and amortization of equipment and software
            
            
            95,485
            
            
            
            96,721Amortization
      of debt issuance cost and intangibles
            
            
            450,352
            
            
            
            671,633Fair
      market value adjustment of debt derivative liability
            
            
            (45,261
            )
            
            
            (91,734
            )Stock-based
      compensation to employees and consultants
            
            
            234,788
            
            
            
            220,784Other
            
            
            18,370
            
            
            
            (5,324
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (52,902
            )
            
            
            109,377Inventories
            
            
            25,410
            
            
            
            (12,498
            )Prepaid
      expenses, deposits and other
            
            
            74,559
            
            
            
            (3,031
            )Accounts
      payable and accrued expenses
            
            
            (62,888
            )
            
            
            262,703Progressive
      jackpot liability
            
            
            81,293
            
            
            
            398,411Net
      cash (used in) operating activities
            
            
            (1,426,674
            )
            
            
            (1,126,489
            )Investing
      activitiesPurchase
      of property and equipment
            
            
            (182,230
            )
            
            
            (22,638
            )Jackpot
      reserve deposits
            
            
            2,447,847
            
            
            
            (121,980
            )Net
      cash provided by (used in) investing activities
            
            
            2,265,617
            
            
            
            (144,618
            )Financing
      activitiesProceeds
      from litigation settlements
            
            
            28,754
            
            
            
            -Repayment
      of debt
            
            
            (1,860
            )
            
            
            (21,264
            )Sale
      of Series E Convertible Preferred Stock
            
            
            332,000
            
            
            
            335,000Exercise
      of warrants and options for common stock
            
            
            118,124
            
            
            
            105,387Collection
      of stock subscription receivables
            
            
            
            
            
            
            3,000Advances
      from shareholder
            
            
            
            
            
            
            250,000Sale
      of Common Stock to employees
            
            
            
            
            
            
            109,722Net
      cash provided by financing activities
            
            
            477,018
            
            
            
            781,845Net
      increase (decrease) in cash and cash equivalents
            
            
            1,315,961
            
            
            
            (489,262
            )Cash
      and cash equivalents, beginning of period
            
            
            1,675,588
            
            
            
            489,262Cash
      and cash equivalents, end of period
            
            $
            2,991,549
            
            
            $
            0Non-cash
      investing and financing activitiesConversion
      of Series B Convertible Preferred Stock to
              Common
      Stock Series A
            
            $
            534,200
            
            
            $
            19,000Exercise
      of stock warrants and options increasing
              subscriptions
      receivable
            
            
            14,500
            
            
            
            6,000Conversion
      of Series C Convertible Preferred Stock to
              Common
      Stock Series A
            
            
            15Exercise
      of warrants in settlement of accounts payable
            
            
            257,750Cost
      of warrants for debt
            
            
            255,273Equipment
      acquired directly with proceeds new borrowing
            
            
            -
            
            
            
            34,025Debt
      retired through issuance of Common Stock Series A
            
            
            -
            
            
            
            107,500Prepayment
      of lease costs through issuance of Common
              Stock
      Series A
            
            
            
            
            
            
            106,000The
      accompanying notes are an integral part of these financial
      statements.


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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITEDCONSOLIDATED 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 current offering of these types of games includes
Nevada Numbers, Super Bonanza Bingo, and the Million Dollar
Ticket.  During the second quarter of 2008, we launched Gamblers Bonus
Million Dollar Ticket in cooperation with the largest slot route operation in
Nevada.  Although we have recently 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 are
also in the business of providing equipment, supplies, and casino games for use
by our customers in the keno and bingo segments of the gaming industry. As part
of our business, we have acquired various businesses, products, and
technologies. Key acquisitions include the following:




·
            the
      February 2005 acquisition of AdLine Gaming, Inc., a subsidiary of AdLine
      Network, LLC, whereby we acquired significant technology and engineering
      talent that supports the PlayerVision system and its related applications;
      and




·
            the
      February 2006 acquisition from AdLine Network, LLC of technology related
      to the ability to accept wagers through WagerVision from the homes of
      players.




2.  Basis
of Presentation




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 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 and the
related notes included within our Annual Report on Form 10-KSB for the year
ended December 31, 2007, previously filed with the SEC, from which the
information as of that date is derived.




The
consolidated financial statements include the accounts of Las Vegas Gaming,
Inc., Imagineering Gaming, Inc. (Imagineering), our wholly owned subsidiary, and
Las Vegas Keno Incorporated, 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.  Information presented in the notes that is as of March 31,
2008 and 2007, or relates to the interim periods is likewise unaudited. Certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has been omitted pursuant to the
interim financial information rules and regulations of the SEC. The results of
operations for the period ended March 31, 2008, are not necessarily indicative
of results to be expected for the year ending December 31, 2008.




3.
Prior year adjustments and restatement of 2006 and 2007 financial
statements:




Correction of errors in 2006
annual financial statements




In our Annual Report on Form 10-KSB for
the year ended December 31, 2007 filed with the SEC on April 16, 2008, we
restated our beginning retained earnings and debt derivative liability at
January 1, 2006, for an error in the original recording of 1,050,000 warrants
issued with the $3,000,000 financing in July 2005 with CAMOFI Master LDC, or
CAMOFI.  The CAMOFI financing had an associated






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




Registration
Rights Agreement for the registration of shares if CAMOFI were to convert its
debt and for the outstanding warrants.  In addition, we revised our
original valuation of 1,450,000 warrants issued in correction with a second
financing with CAMOFI on April 1, 2006.  Finally, we corrected the
value of stock-based compensation used upon our adoption of FAS 123R in January
2006.  Details of these error corrections are contained in our 2007
Annual Report on Form 10-KSB.




Correction of errors in 2007
quarterly financial statements




Corrections were also necessary to our
previously issued 2007 quarterly financial statements for errors in accounting
for the Company’s debt modification at March 22, 2007.  Details of
these error corrections are also contained in our 2007 Annual Report on Form
10-KSB.




4.  Jackpot
Reserve Deposits




At December 31, 2007 and March 31,
2008, as required by gaming regulators, we held aside on deposit cash amounts of
$276,012 and $397,992 respectively that are restricted for funding our various
jackpot-oriented games (Note 9).




5.  Equipment
and Software




Equipment
and software consist of the following:




December
      31, 2007
            
            
            March
      31, 2008
              UnauditedSoftware
            
            $
            422,560
            
            
            $
            422,560Production
      equipment
            
            
            1,669,461
            
            
            
            1,686,573Equipment,
      furniture, and fixtures
            
            
            463,261
            
            
            
            497,287Leasehold
      improvements
            
            
            43,627
            
            
            
            43,6272,598,909
            
            
            
            2,650,047Less
      accumulated depreciation and amortization
            
            
            1,565,560
            
            
            
            1,656,756$
            1,033,349
            
            
            $
            993,291





6.  Other
intangible assets:





Trademarks, copyrights, patents and
technology rights, and other intangible assets consist of the following:





December
      31, 2007
            
            
            March
      31, 2008
              UnauditedPlayerVision
      technology patents
            
            $
            1,016,236
            
            
            $
            1,016,236PlayerVision
      technology rights for “at home” wagering
            
            
            1,400,000
            
            
            
            1,400,0002,416,236
            
            
            
            2,416,236Less
      accumulated amortization
            
            
            1,098,867
            
            
            
            1,219,542$
            1,317,369
            
            
            $
            1,196,694




The
intangible assets are amortized over their useful lives, which are currently 5
years.  Implementing “at home” wagering is scheduled for 2009, subject
to regulatory and third-party approval,  following the product roll
out of PlayerVision.  Total amortization for other intangible assets
amounted to $120,674 for the three months ended March 31, 2007 and
2008.  The estimated aggregate amortization for the next five calendar
years is as follows:






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




2008
            
            $
            362,0232009
            
            
            482,6972010
            
            
            303,3072011
            
            
            48,6672012
            
            
            -0-$
            1,196,694





7.Debt




On May 1,
2008, we further amended our financing with CAMOFI whereby we entered into an
Amended and Restated Senior Secured Convertible Note due January 1, 2010, or
Note, and an Amended and Restated Registration Rights Agreement, or Registration
Rights Agreement, with CAMOFI.  The commitment fees due under the
original CAMOFI note on April 1, 2008, July 1, 2008, October 1, 2008, and
January 1, 2009 of $131,250 and prior accrued commitment fees were added to the
face amount of the Note which increased from $5,250,000 to
$6,051,250.  We must also pay commitment fees of $403,417 on January
1, 2009 and $302,563 on July 1, 2009 and January 1, 2010.  The
Registration Rights Agreement requires us to file a registration statement with
the Securities and Exchange Commission on the earlier of the closing of a
Qualified Financing, as defined in the Registration Rights Agreement or April
30, 2009 with the effectiveness date remaining 120 calendar days after the
filing date.  The maturity date of the Note was changed from January
1, 2009 to January 1, 2010. We were in compliance with all loan covenants at
March 31, 2008.  With
respect to the issuance and sale of Series F and Series G Convertible Preferred
Stock (see Note 8), CAMOFI verbally waived non-compliance of any provisions in
its loan documents restricting us from effecting such transaction, including
with respect to (a) the issuance of any securities (i) convertible into shares
of common stock based upon trading prices at any time after the issuance of such
securities, or (ii) that grant an investor the right to receive additional
shares based upon future transactions on terms more favorable than those granted
to such investor in such offering; and (b) the granting of a security interest
in assets pledge to CAMOFI.  Although the agreement with CAMOFI provides
that waivers must be in writing, the Company believes that, notwithstanding any
issue as to whether such waiver is legally binding, the verbal waiver represents
CAMOFI’s intent to allow the sale of the Series F and Series G Convertible
Preferred Stock and not to take the position that the sale resulted in an Event
of Default under the CAMOFI loan documents.


Pursuant
to SFAS No. 6, Classification
of Short-Term Obligations Expected to Be Refinanced, the May 1, 2008
refinancing was given retroactive effect as of March 31, 2008; accordingly, the
following tables of debt outstanding and future maturities have been prepared
based on the retroactive effects of the refinancing as of December 31, 2007 and
March 31, 2008:




December
      31, 2007
            
            
            March
      31, 2008Debt
      derivative liability
            
            $
            1,592,263
            
            
            $
            1,500,530Bridge
      financing
            
            
            4,342,345
            
            
            
            4,984,034Settlement
      due third parties
            
            
            614,027
            
            
            
            614,027Other
      notes payable
            
            
            179,840
            
            
            
            335,101$
            6,728,475
            
            
            
            7,433,692Less
      amounts due within one year
            
            
            787,550
            
            
            
            918,183$
            5,940,925
            
            
            $
            6,515,509




Scheduled
debt maturities under the amended CAMOFI debt financing are $918,183 in 2008 and
$6,515,509 in 2009.




We have received all monies due from a
settlement with a customer, and will distribute all monies due except for
$107,500 which is due to the prior owners of Imagineering who converted their
debt into Common Stock Series A at $2.00 per share or 53,750 shares in March
2008.






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  8.  Stockholders'
Equity
  From  time
to time, we issue shares of common stock and preferred stock through
transactions that are exempt from registration under the Securities Act of 1933
(Securities Act), or pursuant to Section 4(2) of the Securities Act and Rule 506
of Regulation D.  In March 2007, an officer and a board member were
each awarded 50,000 shares of Common Stock Series A for their respective
promotions.  For the three months ended March 31, 2008, we issued
92,129 shares of Common Stock Series A pursuant to 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.  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, 2008.


In
February 2008 we received an advance from a shareholder of $250,000. 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 on May 9, 2008 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 a
“qualified financing” price defined below.  The proceeds of the Series
F Convertible Preferred Stock were used to fund the $1,000,000 jackpot bankroll
for the Gamblers Bonus Million Dollar Ticket 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 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 shareholder was granted a security interest and other additional rights in
connection with our separate account (and related insurance policy) in which $1
million is reserved solely to satisfy our jackpot security requirements relating
to the Gamblers Bonus Million Dollar Ticket game.




In
February 2006, we purchased certain technology rights from AdLine Network, LLC,
the same company from which we acquired AdLine Gaming Inc. in 2005 for 700,000
shares of our Common Stock Series A, plus contingent technology license fees
(Note 9).  We valued these assets and the stock issued in
consideration at an estimated fair value of $1,400,000 or $2.00 per share and
are amortizing the technology rights acquired as identifiable intangible assets
over a five-year period.  The rights purchased in 2006 allow us to
extend the use of previously acquired technology for “wagering” or “betting”
activity to be conducted from the home.




Series A Convertible Preferred
Stock.  On March 15, 2007, pursuant to the terms and conditions
of our Series A Convertible Preferred Stock, we exercised our right to convert
all shares of Series A Convertible Preferred Stock into shares of Common Stock
Series A on a one-for-one basis.  Accordingly, all 536,400 remaining
shares of Series A Convertible Preferred Stock were converted into 536,400
shares of Common Stock Series A.




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 provides 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 Nevada Numbers or The Million
Dollar Ticket 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 sell up to 50% of such holder's Series B Convertible Preferred
Stock to us for $5.00 per share or convert on a one-to-five basis
for Common Stock Series A.






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 On
February 12, 2007, because Treasure Island had begun 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 had begun maintaining the required
base jackpot bankroll for The Million Dollar Ticket, the holders of Series B
Convertible Preferred Stock were again notified pursuant to the terms and
conditions of our Series B Convertible Preferred Stock of their ability to
exercise the above options. The holders of Series B Convertible Preferred Stock
had until April 17, 2008 to make their decision.  As of 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 April 17, 2008, there
were no more outstanding shares of Series B Convertible Preferred
Stock.




Series C Convertible Preferred
Stock.In January 2007, holders of our Series C Convertible
Preferred Stock converted 3,000 shares of Series C Convertible Preferred Stock
on a one-to-five basis for 15,000 shares of Common Stock Series
A.  Holders of Series C 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 Convertible
Preferred Stock, over Series D, Series E and Series G Convertible Preferred
Stock.




Series D Convertible Preferred
Stock.  In November 2005, we issued 125,000 shares of Series D
Convertible Preferred Stock at $2 per share which, after payment of all existing
and future indebtedness and the liquidation preference of Series F
Convertible Preferred Stock, have a liquidation preference over Series E and
Series G 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 C, Series D, and Series F Convertible Preferred Stock. Series E and
Series G Convertible Preferred Stock are pari passu in liquidation preference.
During the three months ended March 31, 2008, we issued 67,000 shares of our
Series E Convertible Preferred Stock raising $335,000.  On February
29, 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 C,
Series D, Series E, and Series G Convertible Preferred Stock as to the
$1,000,000 jackpot bankroll reserve for Gamblers Bonus Million Dollar
Ticket.  On May 9, 2008, we issued 200,000 shares of Series F
Convertible Preferred Stock which carries a 12% dividend rate which is
cumulative and payable fifteen days after the CAMOFI note is paid
off.  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.




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 C, Series D and Series F Convertible Preferred
Stock.  On May 9, 2008, we issued 150,000 shares of Series G
Convertible Preferred Stock which carries a 12% dividend rate which is
cumulative and payable fifteen days after the CAMOFI note is paid
off.  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.






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Stock Warrants and
Options.  We have both a qualified and a non-qualified stock
option plan. The Compensation and Stock Option Committee of our Board of
Directors administers the plans.  As of March 31, 2008, there were
1,121,900 qualified and 425,000 non-qualified options outstanding. The exercise
price of options issued pursuant to either plan cannot be less than the fair
value at the time of the grant and vesting is at the discretion of the
Compensation and Stock Option Committee, though limited to ten years. Only
employees and board members are qualified to receive options.  The
stock subject to the qualified plan is limited to 2,500,000 shares of Common
Stock Series A.




We
have, from time to time, granted warrants and options to employees and others as
employment incentives, or as an inducement to invest in our common or preferred
securities, in return for other services, and in conjunction with the initial
capitalization of our company and business acquisitions.  Warrants and
options to purchase 410,000 shares of Common Stock Series A were issued to
officers and directors during the quarter ended March 31, 2008. Total
compensation cost recognized in operations from grants of options and warrants
amounted to $234,788 and $220,784 for the three months ended March 31, 2007 and
March 31, 2008 respectively.  Unrecognized costs related to employee
stock options and warrants outstanding at March 31, 2008 totaled $194,959 and
are expected to be amortized over a weighted average period of 3 years.




The
weighted average exercise price of our options and warrants at March 31, 2008,
was $2.50. The following table summarizes our stock option and warrant activity
followed by the applicable weighted average prices during the quarter ended
March 31, 2008:




Balance,
      January 1, 2008
            
            
            6,174,862$
            2.33Granted
            
            
            410,000$
            5.00Exercised
            
            
            (92,129
            )$
            1.21Forfeited
            
            
            (332,878
            )$
            2.80Balance,
      March 31, 2008
            
            
            6,159,855$
            2.50







As of
March 31, 2008, 1,014,277 options and warrants are outstanding, but have not
vested. The aggregate intrinsic value of options and warrants at March 31, 2008
is $251,155.




WeightedNon-vested
            
            
            AverageOptions
            
            
            PriceBalance,
      January 1, 2008
            
            
            515,610
            
            
            $
            5.00Granted
            
            
            262,500
            
            
            $
            5.00Vested
            
            
            (18,150
            )
            
            $
            (5.00
            )Forfeited
            
            
            (850
            )
            
            $
            (5.00
            )Balance,
      March 31, 2008
            
            
            759,110
            
            
            $
            5.00







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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




WeightedNon-vested
            
            
            AverageWarrants
            
            
            PriceBalance,
      January 1, 2008
            
            
            270,333
            
            
            $
            2.85Granted
            
            
            0
            
            
            $
            0.00Vested
            
            
            (15,166
            )
            
            $
            (5.00
            )Forfeited
            
            
            0
            
            
            $
            0.00Balance,
      March 31, 2008
            
            
            255,167
            
            
            $
            2.66





The
following table summarizes stock options and warrants outstanding at March 31,
2008 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
            
            
            
            1.8
            
            
            
            270,000
            
            
            
            1.8$
            3.00
            
            
            
            100,900
            
            
            
            1.9
            
            
            
            100,900
            
            
            
            1.9$
            4.55
            
            
            
            38,000
            
            
            
            1.1
            
            
            
            38,000
            
            
            
            1.1$
            5.00
            
            
            
            1,138,000
            
            
            
            2.4
            
            
            
            378,890
            
            
            
            2.5Warrants
            
            $
            1.00
            
            
            
            535,000
            
            
            
            1.6
            
            
            
            481,500
            
            
            
            1.4$
            1.48
            
            
            
            2,675,000
            
            
            
            3.1
            
            
            
            2,675,000
            
            
            
            3.2$
            2.00
            
            
            
            220,000
            
            
            
            2.1
            
            
            
            208,333
            
            
            
            2.0$
            2.10
            
            
            
            23,809
            
            
            
            2.6
            
            
            
            23,809
            
            
            
            2.6$
            3.00
            
            
            
            854,000
            
            
            
            2.7
            
            
            
            687,333
            
            
            
            2.7$
            4.00
            
            
            
            100,000
            
            
            
            1.9
            
            
            
            100,000
            
            
            
            1.9$
            4.55
            
            
            
            55,146
            
            
            
            0.5
            
            
            
            55,146
            
            
            
            0.5$
            5.00
            
            
            
            150,000
            
            
            
            3.0
            
            
            
            126,667
            
            
            
            2.8$
            6.00
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            06,159,855
            
            
            
            2.7
            
            
            
            5,145,578
            
            
            
            2.7





There are
1,014,277 options and warrants that have been issued but have not
vested.  Of these options and warrants 406,000 will vest in 2008,
282,457 in 2009, 238,320 in 2010 and 87,500 in 2011.




9.  Concentrations,
commitments and contingencies:




Concentrations. Historically,
we have depended on relatively few suppliers for components and programming for
certain of our games.  However, this dependence has been substantially
mitigated as a result of acquisitions, mostly in 2003, and we believe that such
other suppliers are sufficiently available so that any disruption of service
would be brief and not have a material adverse effect on our business financial
condition, or results of operations.




Employment
Agreements.  Effective June 4, 2007, we entered into an
employment agreement with Jon D. Berkley to serve as our President and Chief
Executive Officer.  Pursuant to the Agreement, Mr. Berkley is paid an
annual salary of $270,000.  Mr. Berkley was also granted options to
purchase 400,000 shares of Common Stock Series A that are exercisable at $5.00
and vest annually at a rate of 25% beginning on June 4, 2007.  In
addition, Mr. Berkley is also eligible to receive grants of options to purchase
another potential 600,000 shares of Common Stock Series A subject to achieving
specific performance based milestones.  All of Mr. Berkley’s unvested
options will immediately vest upon a change in control of the
Company.






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




Effective
August 10, 2004, we entered into an employment agreement with John English to
serve as our Senior Vice President in charge of strategic business development
through August 14, 2009, subject to early termination under certain
conditions.  Pursuant to the agreement, Mr. English is paid a base
salary of $200,000, with automatic annual raises and possible bonus
payments.  In addition, as part of his compensation, Mr. English was
granted warrants to purchase 250,000 shares of Common Stock Series A that are
exercisable at $1.00 per share and vest annually at a rate of 20% per year
beginning on August 10, 2004.  Under the agreement Mr. English is
prohibited from competing with us during the term of the agreement and for one
year following termination of the agreement.  From November 2005
through June 2006, Mr. English also served as our Chief Strategic
Officer.  Although Mr. English resigned as an executive officer in
June 2006, he remained as our Senior Vice President in charge of gaming
development.




We have
agreed to severance arrangements with all executive officers that provide for
the payment of six months of base salary following termination of employment for
other than cause which amounts to $507,000 of financial commitment.




Technology License
Fees.We are obligated to pay
AdLine Network, LLC, in cash, 5% royalty or license fee based on net revenue
(defined as gross revenue less the theoretical cost of any pay-outs) derived
from the purchased rights for “at home” wagering as long as the agreement
remains in effect.




Gaming Regulations 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 for our
products in those jurisdictions.  Failure to retain our Nevada
licenses or to obtain and retain the necessary licenses in other jurisdictions
would have a material adverse effect on us.




We
purchase insurance to fund the base progressive jackpots for Nevada Numbers,
Super Bonanza Bingo (in some circumstances), 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
tables illustrate our liability for progressive jackpots at December 31, 2007
and March 31, 2008, and related assumptions:




December
      31, 2007Present
      value of Nevada Numbers $5.0 million
              base progressive jackpot, payable in 20 equal
              annual installments using a 7.25% discount rate,
              the prevailing prime rate
            
            $
            2,786,153Present
      value at 7.25% of the progressive jackpot
              meter for Nevada Numbers
            
            
            13,446Less
      portion insured through conventional insurers
            
            
            (2,900,000
            )Other
      games
            
            
            475,909$
            375,508







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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




March
      31, 2008Present
      value of Nevada Numbers $5.0 million
              base progressive jackpot, payable in 20 equal
              annual installments using a 5.25% discount rate,
              the prevailing 20-year U.S. treasury bond
            
            $
            3,210,710Present
      value at 5.25% of the Nevada Numbers
              increase to the progressive jackpot meter
            
            
            28,934Less
      portion insured through conventional insurers
            
            
            (2,900,000
            )Other
      games
            
            
            408,888$
            748,532




Leases.We lease office and
warehouse space under various non-cancelable operating leases expiring through
2013.  The lease agreements require us to pay monthly base rent plus
common area maintenance charges.  Future minimum lease payments under
the leases by calendar year are:




2008
            
            $
            305,8102009
            
            
            142,8482010
            
            
            138,0082011
            
            
            138,9412012
            
            
            140,7352013
            
            
            47,745$
            914,087





Legal Matter.  On
September 12, 2007, IGT filed a lawsuit against us alleging copyright
infringement, trademark infringement, trade dress infringement and false
designation of origin relating to the operation of our PlayerVision system on
IGT’s Game King® gaming machines.  IGT is seeking injunctive and
monetary relief in the case, including treble damages and profits, claiming that
IGT would be irreparably harmed by LVGI if LVGI’s PlayerVision were deployed in
the marketplace.  On November 16, 2007, the Court denied IGT’s motion
for preliminary injunction, finding that IGT had not shown a likelihood of
success or raised serious questions as to its derivative works claim or other
infringement claims. Discovery continues on this lawsuit.  Management
has made no provision for this matter as it is unable to estimate the minimum
loss, if any, to be incurred by the Company and does not believe the IGT
complaint to be meritorious, and is defending the lawsuit
vigorously.




Noncompliance with Gaming
Regulation.  The Nevada Gaming Commission adopted amendments to
Regulation 5.115 on November 18, 1999 that 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.  The reserve
method may be used 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 always have presented a plan acceptable to the Nevada Gaming
Commission to satisfactorily meet the objectives of the Regulation if not cure
the situation prospectively through future raises of capital.  In our
ten-year history, all of our jackpot liabilities have been paid by us or through
insurance coverage, and we have received no indication 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. The Nevada Gaming Commission
has not made any demand for the one-year letter of credit.  Based on
our history of working with the gaming authorities when out of compliance with
these requirements, we believe there will be no significant adverse consequences
to the Company as a result of its continuing noncompliance for the foreseeable
future.






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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




10.
Income taxes:





As of
March 31, 2008, net operating loss carryovers for federal income tax reporting
purposes total approximately $30.0 million and expire between 2013 and 2025.
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 to occur.  Therefore, the related deferred tax
asset of $10.5 million has been effectively reduced by a 100% valuation
allowance (also reduced by 100% valuation allowance at December 31,
2007). 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.




In 2007,
the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, (FIN 48).  The adoption of FIN 48 did not have a
material impact on the Company’s financial statements, its net operating loss
carryovers or related deferred tax assets or valuation allowances.




11.
Segment Information:




We conduct our operations in three
primary business segments: “Casino Games,” “Products” and “Other.” The “Casino
Games” segment generates income from three games with a fourth one launched on
April 14, 2008.  The three games are played in 25 casinos in Nevada
and another 14 outside Nevada.




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




Three
      months ended March 31,2007
            
            
            2008RevenueCasino
      Games
            
            $
            430,708
            
            
            $
            543,094Product
      Sales
            
            
            412,025
            
            
            
            324,014Other
            
            
            413,319
            
            
            
            272,020$
            1,256,052
            
            
            $
            1,139,128Operating
      income (loss)Casino
      Games
            
            $
            108,098
            
            
            $
            (225,925
            )Product
      Sales
            
            
            124,201
            
            
            
            171,394Other
            
            
            72,883
            
            
            
            (70,188
            )Unallocated
            
            
            (2,135,241
            )
            
            
            (2,112,703
            )$
            (1,830,059
            )
            
            $
            (2,237,422
            )Identifiable
      assets
            
            December 31, 2007
            
            
            March
      31,
              2008Casino
      Games
            
            $
            3,504,892
            
            
            $
            3,011,171Product
      Sales
            
            
            368,219
            
            
            
            367,291Other
            
            
            416,890
            
            
            
            367,934Unallocated
            
            
            2,631,988
            
            
            
            2,381,051$
            6,921,989
            
            
            $
            6,127,447







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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Identifiable
assets of $6,921,989 and $6,127,447 at December 31, 2007 and March 31, 2008,
respectively, included recorded goodwill of $955,277 that relates to the Project
Sales segment from prior acquisitions.




Three
      months ended March 31,Capital
      expenditures
            
            2007
            
            
            2008Casino
      Games
            
            $
            122,704
            
            
            $
            9,177Product
      Sales
            
            
            0
            
            
            
            0Other
            
            
            26,152
            
            
            
            47,487Unallocated
            
            
            33,374
            
            
            
            0$
            182,230
            
            
            $
            56,664









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




You
should read the following discussion and analysis 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 revenue
from PlayerVision during the third quarter of 2008 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,
including any adverse judgment, ruling or order in our current litigation with
IGT and those additional risks discussed herein and elsewhere in our Form 10-KSB
for the year ended December 31, 2007.  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.  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.




By the
third quarter of 2007, we substantially completed the development of our
PlayerVision system, including the first four modules to be offered through our
PlayerVision system:  AdVision, PlayerVision TV, NumberVision and
WagerVision.  In terms of the sales and marketing of our PlayerVision
system, we introduced our PlayerVision system to the gaming industry at the
Global Gaming Expo in Las Vegas, Nevada initially during the fourth quarter of
2006 and again in 2007.  We displayed our PlayerVision system at the
International Casino Exhibition in London, England in January 2007 and 2008, the
National Indian Gaming Association Convention in Phoenix, Arizona during the
first quarter of 2007 and in April, 2008, and the Southern Gaming Show in
Biloxi, Mississippi in May 2007 and 2008.  In terms of regulatory
approvals, we have received approval from Nevada with respect to AdVision and
PlayerVision TV, and we have received approval from Gaming Laboratories
International, or GLI, with respect to AdVision, PlayerVision TV and
NumberVision.  We hope to receive approval from Nevada for WagerVision
and NumberVision by the third quarter of 2008.  Following the Nevada
approval of WagerVision and NumberVision, we expect to beta test these
applications for 30 days at Treasure Island in Las Vegas. With GLI approval, we
expect to launch NumberVision applications in various casinos in Oregon and
Arizona shortly.




On June
27, 2006, we entered into a binding memorandum of understanding with
Computerized Bookmaking Systems, Inc. (CBS), a subsidiary of American Wagering,
Inc., whereby both parties agreed that mutually beneficial synergies existed in
utilizing our PlayerVision platform (then known as PortalVision) to expand the
approved electronic devices upon which a customer having a CBS wagering account
might use to (i) watch a live televised sports or horse race event, (ii) view
live odds for such an event posted by a customer of CBS, and (iii) place a wager
on such an event.  Pursuant to such binding memorandum, CBS developed, at
no charge to us, a race and sports book interface for WagerVision on our
PlayerVision system.  CBS owns all of the rights to this CBS race and
sports book interface protocol including the software, source code and
documentation. We own the WagerVision




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trademark
and the platform on which the source code was written.   It was the intent
of both companies to share equally in the net revenues generated from wagers on
televised sports and horse race events and other CBS wagering opportunities
offered through this WagerVision module.  Although the binding memorandum
has expired, we are negotiating the terms of a definitive agreement with
CBS.  We anticipate that the definitive agreement will clearly
define the CBS protocol and protocol interface as the portion of the total
system owned by and licensed from CBS and our PlayerVision code and modules
running on the our platform that are owned and maintained by us.  This will
significantly enhance our ability to produce, deploy, and maintain this module
and allow LVGI and CBS to quickly adapt to technological, regulatory and social
changes. If these negotiations are unsuccessful, it would prevent or
significantly delay regulatory approval and market introduction of the
WagerVision/CBS module.




Based on
the foregoing, and other than the insignificant revenue realized from our early
adoption agreements, we anticipate beginning to realize revenue from our
PlayerVision system during the third quarter of 2008 that would mark a
significant shift in the type of revenue recognized by us.  The
anticipated revenue would be from the installation of AdVision, PlayerVision TV,
WagerVision, and NumberVision at various casino locations in the United States
and elsewhere.  We expect that any revenue derived from CBS wagering
opportunities offered through the WagerVision/CBS module will be shared with
CBS.




We expect to continue for the first
three quarters of 2008 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 enter the gaming
machine market.  Due to continuing expenses related to our
PlayerVision system and in defending the lawsuit from IGT, we expect to continue
to rely on funds from third party financing sources, in addition to funds from
operations, to sustain our operations in 2008.  See discussion in
“Liquidity – Outlook” below.




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
judgment 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 Player Vision 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.






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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.




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 and technology rights with a five year
life related to PlayerVision which went to market for the first time during the
fourth quarter of 2007.  We recorded no goodwill impairment charges
during the three months ended March 31, 2008 and 2007.




Income
Taxes




We have
provided a full valuation allowance for the tax effects of our net operating
losses at March 31, 2008 and 2007.  We have effectively recorded a
100% valuation allowance to offset the deferred tax asset that might otherwise
have been recognized as a result of operating losses in the current period and
prior periods 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 for
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.






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Equipment
and Software and Depreciation




Equipment
and software are stated at cost.  Expenditures for maintenance and
repairs are expensed as incurred.  When equipment and software is
sold, the cost and the related accumulated depreciation are removed from the
respective accounts and the resulting gains or losses are reflected in
income.  Depreciation is provided using the straight-line method over
the useful lives of the assets (three to ten years).




Recent
Accounting Pronouncements




In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements.  In February 2007,
the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of SFAS No. 115,
which will permit the option of choosing to measure certain eligible items at
fair value at specified election dates and report unrealized gains and losses in
earnings.  SFAS No. 157 is effective now for financial asset and
liabilities, if any, carried at fair value and SFAS No. 159 now provides an
option to carry other assets and liabilities at fair value for us beginning with
financial statements issued for 2008.  SFAS No. 157 becomes effective
for us for nonfinancial assets and liabilities carried at fair value if any,
beginning in 2009.  However, since we do not have, nor do we plan for
the foreseeable future, to carry any assets or liabilities at fair value, we do
not currently expect the effects, if any, that SFAS Nos. 157 and 159 will have
on our future financial position, results of operations and operating cash flows
to be material.




In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
will significantly change the accounting for business combinations and certain
other transactions.  SFAS 141R will apply prospectively to business
combinations and certain other transactions for which the acquisition date is on
or after the start of the first annual reporting period beginning on or after
December 15, 2008, and early adoption is prohibited.  Because we are
not now contemplating any covered transactions after its effective date, we
currently expect that SFAS 141R will not have an impact on our future financial
position, results of operations, and operating cash flows.




In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements-An Amendment of ARB No. 51, which
establishes new accounting for the noncontrolling interest in a subsidiary or
consolidated variable interest entity and requires that a parent recognize a
gain or loss when a subsidiary is deconsolidated and measured using the fair
value of the noncontrolling equity  investment on the deconsolidation
date. SFAS 160 will be effective for 2009, and earlier adoption is
prohibited. Since we do not now have and do not contemplate acquiring any
interests in subsidiaries or consolidated variable interest entities with
noncontrolling interests, we currently expect that SFAS 160 will not have
an impact on our future financial position, results of operations and operating
cash flows.




In
March 2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities -- an Amendment of SFAS 133.SFAS
161, which will require
enhanced disclosures regarding the impact on financial position, financial
performance, and cash flows, will be effective for us beginning
on January 1, 2009, and the effect on our financial statements will be
limited to requiring certain additional limited disclosures.




Results
of Operations




Three
Months Ended March 31, 2008 Compared with Three Months Ended March 31,
2007




Revenue.  Casino
games revenue for the three months ended March 31, 2008 increased $112,000 or
26.1%, to $543,000 from $431,000 for the three months ended March 31, 2007. The
higher casino games revenue principally resulted from higher revenue from Super
Coverall Bingo of $129,000 offset by a decline in Nevada Numbers of
$13,000.






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Product
sales for the three months ended March 31, 2008 decreased by $88,000 to $324,000
or 21.4% from $412,000 for the three months ended March 31, 2007. Keno equipment
sales amounted to $96,000 for the three months ended March 31, 2008 versus
$79,000 during the three months ended March 31, 2007, an increase of $17,000.
This increase in Keno equipment sales was offset by a $90,000 decrease in bingo
equipment and supplies during the three months ended March 31, 2008 versus the
same period in the prior year due to the loss of several customers once we
stopped distributing bingo electronics.




Other
revenue for the three months ended March 31, 2008, declined by $141,000 or
34.2%, to $272,000 from $413,000 for the three months ended March 31, 2007.
Bingo electronics revenue decreased from $70,000 for the three months ended
March 31, 2007 to $0 for the three months ended March 31, 2008, as we lost our
bingo electronics distributor agreement early in 2007. Revenue from Keno route
and participation agreements decreased from $160,000 for the three months ended
March 31, 2007 to $110,000 for the three months ended March 31, 2008, as we
closed our Keno route business in February 29, 2008 due to renovation at one of
our key customer locations. We will restart the Keno route operations in August
at four to five locations where previously we had only two
locations.




Costs and
Expenses.  Cost and expenses of casino games for the three
months ended March 31, 2008, increased by $446,000 or 138.4%, to $769,000 from
$323,000 for three months ended March 31, 2007. The increase resulted primarily
from the decline in the prime rate of interest which increased our bankroll
requirement by $329,000.




Product
costs and expenses for the three months ended March 31, 2008, decreased $135,000
or 47.0% to $152,000 from $287,000 for the three months ended March 31,
2007.  Gross margin increased to 52.9% for the three months ended
March 31, 2008 versus 30.1% for the three months ended March 31, 2007 as we had
higher margin Keno Optima system sales than normal.




Other
cost and expenses for the three months ended March 31, 2008, increased $2,000 to
$342,000 from $340,000 for the three months ended March 31, 2007. Gross margin
also decreased to (20.1%) for the three months ended March 31, 2008 versus 17.6%
for the three months ended March 31, 2007 due to lost profits from the bingo
electronics distribution agreement being canceled, and additional salaries of
$28,000.




Other Operating Expenses.
Selling, general and administrative expenses for the three months ended March
31, 2008 decreased $1,000 or 0% to $1,594,000 from $1,595,000 for the three
months ended March 31, 2007. We have decreased our administrative infrastructure
through salary reductions of $85,000 during the three months ended March 31,
2008 versus March 31, 2007.  Board compensation was reduced by $90,000
during the three months ended March 31, 2008 versus the same period in the prior
year due to a board promotion that cost $100,000 in the prior year. In addition,
consulting and professional fees have increased by $224,000, during the three
months ended March 31, 2008 versus the same period in 2007. The increase in
consulting and professional fees is primarily related to consulting costs for
money raising and legal fees incurred in defending the IGT lawsuit. Advertising
and promotion has decreased by $68,000 as we reduced advertising costs to
promote PlayerVision during the three months ended March 31, 2008 versus the
same period in the prior year.




Research
and development costs for the three months ended March 31, 2008 have decreased
by $23,000 or 7.0% to $301,000 from $324,000 for the three months ended March
31, 2007 due to planned cost reductions.




Depreciation
and amortization for the three months ended March 31, 2008, increased $1,000 or
..5%, to $217,000 from $216,000 for the three months ended March 31, 2007, as a
result of only $57,000 of capital expenditures during the three months ended
March 31, 2008.






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Finance Costs. Finance
costs for the three months ended March 31, 2008, increased $56,000 or 11.6% to
$542,000 from $486,000 for the three months ended March 31, 2007. The increased
finance costs related to the recording of the fair value of the derivative
liability and the increased finance cost from the debt modifications to the
CAMOFI note in 2007.




Interest and Other Income.Interest and other income for the three months ended March 31, 2008
decreased by $82,000 or 132.1%, to $(20,000) from $62,000 for the three months
ended March 31, 2007. The decrease was a result of lower cash balances
outstanding and loss in fair value incurred on our marketable
securities.




Liquidity
and Capital Resources




Cash




As of
March 31, 2008, we had no cash, reflecting a $489,000 decrease from December 31,
2007 resulting primarily from the net cash outflows discussed
below.




Cash
Flows




Cash used
in operating activities amounted to $1,126,000 for the three months ended March
31, 2008 primarily because of the foregoing revenue decreases and expense
increases.  Investing activities consisted principally of cash
outflows in connection with $57,000 of capital expenditures for reasons
discussed below.  Our cash flows from financing activities in the
three months ended March 31, 2008 consisted principally of inflows of $355,000
of new capital from the sale of Series E Convertible Preferred Stock, $105,000
for exercise of options and warrants to purchase shares of Common Stock Series
A, $110,000 for the sale of Common Stock Series A to employees and $250,000 in a
cash advance from a shareholder.





Capital
Expenditures




Capital
expenditures decreased by $125,000 for the three months ended March 31, 2008
versus the same period in the prior year due to our present cost reduction
program.  For 2008, 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 $15 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/or the
establishment of a master equipment lease agreement with financing sources that
we have used in the past.




Sources
of Capital




We have
traditionally relied on various forms of third-party financing in order to
sustain our operations.  In 2008, we have raised $335,000 from the
private placement of Series E Convertible Preferred Stock which closed in late
February, 2008. We have raised $215,000 through the sale of Common Stock Series
A to employees and through the exercise of options and warrants. In February,
2008 we received a noninterest bearing advance from a shareholder of
$250,000.  On May 7, 2008, we entered into a subscription agreement
with this same shareholder pursuant to which the shareholder purchased 200,000
shares of Series F Convertible Preferred Stock for $5 per share and 150,000 of
Series G Convertible Preferred Stock for $5 per share for an aggregate purchase
price of $1,750,000.  The proceeds of the Series F Convertible
Preferred Stock were used to fund the $1,000,000 jackpot bankroll for the
Gamblers Bonus Million Dollar Ticket which launched on April 14,
2008.  The proceeds of the 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 enter into
these transactions, the Company issued the shareholder 500,000 shares of Common
Stock Series A with the right to receive additional shares if the Company’s
common stock, as a result of a qualified financing, commences trading at less
than $5 per share, in which case 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
shareholder was granted a security interest and other additional rights in
connection with our separate account (and related insurance policy) in which $1
million is reserved solely to satisfy our jackpot security requirements relating
to the Gamblers Bonus Million Dollar Ticket game.






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On May 1,
2008, we further amended our financing with CAMOFI Master LDC, or CAMOFI,
whereby we entered into an Amended and Restated Senior Secured Convertible Note
due January 1, 2010, or Note, and an Amended and Restated Registration Rights
Agreement, or Registration Rights Agreement, with CAMOFI.  The
commitment fees due under the original CAMOFI note on April 1, 2008, July 1,
2008, October 1, 2008, and January 1, 2009 of $131,250 and prior accrued
commitment fees were added to the face amount of the Note which increased from
$5,250,000 to $6,051,250.  We must also pay commitment fees of
$403,417 on January 1, 2009 and $302,563 on July 1, 2009 and January 1,
2010.  The Registration Rights Agreement requires us to file a
registration statement with the Securities and Exchange Commission on the
earlier of the closing of a Qualified Financing, as defined in the Registration
Rights Agreement, or April 30, 2009, with the effectiveness date remaining 120
calendar days after the filing date.  The maturity date of the Note
was changed from January 1, 2009 to January 1, 2010.




The Note
is convertible into shares of Common Stock Series A at $1.345 per share, subject
to certain limitations, including the limitation that the total number of shares
of Common Stock Series A to be issued cannot cause CAMOFI’s ownership of Common
Stock Series A to exceed 4.99% of our issued and outstanding shares of Common
Stock Series A after the issuance.




We
were in compliance with all loan covenants at March 31, 2008.  With
respect to the issuance and sale of Series F and Series G Convertible Preferred
Stock (see Note 8 "Stockholders' Equity" to Financial Statements), CAMOFI
verbally waived non-compliance of any provisions in its loan documents
restricting us from effecting such transaction, including with respect to (a)
the issuance of any securities (i) convertible into shares of common stock based
upon trading prices at any time after the issuance of such securities, or (ii)
that grant an investor the right to receive additional shares based upon future
transactions on terms more favorable than those granted to such investor in such
offering; and (b) the granting of a security interest in assets pledge to
CAMOFI.  Although the agreement with CAMOFI provides that waivers must be
in writing, the Company believes that, notwithstanding any issue as to whether
such waiver is legally binding, the verbal waiver represents CAMOFI’s intent to
allow the sale of the Series F and Series G Convertible Preferred Stock and not
to take the position that the sale resulted in an Event of Default under the
CAMOFI loan documents.




Outlook




We expect
to continue for at least the first three quarters of 2008 to incur expenses
related to the development and regulatory approval for the remaining
PlayerVision modules.  We expect to also have ongoing costs in defending
the lawsuit from IGT.   Accordingly, we expect to continue to rely on
funds from third party financing sources, in addition to funds from operations,
to sustain our operations in 2008.  We believe that our cash balances and
the proceeds from our private placement of Series F and G Convertible Preferred
Stock (which was closed on May 9, 2008) and our pending private placement of
Series H Convertible Preferred Stock, together with funds from operations, will
be sufficient to fund our anticipated working capital requirements and our
business expansion plans for at least the next year.  The failure to obtain
such financing will have a material adverse effect upon our financial position
and business operations.  We cannot provide assurance that we will be
successful in completing the Series H placement or obtaining any other
additional financing. Although gaming revenues in Nevada for the first part
of 2008 are down, we believe that our PlayerVision system will provide casinos
with an additional revenue source without any upfront capital expenditure. 
Other than the insignificant revenue realized from our early adoption
agreements, we expect to begin to realize revenue from our PlayerVision system
during the third quarter of 2008.  We cannot provide assurance that the
market will accept our PlayerVision system.  Any failure by us to obtain
approval of NumberVision and/or WagerVision, or 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 position 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, a failure to
prevail in our trademark and copyright litigation with IGT, failure to obtain
additional financing, a sudden increase in product demand requiring a
significant increase in manufacturing capability, 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.




From time
to time, we may be required to raise additional funds through public or private
financing, strategic relationships, or other arrangements. We may be unable to
secure such funding, if needed and such financing may not be available on terms
acceptable to us, or at all. 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. Failure to
generate sufficient revenue or to raise capital when needed could likely have a
material adverse impact on our business, operating results, and financial
condition, as well as our ability to achieve intended business
objectives.




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Off
Balance Sheet Financing Arrangements




We have
operating leases totaling $914,087 that have the following payment schedule by
calendar year: $305,810 in 2008, $142,848 in 2009, $138,008 in 2010, $138,941 in
2011, $140,735 in 2012, and $47,745 in 2013.




Qualitative
and Quantitative Disclosures about Market Risk




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.




Item 3.  Quantitative and Qualitative Disclosures About
Market Risk.




Not
required.





Item 4T. Controls And Procedures.




Evaluation
of Disclosure Controls and Procedures




The Company’s management, including the
Chief Executive Officer and Chief Financial Officer, has conducted an evaluation
of the effectiveness of our disclosure controls and procedures pursuant to
Exchange Act Rules 13a-15(e) and 15d-15(e) as of March 31, 2008.  As a
part of its evaluation, management took into account the material weaknesses
(discussed below) in the Company’s disclosure controls and procedures identified
by management for the period ended December 31, 2007.  The Company’s
Chief Executive Officer and the Chief Financial Officer have concluded that, as
of March 31, 2008, the end of the period covered by this report, the Company’s
disclosure controls and procedures were still not effective due to the material
weaknesses discussed below,  a late Form 8-K filed on January 24,
2008, which should have been filed in December 2007, a late Form 10-KSB filed on
April 16, 2008, which should have been filed by April 15, 2008, a late Form 8-K
filed on May 13, 2008, which should have been filed by May 8, 2008 and a late
Form 8-K filed on May 14, 2008, which should have been filed by May 13,
2008.




As
disclosed in the Company’s December 31, 2007 Form 10-KSB, the errors that
occurred in our financial reporting and in our accounting for certain complex
accounting transactions in 2005, 2006 and 2007 are the result of material
weaknesses in our accounting controls.  In the past, we have not taken
the time to complete an SEC and GAAP disclosure checklist and we have had
insufficient oversight of the chief financial officer.  In addition,
our equity shares in our financial records for 2007 were not reconciled with our
transfer agent’s share ledger on a timely basis.




Management
believes that we have addressed these material weaknesses in internal control
over financial reporting with respect to future periods by hiring Bruce Shepard,
a former audit partner with PricewaterhouseCoopers LLP, as our chief financial
officer on August 1, 2006, by requiring the completion of a detailed SEC and
GAAP disclosure checklist in connection with our financial closing process at
the end of each quarter and at the end of the year, by holding an audit
committee meeting prior to each annual and quarterly report being filed with the
SEC, by having a detailed cold review of our financial statements and notes
thereto performed by another independent accounting firm prior to each annual
and




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quarterly
report being filed with the SEC and reporting the results of that cold review to
the audit committee, by subscribing to an online accounting reference service,
and by assigning responsibility for regular reconciliation of our equity shares
to the transfer agent ledger to a full-time accounting staff person, all of
which procedures were implemented prior to the filing of this report, except for
the assignment of responsibility for regular reconciliation of our equity shares
to the transfer agent ledger which to date has not been reassigned to a full
time accounting staff person due to limited accounting
resources.  With respect to disclosure controls and procedures
relating to timely filing of Form 8-Ks, management plans to train its compliance
officer in, and assign him the responsibility of identifying, the events
requiring Form 8-K reports, and develop procedures for communications on a
timely basis between him and the person in management with the information
necessary to make these determinations.





Changes
in Internal Control Over Financial Reporting





The Company is in the process of
implementing the remediation plans not yet implemented as described above to
address our material weaknesses.  Other than as described above, there
have not been any other changes in the Company’s internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
during the three months ended March 31, 2008, that have materially affected, or
are reasonably likely to materially affect, the Company’s internal controls over
financial reporting.







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PART
II – OTHER INFORMATION




Item 1.  Legal Proceedings.




On
September 12, 2007, IGT filed a lawsuit against us in the United States District
Court of Nevada captioned IGT v. Las Vegas Gaming, Inc., Case
3:07-cv-00415-BES-VPC alleging copyright infringement, trademark infringement,
trade dress infringement and false designation of origin relating to the
operation of our PlayerVision system, formerly PortalVision, on IGT’s Game King®
gaming machines.  IGT is seeking injunctive and monetary relief in the
case, including treble damages and profits, claiming that IGT would be
irreparably harmed by LVGI if LVGI’s PlayerVision were deployed in the
marketplace.  On November 16, 2007, the Court denied IGT’s motion for
preliminary injunction, finding that IGT had not shown a likelihood of success
or raised serious questions as to its derivative works claim or other
infringement claims.  Discovery continues on this
lawsuit.  Management has made no provision for this matter as it is
unable to estimate the minimum loss, if any, to be incurred by the
Company.  We do not believe the IGT complaint to be meritorious, and
we are defending the lawsuit vigorously.




Item 1A.  Risk Factors.




Not
required.





Item 2.Unregistered Sales of Equity
Securities.




During
the three months ended March 31, 2008, we issued 67,000 shares of Series E
Convertible Preferred Stock raising $335,000.  From November 2006
through February 2008, we have conducted a private placement of our Series E
Convertible Preferred Stock through which we have raised $4,054,000 in gross
proceeds and have issued 810,800 shares of Series E Convertible Preferred
Stock.  The proceeds have been and will be used to fund our general
operations and working capital.  The shares of Series E Convertible
Preferred Stock were issued pursuant to exemption from registration provided by
Rule 506 of Regulation D of the Securities Act and Section 4(2) of the
Securities Act.  We did not pay commissions on the sale of any shares
of Series E Convertible Preferred Stock.




During
the three months ended March 31, 2008, we issued an aggregate of 92,129 shares
of Common Stock Series A as a result of the exercise of outstanding stock
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.  We also issued 231,528 shares of Common
Stock Series A for salaries, bonuses, and board of director
fees.  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.




During
the three months ended March 31, 2008,  holders of 3,800 shares
of Series B Convertible Preferred Stock converted their shares on a
one-to-five basis for 19,000 shares of Common Stock Series A.  This
issuance was 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.




See Note
7 "Debt" to Financial Statements.




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




Not
applicable.






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Item 5. Other Information.




Not
applicable.




Item 6.Exhibits




The
exhibits to this Form 10-Q are listed in the Exhibit Index to this Form 10-Q and
are incorporated by reference herein.







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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, 2008
            By:
            /s/
      Jon D. BerkleyJon
      D. BerkleyIts:
            President
      and Chief Executive Officer(Principal
      Executive Officer)Date:
            May
      20, 2008
            By:
            /s/
      Bruce A. ShepardBruce
      A. ShepardIts:
            Chief
      Financial Officer(Principal
      Financial Officer)







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EXHIBIT
INDEX




Exhibit
            
            Document
      Description
            
            Page31.1
            
            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










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