**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
 
 **FORM
          10-QSB**
 (Mark
          One)
 x
                **QUARTERLY
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934**
  For
                    the quarterly period ended:
                September
                    30, 2007
  o
                OR
  **TRANSITION
                    REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE
                    ACT**
  For
                    the transition period from:
                
                to
 
 Commission
                    file number:
                000-30375
 
 Las
                    Vegas Gaming, Inc.(Exact
                    name of small business issuer as specified in its
                    charter)Nevada
                
                88-0392994(State
                    or other jurisdiction of incorporation or organization)
                
                (I.R.S.
                    Employer Identification No.)4000
                    West Ali Baba Lane, Suite D, Las Vegas, Nevada 89118(Address
                    of principal executive offices)(702)
                    871-7111(Issuer’s
                    telephone number)(Former
                    name, former address and former fiscal year, if changed since
                    last
                    report)Check
                    whether the issuer (1) filed all reports required to be filed
                    by Section
                    13 or 15(d) of the Exchange Act during the past 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 shell company (as defined
                    in
                    Rule 12b-2 of the Exchange Act).  Yes o  No
                    x**APPLICABLE
                    ONLY TO CORPORATE ISSUERS**State
                    the number of shares outstanding of each of the issuer’s classes of common
                    equity, as of the latestpracticable
                    date:
                12,227,653
                    shares of Common Stock Series A, $.001 par value, as of September
                    30,
                    2007Transitional
                    Small Business Disclosure Format (check one):  Yes o  No
                    x
  
 ***Table
              of Contents***
  **LAS
          VEGAS GAMING, INC.**
 
 **FORM
          10-QSB**
 
 **TABLE
          OF CONTENTS**
 **Page****PART
                      I - FINANCIAL INFORMATION**
                  3Item
                      1.
                  Financial
                      Statements
                  3Consolidated
                      Balance Sheets
                  3Consolidated
                      Statements of
                      Operations
                  4Consolidated
                    Statements of
                    Operations
                  5Consolidated
                      Statements of Stockholders’
                      Equity
                  6Consolidated
                      Statements of Cash Flow
                  7Notes
                      to Unaudited Consolidated Financial
                      Statements
                  8Item
                      2.
                  Management’s
                      Discussion and Analysis of Financial Condition and
                      Results of Operations
                  18Critical
                      Accounting Policies and
                      Estimates
                  18Recent
                      Accounting Pronouncements
                  20Results
                      of Operations
                  20Liquidity
                      and Capital Resources
                  22Off
                      Balance Sheet Financing
                  24Qualitative
                      and Quantitative Disclosures about Market
                      Risk
                  24Item
                      3.
                  Controls
                      and Procedures
                  24**PART
                      II - OTHER INFORMATION**
                  25Item
                      1.
                  Legal
                      Proceedings
                  25Item
                      2.
                  Unregistered
                      Sales of Equity Securities
                  25Item
                      3.
                  Defaults
                      Upon Senior Securities
                  26Item
                      4.
                  Submission
                      of Matters to a Vote of Security
                      Holders
                  26Item
                      5.
                  Other
                      Information
                  26Item
                      6.
                  Exhibits
                  26
 _________________________________
 
 PortalVision,
          PromoVision, SlottoVision, AdVision, Nevada Numbers, The Million Dollar
          Ticket,
          and Nevada Keno are our trademarks. This report may contain trademarks
          and trade
          names of other parties, corporations, and organizations.
   2
 ***Table
            of Contents***
 
 **PART
        I – FINANCIAL INFORMATION**
  **Item
        1.Financial Statements.**
  **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 
 **ASSETS**
              
              **December
                  31,**
                **2006**
              
              
              **September
                  30,**
                **2007****Current
                  assets**
              
              
              
              
              **(Unaudited)**Cash
              
              $
              1,675,588
              
              
              $
              1,004,635Investment
                  in marketable securities
              
              
              150,806
              
              
              
              126,957Accounts
                  receivable, net of allowance of $9,096 and $7,165
              
              
              466,222
              
              
              
              505,352Inventories
              
              
              514,972
              
              
              
              1,202,653Prepaid
                  expenses, deposits and other
              
              
              576,090
              
              
              
              177,520Jackpot
                  reserve deposits
              
              
              4,154,190
              
              
              
              1,849,7167,537,868
              
              
              
              4,866,833**Equipment
                  and software, net of accumulated depreciation of $1,329,140 and
                  $1,470,208**
              
              
              917,835
              
              
              
              923,680**Other
                  assets**Goodwill
              
              
              955,277
              
              
              
              955,277Trademarks,
                  copyrights, patents and other identifiable intangibles, net of
                  accumulated
                  amortization of $616,169 and $978,193
              
              
              1,800,066
              
              
              
              1,438,043Other
              
              
              116,878
              
              
              
              95,237$
              11,327,924
              
              
              $
              8,279,071**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Accounts
                  payable and accrued expenses
              
              $
              1,189,947
              
              
              $
              955,441Current
                  portion of long-term debt
              
              
              1,310,874
              
              
              
              2,274,335Progressive
                  jackpot liability
              
              
              1,625,051
              
              
              
              817,1214,125,872
              
              
              
              4,046,897**Long-term
                  debt**
              
              
              3,144,903
              
              
              
              2,504,758**Conditionally
                  redeemable equity**Series
                  B Convertible Preferred Stock, $.001 par value, 346,140 and 134,350
                  shares
                  issued and outstanding
              
              
              1,730,700
              
              
              
              671,750**Stockholders'
                  equity**Convertible
                  Preferred Stock, $.001 par, 10,000,000 shares authorized:Series
                  A: 536,400 and 0 shares issued and outstanding
              
              
              536
              
              
              
              —Series
                  C: 50,000 and 39,000 shares issued and outstanding
              
              
              50
              
              
              
              39Series
                  D:  125,000 shares issued and outstanding
              
              
              125
              
              
              
              125Series
                  E:  351,000 and 712,800 shares issued and
                  outstanding
              
              
              351
              
              
              
              713Common
                  Stock Series A and Common Stock, $.001 par, 90,000,000 shares authorized,
                  9,819,680 and 12,227,653 shares issued and outstanding
              
              
              9,820
              
              
              
              12,227Additional
                  paid-in capital
              
              
              21,453,014
              
              
              
              26,843,211Less
                  due from officers and stockholders
              
              
              —
              
              
              
              (366,000
              )Deficit
              
              
              (19,137,447
              )
              
              
              (25,434,649
              )2,326,449
              
              
              
              1,055,666$
              11,327,924
              
              
              $
              8,279,071
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 3
 ***Table
              of Contents***
 
 **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **CONSOLIDATEDSTATEMENTS
        OF OPERATIONS**
 **THREE
        MONTHS ENDED SEPTEMBER 30, 2006 AND 2007 (UNAUDITED)**
 
 
 **2006**
              
              
              **2007****Revenues**Casino
                  games
              
              $
              392,064
              
              
              $
              439,954Product
                  sales
              
              
              375,205
              
              
              
              633,285Other
              
              
              442,144
              
              
              
              320,2461,209,413
              
              
              
              1,393,485**Costs
                  and expenses**Casino
                  games
              
              
              472,560
              
              
              
              (201,851
              )Product
                  costs
              
              
              245,755
              
              
              
              285,360Other
              
              
              394,590
              
              
              
              330,9131,112,905
              
              
              
              414,422**Gross
                  operating income**
              
              
              96,508
              
              
              
              979,063**Other
                  operating expenses**Selling,
                  general, and administrative
              
              
              933,933
              
              
              
              1,554,446Research
                  and development
              
              
              274,360
              
              
              
              220,080Depreciation
                  and amortization
              
              
              203,606
              
              
              
              207,0391,411,899
              
              
              
              1,981,565**Operating
                  loss**
              
              
              (1,315,391
              )
              
              
              (1,002,502
              )**Other
                  income and expense**Finance
                  costs
              
              
              (449,777
              )
              
              
              (684,902
              )Interest
                  and other income
              
              
              81,444
              
              
              
              28,505**Net
                  loss**
              
              $
              (1,683,724
              )
              
              $
              (1,658,899
              )**Net
                  loss per share**
              
              $
              (0.18
              )
              
              $
              (0.14
              )**Weighted
                  average shares outstanding**
              
              
              9,474,680
              
              
              
              11,934,403
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 
 4
 ***Table
              of Contents***
 
 **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **NINE
        MONTHS ENDED SEPTEMBER 30, 2006 AND 2007 (UNAUDITED)**
 
 
 **2006**
              
              
              **2007****Revenues**Casino
                  games
              
              $
              1,209,347
              
              
              $
              1,303,129Product
                  sales
              
              
              1,171,816
              
              
              
              1,377,735Other
              
              
              1,320,246
              
              
              
              1,055,7943,701,409
              
              
              
              3,736,658**Costs
                  and expenses**Casino
                  games
              
              
              1,284,967
              
              
              
              385,699Product
                  costs
              
              
              802,142
              
              
              
              779,941Other
              
              
              1,044,944
              
              
              
              999,3903,132,053
              
              
              
              2,165,030**Gross
                  operating income**
              
              
              569,356
              
              
              
              1,571,628**Other
                  operating expenses**Selling,
                  general, and administrative
              
              
              2,513,005
              
              
              
              5,035,684Research
                  and development
              
              
              647,517
              
              
              
              819,600Depreciation
                  and amortization
              
              
              545,317
              
              
              
              639,0843,705,839
              
              
              
              6,494,368**Operating
                  loss**
              
              
              (3,136,483
              )
              
              
              (4,922,740
              )**Other
                  income and expense**Finance
                  costs
              
              
              (1,110,775
              )
              
              
              (1,501,695
              )Interest
                  and other income
              
              
              189,782
              
              
              
              127,233**Net
                  loss**
              
              $
              (4,057,476
              )
              
              $
              (6,297,202
              )**Net
                  loss per share**
              
              $
              (0.44
              )
              
              $
              (0.56
              )**Weighted
                  average shares outstanding**
              
              
              9,244,884
              
              
              
              11,177,756
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 
 5
 ***Table
            of Contents***
 
 
 **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’
EQUITY**
 **NINE
        MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)**
 
 
 Series
                  A Convertible
                Preferred
                Stock
                Par
                  Value
              
              
              Series
                  C Convertible
                Preferred
                Stock
                Par
                  Value
              
              
              Series
                  D Convertible
                Preferred
                Stock
                Par
                  Value
              
              
              Series
                  E Convertible
                Preferred
                Stock
                Par
                  Value
              
              
              Common
                Stock
                Par
                  Value
              
              
              Additional
                Paid-In
                Capital
              
              
              Less
                  Due From
                Officers
                  and
                Stockholders
              
              
              DeficitBalances,
                  January 1, 2007
              
              $
              536
              
              
              $
              50
              
              
              $
              125
              
              
              $
              351
              
              
              $
              9,820
              
              
              $
              21,453,014
              
              
              $
              —
              
              
              $
              (19,137,447
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,297,202
              )Exercise
                  of warrants and options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              835
              
              
              
              1,196,538
              
              
              
              (366,000
              )Issuance
                  of warrants
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              705,288Stock
                  based compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              36,306Vesting
                  of warrants
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              263,002Sale
                  of Common Stock Series A to officer and board member
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              102
              
              
              
              501,898Conversion
                  of Series A Convertible Preferred Stock to Common Stock Series
                  A
              
              
              (536
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              536
              
              
              
              —Conversion
                  of Series B Convertible Preferred Stock to Common Stock Series
                  A
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              879
              
              
              
              878,571Conversion
                  of Series C Convertible Preferred Stock to Common Stock Series
                  A
              
              
              
              
              
              
              (11
              )
              
              
              
              
              
              
              
              
              
              
              55
              
              
              
              (44
              )Sales
                  of Series E Convertible Preferred Stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              362
              
              
              
              
              
              
              
              1,808,638Balances,
                  September 30, 2007
              
              $
              (0
              )
              
              $
              39
              
              
              $
              125
              
              
              $
              713
              
              
              $
              12,227
              
              
              $
              26,843,211
              
              
              $
              (366,000
              )
              
              $
              (25,434,649
              )
  The
        accompanying notes are an integral part of these financial
        statements.
   6
 ***Table
            of Contents***
 
 
 **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2007
        (UNAUDITED)**
  **September
                  30****2006**
              
              
              **2007****Operating
                  activities**Net
                  loss
              
              $
              (4,057,476
              )
              
              $
              (6,297,202
              )Investment
                  in marketable security received from licensing
              
              
              —
              
              
              
              23,849Depreciation
                  and amortization of equipment and software
              
              
              545,316
              
              
              
              277,063Amortization
                  of debt issuance cost and intangibles
              
              
              914,513
              
              
              
              1,037,081Stock-based
                  compensation
              
              
              243,673
              
              
              
              839,128Other
              
              
              771
              
              
              
              59,986Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              291,497
              
              
              
              (39,130
              )Inventories
              
              
              (60,133
              )
              
              
              (687,681
              )Prepaid
                  expenses, deposits and other
              
              
              (446,175
              )
              
              
              360,226Jackpot
                  reserve deposits
              
              
              20,936
              
              
              
              2,304,474Accounts
                  payable and accrued expenses
              
              
              310,445
              
              
              
              23,242Progressive
                  jackpot liability
              
              
              372,643
              
              
              
              (807,930
              )Net
                  cash used in operating activities
              
              
              (1,863,990
              )
              
              
              (2,906,894
              )**Investing
                  activities**Purchase
                  of property and equipment
              
              
              (443,601
              )
              
              
              (251,315
              )Collection
                  of receivable from officer/shareholder
              
              
              155,179
              
              
              
              —Net
                  cash provided by (used for) investing activities
              
              
              (288,422
              )
              
              
              (251,315
              )**Financing
                  activities**Proceeds
                  from prior year’s litigation settlements
              
              
              134,790
              
              
              
              42,215Debt
                  repayments
              
              
              (5,580
              )
              
              
              (8,081
              )Net
                  proceeds from Senior Secured Convertible Note financing
              
              
              1,833,000
              
              
              
              250,000Issuance
                  of Series E preferred stock
              
              
              —
              
              
              
              1,809,000Exercise
                  of warrants for common stock
              
              
              547,500
              
              
              
              573,623Redemption
                  of Series B preferred stock
              
              
              —
              
              
              
              (179,500
              )Net
                  cash provided by financing activities
              
              
              2,509,710
              
              
              
              2,487,257**Net
                  increase (decrease) in cash and cash equivalents**
              
              ****
              **357,298**
              
              
              ****
              **(670,952**
              **)****Cash
                  and cash equivalents, beginning of period**
              
              ****
              **1,672,381**
              
              
              ****
              **1,675,588****Cash
                  and cash equivalents, end of period**
              
              **$**
              **2,029,679**
              
              
              **$**
              **1,004,636****Non-cash
                  investing and financing activities**Common
                  stock issued for acquisition of technology rights
              
              $
              1,400,000Conversion
                  of Series B Convertible Preferred Stock to Common Stock
                  Series A
              
              
              25,000
              
              
              $
              879,450Issuance
                  of warrants with convertible notes
              
              
              2,088,652Exercise
                  of stock warrants and options for accrued expense
              
              
              87,750Exercise
                  of stock warrants and options for subscription receivable
              
              
              
              
              
              
              366,000Conversion
                  of Series C Convertible Preferred Stock to Common Stock
                  Series A
              
              
              30
              
              
              
              55Common
                  Stock Series A acquired from officer/shareholder in payment of
                  stock
                  subscription notes receivable
              
              
              242,122Exercise
                  of warrants in settlement of accounts payable
              
              
              
              
              
              
              257,750Issuance
                  of warrants to refinance Senior Secured Convertible Notes
              
              
              
              
              
              
              667,000Equipment
                  acquired with new borrowing
              
              
              
              
              
              
              31,592
 
 The
        accompanying notes are an integral part of these financial
        statements.
   7
 ***Table
            of Contents***
 
 **LAS
        VEGAS GAMING, INC. AND SUBSIDIARIES**
 **NOTES
        TOUNAUDITED CONSOLIDATED FINANCIAL
        STATEMENTS**
 
 **1.  Nature
        of operations:**
  We
        are 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 that supports
                  the
                  PlayerVision system, formerly PortalVision, and its related applications;
                  and
  ·
              the
                  February 2006 acquisition from AdLine Network, LLC of the rights
                  to
                  technology related to the ability to accept wagers through WagerVision
                  from the homes of players.
  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 Coverall Bingo, and The Million
        Dollar Ticket. During the fourth quarter of 2007, we expect to add a new
        game,
        Gamblers Bonus Million Dollar Ticket, in cooperation with United Coin Machine
        Company, the largest slot route operation in Nevada.  Although we have
        recently focused our business on our proprietary multimedia delivery system,
        known as PlayerVision, PlayerVision has had no revenue effect on our financial
        statements to date.
  **2.  Basis
        of Presentation**
  The
        accompanying consolidated financial statements have been prepared 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 or accompanying 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, 2006, previously filed with the SEC,
        from
        which the balance sheet information as of that date is derived.
  The
        consolidated financial statements include the accounts of Las Vegas Gaming,
        Inc., Imagineering Gaming, Inc., 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 September
        30, 2006 and 2007, or relates to the interim periods then ended is likewise
        unaudited. The results of operations for the periods ended September 30,
        2007,
        are not necessarily indicative of results to be expected for the year ending
        December 31, 2007.
  **3.  Jackpot
        Reserve Deposits**
  At
        December 31, 2006 and September 30, 2007, pursuant to Nevada gaming regulatory
        requirements (Note 13), we held aside on deposit cash amounts of $4,154,190
        and
        $1,849,716, respectively, that are restricted by gaming regulators for funding
        our various jackpot oriented games. These funds are classified as current
        assets
        because they are used to support operations.
   8
 ***Table
            of Contents***
  **4.  Equipment
        and Software**
  Equipment
        and software consist of the following:
  **December
                  31, 2006**
              
              
              **September
                  30, 2007**
                **Unaudited**Software
              
              $
              404,946
              
              
              $
              431,140Production
                  equipment
              
              
              1,484,348
              
              
              
              1,471,256Equipment,
                  furniture, and fixtures
              
              
              314,053
              
              
              
              447,865Leasehold
                  improvements
              
              
              43,627
              
              
              
              43,6272,246,974
              
              
              
              2,393,888Less
                  accumulated depreciation and amortization
              
              
              1,329,139
              
              
              
              1,470,208$
              917,835
              
              
              $
              923,680
 
 **5.  Other
        Intangible Assets**
 
 Trademarks,
        copyrights, patents, and
        other intangible assets consist of the following:
 
 **December
                  31, 2006**
              
              
              **September
                  30, 2007**
                **Unaudited**PlayerVision
                  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
              
              
              616,169
              
              
              
              978,193$
              1,800,066
              
              
              $
              1,438,043
 
  These
        intangibles are amortized on a straight-line basis over their estimated useful
        lives, which are currently five years.  Implementing “at home”
wagering is scheduled for 2008 following the product roll out of
        PlayerVision.  Total amortization for other intangible assets amounted
        to $321,334 and $362,023 for the nine months ended September 30, 2006 and
        2007,
        respectively.  The estimated aggregate amortization for the next five
        years is as follows:
  2008
              
              $
              482,6972009
              
              
              482,6972010
              
              
              352,9822011
              
              
              119,6672012
              
              
              -0-$
              1,438,043
  **6.****Bridge
        Financing**
  In
        April
        2006, we refinanced and increased the amount of our bridge financing from
        $3,000,000 to $5,000,000 with CAMOFI Master LDC, or CAMOFI.  On March
        22, 2007, we amended certain of the terms of our $5,000,000 bridge financing
        with CAMOFI.  On September 28, 2007, we again amended certain terms of
        our $5,000,000 bridge financing with CAMOFI.
  Under
        terms of the original financing arrangement, all of our assets were and continue
        to be pledged as collateral (except the cash attributable to Series B
        Convertible Preferred Stock).  In addition, we are obligated to make
        quarterly payments of $125,000 in commitment fees to be recognized appropriately
        as expense over the bridge period beginning July 1, 2006, until paid or
        converted as described below.
  9
 ***Table
            of Contents***
  The
        note
        is convertible into shares of our Common Stock Series A at the option of
        CAMOFI
        at $1.345, in whole or in part, at any time, subject to certain limitations.
        In
        addition, we are obligated under a related agreement to register with the
        SEC,
        by a specified date, shares of Common Stock Series A issuable under the
        conversion and other features of the note agreement. In connection with the
        April 2006 refinancing, we replaced our previously issued warrant to purchase
        1,050,000 shares of Common Stock Series A with a warrant to purchase 2,500,000
        shares of Common Stock Series A. The new warrant vested immediately, has
        a
        five-year life, and has an exercise price of $1.48, subject to certain
        conditions. The new warrant is valued at $2,088,000 and has been recorded
        at a
        discount from the $5,000,000 face amount of the note and is amortized to
        expense
        through the life of the note using the interest method.  No value was
        assigned to the registration rights.
  Under
        the
        March 22, 2007 amended terms of the financing arrangement with CAMOFI, our
        monthly redemption payments of $208,333 begin in October 2007 rather than
        in
        April 2007 as originally scheduled.  A full redemption payment of
        $1,875,005 is due in January 2009 rather than a full redemption payment of
        $3,125,003 being due in January 2008.  We also received a waiver
        through December 26, 2007, on the deadline for registration of any shares
        of
        Common Stock Series A issuable to CAMOFI to be effective.  For this
        refinancing accommodation, we issued CAMOFI warrants to purchase 175,000
        shares
        of Common Stock Series A at $1.48 per share and made a payment of $25,000
        to
        CAMOFI.  We used the Black-Scholes option-pricing model to value the
        warrants with principal assumptions including a “risk free” interest rate of 5%,
        warrant life of five years, no expected dividends and a volatility of 30%,
        which
        is a composite index for gaming technology oriented companies in our industry
        sector that have products that would be vertically integrated with our core
        products.  The warrants were valued at an estimated
        $667,468.
  Under
        the
        September 28, 2007 amended terms of the financing arrangement with CAMOFI,
        the
        quarterly commitment fee payment of $125,000 due on October 1, 2007 pursuant
        to
        the note was deferred until January 1, 2008 at which time it will be due
        and
        payable along with the additional $125,000 quarterly commitment fee due at
        that
        time for a total of $250,000.  The monthly redemption amount of
        $208,333 due on October 1, November 1, and December 1, 2007 were each deferred
        to April 1, 2008.  The monthly redemption amount of $208,333 due and
        payable on April 1, 2008 will remain due and payable on that date, so $833,332
        in total is due and payable on that date.  The aggregate redemption
        amount of the note was increased by $250,000 to $5,250,000.  The
        aggregate redemption amount is due on January 1, 2009.  The filing
        date and effectiveness date as such terms are defined in the Registration
        Rights
        Agreement shall be amended to be February 28, and June 30, 2008,
        respectively.  CAMOFI has the right to convert up to 100% of the note
        into Common Stock Series A.  If 125% of the registrable securities for
        CAMOFI are not effective by June 30, 2008, we must pay cash liquidating damages
        equal to 1.5% of the outstanding principal balance of the bridge financing
        and
        an additional 1.5% for every subsequent 30-day period thereafter that the
        registrable securities are not effective.  If we fail to pay any
        partial liquidating damages within seven days from the date payable, we will
        accrue 20% annual interest on any amount in arrears.  We further
        agreed to give CAMOFI at least ten business day’s notice prior to any
        prepayments and repayments pursuant to the note, during which time CAMOFI
        shall
        have the right to convert any portion of its note into common
        stock.  We also agreed to reduce our nonrecurring cash burn to no more
        than $460,000 per month.
  In
        the
        second quarter of 2006, a refinancing resulted in a write-off of issuance
        costs
        of $190,600 associated with the old bridge financing. We incurred new issuance
        costs of $167,000 in connection with the refinancing, which were capitalized
        and
        are being amortized over the term of the new bridge financing using the interest
        method.
  10
 ***Table
            of Contents***
  **December
                  31, 2006**
              
              
              **September
                  30, 2007**
                **Unaudited**Bridge
                  financing
              
              $
              3,766,182
              
              
              $
              4,023,772Settlement
                  due third parties
              
              
              678,433
              
              
              
              720,648Other
                  notes
                  payable
              
              
              11,162
              
              
              
              34,6734,455,777
              
              
              
              4,779,093Less
                  amounts due within one year
              
              
              1,310,874
              
              
              
              2,274,335$
              3,144,903
              
              
              $
              2,504,758
 
 Debt
        matures as follows: In one year $2,274,335, in two years
        $2,504,758.
  In
        connection with our 2003 acquisition of Imagineering Systems, Inc., we, in
        effect, purchased for $150,000 (included in other assets) an interest in
        a
        judgment against American Wagering, Inc., which was operating under the
        protection of the United States Bankruptcy Code. The amount of the judgment
        has
        been negotiated to be $1.0 million. During 2005 and previously, we received
        an
        interest-free advance of $320,000 and a payment of $340,000 for the release
        of a
        lien from a subsidiary of American Wagering, Inc. This subsidiary was not
        in
        bankruptcy. We repaid the advance when the plan of reorganization of American
        Wagering, Inc. was confirmed early in 2005. We agreed to receive the balance
        of
        the $1.0 million judgment ($340,000) in installments over two years, plus
        interest. A substantial portion of the excess payments above $350,000 are
        payable to the prior shareholders of the acquired entity and/or their creditors
        under the terms of its acquisition. The settlement payable does not have
        a
        specified due date or interest rate, but is considered to be due on demand
        and
        is included in the current portion of long-term debt.
  **7.  Stockholders'
        Equity**
  During
        the three months ended September 30, 2007, we issued 490,000 shares of Common
        Stock Series A pursuant to the exercise of options and warrants.  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 nine
        months ended September 30, 2007, we issued 835,123 shares of Common Stock
        Series
        A pursuant to the exercise of options and warrants.
  In
        February 2006, we purchased certain technology rights for 700,000 shares
        of our
        Common Stock Series A. This purchase gives us the rights to use the acquired
        technology for home applications of wagering and betting activity. These
        assets
        and the stock issued in consideration therefor were valued at an estimated
        fair
        value of $1,400,000, and we are amortizing the identifiable assets acquired
        over
        a five-year period.  See also Note 11.
  *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 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. Additionally, the holders of Series B Convertible Preferred
        Stock have the right, at their election, to sell their shares of Series B
        Convertible Preferred Stock to us for $5.00 per share at any time beginning
        July
        31, 2008 through and including October 31, 2008.  Upon our
        liquidation, dissolution or winding up, holders of Series B Convertible
        Preferred Stock are entitled to receive a priority payment of $5.00 per
        share.  Furthermore, at any time after our Common Stock Series A
        trades on an exchange, we have the right to purchase shares of Series B
        Convertible Preferred Stock at 125% of the original purchase price plus an
        additional 10%, or fraction thereof, of the original purchase price for each
        year, or fraction thereof, that such shares have been outstanding beyond
        two
        years from their initial issue date. In the event we elect to purchase the
        Series B Convertible Preferred Stock, holders of the Series B Convertible
        Preferred Stock will have the option to sell their shares of Series B
        Convertible Preferred Stock upon the terms described above or convert their
        shares into Common Stock Series A on a one-to-five basis.
  11
 ***Table
            of Contents***
  A
        certain
        amount of the proceeds derived from the sale of Series B Convertible Preferred
        Stock provides jackpot security for two of our gaming 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 right, 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.
  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.  As of
        September 30, 2007, holders of 175,890 shares of Series B Convertible Preferred
        Stock had converted their shares on a one-to-five basis for 879,450 shares
        of
        Common Stock Series A.  We also redeemed 35,900 shares of Series B
        preferred stock at $5 per share for a total redemption of $179,500 during
        the
        nine months ended September 30, 2007.
  *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.  In September 2007, holders of our Series C
        Convertible Preferred Stock converted 8,000 shares of Series C Convertible
        Preferred Stock on a one-to-five-basis for 40,000 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 Series B Convertible
        Preferred Stock shareholders have been liquidated.
  *Series
        D Convertible Preferred Stock.*The holder of Series D
        Convertible Preferred Stock is entitled to receive $2 per share as a liquidation
        preference after Series B and Series C Convertible Preferred Stock shareholders
        have been liquidated.  Each share of Series D Convertible Preferred
        Stock is convertible into one share of Common Stock Series A.
  *Series
        E Convertible Preferred Stock.*Holders of Series E Convertible
        Preferred Stock are entitled to receive $5 per share as a liquidation preference
        after Series B, Series C, and Series D Convertible Preferred Stock shareholders
        have been**liquidated.**Each share of Series E
        Convertible Preferred Stock is convertible into one share of Common Stock
        Series
        A.
  *Stock
        Warrants and Options.*  We have both a qualified and a
        non-qualified stock option plan. Since 2000, options have been granted only
        under the qualified plan and there are approximately 300,000 options presently
        outstanding under the nonqualified plan. The Compensation and Stock Option
        Committee of our Board of Directors administers the plans. The exercise price
        of
        options issued pursuant to the qualified 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 1,250,000 shares of Common Stock Series
        A.
  12
 ***Table
            of Contents***
  We
        have,
        from time to time, granted warrants and options to employees and others as
        employment incentives, in return for successful capital-raising efforts or
        as an
        inducement to invest in our common or preferred securities, in return for
        other
        services, and in conjunction with the initial capitalization of our company
        and
        business acquisitions.  Warrants and options to purchase 555,000 and
        630,000 shares of Common Stock Series A were issued to officers and directors
        during the nine months ended September 30, 2006 and 2007,
        respectively.
  Effective
        January 1, 2006, we adopted the provisions of SFAS No. 123R which established
        accounting for equity instruments exchanged for employee
        services.  SFAS No. 123R requires employee stock options and rights to
        purchase shares under stock participation plans to be accounted for under
        the
        fair value method.  In using the Black-Scholes option-pricing model,
        the principal assumptions selected to value the options and warrants for
        calculating the “minimum value,” included a “risk-free” interest rate of 5%,
        expected option life of four to 10 years, no expected dividends and a volatility
        factor of 30%.  Total compensation cost recognized in operations from
        grants of options and warrants amounted to $243,673 and $802,850 for the
        nine
        months ended September 30, 2006 and 2007, respectively.  Unrecognized
        costs related to employee stock options and warrants outstanding at September
        30, 2007 totaled $1,251,002 and are expected to be amortized over a weighted
        average period of 2.9 years.
  The
        weighted average exercise price of our options and warrants at September
        30,
        2007 was $2.00.  The following table summarizes our stock option and
        warrant activity during the nine months ended September 30, 2007:
  Balance,
                  January 1,
                  2007
              
              
              6,461,741$
              1.65Granted
              
              
              990,000$
              4.38Exercised
              
              
              (835,123
              )$
              1.43Forfeited
              
              
              (451,756
              )$
              1.81Balance,
                  September 30, 2007
              
              
              6,164,862$
              2.00
 
 As
        of
        September 30, 2007, approximately 824,000 options and warrants are outstanding,
        but have not vested.
  **Nonvested
                  Options**
              
              
              **Weighted
                  Average**
                **Price**Balance,
                  January 1, 2007
              
              
              65,041
              
              
              $
              2.05Granted
              
              
              685,000
              
              
              
              5.00Vested
              
              
              (226,016
              )
              
              
              (5.00
              )Forfeited
              
              
              0
              
              
              
              5.00Balance,
                  September 30, 2007
              
              
              524,025
              
              
              $
              5.00**Nonvested
                  Warrants**Balance,
                  January 1, 2007
              
              
              673,667
              
              
              $
              2.55Granted
              
              
              20,000
              
              
              
              5.00Vested
              
              
              (393,334
              )
              
              
              (2.40
              )Forfeited
              
              
              0
              
              
              
              0Balance,
                  September 30, 2007
              
              
              300,333
              
              
              $
              2.86


13
 ***Table
              of Contents***
 
 **8.  Progressive
        Jackpots**
  We
        purchase insurance to fund the base progressive jackpots for Nevada Numbers,
        Super Coverall Bingo (in some circumstances), Gamblers Bonus Million Dollar
        Ticket, 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 the relationship
        between our liability for progressive jackpots and our gross commitment at
        December 31, 2006 and September 30, 2007, and related assumptions:
  **December
                  31, 2006****Progressive
                  Jackpot Liability****Nevada
                  Numbers**Present
                  value of $5.0 million base progressive jackpot,
                payable
                  in 20 equal annual installments using a 4.91%
                discount
                  rate, the prevailing 20-year Treasury Bond rate
              
              $
              3,293,613Present
                  value at 4.91% of the $1,306,433 increase to the
                Progressive
                  jackpot meter
              
              
              860,577Less
                  portion insured through conventional insurance
                providers
              
              
              (2,900,000
              )**Other
                  Games**
              
              
              370,861$
              1,625,051**September
                  30, 2007****Progressive
                  Jackpot Liability****Nevada
                  Numbers**Present
                  value of $5.0 million base progressive jackpot,
                payable
                  in 20 equal annual installments using a 7.75%
                discount
                  rate, the prevailing 20-year Treasury Bond
              
              $
              2,694,700Present
                  value at 7.75% of the $1,377,103 increase to the
                progressive
                  jackpot meter
              
              
              742,476Less
                  portion insured through conventional insurance
                providers
              
              
              (2,900,000
              )**Other
                  Games**
              
              
              279,945$
              817,121
  The
        Nevada Numbers jackpot was won in September 2007 for the first time in history
        of the game and we were able to discount the jackpot payout at the prime
        rate
        rather than the 20 year treasury bond rate as had previously been applied
        in
        calculating our progressive jackpot liability, resulting in a gain of
        $849,000.  This gain has been reflected in the casino games costs and
        expenses.  The effect of any change in the prevailing prime rate of
        interest (as measured at the end of the period) is recognized in the period
        of
        such change.
  **9.  Income
        Taxes**
  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 more likely that not.  Although Financial Accounting
        Standards Board Interpretation No. 48 (FIN 48), *Accounting for Uncertainty
        in Income Taxes - An Interpretation of FASB Statement No. 109*, became
        effective for the current interim periods, based on its evaluation, management
        determined that FIN 48 did not have a material effect on either our net
        operating loss carryforwards, the related deferred tax assets or valuation
        allowance, or on the deficit at January 1, 2007.
  
 14
 ***Table
            of Contents***
  **10.   Related
        Party Transactions**
  **Loans
        to Executive Officers**
 
 During
        2001 and 2002, we loaned to Russell R. Roth, our Chairman, $248,000,
        representing the funds needed to exercise all of his non-qualified stock
        options
        and pay the federal income taxes due upon exercise. The loan required the
        payment of interest of 4.85% per annum during the first four years with the
        balance due on June 15, 2006. Mr. Roth repaid $100,000 of this debt in 2004
        and
        repaid the remaining outstanding amount in June 2006.
 
 During
        2001 and 2002, we loaned to Gary G. Baldwin, our former Vice President and
        a
        former director, $220,000, representing the funds needed to exercise all
        of his
        non-qualified stock options and pay the federal income taxes due upon exercise.
        The primary intent of the loans was the same as that for the loans to Mr.
        Roth.
        The loan required the payment of interest of 4.85% per annum during the first
        four years with the balance due on June 15, 2006. The loan was settled in
        June
        2006 through the surrender of 80,340 shares of Common Stock Series
        A.
 
 **Separation
        Agreement with Gary G. Baldwin**
 
 In
        2003,
        we entered into a separation agreement with Gary G. Baldwin under which Mr.
        Baldwin received a cash payment of $30,000, the right to receive contingent
        future consideration of $30,000, and the limited right to have us repurchase
        up
        to 75,000 shares of Common Stock Series A at prices up to $3.00 per share.
        The
        shares that were subject to the repurchase right were surrendered as part
        of the
        repayment of a loan in June 2006.
 
 **Acquisitions
        Involving AdLine Network, LLC**
 
 On
        January 14, 2005, we entered into an Agreement and Plan of Merger to acquire
        all
        of the outstanding common stock of AdLine Gaming, Inc. from AdLine Network,
        LLC
        in a transaction valued at $1,178,487, including the payment of $500,000
        in
        cash, the issuance of 400,000 shares of Common Stock Series A, the issuance
        of
        warrants to purchase 100,000 shares of Common Stock Series A and the assumption
        of $278,487 in liabilities. Following consummation of the merger, we appointed
        Sam Johnson, former Chief Executive Officer and President and current
        shareholder of AdLine Network, LLC, as our Chief Technology Officer. As a
        result
        of the acquisition, Mr. Johnson received 234,674 shares of our Common Stock
        Series A.
 
 Additionally,
        on February 1, 2006, we entered into a Waiver and Release Agreement with
        AdLine
        Network, LLC whereby, in exchange for 700,000 shares of our Common Stock
        Series
        A, we acquired world-wide exclusive rights to certain technologies that permit
        at home wagering and betting and were released from any claims that AdLine
        Network, LLC may have had against us.
 
 Further,
        as part of the agreement, we are required to pay AdLine Network, LLC 5% of
        our
        net revenue (our gross revenue less the theoretical cost of any pay outs)
        derived from any at home wagering and betting. Mr. Johnson is a 40% member
        of
        AdLine Network, LLC. As a result of the acquisition, Mr. Johnson received
        372,009 shares of our Common Stock Series A.
 
 **Agreements
        for Services**
 
 In
        2006,
        we entered into a consulting agreement with JMC Investments, L.L.C., an entity
        managed and owned by Stephen A. Crystal, a director of our company. During
        the
        90-day term of the consulting agreement, JMC Investments, L.L.C. was to assist
        in designing, developing, and implementing our sales efforts and in fulfilling
        our funding needs. In exchange, we have agreed to pay JMC Investments, L.L.C.
        compensation of $10,000 per month and a one-time grant of 60,000 shares of
        Common Stock Series A. On June 15, 2006, Mr. Crystal accepted our offer of
        employment as our President and Chief Marketing Officer and agreed to terminate
        any further obligation under the consulting agreement.  As an
        employee,
   15
 ***Table
            of Contents***
   Mr.
          Crystal was issued an option to purchase 20,000 shares of Common Stock
          Series A
          with an exercise price of $3.00 per share and warrants to purchase 250,000
          shares of Common Stock Series A with an exercise price of $3 per
          share.  On March 16, 2007, Mr. Crystal was re-appointed to our Board
          of Directors and concurrently resigned as our President and Chief Marketing
          Officer.
   Since
        1999, Cane Clark, LLP has provided legal services to us. Kyleen E. Cane,
        a
        director of our company, is a partner of Cane Clark, LLP. In exchange for
        the
        services provided by Ms. Cane and Cane Clark, LLP, we issued 50,000 shares
        of
        Common Stock Series A to Ms. Cane in 2005 at a negotiated value of $0.50
        per
        share and paid cash fees of $250 and $30,338****for the nine
        months ended September 30, 2006 and 2007, respectively.
  **Sale
        of Series D Convertible Preferred Stock**
 
 In
        October 2005, JMC Investments, L.L.C., an entity managed and owned by Stephen
        A.
        Crystal, purchased 125,000 shares of Series D Convertible Preferred Stock
        at a
        price of $2.00 per share and 125,000 shares of Common Stock Series A at a
        price
        of $2.00 per share. The terms of the transaction were negotiated with Mr.
        Crystal prior to his appointment to our Board of Directors.
 
 **Letters
        of Intent**
 
 We
        have
        entered into letters of intent with certain third parties to install the
        PlayerVision system. These commitments generally provide that we will supply
        our
        PlayerVision system in exchange for certain fees and a share of the revenue
        produced. The material terms of the commitments have not been fully agreed
        upon
        and are subject to certain conditions and limitations, including obtaining
        regulatory approval of the PlayerVision system.  Of these third
        parties, we have entered into letters of intent with the Four Queens Hotel
        and
        Casino, a hotel casino controlled by Terry L. Caudill, a director, and Caribbean
        Cage, LLC, a slot route operator based in Puerto Rico controlled by Robert
        B.
        Washington, a former director.
 
 **11.  Acquisition
        of Technology**
  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 Common Stock Series A at an agreed value of $2.00 per
        share.  The rights purchased allow for “wagering” or “betting”
activity to be conducted in the home. We are currently amortizing this asset
        over an estimated useful life of five years. Further, we will pay AdLine
        Network, LLC 5% of our net revenue (gross revenue less the theoretical cost
        of
        any pay-outs) derived from the purchased rights. The agreement with AdLine
        Network, LLC included a mutual release of claims to clear any misunderstandings
        that arose between the parties in connection with this or any prior agreement
        between the parties.
  **12.  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 nearly ready to launch. The three games are played
        in 24
        casinos in Nevada and another 14 outside Nevada. Our games consist of keno
        style
        games (Nevada Numbers and The Million Dollar Ticket) and a bingo style game
        (Super Bingo Coverall).
   16
 ***Table
            of Contents***
  Revenue,
        operating income (loss) and certain unallocated expenditures for the nine
        months
        ended September 30, 2006 and 2007 were:
  **Nine
                  months ended September 30,****2006**
              
              
              **2007**RevenueCasino
                  Games
              
              $
              1,209,347
              
              
              $
              1,303,129Product
                  Sales
              
              
              1,171,816
              
              
              
              1,377,735Other
              
              
              1,320,246
              
              
              
              1,055,794$
              3,701,409
              
              
              $
              3,736,658Operating
                  income (loss)Casino
                  Games
              
              $
              (75,620
              )
              
              $
              917,430Product
                  Sales
              
              
              369,674
              
              
              
              597,794Other
              
              
              275,302
              
              
              
              56,404Unallocated
              
              
              (3,705,839
              )
              
              
              (6,494,368
              )$
              (3,136,483
              )
              
              $
              (4,922,740
              )
 
 Identifiable
        assets of $11,327,924 and $8,291,071 at December 31, 2006 and September 30,
        2007, respectively, included recorded goodwill of $955,277 related to our
        bingo
        and keno products sales business segment.  After proper corporate
        allocations, this business segment had over $300,000 of net income for the
        year
        ended December 31, 2006 and the nine months ended September 30,
        2007.  Losses during 2006 and year-to-date 2007 result from
        significant cash resources spent on the development, regulatory approval,
        administrative infrastructure and marketing of PlayerVision.
 
 **December
                  31,**
                **2006**
              
              
              **September
                  30,**
                **2007**Identifiable
                  assetsCasino
                  Games
              
              $
              7,219,569
              
              
              $
              5,628,282Product
                  Sales
              
              
              466,536
              
              
              
              442,362Other
              
              
              441,242
              
              
              
              444,523Unallocated
              
              
              3,200,577
              
              
              
              1,763,904$
              11,327,924
              
              
              $
              8,279,071
 **13.  Contingencies**
  **Legal
        Proceeding.**In
        September 2007, we became a defendant in a lawsuit filed by IGT alleging
        copyright infringement, trademark infringement, trade dress infringement
        and
        false designation of origin relating to the operation of our PlayerVision
        system.  On November 15, 2007, the Court found that IGT had not shown
        a likelihood of success or raised serious questions as to its derivative
        works
        claim or other infringement claims, and, accordingly, the Court denied IGT's
        request for a preliminary injunction.
  **Regulatory
        Noncompliance.** Due to circumstances beyond management’s control, we are
        technically out of compliance with Regulation 5.115 of the Nevada Gaming
        Commission; however, management expects no significant consequence to the
        Company as a result of its noncompliance.
  
 17
 ***Table
              of Contents***
 
 **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 fourth quarter of 2007 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, 2006.  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.  During 2005, 2006, and year to date 2007, we 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 market for our PlayerVision system, i.e.,
        the
        gaming machine market, is much larger and more dynamic.  Due to our
        focus on the development of our PlayerVision system, we have incurred expenses
        in excess of our revenue and have generated losses for 2005, 2006, and year
        to
        date 2007.
  By
        the
        third quarter of 2007, we substantially completed the development of our
        PlayerVision system, including the first four modules:  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 during
        the
        fourth quarter of 2006 and displayed our PlayerVision system at the
        International Casino Exhibition in London, England and the National Indian
        Gaming Association Convention in Phoenix, Arizona during the first quarter
        of
        2007.  During the second quarter of 2007, we displayed our
        PlayerVision system at the Southern Gaming Show and at the Gaming Technology
        Summit where we received the Platinum Award for the most Innovative Gaming
        Product of the year.  In terms of regulatory approvals, we have
        received approval from the Nevada Gaming Commission and Gaming Laboratories
        International, or GLI, for AdVision and PlayerVision TV.  We have
        submitted WagerVision and NumberVision for Nevada Gaming Commission and GLI
        approval.
  Based
        on
        the foregoing, we anticipate the first realization of revenue from our
        PlayerVision system during the fourth quarter of 2007 that would mark a
        significant shift in the type of revenue recognized by us.  The
        anticipated revenue would come from the installation of AdVision and
        PlayerVision TV stemming from signed license agreements with various casino
        operators.
  For
        the
        remainder of 2007 and into 2008, we will continue to incur expenses related
        to
        the regulatory approval for the remaining PlayerVision modules and will face
        competition from larger, more formidable competitors as we enter the gaming
        machine market.  Due to continuing expenses related to our
        PlayerVision system, we will continue to rely on funds from operations and
        funds
        from third party financing sources to sustain our operations in the remainder
        of
        2007 and in the first quarter of 2008.
  **Critical
        AccountingPolicies 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,
  18
 ***Table
            of Contents***
   liabilities,
          revenue, and expenses and related disclosure of contingent assets and
          liabilities. On an ongoing basis, we evaluate our estimates. We base our
          estimates on historical experience and on various other assumptions that
          we
          believe to be reasonable under the circumstances. These estimates and
          assumptions provide a basis for making judgments about the carrying values
          of
          assets and liabilities that are not readily apparent from other sources.
          Actual
          results may differ from these estimates under different assumptions or
          conditions, and these differences may be material.
  We
        believe the following critical accounting policies affect our more significant
        judgments and estimates used in the preparation of our consolidated financial
        statements.
  *Revenue
        Recognition*
  *PlayerVision.*****The
        revenue from PlayerVision will result from installation fees, activation
        fees,
        fees for services, and revenue sharing arrangements.****We
        will recognize installation and activation fees for PlayerVision upon
        installation and recognize the costs associated with the installation (labor
        and
        supplies) at that time. We will recognize revenue from the revenue sharing
        arrangements as earned and recognize maintenance expenses as incurred against
        the corresponding revenue.  Manufacturing costs will be capitalized
        and depreciated over the life of the asset.
  *Casino
        Games.*****As wagers are made within our inter-linked
        systems, we recognize our share of each wager made as revenue.  Based
        on the revenue proceeds, we purchase insurance to fund the base
        jackpot.  We also estimate the cost for any uninsured base jackpot and
        the expense for any progressive jackpot and, accordingly, establish a liability
        on our balance sheet as a progressive jackpot liability.  For our
        other casino games, we recognize our share of revenue upon the sale of each
        ticket.  We have the discretion to purchase insurance to fund
        jackpots.  We recognize costs associated with uninsured jackpots as
        each ticket is sold based on mathematical probabilities dictated by the odds
        of
        the game.
  *Products.*  We
        generally recognize sales of bingo and keno equipment and supplies when the
        products are shipped. We recognize distribution royalties from the placement
        of
        electronic bingo devices over time, based on customer usage. 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 wins and losses.
        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,
   19
 ***Table
            of Contents***
   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 compared 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
        goodwill and intangible assets totaled $2,393,320 at September 30, 2006 and
        2007.  Our intangible assets consist of key patents and technology
        rights with a five year life related to PlayerVision which goes to market
        for
        the first time during the fourth quarter of 2007.  We recorded no
        goodwill impairment charges during the nine months ended September 30, 2006
        and
        2007.
  *Income
        Taxes*
  We
        have
        provided a full valuation allowance for the tax effects of our net operating
        losses at September 30, 2006 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 more
        likely
        than not.  Although Financial Accounting Standards Board
        Interpretation (FASB) No. 48 (FIN 48), *Accounting for Uncertainty in Income
        Taxes - An Interpretation of FASB Statement No. 109*, became effective for
        the current nine month period, based on its evaluation, management determined
        that FIN 48 did not have a material effect on either our net operating loss
        carryforwards, the related deferred tax assets or valuation allowance, or
        on our
        deficit at January 1, 2007.
  *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
        AccountingPronouncements**
  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 Nos. 157 and 159 are presently designated to become
        effective for us for financial statements issued for our year
        2008.  We are currently evaluating the effects, if any, that SFAS Nos.
        157 and 159 will have on our future financial position, results of operations
        and operating cash flows.
  **Results
        ofOperations**
  *Nine
        Months Ended September 30, 2007 Compared with Nine Months Ended September
        30,
        2006*
  *Revenue.*  Casino
        games revenue for the nine months ended September 30, 2007 increased $94,000,
        or
        7.8%, to $1,303,000 from $1,209,000 for the nine months ended September 30,
        2006.  The higher casino games revenue resulted from higher
        incremental revenue from Super Coverall Bingo of $148,000 offset by a decline
        of
        $47,000 in Nevada Numbers.
   20
 ***Table
            of Contents***
  Product
        sales for the nine months ended September 30, 2007 increased by $206,000,
        or
        17.6%, to $1,378,000 from $1,172,000 for the nine months ended September
        30,
        2006.  Keno equipment sales amounted to $677,000 for the nine months
        ended September 30, 2007 versus $369,000 during the nine months ended September
        30, 2006, an increase of $308,000. The increase was primarily due to the
        sale
        and installation of seven Keno Optima systems to one customer for seven
        different properties during the third quarter of 2007.
  Other
        revenue for the nine months ended September 30, 2007 declined by $264,000,
        or
        20.0%, to $1,056,000 from $1,320,000 for the nine months ended September
        30,
        2006.  Bingo electronics revenue decreased from $363,000 for the nine
        months ended September 30, 2006 to $70,000 for the nine months ended September
        30, 2007, as we lost our bingo electronics distribution agreement early in
        2007.  Revenue from the keno route agreements increased from $450,000
        for the nine months ended September 30, 2006 to $492,000 for the nine months
        ended September 30, 2007 as a result of the fact that we played luckier for
        the
        nine months ended September 30, 2007 versus the same period in the prior
        year.
  *Costs
        and Expenses.*Costs and expenses of casino games for the nine
        months ended September 30, 2007 decreased $899,000 or 70.0% to $386,000 from
        $1,285,000 for the nine months ended September 30, 2006.  The decrease
        resulted primarily from $849,000 less in jackpot expense as the Nevada Numbers
        jackpot was won in September 2007 for the first time in the history of the
        game
        and we were able to discount the jackpot payout at the prime rate rather
        than
        the 20 year treasury bond rate as had previously been applied in calculating
        our
        progressive jackpot liability.  Gaming license application fees
        decreased from $144,000 for the nine months ended September 30, 2006 to $97,000
        during the nine months ended September 30, 2007, as we had another officer
        licensed in Nevada in 2006.
  Product
        costs and expenses for the nine months ended September 30, 2007 decreased
        $22,000, or 2.7%, to $780,000 from $802,000 for the nine months ended September
        30, 2006.  Gross margin increased to 43.4% for the nine months ended
        September 30, 2007 versus 31.5% for the nine months ended September 30, 2007
        as
        we had more sales of our Keno Optima system in 2007 than 2006 which carry
        a
        higher margin and we have done substantially less discounting in now our
        third
        year of distributing the Keno Optima system.
  Other
        costs and expenses for the nine months ended September 30, 2007 decreased
        $46,000 or 4.4% to $999,000 from $1,045,000 for the nine months ended September
        30, 2006, due to a $75,000 increase in salaries during the nine months ended
        September 30, 2007, versus the same period in 2006 offset by a $97,000 decrease
        in jackpot expense for our keno route for the nine months ended September
        30,
        2007, as the company played luckier this year than the comparable nine month
        period in 2006.  Gross margin also decreased to 5.3% for the nine
        months ended September 30, 2007, versus 20.8% for the nine months ended
        September 30, 2006 due to the lost profits from the bingo electronics
        distribution agreement being curtailed.
  *Operating
        Expenses.*  Selling, general and administrative expense for the
        nine months ended September 30, 2007 increased $2,523,000 or 100.4% to
        $5,036,000 from $2,513,000 for the nine months ended September 30,
        2006.  As we prepare for the rollout of our new PlayerVision system,
        we have increased our administrative infrastructure through additional salaries
        of $1,029,000 during the nine months ended September 30, 2007 versus September
        30, 2006.  In addition, consulting and professional fees and travel
        and entertainment expenses have increased by $497,000 and $156,000,
        respectively, during the nine months ended September 30, 2007 versus the
        same
        period in 2006. The increase in consulting and professional fees is primarily
        related to consulting costs for marketing and money raising and legal fees
        associated with an acquisition that was not completed and legal fees incurred
        in
        defending a lawsuit.  Rent, utilities, and telephone have increased by
        $140,000 during the nine months ended September 30, 2007 versus the same
        period
        in the prior year due to the additional administrative infrastructure for
        PlayerVision.  Advertising and promotion has increased by $258,000 in
        order to promote PlayerVision during the nine months ended September 30,
        2007
        versus the same period in the prior year.
   21
 ***Table
            of Contents***
  Depreciation
        and amortization for the nine months ended September 30, 2007 increased $94,000
        or 17.2% to $639,000 from $545,000 for the nine months ended September 30,
        2006
        as a result of incremental amortization of intangibles from the acquisition
        of
        additional technology rights from AdLine Network, LLC in February
        2006.
  *Finance
        Costs.*  Finance costs for the nine months ended September 30,
        2007 increased $391,000 or 35.2% to $1,502,000 from $1,111,000 for the nine
        months ended September 30, 2006.  The increased finance costs related
        to the additional bridge financing of $2,000,000 received in April 2006 and
        the
        additional costs associated with the refinancing of the bridge financing
        which
        occurred on March 22, 2007 and September 28, 2007.
  *Interest
        and Other Income.*  Interest and other income for the nine months
        ended September 30, 2007 decreased by $63,000 or 33.0% to $127,000 from $190,000
        for the nine months ended September 30, 2006.  The decrease was a
        result of lower cash balances outstanding caused by the additional investment
        in
        administrative infrastructure as we prepare for the rollout of our new
        PlayerVision system.
  **Liquidity
        and Capital Resources**
  *Cash*
  The
        $671,000 decrease in cash and cash equivalents, excluding jackpot reserve
        deposits, for the nine months ended September 30, 2007 resulted primarily
        from
        our operating losses offset by the proceeds from our Series E Convertible
        Preferred Stock offering and the $2.9 million of cash that became available
        for
        operations when Treasure Island began maintaining the required base jackpot
        bankroll for our Nevada Numbers game.
  *Capital
        Expenditures*
  Capital
        expenditures totaled $284,000 for the nine months ended September 30, 2007
        compared with $444,000 for the nine months ended September 30,
        2006.  The decrease resulted from the purchase of more testing
        equipment and production equipment to support PlayerVision in 2006 than
        2007.  For the remainder of 2007, other than our obligation to pay any
        jackpots that may be won, we expect to spend approximately $80,000 on testing
        equipment for software applications of PlayerVision.
  *Sources
        of Capital*
  We
        have
        traditionally relied on various forms of financing in order to sustain our
        operations.  In 2006 and thus far in 2007, we raised $3.6 million
        through our private placement of Series E Convertible Preferred
        Stock.  In addition, we had $2.9 million become available for
        operations when Treasure Island began maintaining our required base jackpot
        bankroll for Nevada Numbers.
  The
        terms
        and conditions of our bridge financing from CAMOFI were amended and restated
        in
        April 2006 to provide for the increase in our bridge financing from $3.0
        million
        to $5.0 million.  As part of the bridge financing, we issued a senior
        secured convertible note in favor of CAMOFI, or the CAMOFI Note, entered
        into a
        security agreement encumbering our assets, issued warrants to purchase 2,500,000
        shares of our Common Stock Series A at an exercise price per share of $1.48,
        and
        entered into a registration rights agreement with respect to the shares of
        Common Stock Series A issuable upon conversion of the CAMOFI Note or the
        exercise by CAMOFI of its warrants.  The terms and conditions of our
        bridge financing from CAMOFI were further amended on March 22, 2007 to extend
        the maturity date of the CAMOFI Note, delay the start of the monthly principal
        payments and delay the registration rights obligations owed to
        CAMOFI.  As consideration for these amendments, we issued to CAMOFI
        warrants to purchase 175,000 shares of Common Stock Series A at an exercise
        price per share of $1.48 and a payment of $25,000.
   22
 ***Table
            of Contents***
  Under
        the
        September 28, 2007 amended terms of the financing arrangement with CAMOFI,
        the
        quarterly commitment fee payment of $125,000 due on October 1, 2007 pursuant
        to
        the note was deferred until January 1, 2008 at which time it will be due
        and
        payable along with the additional $125,000 quarterly commitment fee due at
        that
        time for a total of $250,000.  The monthly redemption amount of
        $208,333 due on October 1, November 1, and December 1, 2007 were each deferred
        to April 1, 2008.  The monthly redemption amount of $208,333 due and
        payable on April 1, 2008 will remain due and payable on that date, so $833,332
        in total is due and payable on that date.  The aggregate redemption
        amount of the note was increased by $250,000 to $5,250,000.  The
        aggregate redemption amount is due on January 1, 2009.  The filing
        date and effectiveness dates as such terms are defined in the Registration
        Rights Agreement shall be amended to be February 28, and June 30, 2008,
        respectively.  CAMOFI has the right to convert up to 100% of the note
        into common stock.  We further agreed to give CAMOFI at least ten
        business day’s notice prior to any payments and repayments pursuant to the note,
        during which time CAMOFI shall have the right to convert any portion of its
        note
        into common stock.  We also agreed to reduce our nonrecurring cash
        burn to no more than $460,000 per month by October 10, 2007.
  In
        addition to the CAMOFI note, the key terms and conditions of the bridge
        financing from CAMOFI include:
  ·
              a
                  Warrant Agreement to purchase 2,500,000 shares of our Common Stock
                  Series
                  A at an exercise price of $1.48 for five years beginning on March
                  31,
                  2006, but subject to the limitation that the shares issued upon
                  exercise,
                  together with shares issuable under the CAMOFI Note, cannot result
                  in the
                  beneficial ownership of more than 4.99% of our issued and outstanding
                  shares of Common Stock Series A.
  ·
              a
                  Security Agreement that secures the repayment of the CAMOFI note
                  and our
                  performance under the related agreements and grants to CAMOFI a
                  security
                  interest in our assets, including all goods, all contract rights
                  and
                  intangibles, all accounts, all documents, all letter-of-credit
                  rights, all
                  instruments and chattel paper, all commercial tort claims, all
                  deposit
                  accounts and cash, excluding cash tied to jackpot requirements,
                  all
                  investment property, all supporting obligations, all files, records,
                  books
                  of account, business papers and computer programs, and all products
                  and
                  proceeds of the forgoing
                  collateral.
  ·
              a
                  Registration Rights Agreement, as amended, that requires us to
                  have
                  declared effective by the SEC by June 30, 2008, a registration
                  statement
                  for the offer and sale of 125% of all shares of Common Stock Series
                  A
                  issuable upon conversion of the CAMOFI Note, issuable exercise
                  of all
                  warrants issued to CAMOFI, and issued or issuable under the terms
                  and
                  conditions of the bridge financing from
                  CAMOFI.
  ·
              a
                  Subsidiary Guarantee that obligates our subsidiaries to guarantee
                  our
                  performance under the CAMOFI Note and related
                  agreements.
  ·
              a
                  Lock-Up Agreement that restricts Russell R. Roth from selling his
                  shares
                  of Common Stock Series A for a period of six months following the
                  effective date of the registration
                  statement.
  *Outlook*
  Historically,
        we have used more cash in our operations than we generated and, accordingly,
        we
        have sustained our operations through various forms of financing.  We
        believe that our cash balances and the proceeds from our private placement
        of
        Series E Convertible Preferred Stock, together with funds from operations
        and
        any additional financing, will be sufficient to fund our anticipated working
        capital requirements and our business expansion plans for at least the next
        12
        months.  A sudden increase in product demand requiring a significant
        increase in manufacturing capability, an adverse judgment or order, or
        unforeseen adverse competitive, economic, or other factors, however, may
        impact
        our cash position,
   23
 ***Table
            of Contents***
   and
          thereby negatively affect operations.  From time to time, we have been
          required to raise additional funds through public or private financing,
          strategic relationships, or other arrangements including modifications
          and/or
          extensions of existing financing 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 have an adverse impact on our business, operating results,
          and
          financial condition, as well as our ability to achieve intended business
          objectives.
  **Off
        BalanceSheet Financing**
  We
        have
        no off balance sheet financing arrangements other than operating lease
        commitments totaling $433,264 that have the following payment schedule: $98,937
        in 2007, $322,147 in 2008, $4,872 in 2009, $4,872 in 2010 and $2,436 in
        2011.
  **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.** **Controls
        and Procedures**
  We
        evaluated the effectiveness of our disclosure controls and procedures as
        of the
        end of the period covered by this report.  This evaluation was carried
        out under the supervision, and with the participation, of Jon D. Berkley,
        our
        Chief Executive Officer, and Bruce A. Shepard, our Chief Financial
        Officer.  Based on this evaluation, Mr. Berkley and Mr. Shepard
        concluded that our disclosure controls and procedures are effective to ensure
        that information we are required to disclose in reports that we file or submit
        under the Securities Exchange Act of 1934, or the Exchange Act, is recorded,
        processed, summarized, and reported within the time periods specified in
        the
        SEC’s rules and forms.  Disclosure controls and procedures are
        controls and other procedures that are designed to ensure that information
        required to be disclosed by us in the reports that we file or submit under
        the
        Exchange Act is recorded, processed, summarized and reported within the time
        periods specified in the SEC’s rules and forms.  Disclosure controls
        and procedures include, without limitation, controls and procedures designed
        to
        ensure that information required to be disclosed by us in the reports that
        we
        file under the Exchange Act is accumulated and communicated to our management,
        as appropriate to allow timely decisions regarding required
        disclosure.
  Mr.
        Berkley and Mr. Shepard also concluded that there have been no significant
        changes in internal controls or in other factors that have materially affected,
        or would be reasonably likely to materially affect, our internal control
        over
        financial reporting during the quarter most recently ended.
  
 24
 ***Table
              of Contents***
 
 **PART
        II – OTHER INFORMATION**
  **Item
        1.    LegalProceedings.**
  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 15, 2007, the Court found that IGT had
        not shown a likelihood of success or raised serious questions as to its
        derivative works claim or other infringement claims, and, accordingly, the
        Court
        denied IGT's request for a preliminary injunction.
  **Item
        2.    UnregisteredSales of Equity
        Securities.**
  From
        November 2006 through September 2007, we have conducted a private placement
        of
        our Series E Convertible Preferred Stock through which we have raised $3,564,000
        in gross proceeds and have issued 712,800 shares of Series E Convertible
        Preferred Stock.  During the three months ended September 30, 2007, we
        raised $440,000 in gross proceeds and issued 88,000 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 September 30, 2007, we issued an aggregate of 490,000
        shares of Common Stock Series A as a result of the exercise of outstanding
        stock
        options and warrants to purchase 490,000 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.
  On
        February 12, 2007, 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:  (1) 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 (2) 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.  During
        the three months ended September 30, 2007, holders of 5,400 shares of Series
        B
        Convertible Preferred Stock converted their shares on a one-to-five basis
        for
        27,000 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.
  In
        June
        and August 2007, we issued options to purchase an aggregate of 200,000 shares
        of
        Common Stock Series A at an exercise price of $5.00 per share to an officer
        as
        bonus compensation.  One quarter of the options vested upon
        grant.  The remaining three quarters vest at a rate of one quarter per
        year beginning in June 2008.  The options expire in June
        2012.  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.
 
 In
        August
        2007, we issued options to purchase a total of 22,000 shares of Common Stock
        Series A to three employees and 10,000 warrants to one employee as bonus
        compensation all with an exercise price of $5.00 per share.  One third
        of the options vested upon grant.  The remaining two thirds vest at a
        rate of one third per year beginning in June 2008.  The options expire
        in 2012.   The warrants immediately vested.  We also
        issued 2,000 shares of Common Stock Series A for consulting rendered in the
        third quarter of 2007.   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 issuances did not involve a public
        offering.
   25
 ***Table
            of Contents***
 
 **Item
        3.    DefaultsUpon Senior
        Securities.**
  Not
        applicable.
  **Item
        4.    Submissionof Matters to a Vote of
        Security Holders.**
  Not
        applicable.
  **Item
        5.    OtherInformation.**
  Not
        applicable.
  **Item
        6.    Exhibits**
  The
        exhibits to this Form 10-QSB are listed in the Exhibit Index to this Form
        10-QSB
        and are incorporated by reference herein.
  
  
 26
 ***Table
              of Contents***
 
 **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:
              November
                  14, 2007
              By:
              /s/
                  Jon D. BerkleyJon
                  D. BerkleyIts:
              President
                  and Chief Executive Officer(Principal
                  Executive Officer)Date:
              November
                  14, 2007
              By:
              /s/
                  Bruce A. ShepardBruce
                  A. ShepardIts:
              Chief
                  Financial Officer(Principal
                  Financial Officer)
 
  
 27
 ***Table
              of Contents***
 
 **EXHIBIT
        INDEX**
  **Exhibit**
              
              **Document
                  Description**10.1
              
              Letter
                  Agreement with CAMOFI Master LDC dated September 28, 2007 incorporated
                  by
                  reference to registrant’s Current Report on Form 8-K, as filed with the
                  Securities and Exchange Commission on October 4, 200710.2
              
              Form
                  of Non-Qualified Stock Option
                  Agreement10.3
              
              Form
                  of Warrant Agreement31.1
              
              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
 
     28