##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from:  to
 Commission file number: 000-30375
 Las Vegas Gaming, Inc.
 (Exact name of small business issuer as specified in its charter)
 Nevada
    
    88-0392994(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 4000 West Ali Baba Lane, Suite D, Las Vegas, Nevada 89118
 (Issuers telephone number)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS
  o þ




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##### 



LAS VEGAS GAMING, INC.
 FORM 10-QSB
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets
    
    
    1Consolidated Statements of Operations
    
    
    2Consolidated Statements of Stockholders Equity
    
    
    3Consolidated Statements of Cash Flow
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Critical Accounting Policies and Estimates
    
    
    13Recent Accounting Pronouncements
    
    
    15Results of Operations
    
    
    15Liquidity and Capital Resources
    
    
    16Off Balance Sheet Financing
    
    
    19Qualitative and Quantitative Disclosures about Market Risk
    
    
    19Item 3. Controls and Procedures
    
    
    19PART II  OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1
  
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    September 30,2005
    
    
    2006(Unaudited)ASSETSCurrent assetsCash
    
    $
    1,672,381
    
    
    $
    2,029,679Accounts receivable, net of allowance of $27,516 and $9,096
    
    
    729,590
    
    
    
    438,093Inventories
    
    
    418,015
    
    
    
    478,148Prepaid expenses, deposits and other
    
    
    66,923
    
    
    
    528,707Jackpot reserve deposits
    
    
    4,180,134
    
    
    
    4,159,1987,067,043
    
    
    
    7,633,825Equipment and software, net of accumulated depreciation
    
    
    613,645
    
    
    
    813,264Goodwill
    
    
    955,277
    
    
    
    955,277Trademarks, copyrights, patents and other identifiable intangibles, net
of accumulated amortization of $163,488 and $537,155
    
    
    833,597
    
    
    
    1,932,263Due from officers, including accrued interest
    
    
    68,942
    
    
    
    Other long term assets
    
    
    338,536
    
    
    
    203,924$
    9,877,040
    
    
    $
    11,538,553LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    776,791
    
    
    $
    999,486Current portion of long-term debt
    
    
    588,434
    
    
    
    1,902,222Progressive jackpot liability
    
    
    1,224,719
    
    
    
    1,597,3622,589,944
    
    
    
    4,499,070Long-term debt
    
    
    3,011,163
    
    
    
    2,308,038Conditionally redeemable equitySeries A common stock, $.001 par, 75,000 shares
    
    
    25,000
    
    
    
    Series B convertible preferred stock, $.001 par, 350,000 shares
authorized, and 346,140 shares issued and outstanding
    
    
    1,730,700
    
    
    
    1,730,7001,755,700
    
    
    
    1,730,700Stockholders equityConvertible preferred stock, $.001 par, 10,000,000 shares authorized:Series A: 2,000,000 shares authorized, and 536,400 shares issued
and outstanding
    
    
    536
    
    
    
    536Series C: 100,000 shares authorized, and 56,000 and 50,000 shares
issued and outstanding
    
    
    56
    
    
    
    50Series D: 125,000 shares authorized, and 125,000 shares issued
and outstanding
    
    
    125
    
    
    
    125Common Stock, $.001 par, 90,000,000 shares authorized:Series A: 25,000,000 shares authorized, and 8,465,020 and 9,769,680
shares issued and outstanding
    
    
    8,465
    
    
    
    9,770Common Stock: 65,000,000 shares authorized and no shares
outstanding
    
    
    
    
    
    
    Deferred compensation
    
    
    (176,781
    )
    
    
    (85,573
    )Additional paid-in capital
    
    
    15,558,130
    
    
    
    19,683,611Less due from officers and stockholders
    
    
    (320,000
    )
    
    
    Deficit
    
    $
    (12,550,298
    )
    
    $
    (16,607,774
    )2,520,233
    
    
    
    3,000,745$
    9,877,040
    
    
    $
    11,538,553
   1 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2006
    
    
    2005
    
    
    2006RevenueCasino games
    
    $
    434,515
    
    
    $
    392,064
    
    
    $
    1,236,775
    
    
    $
    1,209,347Product sales
    
    
    557,548
    
    
    
    375,205
    
    
    
    1,740,343
    
    
    
    1,171,816Other
    
    
    447,063
    
    
    
    442,144
    
    
    
    1,398,285
    
    
    
    1,320,2461,439,126
    
    
    
    1,209,413
    
    
    
    4,375,403
    
    
    
    3,701,409Costs and expensesCasino games
    
    
    476,076
    
    
    
    472,560
    
    
    
    1,514,915
    
    
    
    1,284,967Product costs
    
    
    368,925
    
    
    
    245,755
    
    
    
    1,179,103
    
    
    
    802,142Other
    
    
    313,434
    
    
    
    394,590
    
    
    
    1,003,577
    
    
    
    1,044,9441,158,435
    
    
    
    1,112,905
    
    
    
    3,697,595
    
    
    
    3,132,053Gross operating income
    
    
    280,691
    
    
    
    96,508
    
    
    
    677,808
    
    
    
    569,356Other operating expensesSelling, general, and administrative
    
    
    1,063,774
    
    
    
    933,933
    
    
    
    2,198,326
    
    
    
    2,513,005Research and development
    
    
    196,756
    
    
    
    274,360
    
    
    
    583,802
    
    
    
    647,517Depreciation and amortization
    
    
    117,220
    
    
    
    203,606
    
    
    
    323,884
    
    
    
    545,3171,377,750
    
    
    
    1,411,899
    
    
    
    3,106,012
    
    
    
    3,705,839Operating loss
    
    
    (1,097,059
    )
    
    
    (1,315,391
    )
    
    
    (2,428,204
    )
    
    
    (3,136,483
    )Other income and expenseFinance costs
    
    
    (70,678
    )
    
    
    (449,777
    )
    
    
    (64,542
    )
    
    
    (1,110,775
    )Interest and other income
    
    
    32,120
    
    
    
    81,444
    
    
    
    219,535
    
    
    
    189,782Net loss
    
    $
    (1,135,617
    )
    
    $
    (1,683,724
    )
    
    $
    (2,273,211
    )
    
    $
    (4,057,476
    )Net loss per share
    
    $
    (0.14
    )
    
    $
    (0.18
    )
    
    $
    (0.29
    )
    
    $
    (0.44
    )Weighted average shares outstanding
    
    
    8,270,020
    
    
    
    9,474,680
    
    
    
    7,771,095
    
    
    
    9,244,884
   2 




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LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
 NINE MONTHS ENDED SEPTEMBER 30, 2006
 Series A
    
    
    Series C
    
    
    Series DConvertible
    
    
    Convertible
    
    
    ConvertiblePreferred
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    
    
    
    
    Additional
    
    
    Due FromStock Par
    
    
    Stock Par
    
    
    Stock Par
    
    
    Stock Par
    
    
    Deferred
    
    
    Paid-In
    
    
    Officer /Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Compensation
    
    
    Capital
    
    
    Stockholder
    
    
    DeficitBalances, January 1, 2006
    
    $
    536
    
    
    $
    56
    
    
    $
    125
    
    
    $
    8,465
    
    
    
    (176,781
    )
    
    $
    15,558,130
    
    
    $
    (320,000
    )
    
    $
    (12,550,298
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,057,476
    )Exercise of warrants and options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    634,780
    
    
    
    
    
    
    
    Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,088,652
    
    
    
    
    
    
    
    Vesting of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,208
    
    
    
    
    
    
    
    
    
    
    
    Elimination of conditionally redeemable
Series A common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    24,925
    
    
    
    
    
    
    
    Series C preferred stock converted to
Series A common stock
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    Series A common stock issued in
connection with acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    1,399,300
    
    
    
    
    
    
    
    Series A common stock issued to consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    219,890Series A common stock acquired from
officer/stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    (242,042
    )
    
    
    190,000
    
    
    
    Payment
received from officer/stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,000
    
    
    
    Balances, September 30, 2006
    
    $
    536
    
    
    $
    50
    
    
    $
    125
    
    
    $
    9,770
    
    
    $
    (85,573
    )
    
    $
    19,683,611
    
    
    $
    
    
    
    $
    (16,607,774
    )
   3 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOW
 (UNAUDITED)
 Nine Months Ended September 30,2005
    
    
    2006Operating activitiesNet loss
    
    $
    (2,273,211
    )
    
    $
    (4,057,476
    )Depreciation
and amortization of leasehold improvements
    
    
    187,961
    
    
    
    545,316Amortization of financing costs
    
    
    137,693
    
    
    
    914,513Stock-based compensation
    
    
    204,866
    
    
    
    243,673Other
    
    
    (20,540
    )
    
    
    771Changes in operating assets and liabilities:Accounts receivable
    
    
    (55,711
    )
    
    
    291,497Inventories
    
    
    19,107
    
    
    
    (60,133
    )Prepaid expenses, deposits and other
    
    
    (241,953
    )
    
    
    (446,175
    )Jackpot reserve deposits
    
    
    (168,395
    )
    
    
    20,936Accounts payable and accrued expenses
    
    
    161,735
    
    
    
    310,445Progressive jackpot liability
    
    
    109,230
    
    
    
    372,643Net cash used in operating activities
    
    
    (1,939,218
    )
    
    
    (1,863,990
    )Investing activitiesPurchase of property and equipment
    
    
    (191,107
    )
    
    
    (423,601
    )Acquisition of intangible assets
    
    
    (500,000
    )
    
    
    (20,000
    )Collection of receivable from officer/stockholder
    
    
    8,573
    
    
    
    25,179Collection of loan to officer
    
    
    
    
    
    
    130,000Exercise of warrants for Series A common stock
    
    
    214,680
    
    
    
    547,500Net cash provided by (used for) investing activities
    
    
    (467,854
    )
    
    
    259,078Financing activitiesProceeds from litigation settlements
    
    
    780,039
    
    
    
    134,790Net proceeds from Senior Secured Convertible Notes
    
    
    2,595,000
    
    
    
    2,000,000Loan issue costs
    
    
    
    
    
    
    (167,000
    )Proceeds from other debt borrowings
    
    
    299,999
    
    
    
    Repayment of other debt borrowings
    
    
    (521,860
    )
    
    
    (5,580
    )Issuance of Series A common and preferred stock
    
    
    340,106
    
    
    
    Net cash provided by financing activities
    
    
    3,493,284
    
    
    
    1,962,210Net increase in cash and cash equivalents
    
    
    1,086,212
    
    
    
    357,298Cash and cash equivalents, beginning of period
    
    
    586,169
    
    
    
    1,672,381Cash and cash equivalents, end of period
    
    $
    1,672,381
    
    
    $
    2,029,679Non-cash investing and financing activitiesSeries A common stock issued for assets/acquisition
    
    $
    400,000
    
    
    $
    1,400,000Liabilities assumed in business acquisition
    
    
    278,487
    
    
    
    Equipment and software acquired in business acquisition
    
    
    39,675
    
    
    
    Elimination of conditionally redeemable equity
    
    
    
    
    
    
    25,000Issuance of warrants
    
    
    82,677
    
    
    
    2,088,652Exercise of stock warrants and options
    
    
    
    
    
    
    87,750Conversion of Series C preferred stock to Series A common stock
    
    
    
    
    
    
    30Series A common stock acquired from officer/stockholder
    
    
    
    
    
    
    (242,122
    )
   4 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1. Nature of operations:
  
    
    the April 2003 acquisition of Triple Win in Nevada, Inc., a bingo supply
distributor, whereby we acquired bingo equipment and bingo service agreements;
    
    the July 2003 acquisition of Imagineering Systems, Inc., a manufacturer of keno
equipment and provider of a keno operating system, whereby we acquired keno equipment
and the platform for our current keno operating system;
    
    the February 2005 acquisition of AdLine Gaming, Inc., a subsidiary of AdLine
Network, LLC, whereby we acquired significant technology and engineering talent that
supports the PortalVision system and its related applications; and
    
    the February 2006 acquisition from AdLine Network, LLC of technology related to the
ability to accept wagers through WagerVision from the homes of players.
   2. Basis of Presentation
     5 




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LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  3. Jackpot Reserve Deposits
  4. Equipment and Software
  September 30, 2006December 31, 2005
    
    
    UnauditedSoftware
    
    $
    248,911
    
    
    $
    399,396Production equipment
    
    
    1,117,301
    
    
    
    1,346,138Equipment, furniture, and fixtures
    
    
    257,936
    
    
    
    287,286Leasehold improvements
    
    
    
    
    
    
    14,9291,624,148
    
    
    
    2,047,749Less
accumulated depreciation and amortization
    
    
    1,010,503
    
    
    
    1,234,485$
    613,645
    
    
    $
    813,264
 5. Debt
     6 




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LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   September 30, 2006December 31, 2005
    
    
    UnauditedBridge financing
    
    $
    3,000,000
    
    
    $
    3,481,455Settlement due third parties
    
    
    509,992
    
    
    
    644,782Other notes payable
    
    
    89,605
    
    
    
    84,0233,599,597
    
    
    
    4,210,260Less amounts due within one year
    
    
    588,434
    
    
    
    1,902,222$
    3,011,163
    
    
    $
    2,308,038
   6. Stockholders Equity
   7 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
       Stock Warrants and Options.
   8 




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LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Accounting for Stock-Based
Compensation Share Based Payment
   Beginning Balance, January 1, 2006
    
    
    5,132,922$
    2.33Granted
    
    
    3,324,000$
    1.77Exercised
    
    
    (510,000
    )$
    1.40Forfeited
    
    
    (1,560,681
    )$
    2.09Ending Balance, September 30, 2006
    
    
    6,386,241$
    2.18
  Due from Officers/Stockholders.
 Redeemable Preferred Stock Accounting for Certain Financial Instruments with Characteristics of
  9 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Both Liabilities and Equity
 7. Progressive Jackpots
  December 31, 2005ProgressiveJackpot
    
    
    GrossLiability
    
    
    CommitmentNevada NumbersPresent value of $5.0 million base
progressive jackpot, payable in 20 equal
annual installments using a 4.60% discount
rate, the prevailing 20-year Treasury Bond
rate
    
    $
    3,372,291
    
    
    $
    3,372,291Less portion insured through conventional
insurance providers
    
    
    (2,900,000
    )
    
    
    Other participants
    
    
    (236,146
    )
    
    
    Uninsured portion of base progressive jackpot
    
    
    236,145
    
    
    
    Present value at 4.60% of the $1,197,766
increase to the progressive jackpot meter
    
    
    807,843
    
    
    
    807,843Other Games
    
    
    180,731
    
    
    
    1,180,731$
    1,224,719
    
    
    $
    5,360,865
 September 30, 2006ProgressiveJackpot
    
    
    GrossLiability
    
    
    CommitmentNevada NumbersPresent value of $5,000,000 base progressive
jackpot, payable in 20 equal annual
installments using a 4.84% discount rate, the
prevailing 20-year Treasury Bond
    
    $
    3,311,116
    
    
    $
    3,311,116Present value at 4.84% of the $1,280,659
increase to the progressive jackpot meter
    
    
    848,082
    
    
    
    848,082Less portion insured through conventional
insurance providers
    
    
    (2,900,000
    )
    
    
    Other Games
    
    
    338,164
    
    
    
    1,338,164$
    1,597,362
    
    
    $
    5,497,362
   10 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 8. Acquisition of Technology
  9. Segment Information
   Nine months ended September 30,2005
    
    
    2006RevenueCasino Games
    
    $
    1,236,775
    
    
    $
    1,209,347Product Sales
    
    
    1,740,343
    
    
    
    1,171,816Other
    
    
    1,398,285
    
    
    
    1,320,246$
    4,375,403
    
    
    $
    3,701,409Operating income (loss)Casino Games
    
    $
    (278,140
    )
    
    $
    (75,620
    )Product Sales
    
    
    561,240
    
    
    
    369,674Other
    
    
    394,708
    
    
    
    275,302Unallocated
    
    
    (3,106,012
    )
    
    
    (3,705,839
    )$
    (2,428,204
    )
    
    $
    (3,136,483
    )
  September 30,December 31, 2005
    
    
    2006Identifiable assetsCasino Games
    
    $
    5,809,723
    
    
    $
    8,141,104Product Sales
    
    
    496,080
    
    
    
    461,045Other
    
    
    456,634
    
    
    
    410,642Unallocated
    
    
    3,114,603
    
    
    
    2,525,762$
    9,877,040
    
    
    $
    11,538,553
  11 




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##### Table of Contents



LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Nine Months EndedSeptember 30,2005
    
    
    2006Capital expendituresCasino Games
    
    $
    88,151
    
    
    $
    137,012Product Sales
    
    
    5,318
    
    
    
    Other
    
    
    84,449
    
    
    
    84,613Unallocated
    
    
    55,864
    
    
    
    201,976$
    230,782
    
    
    $
    423,601
  12 




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##### 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 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 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 those discussed herein and elsewhere in our Form 10-KSB for
the year ended December 31, 2005. 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
  ADVISION
    
    

PROMOVISION
    
    

SLOTTOVISION
    
    

WAGERVISIONWHAT
PORTALVISION DELIVERS
    
    
    Advertisements or information through still images or full motion video
    
    
    Promotional opportunities to patrons
    
    
    Impulse gaming opportunity upon the decision to cash-out
    
    
    Remote ability to accept sports and race wageringHOW OPERATORS BENEFIT
    
    
    Advertisements or information delivered during idle time
    
    
    Targeted promotional content to patrons
    
    
    Additional wagering revenue opportunity
    
    
    Additional race and sports wagering revenue opportunityHOW PATRONS BENEFIT
    
    
    Information on promotions, entertainment, dining, and other events
    
    
    Opportunity to win substantial jackpot-style cash prizes
    
    
    Opportunity to win substantial jackpot-style cash prizes
    
    
    Enhanced and more dynamic gaming environmentHOW WE BENEFIT
    
    
    Fee for providing ability to deliver advertising
    
    
    Fee for each promotional ticket issued
    
    
    Installation fees, activation fees, and share of revenue
    
    
    Share of revenue earned from additional
  
    
    provide casino, lottery, and slot operators with the opportunity to increase significantly the
earning power and functionality of their gaming machines;
    
    offer patrons compelling reasons to utilize PortalVision by providing the
opportunity to experience other wagering opportunities and direct access to
information about promotions, entertainment, and dining opportunities;
    
    leverage the accelerating industry movement from mechanical to
video gaming machines while offering alternative solutions for mechanical gaming machines;
    
    offer our PortalVision system at no capital cost to casino, lottery, and slot operators; and
    
    continue the development of additional innovative applications to be delivered through our PortalVision system.
   
 Critical Accounting Policies and Estimates
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Revenue Recognition
 PortalVision.
 Casino Games.
 Products.
 Other.
 Goodwill
  Long-lived Assets
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Income Taxes
  
 Recent Accounting Pronouncements
 Accounting for Certain Hybrid Financial Instruments Accounting for Derivative Instruments and Hedging Activities Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities  a
replacement of FASB Statement No. 125
 Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 (FIN 48)
 
 Results of Operations
 Nine Months Ended September 30, 2006 Compared with Nine Months Ended September 30, 2005
 Revenue.
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Costs and Expenses.
   Other Operating Expenses.
  Finance Costs.
 Interest Income and Other.
 
 Liquidity and Capital Resources
 Cash
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Capital Expenditures
  
    
    the purchase of LCD monitors associated with the increased placement of Gamblers
Bonus Million Dollar Ticket through United Coin Machine Company and
    
    the purchase of hardware for the rollout of our PortalVision System.
  Sources of Capital
   
    
    the right to prepay, in cash, all or a portion of the CAMOFI note for an amount
equal to 115% of the principal amount to be repaid;
    
    the obligation to convert 30% of the aggregate principal amount outstanding on the
CAMOFI note into shares of Series A common stock at the lesser of $1.345 or 75% of the
effective price per share received in any equity financing of at least $10.0 million
upon the closing of such financing;
    
    the obligation to prepay, in cash, 110% of the aggregate principal amount of the
CAMOFI note not converted to Series A common stock upon the closing of any equity
financing of at least $10.0 million;
    
    for as long as the CAMOFI note is outstanding, we must make quarterly financing fee
payments of $125,000 to CAMOFI on July 1, October 1, January 1, and April 1 of each
year, which commenced July 1, 2006;
    
    on the first business day of each month, commencing on April 2, 2007, and ending
upon the full redemption of the note, the mandatory redemption of $208,333 on the
CAMOFI
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note, including other amounts provided in the CAMOFI note upon certain
contingencies; and
 
    
    the obligation to repay an amount equal to 120% of the principal amount to be repaid
upon the occurrence of an Event of Default, which is defined to include the failure
to pay any amount due, the failure to observe certain covenants, the default under
certain material agreements, the breach of our representations and warranties, a change
in control, and the failure to meet our registration obligations.
   
    
    a Warrant Agreement to purchase 2,500,000 shares of our Series A common stock 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 CAMOFI owning more than 4.99% of our issued and
outstanding shares of Series A common stock;
    
    a Registration Rights Agreement that required us to file with the SEC by July 29,
2006, and have declared effective by the SEC by September 27, 2006, a registration
statement for the offer and sale of 125% of the following:
 
    
    all of the shares of Series A common stock issuable upon
conversion of the CAMOFI note assuming all of the CAMOFI note is converted;
    
    all shares issuable as amortization payments on the CAMOFI note
assuming all permissible amortization payments are made in shares of Series A
common stock and the CAMOFI note is held until maturity;
    
    all of the shares of Series A common stock issuable upon
exercise of the Warrant Agreement;
    
    any securities issued or issuable upon any stock split,
dividend, or other distribution recapitalization, or similar event with respect
to the foregoing; and
    
    any additional shares issuable in connection with any
anti-dilution provision in the CAMOFI note or Warrant Agreement.
 
    
    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,
documents, letter-of-credit rights, 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 filed, records, books of account,
business papers and computer programs, and all products and proceeds of the forgoing
collateral.
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
    
    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 Series
A common stock for a period of nine months following the effective date of the
registration statement.
    Outlook
    
 Off Balance Sheet Financing
  
 Qualitative and Quantitative Disclosures about Market Risk
  
 Item 3. Controls and Procedures
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits
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SIGNATURE
  Las Vegas Gaming, Inc.(Registrant)Date:
November 14, 2006
    
    By:
    
    /s/ Russell R. RothRussell R. RothIts:
    
    Chief Executive Officer,
Chairman and Secretary
(Principal Executive
Officer)
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EXHIBIT INDEX
 Exhibit
    
    Document Description
    
    Page31.1
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    2631.2
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    2732.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    28
 23