UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








**FORM
      10-KSB**





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
                the fiscal year endedDecember
                31, 2006




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
                the transition period from ____________to
                ____________




Commission
                file number000-28399




Gaming
                & Entertainment Group, Inc.(Name
                of small business issuer in its
                charter)




Utah
            
            59-1643698(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)




4501
                Hayvenhurst Ave., Encino, CA 91436
            
            91436(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer’s
                telephone number:(818)
                400-5930Securities
                registered pursuant to Section 12(b) of the
                Act:




Title
                of each class
            
            Name
                of each exchange on which registered




Securities
                registered pursuant to Section 12(g) of the
                Act:




Common
                Stock, $.01 par value(Title
                of each class)




Check
                whether the issuer (1) filed all reports required to be filed by
                Section
                13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
                12
                months (or for such shorter period that the registrant was required
                to
                file such reports), and (2) has been subject to such filing requirements
                for the past 90 days. Yes xNo
                o




Check
                if there is no disclosure of delinquent filers in response to Item
                405 of
                Regulation S-K is not contained in this form, and no disclosure will
                be
                contained, to the best of the registrant’s knowledge, in definitive proxy
                or information statements incorporated by reference in Part III of
                this
                Form 10-KSB or any amendment to this Form 10-KSB. x




State
                issuer’s revenues for its most recent fiscal year:$140,826




Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).
              Yes
                oNo
                x
              
              State
                the aggregate market value of the voting and non-voting common equity
                held
                by non-affiliates computed by reference to the price at which the
                common
                equity was last sold, or the average bid and asked price of such
                common
                equity, as of a specified date within the past 60 days: $521,273
                ($0.045
                per share as of March 9, 2007).




State
                the number of shares outstanding of each of the issuer’s classes of common
                equity, as of the latest practicable date: Common Stock, $.01 par
                value,
                19,830,602 shares (as of March 9, 2007).**DOCUMENTS
                INCORPORATED BY REFERENCE**None.










**TABLE
      OF CONTENTS**




**PART
                  I**ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              3ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              6ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              6ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              6**PART
                  II**
              
              **6**ITEM
                  5.
              MARKET
                  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
              6ITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              8ITEM
                  7.
              FINANCIAL
                  STATEMENTS
              F-1ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE.
              21ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              21**PART
                  III**
              
              **21**ITEM
                  9.
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT
              21ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              23ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              24ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              27ITEM
                  13.
              EXHIBITS
              30ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              30SIGNATURES
              
              31**EXHIBIT
                  INDEX**
              
              **32**




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          2
          -




**ITEM
              1.**
            **DESCRIPTION
                OF BUSINESS.******




**B** **ACKGROUND**




On
      January 12, 2004, NorStar Group, Inc., a publicly-held company that was not
      conducting or developing any commercial operations, or NorStar, consummated
      a
      series of transactions, including: (i) a 1-for-24.852732 reverse split of its
      outstanding shares of common stock; (ii) the issuance of 14,600,000 post-split
      shares of common stock in exchange for all of the outstanding shares of common
      stock of Gaming & Entertainment Group, Inc., a Nevada corporation, or GEG
      Nevada; (iii) the issuance of options and warrants to purchase 4,257,937
      post-split shares of common stock in exchange for all of the outstanding options
      and warrants to purchase shares of GEG Nevada; and (iv) a change in the name
      of
      NorStar to Gaming & Entertainment Group, Inc., or the Company. As a result
      of the exchange, GEG Nevada became a subsidiary of the Company, and the former
      stockholders of GEG Nevada became the holders of 91.25% of the then outstanding
      shares of common stock of the combined companies. In addition, the former
      directors and officers of GEG Nevada became the controlling members of the
      board
      of directors and management of the combined companies. Since GEG Nevada was
      the
      only operating company in the exchange and the former stockholders of GEG Nevada
      received a substantial majority of the voting securities of the combined
      companies, the exchange was accounted for as a “reverse acquisition” and,
      effectively, as a recapitalization, in which GEG Nevada was the accounting
      acquirer (and the legal acquiree) and NorStar was the accounting acquiree (and
      the legal acquirer). Since the exchange was accounted for as a “reverse
      acquisition,” the consolidated financial statements included in the Company’s
      Annual Reports on Form 10-KSB for the fiscal years ended December 31, 2006
      and
      2005, reflect the historical financial statements of GEG Nevada, the accounting
      acquirer, as adjusted for the effects of the exchange of shares on its equity
      accounts, the inclusion of the net liabilities of the accounting acquiree as
      of
      January 12, 2004 on their historical basis and the inclusion of the
      accounting acquiree’s results of operations from that date.




In
      this
      report, the references to “we,” “us” or “our” relate to GEG Nevada prior to
      January 12, 2004 and to GEG, GEG Nevada and our other subsidiaries from
      that date forward. On May 5, 2005, we dissolved GEG Nevada. As of the date
      of
      filing of this Annual Report on Form 10-KSB, we have two wholly-owned operating
      subsidiaries, Gaming & Entertainment Technology Pty Ltd., a company formed
      under the laws of Australia, and Gaming & Entertainment Group, Ltd., a
      company formed under the laws of the United Kingdom. It is our intention to
      dissolve each of our two subsidiaries in 2007.




**S** **UMMARY** **** **OF** **B** **USINESS**




Since
      1995, we have been a leading supplier of government-regulated networked gaming
      technology. During this period, we have built a comprehensive networked gaming
      platform that has passed multiple government prescribed validations in Australia
      (Tasmania and Queensland), Republic of Vanuatu and Great Britain (Alderney
      and
      the Isle of Man). Our historical focus has been on the design and deployment
      of
      our gaming platform in the Internet-based gaming market, as evidenced by our
      agreements with traditional land-based gaming operators and numerous
      Australia-based online operators. In 2000, our gaming platform went live with
      its first customer, www.wrestpointcasino.com in
      Tasmania, Australia and for points-play at GOCORP in Queensland, Australia.
      In
      2002, we commenced live operations of www.clubfiore.com ,
      an
      online gaming site offered by Action Online, Inc. through the Isle of Man.




Thereafter,
      we commenced the expansion of our product line to include gaming systems and
      game content, ultimately for deployment in land-based gaming establishments.
      Specifically, we developed, a proprietary gaming platform, amusement with
      prizes, or AWP, and Section 16 games for deployment in the United Kingdom and
      other European gaming markets that offer these types of games.




On
      August
      31, 2004, we entered into a series of agreements with GEG Holdings, LLC, or
      GEG
      Holdings, an affiliate of Cantor Fitzgerald, L.P., for $750,000 of debt
      financing. Thereafter, on December 8, 2004, we entered into a series of
      definitive agreements with Cantor G&W (Nevada), L.P., or Cantor, to create a
      formal strategic partnership which provided Cantor with, among other things,
      an
      exclusive perpetual worldwide license to our Internet gaming software, and
      an
      additional $1,250,000 of debt financing to us. As part of the transaction with
      Cantor, we developed all of the infrastructure and games associated with the
      Cantor Casino. The Cantor Casino went live in October 2005. Following this
      date,
      we continued to develop additional games and other products on behalf of Cantor.
      On February 15, 2006, we sold certain assets to Cantor, including all rights
      to
      our Internet gaming platform and games. We remain entitled to recurring
      royalties from income produced by the Cantor Casino and all other white-label
      Internet gaming sites developed by them in the future. All such royalty payments
      will be applied against the outstanding senior secured note issued in favor
      of
      Cantor.




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          3
          -





Following
      the sale of our Internet gaming assets to Cantor, our current business strategy
      consists of the following:





·
            Commercialization
                and licensing of our AWP and Section 16 games in the United Kingdom




****T****ARGET****M****ARKET****S****TRATEGIC****I****NITIATIVES****




**Deployment
      of Products in Land-Based Gaming Establishments**




Over
      the
      past eighteen months, with the passage of The Gambling Act 2005 ("the Act")
      in
      late 2005, the legislation and regulations concerning land-based gaming machines
      in the United Kingdom has undergone significant overhaul and has severely
      affected the commercialization and deployment of our products. The new
      regulator, the Gambling Commission, introduced pursuant to the Act, recommended
      a number of changes to the “Section 16” (a reference to section 16 of the
      Lotteries and Amusements Act 1976) and Amusement With Prize (AWP)
      markets.





Effective
      September 1, 2007, the commencement date of the operative provision of the
      Act,
      Section 16 machines will be classified as gaming machines, subject to new limits
      on stakes and prizes, and limits on the maximum number of such machines
      permitted to be sited per location. Adult Entertainment Centre operators will
      not be able to offer these machines in numbers that exceed these limits
      (expected to be 4 machines per location), or with higher stakes and prize limits
      as prescribed under the Act, and such machines will no longer be permitted
      in
      Family Entertainment Centers, a previously permitted location. Further, Section
      16 machines will have to comply with the new mandatory technical standards
      for
      all gaming machines. The Gambling Commission’s position is that, due to the
      relatively high cost per play and maximum payouts of these machines, it is
      undesirable for Section 16 machines to be located in any premises frequented
      by,
      or environments attractive to, under 18 year olds, or in premises where
      supervision of the machines is inadequate.





As
      part
      of the overhaul of the classification of gaming machines under the Act, the
      licence duty for Section 16 machines has more than doubled, and coupled with
      the
      forthcoming restriction on the number of Section 16 machines permitted per
      location, operators have ceased investment in new Section 16 gaming machines.





In
      light
      of the decline in the commerciality of our Section 16 gaming machines, the
      Company commenced preliminary development of an Amusement with Prize version
      of
      our Section 16 games. Unfortunately, given the current climate of legal
      uncertainty surrounding the industry until the commencement of the Act on
      September 1, 2007, the AWP market is heavily depressed. Further, a smoking
      ban
      in England, making it illegal to smoke in all
      enclosed public places in England ,
      will
      come into force on July
      1 , 2007 .
      The
      impact on the custom of Adult Entertainment Centers is expected to be
      substantial, resulting in a further suppression to market demand.





As
      a
      consequence of the foregoing, we have concluded that additional research and
      development investment required to continue development of our AWP machines
      is
      no longer commercially viable. Further, the provision of continued maintenance
      and enhancement services would need to be guaranteed by the Company for the
      sale
      of any AWP machine. We do not believe the Company has sufficient financial
      resources to provide continued maintenance and enhancement services on a long
      term basis. Therefore, our existing intellectual property by way of a licensing
      arrangement with a third party is currently being considered and expressions
      of
      interest are being taken, with a view to cease all further research and
      development expense.




-
          4
          -




****C****OMPETITION****




We
      view
      our current competition in terms of companies that provide AWP and Section
      16
      gaming products to the United Kingdom gaming sector. Nearly all of these
      companies have significantly longer operating histories, name recognition,
      customer bases and financial, technical and marketing resources.




****M****ANUFACTURING,****A****SSEMBLY
      AND****D****ISTRIBUTION****




As
      part
      of our business strategy, we have elected to outsource the manufacturing,
      assembly and distribution of our AWP and Section 16 gaming machines to
      Electrocoin.




**R** **ESEARCH
        AND** **D** **EVELOPMENT**


On
      January 31, 2007, we ceased all research and development activities. However,
      we
      maintain a knowledge base of all aspects of software and hardware game
      development. We may retain additional software developers and graphics designers
      on a contract basis in the future. All development is undertaken at our Sydney,
      Australia office.




**I** **NTELLECTUAL** **P** **ROPERTY**


Since
      our
      inception, we have focused exclusively on gaming and building products for
      reputable organizations in the gaming industry. Unless specifically agreed
      otherwise, the games and gaming systems we develop are owned by us. We generally
      protect our intellectual property through the filing of patent and trademark
      applications for our key inventions and unique features in the various gaming
      markets in which we operate.


**G** **AMING** **R** **EGULATION**


We
      are
      subject to various laws and regulations that affect both our general commercial
      relationships as well as the products we intend to provide in Europe. Generally,
      we, along with our executive officers, directors and major stockholders, are
      required to become licensed in each jurisdiction in which we do business. The
      licensing process is quite intensive and time consuming, and while we foresee
      no
      problems with obtaining the aforementioned license, there can be no assurances
      that we, as well as each of our executive officers, directors and major
      stockholders will be found suitable in each jurisdiction in which we seek a
      gaming license.




****E****MPLOYEES****




As
      of
      March 9, 2007, we have two full-time employees, engaged in management. In terms
      of the geographic location of our employees, we have one employee in our Sydney,
      Australia office and one employee in our Encino, California office.




In
      addition to employees, we retain the services of outside consultants, from
      time
      to time, on a variety of matters.




-
          5
          -




**ITEM
              2.**
            **DESCRIPTION****OF
                PROPERTY.******




On
      June
      16, 2005, the Company subleased (the “Sublease”) its Las Vegas office at 6757
      Spencer St., Las Vegas, Nevada 89119 to a third party (the “Sublessee”). The
      Sublease was for a period of two years and included successive one-year
      renewable options. Under the terms of the Sublease, the Sublessee was required
      to pay the full lease payment due under the terms of the original lease
      agreement (the “Lease”). In addition, during the term of the Sublease, the
      Company maintained the contractual responsibility for certain infrastructure
      located at the Las Vegas office. On December 20, 2006, a third party assumed
      all
      lease obligations under the Lease and the Company was released of all lease
      obligations including the contractual responsibility for
      infrastructure.




On
      June
      16, 2005, we leased office and warehouse space at 6754 Spencer St., Las Vegas,
      Nevada 89119. This sublease had a term of one year and a monthly lease rate
      of
      $2,200. On February 1, 2006, we terminated the sublease and have no outstanding
      obligations thereunder. We have relocated our U.S. offices to 4501 Hayvenhurst
      Ave, Encino, CA 91436. We do not pay rent at this location.




On
      March
      31, 2006, the Company vacated its office in North Sydney, Australia, with a
      monthly lease rate of $13,000 Australian dollars (approx. US$10,250). This
      lease
      was subject to an oral agreement which required six months advance written
      notice prior to vacating the premises. Notice to vacate was given on
      October 1, 2005.




On
      May 1,
      2006, the Company entered into an agreement to lease offices in Edgecliff,
      Sydney, Australia, with a monthly lease rate of $4,000 Australian dollars
      (approx. US$3,000). The lease was subject to an oral agreement which required
      three months advance written notice prior to vacating the premises. On October
      31, 2006 written notice was given to vacate the premises by January 31, 2007.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS.**




We
      are
      not currently party to any legal proceedings or aware of any pending or
      threatened claims, the adverse outcome of which, individually or in the
      aggregate, management believes would have a material adverse effect on our
      business, financial condition or results of operations.




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS.**




None.




**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.******




Our
      authorized capital stock consists of 150,000,000 shares of common stock, par
      value $.01 per share, 10,000,000 shares of preferred stock authorized, par
      value
      $10 per share of which 1,000,000 shares have been designated Class A preferred
      stock, and 1,000,000 shares have been designated Class B preferred stock. As
      of
      March 20, 2007, there were 19,830,602 shares of common stock issued and
      outstanding and no shares of Class A and Class B preferred stock issued and
      outstanding.




****H****IGH
      AND****L****OW****B****ID****P****RICES****O****F****O****UR****C****OMMON****S****TOCK****




As
      of
      March 9, 2007, our common stock was held by approximately 400 stockholders
      of
      record. Our common stock is quoted and traded on the Over The Counter Bulletin
      Board under the trading symbol “GMEI”. The following table sets forth the high
      and low closing sale prices of our common stock during the periods
      indicated:




**Calendar
                Quarter Ended**
            
            **Low**
            
            **High**March
                31, 2004
            
            $
            0.75
            
            $
            1.75June
                30, 2004
            
            $
            0.67
            
            $
            1.30September
                30, 2004
            
            $
            0.42
            
            $
            0.90December
                31, 2004
            
            $
            0.28
            
            $
            0.60March
                31, 2005
            
            $
            0.35
            
            $
            0.51June
                30, 2005
            
            $
            0.21
            
            $
            0.45September
                30, 2005
            
            $
            0.13
            
            $
            0.29December
                31, 2005
            
            $
            0.13
            
            $
            0.23March
                31, 2006
            
            $
            0.13
            
            $
            0.46June
                30, 2006
            
            $
            0.15
            
            $
            0.42September
                30, 2006
            
            $
            0.11
            
            $
            0.20December
                31, 2006
            
            $
            0.03
            
            $
            0.20March
                31, 2007 (through March 9, 2007)
            
            $
            0.03
            
            $
            0.05




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          6
          -




The
      last
      reported sale price of our common stock on the Over The Counter Bulletin Board
      on March 9, 2007 was $0.045 per share. We are not aware of any public market
      for
      our options or warrants.




****E****QUITY****C****OMPENSATION****P****LAN****I****NFORMATION****




**2004
        S** **TOCK** **O** **PTION
        AND** **I** **NCENTIVE** **P** **LAN**


The
      2004
      Stock Option and Incentive Plan, or the Plan, was adopted by our board on April
      1, 2004 and approved by our stockholders on June 14, 2004. The Plan provides
      us
      with a vehicle to grant to employees, officers, directors and consultants stock
      options and bonuses in the form of stock and options. Under the Plan, we can
      grant awards for the purchase of up to 3,500,000 shares of common stock in
      the
      aggregate, including “incentive stock options” within the meaning of Section 422
      of the United States Internal Revenue Code of 1986 and non-qualified stock
      options. As of March 9, 2007, we have options outstanding to purchase 1,562,325
      shares of our common stock under the Plan.




Our
      board
      of directors currently determines the persons to whom awards will be granted,
      the nature of the awards, the number of shares to be covered by each grant,
      the
      terms of the grant and with respect to options, whether the options granted
      are
      intended to be incentive stock options, the duration and rate of exercise of
      each option, the option price per share, the manner of exercise and the time,
      manner and form of payment upon exercise of an option. In the future, we intend
      to form a compensation committee, comprised of a majority of non-employee
      directors that will oversee administration of the Plan.




****D****IVIDEND****P****OLICY****




We
      have
      never declared or paid any cash dividends on our common stock. Our board
      presently, and for the foreseeable future, intends to retain all of our
      earnings, if any, for the development of our business. The declaration and
      payment of cash dividends in the future will be at the discretion of our board
      and will depend upon a number of factors, including, among others, our future
      earnings, operations, funding requirements, restrictions under our credit
      facility, our general financial condition and any other factors that our board
      considers important. Investors should not purchase our common stock with the
      expectation of receiving cash dividends.




****R****ECENT****S****ALES
      OF****U****NREGISTERED****S****ECURITIES****




During
      the three years ended December 31, 2006, we made the following issuances of
      our
      common stock which were not registered under the Act:




On
      May
      31, 2004, we closed a private placement of units, or the 2004 Offering, wherein
      we sold 2,445,000 shares of common stock, and issued warrants to purchase an
      identical number of shares of common stock, or the 2004 Warrants. The 2004
      Warrants expired on May 31, 2005.




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          7
          -




We
      received gross proceeds totaling $2,445,000 from the 2004 Offering, and incurred
      transaction costs of $301,758 for net proceeds of $2,143,242. The 2004 Offering
      was sold to 37 investors, each of whom we had reasonable grounds to believe
      were
      accredited investors. Each of the investors (a) had access to business and
      financial information concerning us, (b) represented that they were acquiring
      the securities for investment purposes only and not with a view towards
      distribution or resale except in compliance with applicable securities laws,
      and
      (c) had such knowledge and experience in business and financial matters that
      they were able to evaluate the risks and merits of an investment in our common
      stock. In addition, the certificates evidencing the shares of common stock
      issued in the 2004 Offering contain a legend restricting their transferability
      absent registration under the Act or the availability of an applicable exemption
      therefrom.




We
      also
      issued our underwriter and selected dealers’ warrants to purchase an aggregate
      of 366,750 shares of common stock, or the Underwriter Warrants, in consideration
      for the placement of securities in the 2004 Offering. The Underwriter Warrants
      are exercisable at $1.50 per share commencing on May 31, 2005 and concluding
      on
      May 31, 2007. In addition, we issued 58,334 shares of common stock, and a
      warrant to purchase an equal number of shares of common stock at $1.50 per
      share, in exchange for gaming equipment valued at $58,334.




In
      March
      2005, we issued the investors in the 2004 Offering, collectively, the sum of
      563,250 shares of common stock as a result of our failure to file a registration
      statement to register the securities sold in the 2004 Offering, and gain
      effectiveness thereof, by the prescribed date. The original issuance of shares
      of common stock and warrants to purchase shares of common stock in the 2004
      Offering as well as the issuance of the aforementioned 563,250 shares of common
      stock were made in reliance upon the exemptions from securities registration
      provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
      thereunder.




In
      addition, in
      2004
      we issued 507,390
      shares of our common stock, having a fair value of $485,315, to non-related
      third parties in consideration for strategic advisory services, investment
      banking services and software and hardware documentation. Each of these stock
      issuances were made in reliance upon the exemptions from registration provided
      by Section 4(2) of the Act.




**ITEM
              6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.******




****S****TATEMENT
      ON****F****ORWARD****-L****OOKING****I****NFORMATION****




Certain
      information included herein contains statements that may be considered
      forward-looking statements within the meaning of Section 27A of the Securities
      Act and Section 21E of the Securities Exchange Act of 1934, or the Exchange
      Act, such as statements relating to plans for product development, product
      placement, capital spending and financing sources. Such forward-looking
      information involves important risks and uncertainties that could significantly
      affect anticipated results in the future and, accordingly, such results may
      differ from those expressed in any forward-looking statements made herein.
      These
      risks and uncertainties include, but are not limited to, those relating to
      our
      liquidity requirements, our ability to locate necessary sources of capital
      to
      sustain our operations, the continued growth of the gaming industry, the success
      of our product development activities, the acceptance of our products in the
      marketplace, vigorous competition in the gaming industry, our dependence on
      existing management, changes in gaming laws and regulations (including actions
      affecting licensing), our leverage and debt service (including sensitivity
      to
      fluctuations in interest rates) and domestic or global economic conditions.




-
          8
          -


**O** **VERVIEW**


On
      January 12, 2004, NorStar Group, Inc., a publicly-held company that was not
      conducting or developing any commercial operations, or NorStar, consummated
      a
      series of transactions, including: (i) a 1-for-24.852732 reverse split of its
      outstanding shares of common stock; (ii) the issuance of 14,600,000 post-split
      shares of common stock in exchange for all of the outstanding shares of common
      stock of Gaming & Entertainment Group, Inc., a Nevada corporation, or GEG
      Nevada; (iii) the issuance of options and warrants to purchase 4,257,937
      post-split shares of common stock in exchange for all of the outstanding options
      and warrants to purchase shares of GEG Nevada; and (iv) a change in the name
      of
      NorStar to Gaming & Entertainment Group, Inc., or the Company. As a result
      of the exchange, GEG Nevada became a subsidiary of the Company, and the former
      stockholders of GEG Nevada became the holders of 91.25% of the then outstanding
      shares of common stock of the combined companies. In addition, the former
      directors and officers of GEG Nevada became the controlling members of the
      board
      of directors and management of the combined companies. Since GEG Nevada was
      the
      only operating company in the exchange and the former stockholders of GEG Nevada
      received a substantial majority of the voting securities of the combined
      companies, the exchange was accounted for as a “reverse acquisition” and,
      effectively, as a recapitalization, in which GEG Nevada was the accounting
      acquirer (and the legal acquiree) and NorStar was the accounting acquiree (and
      the legal acquirer). Since the exchange was accounted for as a “reverse
      acquisition,” the consolidated financial statements included in the Company’s
      Annual Reports on Form 10-KSB for the fiscal years ended December 31, 2006
      and
      2005, and Form 10-KSB/A for the fiscal year ended December 31, 2005, reflect
      the
      historical financial statements of GEG Nevada, the accounting acquirer, as
      adjusted for the effects of the exchange of shares on its equity accounts,
      the
      inclusion of the net liabilities of the accounting acquiree as of
      January 12, 2004 on their historical basis and the inclusion of the
      accounting acquiree’s results of operations from that date.




In
      this
      report, the references to “we,” “us” or “our” relate to GEG Nevada prior to
      January 12, 2004 and to GEG, GEG Nevada and our other subsidiaries from
      that date forward. On May 5, 2005, we dissolved GEG Nevada. As of the date
      of
      filing of this Annual Report on Form 10-KSB, we have two wholly-owned
      subsidiaries, Gaming & Entertainment Technology Pty Ltd., a company formed
      under the laws of Australia, and GET UK, Ltd., a company formed under the laws
      of the United Kingdom.




**C** **RITICAL** **A** **CCOUNTING** **P** **OLICIES
        AND** **E** **STIMATES**




****U****SE
      OF****E****STIMATES****




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect reported amounts and disclosures, some
      of
      which may require revision in future periods. The most sensitive estimates
      affecting our financial statements include, or will include in subsequent
      periods, future volatility used in valuing equity instruments, allowances for
      bad debts, depreciable lives of gaming equipment in service and other equipment,
      deferred revenues, accrued liabilities and deferred tax valuation allowances.
      By
      their nature, these judgments are subject to an inherent degree of uncertainty.
      Our judgments are based on our historical experience, our observance of industry
      trends, information provided by or gathered from our customers and information
      available from other outside sources, as appropriate. There can be no assurance
      that actual results will not differ from our estimates. The most critical
      policies relate to revenue recognition. The following is a description of our
      revenues and our revenue recognition policies. The application of these
      policies, in some cases, requires our management to make subjective judgments
      regarding the effect of matters that are inherently uncertain.




***Description
      of Revenues***




Through
      December 31, 2006, we have received our revenues from the development of
      prospective Internet gaming sites in regulated gaming markets outside of the
      United States, as well as maintenance and technical support contracts. On
      December 8, 2004, we entered into definitive agreements with Cantor G&W
      (Nevada), L.P., or Cantor, which included, among other things, the exclusive
      license of our Internet gaming software to them. In conjunction with this
      license, we received a monthly development fee for the development of the Cantor
      Casino, which went live in October 2005 and does not permit bets in the United
      States. We are entitled to receive royalty payments from Cantor based upon
      a
      portion of the net win realized by the Cantor Casino following repayment of
      certain expenses associated therewith. Pursuant to the series of agreements
      with
      Cantor dated February 15, 2006, which includes an amendment to the senior
      secured note issued in favor of Cantor, the royalty payments will be applied
      on
      an annual basis against the outstanding principal and accrued interest under
      the
      senior secured note.




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          9
          -





At
      this
      time, we are principally focused on the licensing of our proprietary gaming
      platform and suite of amusement with prizes, or AWP, and Section 16 games in
      the
      United Kingdom and other countries in the European Union where applicable.
      Our
      AWP and Section 16 suite consists of roulette games.




Historically,
      we have experienced substantial fluctuations in revenues from period-to-period
      as a result of our revenues being derived solely from software development
      contracts consisting of upfront licensing and periodic payments as opposed
      to
      steady recurring revenues. Moreover, our revenues have been limited over the
      last two years as we have been primarily focused on the development of products
      for Cantor, and the development of our gaming platform and accompanying AWP
      and
      Section 16 games for licensing in the United Kingdom and other European Union
      countries where applicable.




We
      anticipate that our future revenues will be derived from the licensing of AWP
      and Section 16 games in the above mentioned jurisdictions. At this time, it
      is
      extremely difficult to predict with accuracy, the breakdown, and amount, of
      anticipated future revenues from the foregoing initiative.




***Revenue
      Recognition***




Revenue
      from the development of Internet gaming sites in regulated gaming markets will
      generally be reported on the percentage of completion method of accounting
      using
      measurements of progress toward completion appropriate for the work performed.
      The development of Internet gaming sites concluded on February 15, 2006 as
      a
      result of the sale of our Internet gaming system and games to Cantor on such
      date. Thus, after February 15, 2006, we will not realize revenues from the
      development of Internet gaming sites.




Revenues
      from the enhancement, maintenance and technical support of Internet gaming
      sites
      in regulated gaming markets are recognized as the services are performed or
      pro
      rata over the service period. When we receive a percentage of the gaming
      revenues generated by our client’s Internet gaming sites, we will generally
      recognize such revenues upon receipt. Based upon the sale of our Internet gaming
      system and games to Cantor on February 15, 2006, we will not realize revenues
      from the enhancement, maintenance and technical support of Internet gaming
      sites
      following such date. We will receive royalty payments, to be applied against
      the
      outstanding principal and accrued interest under the senior secured note issued
      in favor of Cantor, with respect to the Cantor Casino and all “white-label”
Internet gaming sites developed by Cantor utilizing the Internet gaming software
      sold by us to Cantor.




Revenues
      from the licensing of our AWP and Section 16 games in the United Kingdom and
      other European Union countries, as applicable, will be recognized upon
      completion of installation and acceptance by the gaming operators, provided
      collectibility is reasonably assured.




***Impairment
      of Long Lived Assets***




Impairment
      losses on long-lived assets, such as equipment, are recognized when events
      or
      changes in circumstances indicate that the undiscounted cash flows estimated
      to
      be generated by such assets are less than their carrying value and, accordingly,
      all or a portion of such carrying value may not be recoverable. Impairment
      losses are then measured by comparing the fair value of assets to their carrying
      amounts.




-
          10
          -





***Valuation
      of Deferred Taxes***




Deferred
      tax assets and liabilities are recorded based on the temporary differences
      between the financial statement and the tax bases of assets and liabilities
      and
      for net operating loss carryforwards measured using the enacted tax rates in
      effect for the year in which the differences are expected to reverse. We
      periodically evaluate the realizability of our net deferred tax assets and
      record a valuation allowance if, based on the weight of available evidence,
      it
      is more likely than not that some or all of the deferred tax assets will not
      be
      realized.





***Stock-Based
      Compensation***




We
      adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123R”) on January 1, 2006. Issued in
      December 2004 by the FASB, SFAS No. 123R requires that the fair value
      compensation cost relating to share-based payment transactions be recognized
      in
      financial statements. Under the provisions of SFAS No. 123R, share-based
      compensation cost is measured at the grant date, based on the fair value of
      the
      award, and is recognized over the employee’s requisite service period. The fair
      value of the stock options and employee stock purchase plan (“ESPP”) awards was
      estimated using a Black-Scholes option valuation model. This model requires
      the
      input of highly subjective assumptions and elections in adopting and
      implementing SFAS No. 123R, including expected stock price volatility and
      the estimated life of each award. The fair value of equity-based awards is
      amortized over the vesting period of the award and we have elected to use the
      straight-line method for amortizing its stock option and ESPP awards.




We
      adopted the modified prospective transition method as provided by SFAS
      No. 123R and compensation costs for all awards granted after the date of
      adoption and the unvested portion of previously granted awards outstanding
      are
      measured at their estimated fair value. Prior to January 1, 2006, we
      accounted for employee stock option grants using the intrinsic method in
      accordance with Accounting Principles Board (“APB”) Opinion No. 25
“Accounting for Stock Issued to Employees” and accordingly associated
      compensation expense, if any, was measured as the excess of the underlying
      stock
      price over the exercise price on the date of grant. We also complied with the
      disclosure option of FASB Statement of Financial Accounting Standards
      No. 123 “Accounting for Stock Based Compensation”, and FASB Statement of
      Financial Accounting Standards No. 148 “Accounting for Stock-Based
      Compensation—Transition and Disclosure” and made pro forma footnote disclosures.
      Pro forma net income and pro forma net income per share disclosed in the
      footnotes to our consolidated financial statements were estimated using a
      Black-Scholes option valuation model.




In
      accordance with SFAS 123R, we will also recognize the cost of shares, options,
      warrants and other equity instruments issued to nonemployees as consideration
      for services as expense over the periods in which the related services are
      rendered by a charge to compensation cost (or another appropriate expense or
      prepaid expense account) and a corresponding credit to additional paid-in
      capital. Generally, cost will be determined based on the fair value of the
      equity instruments at the date of issuance. The fair value of options, warrants
      and similar equity instruments will be estimated based on the Black-Scholes
      option-pricing model, which meets the criteria set forth in SFAS 123R, and
      the
      assumption that all of the options or other equity instruments will ultimately
      vest. The Company anticipates their will be an immaterial amount of actual
      forfeitures and will not estimate future forfeitures.




***Effect
      of Recently Issued Accounting Pronouncements***




In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for
      uncertainty in income taxes recognized in the financial statements in accordance
      with SFAS No. 109. This pronouncement recommends a recognition threshold
      and measurement process for recording in the financial statements uncertain
      tax
      positions taken or expected to be taken in the Company’s tax return. FIN 48 also
      provides guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions. The accounting provisions of FIN 48 will be effective for our first
      fiscal quarter of fiscal 2007. We are in the process of evaluating the effect,
      if any, the adoption of FIN 48 will have on our financial statements.




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          11
          -





In
      September 2006, the SEC released Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements” (“SAB 108”), which addresses
      how uncorrected errors in previous years should be considered when quantifying
      errors in current-year financial statements. SAB 108 requires registrants to
      consider the effect of all carry over and reversing effects of prior-year
      misstatements when quantifying errors in current-year financial statements.
      SAB
      108 allows registrants to record the effects of adopting the guidance as a
      cumulative-effect adjustment to retained earnings. We will adopt SAB 108 as
      of
      the beginning of fiscal 2007 and do not expect that the adoption of SAB 108
      will
      have a material impact on our financial condition or results of operations.




**F** **INANCIAL** **C** **ONDITION**




Our
      ability to continue as a going concern and achieve profitability, if at all,
      will depend upon a number of factors, including, among other things, market
      acceptance of our gaming machine products, reliability of our products and
      services, customer support and satisfaction, sufficient capital to fund ongoing
      research and development and adequate capital to expand our business. There
      can
      be no assurance that any of the foregoing will be accomplished or that we will
      achieve profitability on an ongoing basis. As with all developing companies,
      we
      are subject to risks such as uncertainty of revenues, markets, profitability
      and
      the need for additional funding. All of these factors could have a material
      adverse effect on our business, financial condition and results of operations.




****R****ESULTS
      OF****O****PERATIONS****- Y****EARS****E****NDED****D****ECEMBER****31,
      2006****AND
      2005****




***Revenues***




During
      the year ended December 31, 2006, we generated revenues of $140,826, as compared
      to revenues of $1,274,819 during the year ended December 31, 2005. The
      $1,133,933, or 89.0%, decrease in revenues, consists of a $1,110,190 decrease
      in
      services revenue and a $23,803 decrease in product sales revenue. The decrease
      related to the sale of our Internet gaming platform to Cantor on February 15,
      2006. We anticipate licensing our AWP and Section 16 games in the United Kingdom
      in 2007.




***Cost
      of Revenues***




During
      the year ended December 31, 2006, our cost of revenues was $73,935, as compared
      to $528,085 during the year ended December 31, 2005. During the year ended
      December 31, 2006, our cost of revenues consisted of $73,935 attributable only
      to services. The $454,150 decrease in the cost of revenues was directly
      attributable to the sale of our Internet gaming platform to Cantor on February
      15, 2006 as compared to the year ended December 31, 2005. We anticipate that
      our
      revenues in future periods may vary upon the future licensing of AWP and Section
      16 games in the United Kingdom initially, and in other European Union countries
      where such games are offered thereafter. We anticipate having no cost of
      revenues and our margins are anticipated to improve with future licensing of
      AWP
      and Section 16 games. We will not be engaged in the manufacture, distribution
      or
      maintenance of AWP and Section 16 games, but rather we will simply provide
      our
      software to be loaded on each of the gaming devices.




During
      the year ended December 31, 2006, we realized a gross margin of $66,891, as
      compared to a gross margin of $746,734 during the year ended December 31, 2005.
      The $679,843, or 91.0% decrease in gross margin, related to the sale of our
      Internet gaming platform to Cantor on February 15, 2006 as compared to Internet
      gaming development revenues throughout 2005.




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          12
          -




***Operating
      Expenses***




During
      the year ended December 31, 2006, we incurred total operating expenses of
      $968,262, as compared to $1,887,314 during the year ended December 31, 2005,
      a
      decrease of $919,052, or 48.7%. We anticipate that our operating expenses,
      particularly as relates to selling, general and administrative expenses, will
      decrease in terms of percentage of revenues in 2007 as we focus on the licensing
      of AWP and Section 16 games through a third party manufacturer and
      distributor.




During
      the year ended December 31, 2006, we incurred research and development expenses
      of $196,341, as compared to $459,029 during the year ended December 31,
      2005, a decrease of $262,688, or 57.2%. The decrease in our research and
      development expenses was due primarily to the sale of our Internet gaming
      platform to Cantor on February 15, 2006, as compared to 2005, when we developed
      the Cantor Casino utilizing our existing Internet gaming platform. We anticipate
      licensing our AWP and Section 16 games into the United Kingdom market in 2007.
      Thereafter, we anticipate licensing such games in other European Union
      jurisdictions where such games are offered. While this is our initial deployment
      of licensing our games for land-based gaming operations, we anticipate
      minimizing the risk by partnering with a third party manufacturer and
      distributor. Moreover, by doing so, we have eliminated the traditional capital
      costs associated with the deployment of gaming machines through avoidance of
      manufacturing and the establishment of a sales and distribution team.




During
      the year ended December 31, 2006, we incurred selling, general and
      administrative expenses of $771,921, as compared to $1,428,285 during the year
      ended December 31, 2005, a decrease of $656,364, or 46.0%. The decrease in
      our
      selling, general and administrative expenses was due primarily to focusing
      on
      the development of AWP and Section 16 games and substantially decreasing many
      expenses incurred in the prior fiscal year. In 2005, we incurred significant
      expenses associated with the development of the Cantor Casino in 2005, including
      overseas travel, rental premises in Las Vegas and Sydney and consulting fees.
      We
      anticipate that our selling, general and administrative expenses will be
      significantly lower in 2007 as we reduced the number of employees from six
      to
      two in conjunction with the sale of certain assets to Cantor in February 2006,
      as well as our new focus on the licensing of AWP and Section 16 games through
      a
      third party manufacturer and distributor in the United Kingdom.




***Other
      Income (Expense)***




During
      the year ended December 31, 2006, other expense was $217,622, as compared to
      other expense of $332,029 during the year ended December 31, 2005, a decrease
      of
      $114,407, or 34.5%. The decrease is related primarily to a $204,737 gain on
      sale
      of certain assets to Cantor in February 2006, a $79,982 decrease in the fair
      value of penalty common stock, offset, in part, by an increase of $19,763 of
      interest expense and amortization of debt discount associated with the debt
      financing provided by Cantor, a $10,296 loss on real property lease and a
      $137,536 decrease in other income.




Gain
      on
      fair value of warrants for the year ended December 31, 2005 was approximately
      $2,717. The gain is due primarily to the decrease in the market value of our
      common stock. The gain represents the unrealized non-cash change in the fair
      value of certain warrants, using the Black-Scholes option pricing model. The
      non-cash gain on fair value of warrants has no impact on our cash flows or
      liquidity.




***Net
      Loss***




During
      the year ended December 31, 2006, we realized a net loss of $1,118,993, as
      compared to a net loss of $1,472,609 during the year ended December 31, 2005,
      a
      decrease in net loss of $353,616. The decrease in net loss resulted from a
      decrease in operating expenses of $919,052 and a $114,407 decrease in other
      expense, offset, in part, by a $1,133,933 decrease in revenues. A decreased
      loss
      and decreased revenues directly relates to our cessation of revenue generating
      activities. As we concluded our development work for Cantor upon the sale of
      certain assets on February 15, 2006, we will not realize revenues from this
      project after such date. We do, however, anticipate realizing revenues from
      the
      licensing of AWP and Section games in the United Kingdom in 2007. In addition,
      we have reduced our staff to two employees following the sale of certain assets
      to Cantor, and do not expect to increase our current base of employees
      significantly given that our AWP and Section 16 games are available for
      licensing.




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          13
          -




**L** **IQUIDITY
        AND** **C** **APITAL** **R** **ESOURCES**




***Overview***




As
      of
      December 31, 2006, we had cash of $73,367, and total liabilities of $2,409,707,
      of which $1,057,047 are current liabilities. In addition, as of December 31,
      2006, we had a working capital deficit of $952,853 and a stockholders’
deficiency of $2,305,513. During the year ended December 31, 2006, cash on
      hand
      decreased from $122,318 to $73,367.




Operating
      activities used net cash of $510,745 during the year ended December 31,
      2006, whereas operating activities used net cash of $861,153 during the year
      ended December 31, 2005. The net cash used in operating activities during
      the year ended December 31, 2006 related primarily to our net loss of
      $1,118,993, an decrease in accounts payable of $65,768, a gain on sale of
      intangible assets of $204,737 offset, in part, by a decrease in accounts
      receivable of $93,038, an increase in accrued expenses of $182,404, an increase
      in accrued compensation - officers of $319,826, and amortization of debt
      discount of $222,068. During the year ended December 31, 2005, our operating
      activities used net cash of $861,153 related primarily to our net loss of
      $1,472,609, and a decrease in foreign taxes payable of $166,009, offset, in
      part, by a decrease in accounts receivable of $84,478, an increase in accounts
      payable of $48,080, an increase in accrued expenses of $181,769, an increase
      in
      accrued compensation - officers of $73,842 and amortization of debt discount
      of
      $222,068.




Investing
      activities generated $515,684 during the year ended December 31, 2006, as
      compared to $96,229 used during the year ended December 31, 2005. The decrease
      in use of cash in investing activities reflects a $50,000 decrease in
      acquisition of intangible assets, a $40,913 decrease in acquisition of equipment
      and furnishings, $21,000 from the sale of equipment and furnishing and $500,000
      from the sale of intangible assets.




Our
      financing activities used net cash of $55,548 during the year ended December
      31,
      2006, as compared to providing $500,000 during the year ended December 31,
      2005. The net cash used in financing activities during the year ended December
      31, 2006 reflects $55,548 used to repay note payables to officers. The net
      cash
      provided by financing activities during the year ended December 31, 2005
      reflects the final $500,000 of loan proceeds received from Cantor pursuant
      to
      the senior secured note.




***Outlook***




We
      incurred losses of $1,118,993 and $1,472,609 and negative net cash flows from
      operating activities of $515,684 and $861,153, for the years ended December
      31,
      2006 and 2005, respectively. As of December 31, 2006, we had an accumulated
      deficit of $9,434,618. The foregoing raises substantial doubt about our ability
      to continue as a going concern for a reasonable period of time.




Our
      principal objectives at this time are to license our AWP and Section 16 games
      in
      the United Kingdom, and thereafter in other European Union countries where
      such
      gaming machines are utilized, through a third party manufacturer and
      distributor.




In
      an
      effort to reduce operating expenses and obtain capital for our operations,
      we
      sold certain assets to Cantor on February 15, 2006 for $500,000. In addition,
      we
      agreed to Cantor hiring eight of our former employees as part of this
      transaction. In addition, we have closed our Las Vegas, Nevada offices and
      relocated to Encino, California. We do not pay rent at this location. In
      addition, our lease obligations have concluded at our office in North Sydney,
      Australia, where we previously paid a monthly rate of $13,000 Australian dollars
      (US$10,000 as of March 9, 2007). Our lease obligations at our Sydney, Australia
      office ended on January 31, 2007.




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          14
          -




While
      we
      have significantly reduced our fixed monthly operating expenses, we anticipate
      that for the twelve month period ending December 31, 2007, we will require
      a
      cash infusion for further working capital. The amount of such cash infusion
      will
      be dependent upon the volume, and timing, of our anticipated licensing of AWP
      and Section 16 games. Further, until such time as we achieve a measurable amount
      of AWP and Section 16 gaming machine license revenues, our executive officers
      will continue to defer all salaries payable to them.




In
      summary, until we generate sufficient cash from the licensing of AWP and Section
      16 games, we will need to rely upon private and institutional sources of debt
      and equity financing. Based on presently known plans, we believe that we will
      be
      able to fund our existing operations and required expenditures through the
      third
      quarter of 2007 with cash on hand. **** We
      will
      likely require additional cash from the issuance of equity or debt securities
      prior to September 30, 2007 to finance our ongoing operations and strategic
      objectives. No assurances can be given that we will successfully obtain
      liquidity sources necessary to fund our operations to profitability and beyond.




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          15
          -




****R****ISK****F****ACTORS****




*We
      are subject to a high degree of risk as we are considered to be in unsound
      financial condition. The following risks, if any one or more occurs, could
      materially harm our business, financial condition or future results of
      operations. If that occurs, the trading price of our common stock could further
      decline.*




****R****ISKS****R****ELATED
      TO****G****AMING****&
      E****NTERTAINMENT****G****ROUP,****I****NC.****




***We
      have a history of significant operating losses, anticipate continued operating
      losses and we may be unable to achieve profitability.***





We
      have a
      history of significant operating losses. For the years ended December 31,
      2006 and 2005, we have incurred operating losses of $1,118,993 and $1,472,609,
      respectively, and our operations have used $510,745 and $861,153 of cash,
      respectively. As of December 31, 2006, we had an accumulated deficit of
      $9,434,618 and stockholders’ deficiency of $2,305,513. We anticipate realizing
      operating losses for the foreseeable future until such time as we realize
      revenues from the licensing of AWP and Section 16 games sufficient to offset
      our
      operating expenses.




Our
      ability to continue as a going concern and achieve profitability will depend
      upon a number of factors, including, among other things, market acceptance,
      performance and reliability of our AWP and Section 16 games. There can be no
      assurance that the foregoing will be accomplished or that we will achieve
      profitability on an ongoing basis. In addition, we are subject to risks such
      as
      uncertainty of revenues and the United Kingdom’s recently enacted tax duty on
      all Section 16 machines placed in gaming establishments, which tax duty will
      commence in the third quarter of 2007. These factors could have a material
      adverse effect on our business, financial condition and results of operations.




***We
      have recently sold the assets relating to the large majority of our historical
      revenues and future revenues are difficult to predict***





On
      February 15, 2006, we sold certain assets to Cantor. These assets included
      our
      Internet gaming system and related games. Given that our historical revenues
      have been largely derived from these assets, we must generate revenues from
      other assets that have not yet been commercialized. While we anticipate that
      we
      will be successful in licensing AWP and Section 16 games in the U.K. through
      a
      third party manufacturer and distributor, based on the trial results of these
      products over the last several months, such placements mark our first product
      offering in land-based gaming. Accordingly, it is very difficult to predict
      our
      future revenues. If we cannot license our Section 16 and AWP games to a third
      party manufacturer and distributor, our business, financial condition and
      results of operations may be materially adversely affected.




***There
      are significant uncertainties as to our proposed entrance into the land-based
      gaming market.***





Historically,
      we have been involved in the development and provision of government accredited
      and gaming laboratory certified online gaming systems. Following the sale of
      our
      Internet gaming software and certain other assets to Cantor on February 15,
      2006, we are directing our focus on the licensing of AWP and Section 16 games
      in
      the United Kingdom initially, and thereafter in other European Union countries
      where these types of gaming machines are offered.




As
      in any
      industry, product demand and market acceptance are subject to considerable
      uncertainty, particularly with new products. While management believes that
      we
      have limited our risk by partnering with a third party manufacturer and
      distributor of gaming machines in the markets we intend to enter, no assurance
      can be made that we will be successful in realizing revenues sufficient to
      achieve profitability. In the event we are not successful in licensing a
      significant number of AWP and Section 16 games, our business, financial
      condition and results of operations could be materially adversely affected.




-
          16
          -




***We
      face considerable competition from established companies in the United Kingdom
      and other countries where AWP and Section 16 gaming machines are offered, and
      such companies generally have substantially greater capital, research and
      development, manufacturing and marketing resources than we
      possess.***





There
      are
      several well financed established providers of AWP and Section 16 gaming
      machines in the U.K. that have similar product offerings and significant market
      penetration. Additionally, while we believe that we offer the first roulette
      machine that can be played in an AWP and Section 16 format, there likely will
      be
      other companies who offer the same type of roulette gaming machine in the
      future. Further, our competitors may be able to develop technologies more
      effectively, generally have significantly more game content than us, and may
      be
      able to adopt more aggressive pricing strategies than us. These companies
      generally have longer operating histories, greater brand name recognition,
      larger customer bases and significantly greater financial, technical and
      marketing resources than us.




***Our
      capitalization is limited and we will likely require additional funding.***





A
      limiting factor on our growth, including our ability to make acquisitions in
      the
      future, is our limited capitalization. We believe that our current cash on
      hand
      is sufficient to fund our operations through the third quarter of this year.
      We
      will, however, likely require additional financing for working capital purposes
      and to consummate an acquisition. There can be no assurance, however, that
      such
      financing will be available to us, and if so on reasonable terms. If we do
      not
      procure adequate financing when required, our business, financial condition
      and
      results of operations may suffer.




***Our
      success depends on our ability to prevent others from infringing on our
      technologies.***





Our
      success is heavily dependent upon proprietary technology. To protect our
      proprietary technology, we rely principally upon copyright and trade secret
      protection. All proprietary information that can be copyrighted is marked as
      such. All employees and consultants are required to execute confidentiality
      agreements with us. There can be no assurance that the steps taken by us in
      this
      regard will be adequate to prevent misappropriation or independent third-party
      development of our technology. Further, the laws of certain countries in which
      we anticipate licensing AWP and Section 16 games do not protect software and
      intellectual property rights to the same extent as the laws of the United
      States. While we generally require the execution of an agreement that restricts
      unauthorized copying and use of our products, should unauthorized copying or
      misuse of our products occur, our business, financial condition and results
      of
      operations could be materially adversely affected.





Moreover,
      while the disclosure and use of our proprietary technology, know-how and trade
      secrets are generally controlled under agreements with the parties involved,
      there can be no assurance that all confidentiality agreements will be honored,
      that others will not independently develop similar or superior technology,
      that
      disputes will not arise concerning the ownership of intellectual property,
      or
      that dissemination of our proprietary technology, know-how and trade secrets
      will not occur. Further,
      if an infringement claim is brought against us, litigation would be costly
      and
      time consuming, but may be necessary to protect our proprietary rights and
      to
      defend ourselves. We could incur substantial costs and diversion of management
      resources in the defense of any claims relating to the proprietary rights of
      others or in asserting claims against others.





***We
      are dependent on our key personnel, and the loss of any could adversely affect
      our business.***





We
      depend
      on the continued performance of the members of our management team and our
      technology team. Tibor N. Vertes, our Chief Executive Officer and Chairman,
      and
      Gregory L. Hrncir, our President and a Director, have each contributed
      significantly to our business. If we lose the services of either of the
      foregoing parties, and are unable to locate suitable replacements for such
      persons in a timely manner, it could have a material adverse effect on our
      business.




-
          17
          -




***Currency
      rate fluctuations can have an adverse effect on our business operations.***





Our
      wholly-owned foreign operating subsidiaries include Gaming & Entertainment
      Technology Pty Ltd, an Australian company utilizing Australian dollars as its
      functional currency, and Gaming & Entertainment Ltd., a United Kingdom
      company utilizing pounds sterling as its functional currency. Future licensing
      of AWP and Section 16 games will be made in pounds sterling in the United
      Kingdom and in Euros in other European Union countries where sold. Given
      that our financial results are reported in United States dollars, which is
      subject to fluctuations in respect of the currencies of the countries in which
      we anticipate placing products, fluctuations in the exchange rate of the U.S.
      dollar to pounds sterling and Euros could have a positive or negative effect
      on
      our reported results. Given the constantly changing currency exposures and
      the
      substantial volatility of currency exchange rates, we cannot predict the effect
      of exchange rate fluctuations upon future operating results. We do not currently
      have a hedging program to mitigate currency risk, and do not presently intend
      to
      implement one. Thus, there can be no assurance that we will not experience
      currency losses in the future, which could have a material adverse effect on
      our
      business, revenues, operating results and financial condition.





***Worsening
      economic conditions may adversely affect our
      business.***





The
      demand for entertainment and leisure activities tends to be highly sensitive
      to
      the disposable incomes of consumers and thus a decline in general economic
      conditions may lead to our end-users having less discretionary income with
      which
      to wager, the result of which could affect our business, financial condition
      and
      results of operations.




***Although
      we have entered into confidentiality and non-compete agreements with our
      employees, if we are unable to protect our proprietary information against
      unauthorized use by others, our competitive position could be
      harmed.***





Our
      proprietary information is critically important to our competitive position
      and
      is a significant aspect of the products we intend to offer commencing in the
      late second quarter of this year. If we are unable to protect our proprietary
      information against unauthorized use by others, our competitive position could
      be harmed. While we have and continue to enter into confidentiality and
      non-compete agreements with our employees, along with controlling access to
      and
      distribution of our documentation and other proprietary information, we cannot
      make assurances that these strategies will be adequate to prevent
      misappropriation of our proprietary information. Therefore, we could be required
      to expend significant amounts to defend our rights to proprietary information
      in
      the future if a breach were to occur.




***Our
      anticipated future revenues are expected to be extremely concentrated, and
      revenues for 2006 were derived solely from Cantor.***





All
      of
      our reported revenues for 2005 have been derived from the exclusive license
      of
      our Internet gaming system to Cantor. Cantor has been our sole source of revenue
      in 2006 as well through the date of the sale of assets consummated on February
      15, 2006. Our anticipated future revenues, relating to the licensing of AWP
      and
      Section 16 games, will be made solely through a third party manufacturer and
      distributor. Our future revenues for AWP and Section 16 game sales will be
      entirely dependent on the efforts of a third party as we have no intention
      of
      selling and marketing the gaming machines. Consequently, we do not have control
      over the volume of AWP and Section 16 gaming machines licensed and the revenues
      derived therefrom.





-
          18
          -




**R** **ISKS** **R** **ELATED
        TO** **O** **UR** **C** **OMMON** **S** **TOCK**




***Our
      stock price has been and may continue to be volatile and our trading volume
      is
      extremely limited.***





The
      market price of our common shares has experienced significant fluctuations
      and
      may continue to fluctuate significantly due to various factors, some of which
      are beyond our control, such as market acceptance of our AWP and Section 16
      gaming products, technological innovation by our competitors, quarterly
      variations in our revenue and results of operations, general market conditions
      or market conditions specific to particular industries, including the gaming
      sector. In addition, given the extremely limited trading volume in our common
      stock, stockholders seeking to liquidate all or some of their holdings may
      experience difficulty in doing so.




***Our
      common stock is deemed to be “penny stock,” which may make it more difficult for
      our stockholders to resell their shares due to suitability
      requirements.***




Historically,
      our common stock has been deemed to be “penny stock” as that term is defined in
      Rule 3a51-1 promulgated under the Exchange Act. Penny stock may be more
      difficult for investors to resell. Penny stocks are stocks:




·
            Having
                a price of less than $5.00 per
                share




·
            Not
                traded on a “recognized” national
                exchange




·
            Not
                quoted on the Nasdaq automated quotation system (Nasdaq-listed stock
                must
                still have a price of not less than $5.00 per share);
                or




·
            Of
                issuers with net tangible assets less than $2.0 million (if the issuer
                has
                been in continuous operation for at least three years) or $5.0 million
                (if
                in continuous operation for less than three years), or with average
                revenues of less than $6.0 million for the last three
                years.




The
      closing bid price for our common stock on the OTC Bulletin Board on March 9,
      2007, was $0.045.




Under
      the
      penny stock regulations, a broker-dealer selling penny stock to anyone other
      than an established customer or “accredited investor,” generally, an individual
      with net worth in excess of US$1,000,000 or an annual income exceeding
      US$200,000, or US$300,000 together with his or her spouse, must make a special
      suitability determination for the purchaser and must receive the purchaser’s
      written consent to the transaction prior to sale, unless the broker-dealer
      or
      the transaction is otherwise exempt. In addition, the penny stock regulations
      require the broker-dealer to deliver, prior to any transaction involving a
      penny
      stock, a disclosure schedule prepared by the Commission relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise exempt.
      A
      broker-dealer is also required to disclose commissions payable to the
      broker-dealer and the registered representative and current quotations for
      the
      securities. Finally, a broker-dealer is required to send monthly statements
      disclosing recent price information with respect to the penny stock held in
      a
      customer’s account and information with respect to the limited market in penny
      stocks.





***We
      do not anticipate issuing dividends to our stockholders.***





We
      do not
      anticipate issuing dividends to our stockholders in the foreseeable future.
      In
      the event we achieve profitability in the future, the issuance of dividends
      will
      be at the discretion of our board of directors and will depend on, among other
      things, our earnings, financial condition, capital requirements, level of
      indebtedness, statutory and contractual restrictions applying to the payment
      of
      dividends, and other considerations that our board of directors deems relevant.
      Accordingly, stockholders may have to sell some or all of their common stock
      in
      order to generate cash flow from their investment.




-
          19
          -





***We
      have a significant number of outstanding options and warrants that could
      materially dilute existing shareholders.*** ****





As
      of
      March 9, 2007, there were outstanding options and warrants to purchase an
      aggregate of up to 9,429,075, with a weighted average exercise price of $0.54.
      Of this amount, Cantor holds warrants to purchase 7,000,000 shares of common
      stock (exercisable through December 8, 2009 and assumes that Cantor’s warrant to
      purchase $2,000,000 of our common stock is exercised at $0.60 per share), there
      are options outstanding to purchase 1,562,325 shares of common stock pursuant
      to
      our 2004 Stock Option and Incentive Plan, and there are outstanding warrants
      to
      purchase (i) 366,750 shares of common stock held by underwriters relating to
      our
      private placement in 2004, and (ii) 500,000 shares of common stock issued in
      conjunction with the purchase of Absolute Game, Ltd. in 2005. All of the
      outstanding options and warrants are immediately exercisable. If all of the
      options and warrants are exercised, our common stockholders will experience
      significant dilution; provided, however, we would receive $5,076,375 if all
      outstanding options and warrants were exercised with cash.





-
          20
          -


**ITEM
              7.**
            **FINANCIAL
                STATEMENTS.**




**GAMING
      & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


Reports
                  of Independent Registered Public Accounting Firms
              F-2/F-3Consolidated
                  Balance SheetDecember
                  31, 2006
              F-4Consolidated
                  Statements of OperationsYears
                  Ended December 31, 2006 and 2005
              F-5Consolidated
                  Statements of Stockholders' DeficiencyYears
                  Ended December 2006 and 2005
              F-6Consolidated
                  Statements of Cash FlowsYears
                  Ended December 31, 2006 and 2005
              F-7Notes
                  to Consolidated Financial Statements
              F-8




F-1
 
 **H****ANSEN****,
                    B****ARNETT****&
                    M****AXWELL,
                    P.C.**A
                    Professional CorporationCERTIFIED
                    PUBLIC ACCOUNTANTS5
                    Triad Center, Suite 750
                **Registered
                    with the Public Company**Salt
                    Lake City, UT 84180-1128
                **Accounting
                    Oversight Board**Phone:
                    (801) 532-2200Fax:
                    (801) 532-7944www.hbmcpas.com




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and the Stockholders


Gaming
      & Entertainment Group, Inc.




We
      have
      audited the accompanying consolidated balance sheet of Gaming &
Entertainment Group, Inc. and Subsidiaries as of December 31, 2006, and the
      related consolidated statements of operations, stockholders' deficiency and
      cash
      flows for the year then ended. The consolidated financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audit provides a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Gaming & Entertainment
      Group, Inc. and Subsidiaries as of December 31, 2006, and the results of their
      operations and their cash flows for the year then ended, in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has incurred significant losses
      and negative cash flows from operating activities during the year ended December
      31, 2006. Additionally, the Company has not been able to generate any
      significant revenue. As of December 31, 2006, the Company had an accumulated
      deficit of $9,434,618, and negative working capital of $983,680. The Company
      has
      total current liabilities of approximately $1,057,047 and a note payable of
      approximately $1,352,660. These matters raise substantial doubt about the
      Company’s ability to continue as a going concern. Management’s plans with
      respect to these matters are also described in Note 2. The accompanying
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





As
      explained in Note 2 to the consolidated financial statements, effective January
      1, 2006, the Company adopted Financial Accounting Standards Board Statement
      123
      (R) “Share-Based Payment”.




/s/
        Hansen, Barnett & Mazwell, P.C.




Salt
      Lake
      City, Utah


March
      21,
      2007




F-2




**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors and Stockholders


Gaming
      & Entertainment Group, Inc.





We
      have
      audited the accompanying consolidated statements of operations, stockholders’
deficiency and cash flows of Gaming & Entertainment Group, Inc. and
      Subsidiaries for the year ended December 31, 2005. These consolidated financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the results of operations and cash flows of Gaming
      & Entertainment Group, Inc. and Subsidiaries for the year ended December 31,
      2005, in conformity with accounting principles generally accepted in the United
      States of America.




/s/
      J. H.
      Cohn LLP




Roseland,
      New Jersey


March
      20,
      2006





F-3


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**Consolidated
      Balance Sheet**


**December
      31, 2006**





**ASSETS****Current
                Assets**Cash
            
            $
            73,367Total
                current assets
            
            
            73,367**Equipment
                and Furnishings**,
                net of accumulated depreciation of $39,732
            
            
            30,827Total
                assets
            
            $
            104,194**LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            103,230Accrued
                expenses
            
            
            413,452Accrued
                compensation - officers
            
            
            540,365Total
                current liabilities
            
            
            1,057,047**Senior
                Secured Note Payable**,
                net of unamortized debt discount of $647,340
            
            
            1,352,660Total
                liabilities
            
            
            2,409,707**Commitments****Stockholders’
                Deficiency**Preferred
                stock, par value $10 per share; 10,000,000 shares
                authorizedClass
                A convertible preferred stock, par value $10 per share;1,000,000
                shares designated; none issued
            
            
            -Class
                B preferred stock, par value $10 per share;1,000,000
                shares designated; none issued
            
            
            -Common
                stock, par value $.01 per share; 150,000,000 shares authorized;19,830,602
                shares issued and outstanding
            
            
            198,306Additional
                paid-in capital
            
            
            6,791,778Accumulated
                deficit
            
            
            (9,434,618
            )Accumulated
                other comprehensive income - foreign currency translation
                gains
            
            
            139,021Total
                stockholders’ deficiency
            
            
            (2,305,513
            )Total
                liabilities and stockholders’ deficiency
            
            $
            104,194




See
      Notes
      to Consolidated Financial Statements




F-4


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Operations**


**For
      the Years Ended December 31, 2006 and 2005**




2006
            
            2005**Revenues:**Services
            
            $
            140,826
            
            $
            1,251,016Product
            
            
            -
            
            
            23,803Total
                revenues
            
            
            140,826
            
            
            1,274,819**Cost
                of revenues:**Services
            
            
            73,935
            
            
            507,348Product
            
            
            -
            
            
            20,737Total
                cost of revenues
            
            
            73,935
            
            
            528,085Gross
                margin
            
            
            66,891
            
            
            746,734**Operating
                expenses:**Research
                and development
            
            
            196,341
            
            
            459,029Selling,
                general and administrative
            
            
            771,921
            
            
            1,428,285Total
                operating expenses
            
            
            968,262
            
            
            1,887,314Operating
                loss
            
            
            (901,371
            )
            
            (1,140,580
            )**Other
                income (expense):**Interest
                expense and amortization of debt discount
            
            
            (439,140
            )
            
            (419,377
            )Other
                income
            
            
            27,077
            
            
            164,613Gain
                on sale of assets
            
            
            204,737
            
            
            -Loss
                on real property lease
            
            
            (10,296
            )
            
            -Gain
                on fair value of warrants
            
            
            -
            
            
            2,717Fair
                value of penalty common stock
            
            
            -
            
            
            (79,982
            )Total
                other expense
            
            
            (217,622
            )
            
            (332,029
            )Net
                loss
            
            $
            (1,118,993
            )
            $
            (1,472,609
            )**Weighted
                average number of shares outstanding**
            
            
            19,830,602
            
            
            19,665,724**Net
                loss per share - basic and diluted**
            
            $
            (0.06
            )
            $
            (0.07
            )




See
      Notes
      to Consolidated Financial Statements





F-5




**GAMING
      & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**




**Consolidated
      Statements of Stockholders’ Deficiency**


**Years
      ended December 31, 2006 and 2005**




Common
                Stock
            
            Additional
                Paid-in
            
            Accumulated
            
            Accumulated
                Other ComprehensiveShares
            
            Amount
            
            Capital
            
            Deficit
            
            Income
            
            Total**Balance
                at January 1, 2005**
            
            
            16,514,018
            
            $
            165,140
            
            $
            3,796,397
            
            $
            (6,843,016
            )
            $
            147,416
            
            $
            (2,734,063
            )Reclassifications
                of proceeds from sale of common stock and warrants with registration
                rights through private placement
            
            
            2,445,000
            
            
            24,450
            
            
            2,420,550
            
            
            —
            
            
            —
            
            
            2,445,000Reclassifications
                of common stock and warrants issued for equipment
            
            
            58,334
            
            
            583
            
            
            57,751
            
            
            —
            
            
            —
            
            
            58,334Shares
                issued for late registration filing
            
            
            563,250
            
            
            5,633
            
            
            247,830
            
            
            —
            
            
            —
            
            
            253,463Shares
                issued in exchange for purchase of intangible assets
            
            
            250,000
            
            
            2,500
            
            
            125,000
            
            
            —
            
            
            —
            
            
            127,500Warrants
                issued in exchange for purchase of intangible assets
            
            
            —
            
            
            —
            
            
            136,000
            
            
            —
            
            
            —
            
            
            136,000Foreign
                currency translation loss (A)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,446
            )
            
            (9,446
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,472,609
            )
            
            —
            
            
            (1,472,609
            )**Balance
                at December 31, 2005**
            
            
            19,830,602
            
            
            198,306
            
            
            6,783,528
            
            
            (8,315,625
            )
            
            137,970
            
            
            (1,195,821
            )Stock
                compensation expense
            
            
            —
            
            
            —
            
            
            8,250
            
            
            —
            
            
            —
            
            
            8,250Foreign
                currency translation gain (A)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,051
            
            
            1,051Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,118,993
            )
            
            —
            
            
            (1,118,993
            )**Balance
                at December 31, 2006**
            
            
            19,830,602
            
            $
            198,306
            
            $
            6,791,778
            
            $
            (9,434,618
            )
            $
            139,021
            
            $
            (2,305,513
            )




(A)
              Comprehensive loss (net loss plus or minus foreign currency translation
              loss or gain) for the year ended December 31, 2006 and 2005 totaled
                $1,117,942 and $1,482,055, respectively.




See
      Notes
      to Consolidated Financial Statements




F-6


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows**


**Years
      Ended December 31, 2006 and 2005**





2006
            
            2005**Cash
                flows from operating activities**Net
                loss
            
            $
            (1,118,993
            )
            $
            (1,472,609
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Amortization
                of debt discount
            
            
            222,068
            
            
            222,068Amortization
                of intellectual property
            
            
            7,730
            
            
            31,350Depreciation
                expense
            
            
            43,957
            
            
            73,325Stock
                compensation expense
            
            
            8,250
            
            
            -Gain
                on sale of assets
            
            
            (204,737
            )
            
            -Loss
                on real property lease
            
            
            10,296
            
            
            -Gain
                on fair value of warrants
            
            
            -
            
            
            (2,717
            )Fair
                value of penalty common stock
            
            
            -
            
            
            79,982Deferred
                rent
            
            
            (8,816
            )
            
            (14,713
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            93,038
            
            
            84,478Accounts
                payable
            
            
            (65,768
            )
            
            48,080Accrued
                expenses
            
            
            182,404
            
            
            181,770Accrued
                compensation - officers
            
            
            319,826
            
            
            73,842Foreign
                taxes payable
            
            
            -
            
            
            (166,009
            )Net
                cash used in operating activities
            
            
            (510,745
            )
            
            (861,153
            )**Cash
                flows from investing activities******Acquisition
                of intangible assets
            
            
            -
            
            
            (50,000
            )****Acquisition
                ofequipment
                and furnishings
            
            
            (5,316
            )
            
            (46,229
            )Proceeds
                from sale of equipment and furnishing
            
            
            21,000
            
            
            -Proceeds
                from sale of intangible assets
            
            
            500,000
            
            
            -Net
                cash provided by (used in) investing activities
            
            
            515,684
            
            
            (96,229
            )**Cash
                flows from financing activities**Payment
                of note payables to officers
            
            
            (55,548
            )
            
            -Proceeds
                from the issuance of senior secured note and warrants
            
            
            -
            
            
            500,000Net
                cash provided by (used in) financing activities
            
            
            (55,548
            )
            
            500,000Effect
                of exchange rate changes on cash
            
            
            1,658
            
            
            (14,324
            )Net
                decrease in cash
            
            
            (48,951
            )
            
            (471,706
            )**Cash,
                beginning of year**
            
            
            122,318
            
            
            594,024**Cash,
                end of year**
            
            $
            73,367
            
            $
            122,318**Supplemental
                disclosure of cash flow information**Interest
                paid
            
            $
            -
            
            $
            -**Supplemental
                schedule of noncash investing and financing
                activities:**Intangible
                assets purchased in exchange for common stock and warrants
            
            $
            -
            
            $
            263,500




See
      Notes
      to Consolidated Financial Statements




F-7





**GAMING
      & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**N** **OTE** **1 - B** **USINESS
        AND** **O** **RGANIZATION**




On
      or
      about January 12, 2004, NorStar Group, Inc., a publicly-held company
      incorporated in Utah that was not conducting or developing any commercial
      operations (“NorStar”), consummated a series of transactions, including: (i) a
      1-for-24.852732 reverse split of its outstanding shares of common stock; (ii)
      the issuance of 14,600,000 post-split shares of common stock in exchange for
      all
      of the outstanding shares of common stock of Gaming & Entertainment Group,
      Inc., a Nevada corporation (“G&EG Nevada”); (iii) the issuance of options
      and warrants to purchase 4,257,937 post-split shares of common stock in exchange
      for all of the outstanding options and warrants to purchase shares of G&EG
      Nevada; and (iv) a change in the name of NorStar to Gaming & Entertainment
      Group, Inc. (“G&EG”). As a result of the exchange, G&EG Nevada became a
      subsidiary of G&EG, and the former stockholders of G&EG Nevada became
      the holders of 91.25% of the then outstanding shares of common stock of the
      combined companies. In addition, the former directors and officers of G&EG
      Nevada became the controlling members of the board of directors and management
      of the combined companies. Since G&EG Nevada was the only operating company
      in the exchange and the former stockholders of G&EG Nevada received a
      substantial majority of the voting securities of the combined companies, the
      exchange was accounted for as a “reverse acquisition” and, effectively, as a
      recapitalization, in which G&EG Nevada was treated as the accounting
      acquirer (and the legal acquiree) and NorStar was the accounting acquiree (and
      the legal acquirer). Since the exchange was accounted for as a “reverse
      acquisition,” the accompanying condensed consolidated financial statements
      reflect the historical financial statements of G&EG Nevada, the accounting
      acquirer, as adjusted for the effects of the exchange of shares on its equity
      accounts, the inclusion of the net liabilities of the accounting acquiree as
      of
      January 12, 2004 at their historical basis and the inclusion of the
      accounting acquiree’s results of operations from that date.




As
      used
      herein, the “Company” refers to G&EG Nevada prior to January 12, 2004
      and to G&EG, G&EG Nevada and their other subsidiaries from that
      date forward.




The
      Company is a developer of software for amusement with prizes (“AWP”) and Section
      16 gaming machines for the United Kingdom and European gaming markets.
      Historically, the Company has primarily been involved in the development of
      Internet gaming system and games for third parties.




**N** **OTE** **2 - S** **UMMARY
        OF** **S** **IGNIFICANT** **A** **CCOUNTING** **P** **OLICIES**




***(a)
      Basis of Presentation***




The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As shown in the financial statements,
      the Company has incurred losses of $1,118,993 and $1,472,609, and negative
      cash
      flows from operating activities of $510,745 and $861,153, for the years ended
      December 31, 2006 and 2005, respectively, and recurring losses in prior years.
      As of December 31, 2006, the Company had an accumulated deficit of $9,434,618
      and a stockholders’ deficiency of $2,305,513. These conditions raise substantial
      doubt about the Company’s ability to continue as a going concern. The Company’s
      ability to continue as a going concern is dependent upon its ability to generate
      sufficient cash flows from its operations or obtain sufficient liquid resources
      from other sources to meet its obligations as they become due. Through December
      31, 2006, the Company has funded its operations primarily through the issuance
      of common stock, promissory notes, warrants and options to outside investors
      for
      cash and consultants and others for services. The Company anticipates that
      it
      will require additional funding through the issuance of equity or debt
      securities later this year. Management anticipates that additional funding
      of
      not less than $250,000 will be necessary to fund the Company’s operations
      through December 31, 2007. Management believes, but cannot assure, that the
      Company will be able to obtain such financing and continue its operations
      through at least December 31, 2007. If the Company is not able to obtain
      adequate financing, it may have to curtail or terminate some, or all, of its
      operations. The accompanying consolidated financial statements do not include
      any adjustments relating to the recoverability and classification of recorded
      assets, or the amounts and classifications of liabilities that might be
      necessary in the event the Company cannot continue as a going
      concern.




F-8


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


***(b)
      Principles of Consolidation***




The
      accompanying consolidated financial statements include the accounts of G&EG
      and its wholly-owned subsidiaries. All significant intercompany balances and
      transactions have been eliminated in consolidation.




***(c)
      Use of Estimates***




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect certain reported amounts and disclosures.
      Accordingly, actual results could differ from those estimates.





***(d)
      Revenue Recognition***




Revenues
      from the enhancement, maintenance and technical support of Internet gaming
      sites
      in regulated gaming markets, in relation to the software development previously
      performed, are recognized as the services are performed, or if no pattern of
      performance is discernable, on a straight-line basis over the period in which
      the services are performed.





Revenues
      from Internet gaming site development contracts in regulated gaming markets,
      in
      relation to software development specifically performed for each respective
      client, will be recognized using the percentage of completion method of
      accounting with labor hours as the basis for measurement of progress toward
      completion of the contracts.




Revenues
      from online gaming software license fees, in relation to the utilization of
      the
      G&EG proprietary gaming platform, will be recognized as earned over the term
      of the agreement based upon a percentage of the gross win. When the Company
      receives a percentage of the gaming revenues generated by its client’s Internet
      gaming sites, it will recognize such revenues when earned.





Revenue
      from software license fees for gaming machines that are sold will be recognized
      upon completion of installation and acceptance by the gaming establishment,
      provided collectibility is reasonably assured.





***(e)
      Equipment and Furnishings***




Equipment
      and furnishings are stated at cost, net of accumulated depreciation.
      Depreciation is provided using the straight-line method over the estimated
      useful lives of the assets. Improvements to leased properties are amortized
      using the straight-line method over their estimated useful lives or the
      remaining lease period, whichever is shorter.





***(f)
      Impairment of Long Lived Assets***




Impairment
      losses on long-lived assets, such as equipment, are recognized when events
      or
      changes in circumstances indicate that the undiscounted cash flows estimated
      to
      be generated by such assets are less than their carrying value and, accordingly,
      all or a portion of such carrying value may not be recoverable. Impairment
      losses are then measured by comparing the fair value of assets to their carrying
      amounts.




F-9


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


***(g)
      Stock-Based Compensation***




Effective
      January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based
      Payment” (“FAS 123(R)”), an amendment of SFAS No. 123, “Accounting for
      Stock-Based Compensation,” using the modified prospective transition method.
      Under this transition method, compensation costs are recognized beginning with
      the effective date: (a) based on the requirements of FAS 123(R) for all
      share-based awards granted after the effective date, and (b) based on the
      requirements of FAS 123 for all awards granted to employees prior to the
      effective date of FAS 123(R) that remain unvested on the effective date.
      Accordingly, the Company did not restate the results of prior periods. The
      most
      notable change with the adoption is that compensation expense associated with
      stock options will be recognized in the Statement of Operations, rather
      than being disclosed in a pro forma footnote to the Company’s financial
      statements.




The
      exercise price of all of the options granted to employees and consultants has
      been equal to or greater than the fair market value at the date of grant and,
      accordingly, the Company has not recorded any earned or unearned compensation
      cost related to such options in the accompanying condensed consolidated
      financial statements. As a result of adopting FAS 123(R), the compensation
      expense that would be recognized for the year ended December 31, 2006 due to
      all
      options outstanding, net of estimated forfeitures being fully vested as at
      January 1, 2006, was not material.




Compensation
      expense associated with adopting SFAS 123R for the year ended December 31,
      2006
      was $8,250.  The reported basic and diluted loss per share were $0.06,
      for the year ended December 31, 2006.  Had the Company not adopted
      SFAS 123R, the effect to net income under APB Opinion No. 25 (APB 25) would
      be
      $0 for the year ended December 31, 2006.  The basic and diluted loss
      per share would have been $0.06, for the year ended December 31,
      2006.  The adoption of SFAS 123R had no effect on cash
      flows.




Prior
      to
      January 1, 2006, the Company determined the value of stock-based compensation
      arrangements under the provisions of APB 25 and made pro forma disclosures
      required under SFAS 123. During 2005, the Company granted stock options to
      purchase 320,000 common shares with exercise prices ranging from $0.20 per
      share
      to $0.40 per share, under the 2004 Stock Plan.  Because the options granted
      had no intrinsic value, no compensation expense was recognized for the grants.
       Had compensation expense for stock option grants been determined based on
      the fair value at the grant dates consistent with the method prescribed in
      SFAS
      123, the Company's net loss and net loss per share would have been adjusted
      to
      the pro forma amounts below for the year ended December 31, 2005:




**For
                Year Ended**
              **December
                31,****2005**Net
                loss, as reported
            
            $
            (1,472,609
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (2,486
            )Pro
                forma net loss
            
            $
            (1,475,095
            )Basic
                and diluted loss per common share as reported
            
            $
            (0.07
            )Basic
                and diluted loss per common share pro forma
            
            $
            (0.08
            )





***(h)
      Net Loss per Share***




The
      Company presents “basic” earnings (loss) per share and, if applicable, “diluted”
earnings per share pursuant to the provisions of Statement of Financial
      Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). Basic earnings
      (loss) per share is calculated by dividing net income or loss by the weighted
      average number of common shares outstanding during each period. The calculation
      of diluted earnings per share is similar to that of basic earnings per share,
      except that the denominator is increased to include the number of additional
      common shares that would have been outstanding if all potentially dilutive
      common shares, such as those issuable upon the exercise of options and warrants,
      were issued during the period and the treasury stock method had been applied.
      Since the Company had net losses for the years ended December 31, 2006 and
      2005,
      the effects of the assumed exercise of outstanding options and warrants would
      have been anti-dilutive and, accordingly, basic and diluted net loss per share
      in each period were the same. As of December 31, 2006 and 2005, the Company
      had
      options and warrants outstanding for the purchase of 9,429,075 and 15,889,918
      shares of common stock, respectively, that were not included in the computation
      of diluted loss per share.




F-10


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


***(i)
      Research and Development***




Research
      and development costs are expensed as incurred. Research and development
      includes salaries for software developers.




***(j)
      Foreign Currency Translation***




The
      functional currencies of the Company’s foreign subsidiaries are their respective
      local currencies. Accordingly, gains and losses from the translation of the
      financial statements of the foreign subsidiaries are reported as a separate
      component of accumulated other comprehensive income. Assets and liabilities
      in
      foreign currencies (primarily Australian dollars as of December 31, 2006) are
      translated using the exchange rate at the balance sheet date. Revenues and
      expenses are translated at average exchange rates during the year. Foreign
      currency transaction gains and losses are included in net loss.





***(k)
      Credit Risk Concentration***




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of cash.





The
      Company maintains cash in bank deposit accounts which, at times, may exceed
      federally insured limits. The Company has not experienced, and management does
      not expect, any losses on these accounts.




***(l)
      Income Taxes***




Income
      taxes are accounted for under the asset and liability method. Deferred tax
      assets and liabilities are recorded based on the temporary differences between
      the financial statement and the tax bases of assets and liabilities and for
      net
      operating loss carryforwards measured using the enacted tax rates in effect
      for
      the year in which the differences are expected to reverse. The Company
      periodically evaluates the realizability of its net deferred tax assets and
      records a valuation allowance if, based on the weight of available evidence,
      it
      is more likely than not that some or all of the deferred tax assets will not
      be
      realized.





***(m)
      Intangible Assets***




Intangible
      assets, which consist of intellectual property, are recorded at cost and
      amortized on a straight-line basis over their estimated useful lives of 5 years.
      All Company intangible assets were sold in 2006.




***(n)
      Effect of Recently Issued Accounting Pronouncements***




In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for
      uncertainty in income taxes recognized in the financial statements in accordance
      with SFAS 109. This pronouncement recommends a recognition threshold and
      measurement process for recording in the financial statements uncertain tax
      positions taken or expected to be taken in the Company’s tax return. FIN 48 also
      provides guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions. The accounting provisions of FIN 48 will be effective for our first
      fiscal quarter of fiscal 2008. The Company is in the process of evaluating
      the
      effect, if any, the adoption of FIN 48 will have on its financial statements.




F-11


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


In
      September 2006, the SEC released Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements” (“SAB 108”), which addresses
      how uncorrected errors in previous years should be considered when quantifying
      errors in current-year financial statements. SAB 108 requires registrants to
      consider the effect of all carry over and reversing effects of prior-year
      misstatements when quantifying errors in current-year financial statements.
      SAB
      108 allows registrants to record the effects of adopting the guidance as a
      cumulative-effect adjustment to retained earnings. The Company will adopt SAB
      108 as of the beginning of fiscal 2007 and does not expect that the adoption
      of
      SAB 108 will have a material impact on its financial condition or results of
      operations.





******(o)
      Reclassifications**




Certain
      reclassifications of previously reported amounts have been made to conform
      to
      the current period presentation.




**N** **OTE** **3 - E** **QUIPMENT
        AND** **F** **URNISHINGS**




The
      components of equipment and furnishings are set forth below:




Equipment
                (3 years useful life)
            
            $
            70,55970,559Less:
                Accumulated depreciation
            
            
            (39,732
            )Total
            
            $
            30,827




Depreciation
      expense was $43,957 and $73,325 for the years ended December 31, 2006 and
      2005, respectively.




**N** **OTE** **4 - I** **NTANGIBLE** **A** **SSETS**


Intangible
      assets consisted of the following:




Cost
            
            Accumulated
                Amortization
            
            Net
            
            Proceeds
                from sale of IP
            
            Gain
                on sale of IPAmortizable
                intangible assets - Intellectual Property
            
            $
            315,500
            
            $
            41,080
            
            $
            274,420
            
            $
            500,000
            
            $
            225,580




On
      February 15, 2006, the Company entered
      into an Asset Purchase Agreement (the “Cantor Asset Purchase Agreement”) with
      Cantor.




F-12




**GAMING
      & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Pursuant
      to the terms of the Cantor Asset Purchase Agreement, Cantor paid the Company
      $500,000 in consideration for certain assets, including (i) the source and
      object code relating to the software previously licensed by Cantor pursuant
      to
      the license agreement between the parties, including all intellectual property
      rights thereto, and all related documentation, (ii) all graphics relating to
      the
      source code for all Internet casinos previously developed by the Company,
      excluding certain graphics owned by third parties and (iii) various hardware
      consisting of computer servers, personal computers and other computer
      equipment.





**N** **OTE** **5 - C** **OMMITMENTS**




***Operating
      Leases***




On
      June
      16, 2005, the Company subleased (the “Sublease”) its Las Vegas office to a third
      party (the “Sublessee”). The Sublease was for a period of two years and included
      successive one-year renewable options. Under the terms of the Sublease, the
      Sublessee was required to pay the full lease payment due under the terms of
      the
      original lease agreement (the “Lease”). In addition, during the term of the
      Sublease, the Company maintained the contractual responsibility for certain
      infrastructure located at the Las Vegas office. On December 20, 2006, a third
      party assumed all lease obligations under the Lease and the Company was released
      of all lease obligations including the contractual responsibility for
      infrastructure. As a result, the Company recognized a net loss on real property
      leases of $10,296.




On
      June
      16, 2005, the Company leased new office and warehouse space in Las Vegas. This
      lease had a term of one year and a monthly lease rate of $2,200. On February
      1,
      2006, the Company terminated the lease and have no outstanding obligations
      thereunder. The Company has relocated offices in Encino, California. The Company
      does not pay rent at this location.




On
      March
      31, 2006, the Company vacated its office in North Sydney, Australia, with a
      monthly lease rate of $13,000 Australian dollars (approx. US$10,250). This
      lease
      was subject to an oral agreement which required six months advance written
      notice prior to vacating the premises. Notice to vacate was given on
      October 1, 2005.




On
      May 1,
      2006, the Company entered into an agreement to lease offices in Edgecliff,
      Sydney, Australia, with a monthly lease rate of $4,000 Australian dollars
      (approx. US$3,000). The lease was subject to an oral agreement which required
      three months advance written notice prior to vacating the premises. On October
      31, 2006 written notice was given to vacate the premises by January 31, 2007.




***Employment
      Agreements***




The
      Company has employment contracts for two key executives. The agreement are
      4 years in length, expire in August 2007 and automatically renew for
      additional one-year terms unless terminated by either the Company or the
      employee.





On
      February 15, 2006, **** Kevin
      J.
      Burman, Chief Operating Officer of the Company and a director of each of its
      wholly-owned subsidiaries, resigned from all of the above positions. Mr. Burman
      accepted employment with Cantor as its Chief Development Officer. The foregoing
      was mutually agreed upon by Mr. Burman, the Company and Cantor. Mr. Burman’s
      resignation did not involve any disagreement with the Company, its officers
      or
      directors.





As
      of
      December 31, 2006, accrued compensation related to these employees as a result
      of reduced payments totaled $540,365.





In
      March
      2005, the Company entered into a consulting agreement with Peter Bengtsson,
      the
      Chief Executive Officer of Absolute Game, Ltd. (“Absolute”). The consulting
      agreement was effective for a period of two years and included Mr. Bengtsson
      and
      one additional game developer/graphic artist. Collectively, Mr. Bengtsson and
      the third party were paid $12,000 per month.




F-13


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


On
      February 15, 2006, **** in
      conjunction with the Cantor Asset Purchase Agreement, all further obligations
      of
      the Company, pursuant to the asset purchase agreement with Absolute, were
      terminated, including the consulting agreement with Peter Bengtsson of Absolute.
      No accounts payable or accrued expenses were forgiven in conjunction with the
      foregoing.




**N** **OTE** **6 - S** **TOCKHOLDERS’** **E** **QUITY**




***Incentive
      Stock Option Plans:***




On
      April
      1, 2004, the Company adopted the 2004 Stock Option and Incentive Plan (the
“2004
      Plan”) under which nonstatutory options to purchase shares of common stock may
      be granted to employees, directors, and consultants as selected by the Board
      of
      Directors. Awards under the 2004 Plan may also be made in the form of incentive
      stock options and shares of common stock. 3,500,000 shares have been reserved
      for issuance under the 2004 Plan. Options are exercisable over a period of
      time,
      not to exceed ten years, as designated by the Board of Directors. The Board
      also
      agreed to integrate into the 2004 Plan all outstanding options that had been
      previously granted under the 2003 Stock Option and Incentive Plan.




The
      following table summarizes option activity under the 2004 Plan during the years
      ended December 31, 2006 and 2005:





**2006**
            
            **2005****Number
                of Shares**
            
            **Weighted-average
                Exercise Price**
            
            **Number
                of Shares**
            
            **Weighted-average
                Exercise Price**Outstanding
                at beginning of year
            
            
            1,923,168
            
            $
            0.77
            
            
            2,508,442
            
            $
            0.77Granted
                to employees/directors
            
            
            75,000
            
            $
            0.11
            
            
            320,000
            
            $
            0.39Cancelled
            
            
            (435,843
            )
            $
            0.82
            
            
            (905,274
            )
            $
            0.66Outstanding
                at end of year
            
            
            1,562,325
            
            $
            0.72
            
            
            1,923,168
            
            $
            0.77Options
                exercisable at year-end
            
            
            1,562,325
            
            $
            0.72
            
            
            1,906,168
            
            $
            0.77Weighted-average
                fair value of options granted during the year
            
            
            
            
            $
            0.11
            
            
            
            
            $
            0.08




The
      following table summarizes information about stock options outstanding at
      December 31, 2006:




**Options
                Outstanding**
            
            
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            **Number
                Outstanding**
            
            **Weighted
                      Average Remaining Contractual Life (years)**
            
            **Weighted-average
                Exercise Price**
            
            **Number
                Exercisable**
            
            **Weighted-average
                Exercise Price**$0.11
                - $1.00
            
            
            1,557,000
            
            
            4.97
            
            $
            0.72
            
            
            1,557,000
            
            $
            0.72$1.01
                - $1.31
            
            
            5,325
            
            
            7.17
            
            $
            1.13
            
            
            5,325
            
            $
            1.131,562,325
            
            
            
            
            
            
            
            
            1,562,325





At
      December 31, 2006, there was no aggregate fair value for the options outstanding
      or exercisable.




F-14




**GAMING
      & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





***Warrants:***




In
      March
      2005, the Company issued a warrant to purchase 500,000 shares of common stock
      in
      connection with the purchase of intellectual property from Absolute. The warrant
      is exercisable for three years commencing March 14, 2005, is fully vested and
      has an exercise price of $0.40 per share. The Company recognized an
      increase to additional paid-in capital in the year ended December 31,
      2005, for the fair value of the warrants issued, calculated using a
      Black-Scholes option-pricing model, which amounted to $136,000.




Pursuant
      to the terms of the Cantor Asset Purchase Agreement, the equity warrant,
      previously issued in favor of Cantor, was modified to reduce the number of
      shares exercisable thereunder, at a price of $0.60 per share, from 8,000,000
      shares to 2,000,000 shares.




The
      following table summarizes the Company’s warrant activity during the years ended
      December 31, 2006 and 2005:




**Number
                of Warrants Outstanding**
            
            **Weighted-Average
                Exercise Price**Outstanding
                at January 1, 2005
            
            
            17,246,123
            
            $
            0.76Granted
                (A)
            
            
            500,000
            
            $
            0.40Cancelled
            
            
            (3,779,373
            )
            $
            1.50Outstanding
                at December 31, 2005
            
            
            13,966,750
            
            $
            0.55Amendment
                to Equity Warrant (A)
            
            
            (6,000,000
            )
            $
            0.60Expired
            
            
            (100,000
            )
            $
            0.75Outstanding
                at December 31, 2006
            
            
            7,866,750
            
            $
            0.50




(A)
      See description of warrants issued for services above.





***Assumptions
      Used in Determining Fair Value of Stock Options and
      Warrants:***




The
      fair
      value of stock options and warrants were estimated on the date of grant using
      the Black-Scholes option pricing model with the following weighted-average
      assumptions:


****


2006
            
            2005Expected
                volatility
            
            
            224.24
            %
            
            66.16
            %Risk-free
                interest rate
            
            
            5.25
            %
            
            3.97
            %Expected
                life (years)
            
            
            10
            
            
            1
                to 10Expected
                dividends
            
            
            0
            %
            
            0
            %





***Stock
      Activity:***




On
      March
      14, 2005, the Company issued 250,000 shares of common stock with a fair value
      of
      $127,500, determined by the closing market price on such date, in exchange
      for
      the purchase of intangible assets from Absolute.




Pursuant
      to a private placement consummated in 2004 (the “Private Placement”), the
      Company was obligated to file a registration statement (the “Registration
      Statement”) no later than July 15, 2004. T he
      Private Placement consisted of units, each unit priced at $10,000 which was comprised of 10,000
      shares of common stock and a warrant to purchase 10,000 shares of common stock
      at $1.50 per share, which expired on May 31, 2005.




F-15


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      Company did not file the Registration Statement by July 15, 2004, but rather
      filed it on March 3, 2005. Accordingly, the Company issued to the purchasers
      of
      units a total of 563,250 shares of common stock, which represented 3% of the
      number of shares of common stock purchased by each purchaser for each month
      or
      part thereof of such late filing. Such shares of common stock were registered
      under the Registration Statement on Form S-3 filed with the Securities and
      Exchange Commission and declared effective.




In
      2005,
      the Company reclassified $2,445,000 from the sale of common stock and warrants
      with registration rights and $58,334 of common stock and warrants issued for
      equipment with registration rights through a private placement in 2004
      previously classified under commitments and contingencies and recorded as common
      stock subject to continuing registration.




**N** **OTE** **7 - P** **REFERRED** **S** **TOCK**




The
      Company is authorized to issue up to 10,000,000 shares of preferred stock,
      having a $10 par value. The Company has designated 1,000,000 shares as Class
      A
      convertible and 1,000,000 shares as Class B. At the time of issuance, the Board
      of Directors has the right to designate the rights, preferences and privileges
      of each class. As of December 31, 2006, the Company did not have any shares
      of preferred stock outstanding.




**N** **OTE** **8 - R** **ELATED** **P** **ARTY** **T** **RANSACTIONS**




On
      February 27, 2006, the Company repaid the outstanding balance of Mr. Vertes’ and
      Mr. Hrncir’s notes of $20,138 and $35,410, respectively. Interest paid during
      the year ended December 31, 2006, on Messrs. Vertes’ and Hrncir's notes,
      amounted to $7,844 and $13,441, respectively.




On
      May 1,
      2006, the Company entered into an agreement with Robit Nominees Pty Limited
      to
      lease offices in Edgecliff, Sydney, Australia, with a monthly lease rate of
      $4,000 Australian dollars (approx. US$3,000). Tibor Vertes, our Chief Executive
      Officer and Chairman is a Director of Robit Nominees Pty Limited. The lease
      is
      an arms length transaction and subject to an oral agreement which requires
      three
      months advance written notice prior to vacating the premises. On October 31,
      2006, written notice was given to vacate the premises by January 31, 2007.
      The
      Company has vacated the premises.




**N** **OTE** **9 - S** **ENIOR** **S** **ECURED** **N** **OTE** **P** **AYABLE**




Pursuant
      to the Loan Facility and Investment Agreement dated December 8, 2004, between
      the Company and Cantor, the Company received $2,000,000, evidenced by a secured
      promissory note (the “Note”). The Note matures on December 9, 2009 and bears
      interest at the Federal Funds Rate, as in effect and subject to change from
      time
      to time, plus six percent (11.25% as at December 31, 2006). The Company received
      total proceeds of $500,000 and $1,500,000 from the Note in 2005 and 2004,
      respectively, and recorded an aggregate discount of $1,110,340 for the fair
      value of the 13,000,000 warrants issued in connection with the Note. This
      discount is amortized over the period of the related debt using the
      straight-line method, which approximates the effective interest method.
      Amortization of the discount, which is included in interest expense, amounted
      to
      $222,068 and $222,068 for the years ended December 31, 2006 and 2005,
      respectively. As of December 31, 2006, the unamortized debt discount on the
      Note
      was $647,340.




On
      February 15, 2006, Gaming & Entertainment Group, Inc. and its
      wholly-owned subsidiary Gaming & Entertainment Technology Pty Limited,
      entered into the Cantor Asset Purchase Agreement with Cantor.




F-16


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Pursuant
      to the terms of the Cantor Asset Purchase Agreement, Cantor paid the Company
      $500,000 in consideration for certain assets as discussed in Note 4. The Company
      recognized a gain of $225,580 on the sale of the assets to Cantor.





The
      terms
      of the Cantor Asset Purchase Agreement also include (I) the termination of
      the
      license agreement between the Company and Cantor, (II) the termination of the
      investment agreement between the Company and Cantor, (III) an amendment to
      the
      Note as follows: (a) forgiveness, on an annual basis during the period the
      Note
      remains outstanding, of outstanding principal and accrued interest under the
      Note in an amount equal to the royalties that would have been payable to the
      Company relating to the Cantor Casino, the FHM Casino and all future
“white-label” Internet casino clients of Cantor had the license agreement not
      been terminated; (b) a modification of “change of control” of the Company so
      that Cantor may only require immediate repayment of the Note in the event a
      “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the
      Securities Exchange Act of 1934, as amended) becomes the beneficial owner,
      directly or indirectly, of 51% of the voting common stock of the Company (i)
      through acquisition of common stock of the Company, (ii) as a result of a merger
      or consolidation involving the Company, or (iii) as a result of the sale of
      all
      or substantially all of the assets of the Company, and (c) allows for
      prepayments of the outstanding principal and accrued interest under the Note,
      (IV) an amendment to the security agreement between the Company and Cantor
      which
      provides that Cantor’s security interest in the assets of the Company shall be
      subordinated with respect to any collateral acquired by the Company with the
      proceeds of any future debt or equity issuances, (V) an amendment to the equity
      warrant to reduce the number of shares exercisable thereunder, at a price of
      $0.60 per share, from 8,000,000 shares to 2,000,000 shares, and (VI) the
      termination of the option and irrevocable proxy agreement between Cantor and
      the
      existing officers and certain stockholders of the Company .




**N** **OTE** **10
        - I** **NFORMATION** **A** **BOUT** **G** **EOGRAPHICAL** **A** **REAS**




The
      Company operates in one reportable segment - Internet gaming software
      development. Information about geographical areas is set forth below for the
      years ended December 31, 2006 and 2005:





**December
      31, 2006**





**Geographical
                area**
            
            **Revenues
                from external customers**
            
            **Long-lived
                assets**United
                States
            
            
            -
            
            $
            1,448United
                Kingdom
            
            
            -
            
            
            2,492Australia
            
            $
            140,026
            
            
            26,887**$**
            **140,026**
            
            **$**
            **30,827**




**December
      31, 2005**





**Geographical
                area**
            
            **Revenues
                from external customers**
            
            **Long-lived
                assets**United
                States
            
            $
            7,296
            
            $
            88,892United
                Kingdom
            
            
            37,380
            
            
            4,258Australia
            
            
            1,230,143
            
            
            39,475**$**
            **1,274,819**
            
            **$**
            **132,625**





F-17


**GAMING
        & ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**N** **OTE** **11 - I** **NCOME** **T** **AXES**


The
      Company has no income taxes payable at December 31, 2006 or 2005. At December
      31, 2006, the Company had available for U.S. federal and state income tax
      purposes, net operating loss carryforwards of approximately $2,600,000 that
      expire through 2026 and foreign loss carryforwards of approximately $2,900,000.
      The Company had no other significant temporary differences as of that date.
      Due
      to the uncertainties related to, among other things, the changes in the
      ownership of the Company, which could subject those loss carryforwards to
      substantial annual limitations, and the extent and timing of its future taxable
      income, management does not consider the realization of the deferred tax assets
      attributable to the potential benefits of approximately $1,000,000 from the
      utilization of those net operating loss carryforwards to be more likely than
      not
      and, accordingly, the Company offset the deferred tax assets by an equivalent
      valuation allowance as of December 31, 2006.





The
      Company had also offset the potential benefits from net operating loss
      carryforwards by equivalent valuation allowances as of December 31, 2006 and
      2005. As a result of increases in the valuation allowance of approximately
      $450,000 and $500,000 in 2006 and 2005, respectively, the Company did not
      recognize any credits for income taxes in the accompanying consolidated
      statements of operations to offset its pre-tax losses in those
      years.





F-18





**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE.**




Not
      applicable.




**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES.**




****E****VALUATION
      OF****D****ISCLOSURE****C****ONTROLS****




We
      evaluated the effectiveness of our disclosure controls and procedures as of
      December 31, 2006, the end of the fiscal period covered by this Annual Report
      on
      Form 10-KSB. This evaluation was made under the supervision of our principal
      executive officer and principal financial officer, and in conjunction with
      our
      accounting personnel.





We
      reviewed and evaluated the effectiveness of the design and operation of our
      disclosure controls and procedures, as of the end of the fiscal year covered
      by
      this report, as required by Securities Exchange Act Rule 13a-15, and
      concluded that our disclosure controls and procedures are effective to ensure
      that information required to be disclosed in our reports filed with the
      Securities and Exchange Commission pursuant to the Securities Exchange Act
      of
      1934, as amended, is accumulated and communicated to management on a timely
      basis, including our principal executive officer and principal financial
      officer.





Based
      on
      this evaluation, our principal executive officer and principal financial officer
      concluded that, as of the end of such period, our disclosure controls and
      procedures are effective to ensure that we record, process, summarize, and
      report information required to be disclosed in the reports we filed under the
      Securities Exchange Act of 1934 within the time periods specified by the
      Securities and Exchange Commission’s rules and regulations. During the year
      ended December 31, 2006, there have been no changes in our internal control
      over financial reporting, or to our knowledge, in other factors, that have
      materially affected or are reasonably likely to materially affect our internal
      controls over financial reporting.




**PART
      III**




**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT.**




The
      following information is furnished with respect to each member of our board
      of
      directors, our executive officers who are not directors, and our key employees.
      There are no family relationships between or among any of our directors or
      executive officers. Each of our executive officers is an employee of Gaming
      & Entertainment Group, Inc. and serves at the discretion of our board.




**D** **IRECTORS
        AND** **E** **XECUTIVE** **O** **FFICERS**




**Name**
            
            **Age**
            
            **Position**Tibor
                N. Vertes
            
            58
            
            Chief
                Executive Officer and Chairman of the BoardGregory
                L. Hrncir
            
            40
            
            President,
                Secretary and a DirectorJay
                Sanet
            
            57
            
            Director


Set
        forth
        below is a description of the background of each of our executive officers
        and
        directors:
  -
            21
            -




**Tibor N.
      Vertes** ,
      58,
      serves as our Chief Executive Officer and Chairman of the Board of Directors.
      Mr. Vertes was a practicing attorney from 1972 to 1989, at which time he
      retired as the senior partner of the Yellands law firm, Melbourne, Australia.
      During his legal career, Mr. Vertes specialized in financial services
      having represented many financial institutions. Thereafter, Mr. Vertes
      worked as an international business consultant in Hong Kong, specializing in
      financial services and telecommunications related matters. Commencing in 1995,
      Mr. Vertes became an officer of Ezi Phonecard Pty Ltd., a leading pre-paid
      telecommunications entity and was instrumental in reorganizing its capital
      and
      business structure before its sale to RSL Com, a global telecommunications
      concern based in New York. Upon the sale of Ezi Phonecard, Mr. Vertes
      founded Gaming & Entertainment Group, Inc. Mr. Vertes is admitted to
      practice as a Barrister and Solicitor of the High Court of Australia, and
      Supreme Court of NSW and Victoria. Mr. Vertes presently serves as Chairman
      of Capital First Group (mortgage banking and financial services).
      Mr. Vertes received a Bachelor of Laws from Sydney University Law School.




**Gregory L.
      Hrncir** ,
      40, has
      served as our President, Secretary and a Director since 2003, and has been
      involved with us in a consultancy capacity since 1996. From 2000 to 2003,
      Mr. Hrncir ** served
      as
      an officer of eRoomSystem Technologies, Inc., a provider of proprietary software
      and hardware products to the hospitality industry. In 1999, Mr. Hrncir
      served as an officer of PayStation America, Inc., an e-commerce company that
      provided a proprietary automated bill payment solution in the United States
      prior to its sale. In 1994, Mr. Hrncir commenced his professional career in
      private legal practice in Los Angeles, California, specializing in corporate
      and
      securities matters representing issuers and investment banks in a variety of
      transactions. Mr. Hrncir serves on the Board of Directors of Pacific
      Payment Systems, Inc., a privately held company that is the successor to
      PayStation. Mr. Hrncir received a Bachelor of Science from Arizona State
      University and a Juris Doctor from Whittier Law School. Mr. Hrncir is a
      member of the Arizona and California State Bars and a member of numerous
      philanthropic and industry associations.




**Jay
      Sanet** ,
      57, has
      served as a Director since 2004 and as a Director of NorStar Group, Inc. during
      the period 1998 through 2003. From 2002 to January 2004, Mr. Sanet served
      as Chief Executive Officer, President and Chairman of the Board of Directors
      of
      NorStar. Mr. Sanet worked in the securities industry for more than 25 years
      in various executive positions. Mr. Sanet received a bachelor’s degree in
      finance from the New York Institute of Finance.


****C****OMMITTEES
      OF THE****B****OARD
      OF****D****IRECTORS********




Our
      board
      has no authorized standing committees. Audit and compensation matters are
      reviewed by all of our board members.




**B** **OARD
        OF** **D** **IRECTORS** **M** **EETINGS**


We
      had
      one board meeting during the fiscal year ended December 31, 2006. All of
      the directors attended each of such meetings. The remaining matters were
      approved by the board of directors via unanimous written consent.




****D****IRECTOR****C****OMPENSATION****




Our
      non-employee directors receive an attendance fee of $500 per board meeting
      attended. In addition, non-employee directors receive an annual stock option
      grant to purchase 25,000 shares of our common stock. Employee directors do
      not
      receive additional compensation for serving as a board member.




**S** **ECTION** **16(a) B** **ENEFICIAL** **O** **WNERSHIP** **R** **EPORTING** **C** **OMPLIANCE**


Section
      16(a) of the Exchange Act requires our reporting directors and executive
      officers, and persons who own more than ten percent of a registered class of
      our
      equity securities, to file initial reports of ownership and reports of changes
      in ownership of common stock and other equity securities of the Company with
      the
      Securities and Exchange Commission, or the Commission. Officers, directors
      and
      stockholders holding more than 10% of the class of stock are required to furnish
      us with copies of all Section 16(a) forms they file with the Commission.




-
          22
          -




**C** **ODE
        OF** **E** **THICS**


We
      are
      still in the process of evaluating the code of ethics requirements of Item
      406
      of Regulation S-B of the Exchange Act, our existing policies and
      procedures, applicable regulatory requirements and the various elements that
      such code should contain given the diverse nature of our company. We anticipate
      adopting a code of ethics that meets the requirements of Item 406 of
      Regulation S-B on or before the date of our 2007 Annual Meeting of
      Stockholders. Once adopted, we will file a copy of our code of ethics with
      the
      Commission. In addition, we intend to disclose any amendment to such code or
      any
      waivers granted to our executive officers or directors under such code of ethics
      through the filing of a current report on Form 8-K with the Commission within
      five business days following the date of any such amendment or waiver, if
      applicable.




**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION.**




The
      following table sets forth the compensation awarded to, earned by or paid to,
      our chief executive officer, our president and secretary, our chief operating
      officer and our sole non-employee director during the fiscal years ended 2006,
      2005 and 2004.


**Annual
                        Compensation**
                    
                    **Long-Term**
                      **Compensation**
                      **(Stock/**
                    
                    **All
                        Other****Name
                        and Principal Position**
                    
                    **Year**
                    
                    **Salary****($)**
                    
                    **Bonus****($)**
                    
                    **Options)**
                    
                    **Compensation**Tibor
                        N. Vertes,
                    
                    
                    2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    27,982Chief
                        Executive
                    
                    
                    2005
                    
                    
                    86,667
                    
                    
                    0
                    
                    
                    0
                    
                    
                    42,400Officer
                        and Chairman1
                    
                    
                    2004
                    
                    
                    179,167
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0Gregory
                        L. Hrncir,
                    
                    
                    2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    48,851President
                        and
                    
                    
                    2005
                    
                    
                    92,083
                    
                    
                    0
                    
                    
                    0
                    
                    
                    72,000Secretary2
                    
                    
                    2004
                    
                    
                    172,500
                    
                    
                    0
                    
                    
                    0
                    
                    
                    104,125Kevin
                        J Burman,
                    
                    
                    2006
                    
                    
                    15,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Chief
                        Operating
                    
                    
                    2005
                    
                    
                    130,000
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0Officer3
                    
                    
                    2004
                    
                    
                    121,565
                    
                    
                    0
                    
                    
                    200,000
                    
                    
                    0Jay
                        Sanet,
                    
                    
                    2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    8,250
                    
                    
                    -Director4
                    
                    
                    2005
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    02004
                    
                    
                    0
                    
                    
                    0
                    
                    
                    25,000
                    
                    
                    2,000





1 Mr. Vertes
      serves as our Chief Executive Officer and Chairman. On December 31, 2002,
      Mr. Vertes converted his accrued salary, in the amount of $339,000
      (relating to the period from our inception through such date), and short-term
      loans, in the amount of $19,281, into 583,746 shares of common stock and a
      warrant to purchase 477,707 shares of our common stock and is represented in
      2003 under long-term compensation. The conversion was made on terms identical
      to
      the securities sold by us in the 2003 Offering. In August 2003, the Company
      entered into an employment agreement with Mr. Vertes for four years and subject
      to earlier termination under certain circumstances. The employment agreement
      for
      Mr. Vertes provides for an annual salary of $185,000 and an annual cash
      bonus if certain performance goals are met. Since September 2004, Mr. Vertes
      has
      been paid at the rate of $130,000 per annum. The amounts by which payments
      were
      reduced have been accrued by the Company from October 1, 2004 based upon a
      revised annual salary of $180,000, which amount has been orally agreed to by
      the
      Company and Mr. Vertes. Mr. Vertes deferred all salary payments during the
      period September 1 through December 31, 2005. The accrued salary for this
      period, in the amount of $43,333, was paid to Mr. Vertes in February 2006.
      Other
      compensation for Mr. Vertes for fiscal year 2005 relates to accrued salary
      outstanding from the period January 1, 2003 to September 1, 2004. Mr. Vertes
      deferred all salary payments during 2006. Other compensation for Mr. Vertes
      for
      fiscal year 2006 relates to accrued salary outstanding, from the period January
      1, 2003 to September 1, 2004, including interest.




-
          23
          -




2 Mr. Hrncir
      serves as our President and Secretary. In 2003, we issued Mr. Hrncir an option
      to purchase 800,000 shares of common stock at $0.75 per share. In August 2003,
      the Company entered into an employment agreement with Mr. Hrncir for four years
      and subject to earlier termination under certain circumstances. The employment
      agreement for Mr. Hrncir provides for an annual salary of $175,000, and an
      annual cash bonus if certain performance goals are met. Since September 2004,
      Mr. Hrncir has been paid at the rate of $130,000 per annum. The amounts by
      which
      payments were reduced have been accrued by the Company from October 1, 2004
      based upon a revised annual salary of $180,000, which amount has been orally
      agreed to by the Company and Mr. Hrncir. Mr. Hrncir deferred all salary payments
      during the period September 16 through December 31, 2005. The accrued salary
      for
      this period, in the amount of $37,917, was paid to Mr. Hrncir in February 2006.
      Other compensation for Mr. Hrncir for fiscal years 2004 and 2005 relates to
      payments for unpaid consulting services rendered during the period 1999 through
      July 2003. Mr. Hrncir deferred all salary payments during 2006. Other
      compensation for Mr. Hrncir for fiscal year 2006 relates to payments for unpaid
      consulting services rendered during the period 1999 through July 2003, including
      interest.




3 Mr.
      Burman served as our Chief Operating Officer until his resignation on February
      15, 2006 and concurrent hiring by Cantor as Chief Development Officer. In
      September 2004, the Company entered into an employment agreement with Mr. Burman
      for one year and subject to earlier termination under certain circumstances.
      The
      employment agreement for Mr. Burman provides for an annual salary of 72,000
      pounds sterling (approx. $135,000), an annual cash bonus if certain performance
      goals are met, and a commission in the form of a percentage of sales and revenue
      sharing placements originated by Mr. Burman in the United Kingdom. On October
      1,
      2004, Mr. Burman’s annual salary was revised to $180,000 per annum in
      consideration for the elimination of the sales commissions contemplated in
      Mr.
      Burman’s employment agreement. The revised annual salary, and elimination of the
      sales commission provision, was orally agreed to by the Company and Mr. Burman.
      During the period October 1, 2004 through February 15, 2006, Mr. Burman has
      been
      paid at the reduced annual salary of $130,000. The amounts by which payments
      were reduced have been accrued by the Company.




4 Mr.
      Sanet serves as a Director and previously served as Chief Executive Officer,
      President and Chairman of NorStar Group, Inc. In lieu of salary and bonus,
      Mr.
      Sanet was issued 120,712 shares of common stock in 2003. In 2004, we issued
      Mr.
      Sanet an option to purchase 25,000 shares and paid him $2,000 for consulting
      services. In 2006, we issued Mr. Sanet an option to purchase 75,000
      shares.





**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.**




The
      table
      below sets forth the beneficial ownership of our common stock as of March 9,
      2007 by:




·
            All
                of our directors and executive officers, individually;




·
            All
                of our directors and executive officers, as a group;
                and




·
            All
                persons who beneficially own more than five percent of our outstanding
                common stock.




The
      beneficial ownership of each person (other than Cantor G&W (Nevada), L.P. as
      described in footnote six below) was calculated based on 19,830,602 shares
      of
      our common stock outstanding as of March 20, 2006, according to the record
      ownership listings as of that date and the verifications we solicited and
      received from each director, executive officer and five percent holder.




The
      Commission has defined “beneficial ownership” to mean more than ownership in the
      usual sense. For example, a person has beneficial ownership of a share not
      only
      if the person owns it in the usual sense, but also if he has the power to vote,
      sell or otherwise dispose of the share. Beneficial ownership also includes
      the
      number of shares that a person has the right to acquire within 60 days of March
      9, 2007 pursuant to the exercise of options or warrants or the conversion of
      notes, debentures or other indebtedness, but excludes stock appreciation rights.
      Two or more persons might count as beneficial owners of the same share. Unless
      otherwise noted, the address of the following persons listed below is c/o Gaming
      & Entertainment Group, Inc., 4501 Hayvenhurst Ave., Encino, CA
      91436.




-
          24
          -




NAME
                OF DIRECTOR OR EXECUTIVE OFFICER
            
            NUMBER
                  OF SHARES
            
            PERCENTAGETibor
                N. Vertes1
            
            
            6,658,183
            
            
            33.6
            %Gregory
                L. Hrncir2
            
            
            2,388,567
            
            
            12.0
            %Jay
                Sanet3
            
            
            102,012
            
            
            0.5
            %Directors
                and executive officers as a group (3 persons)4
            
            
            9,148,762
            
            
            46.1
            %




NAME
                OF FIVE PERCENT HOLDERS
            
            NUMBER
                  OF SHARES
            
            PERCENTAGECantor
                G&W (Nevada), L.P.5
            
            
            7,948,966
            
            
            40.1
            %





1 The
      shares of common stock beneficially owned by Tibor N. Vertes, our Chief
      Executive Officer and Chairman, include 6,658,183 shares held by the Vertes
      Family Trust.




2 The
      shares of common stock beneficially owned by Gregory L. Hrncir, our President,
      Secretary and a Director, include 1,588,567 shares held by the Hrncir Family
      Trust and options to purchase 800,000 shares of common stock, exercisable at
      $0.75 per share, held by the Hrncir Family Trust.




3 The
      shares beneficially owned by Jay Sanet, a director, include 2,012 shares of
      common stock issued to Mr. Sanet directly, and options to purchase 25,000 shares
      of common stock, exercisable at $0.75 per share, and 75,000 shares of common
      stock, exercisable at $0.11 per share, held by Mr. Sanet.




4 Represents
      the collective beneficial ownership of our common stock by Tibor N. Vertes,
      Gregory L. Hrncir and Jay Sanet.




5 The
      shares of common stock beneficially owned by Cantor include 948,966 shares
      purchased in a non-open market transaction in 2004, a warrant to purchase
      2,000,000 shares of common stock, exercisable at $0.60 per share through
      December 9, 2009, and a warrant to purchase up to $2,000,000 of common stock
      of
      the Company, exercisable at not less than $0.40 per share and not more than
      $0.54 per share through December 9, 2009. The percentage ownership of Cantor
      set
      forth above assumes (i) the full exercise of the warrant to purchase 2,000,000
      shares, and (ii) that the warrant to purchase $2,000,000 of our common stock
      is
      exercised at $0.40 per share, resulting in the issuance of 5,000,000 shares.
      The
      registered business address for Cantor is 110 East 59 th Street,
      New York, NY 10022.




****E****QUITY****C****OMPENSATION****P****LAN****I****NFORMATION****




**2004
        S** **TOCK** **O** **PTION
        AND** **I** **NCENTIVE** **P** **LAN**




The
      2004
      Stock Option and Incentive Plan, or the Plan, was adopted by our board on April
      1, 2004 and approved by our stockholders on June 14, 2004. The Plan provides
      us
      with the vehicle to grant to employees, officers, directors and consultants
      stock options and bonuses in the form of stock and options. Under the Plan,
      we
      can grant awards for the purchase of up to 3,500,000 shares of common stock
      in
      the aggregate, including “incentive stock options” within the meaning of Section
      422 of the United States Internal Revenue Code of 1986 and non-qualified stock
      options. As of March 9, 2007, we have options outstanding to purchase
      1,562,325 shares of our common stock under the Plan.




Our
      board
      of directors currently determines the persons to whom awards will be granted,
      the nature of the awards, the number of shares to be covered by each grant,
      the
      terms of the grant and with respect to options, whether the options granted
      are
      intended to be incentive stock options, the duration and rate of exercise of
      each option, the option price per share, the manner of exercise and the time,
      manner and form of payment upon exercise of an option. We anticipate forming
      a
      compensation committee, comprised of a majority of non-employee directors,
      to
      oversee administration of the Plan.




**O** **PTION** **G** **RANTS
        IN** **2006**


On
      November 14, 2006, we issued Jay Sanet, an outside director, an option to
      purchase 75,000 shares of common stock at $0.11 per share. The option is
      exercisable for a period of ten years and is fully vested.




****E****MPLOYMENT****A****GREEMENTS****




In
      August
      2003, the Company entered into employment agreements with Tibor N. Vertes,
      and Gregory L. Hrncir, our Chief Executive Officer and President,
      respectively. The employment agreements with Messrs. Vertes and Hrncir are
      for four years and subject to earlier termination under certain circumstances.




-
          25
          -




The
      employment agreement for Mr. Vertes provides for an annual salary of
      $185,000, which may be increased by the board of directors, and an annual cash
      bonus of $35,000 to $100,000 if certain performance goals are met. The salary
      of
      Mr. Vertes has been accrued by the Company from October 1, 2004 based on a
      revised annual salary of $180,000. The revised annual salary was orally agreed
      to by the Company and Mr. Vertes.




The
      employment agreement for Mr. Hrncir provides for an annual salary of
      $175,000, which may be increased by the board of directors, an allowance of
      $1,500 per month for health care and other benefits, and an annual cash bonus
      of
      $35,000 to $100,000 if certain performance goals are met. The salary of Mr.
      Hrncir has been accrued by the Company from October 1, 2004 based on a revised
      annual salary of $180,000. The revised annual salary was orally agreed to by
      the
      Company and Mr. Hrncir.







In
      September 2004, the Company entered into an employment agreement with Kevin
      J.
      Burman, who is an officer of the Company, for one year, subject to earlier
      termination under certain circumstances. The employment agreement for
      Mr. Burman provides for an annual salary of 72,000 pounds sterling
      (approximately $135,000), which may be increased by the board of directors,
      an
      annual cash bonus of $35,000 to $100,000 if certain performance goals are met,
      and a percentage of sales in the form of a commission. On October 1, 2004,
      Mr.
      Burman’s annual salary was revised to $180,000 in consideration for the
      elimination of the sales commissions contemplated in Mr. Burman’s employment
      agreement. The revised annual salary, and elimination of the sales commission
      provision, was orally agreed to by the Company and Mr. Burman. Since October
      1,
      2004, Mr. Burman has been paid at the reduced annual salary of $130,000. The
      amounts by which payments were reduced have been accrued by the Company. Mr.
      Burman resigned as our Chief Operating Officer on February 15, 2006.




The
      employment agreements with Messrs. Vertes and Hrncir contain provisions relating
      to confidentiality, non-competition and non-solicitation of employees during
      employment and for a period following termination. In addition, the employment
      agreements provide for the assignment of all rights to personal inventions
      during employment and for a period following termination. We have the right
      to
      terminate the employment of Messrs. Vertes and Hrncir with cause or in the
      event
      of permanent disability. We also have the right to terminate the employment
      of
      Messrs. Vertes and Hrncir without cause. “Cause” is defined as substantial
      failure to perform duties, willful misconduct injurious to the company,
      conviction of a felony or breach of certain confidentiality, non-competition
      or
      non-solicitation provisions. “Permanent Disability” is defined as failure to
      perform his duties for 90 days due to physical or mental illness. If the
      employment of Messrs. Vertes or Hrncir is terminated for any reason other than
      death, permanent disability or cause, we must continue to pay the greater of
      the
      base salary for the previous calendar year or the remaining base salary payable
      over the remaining term of the employment agreement.




****O****PTION****/SAR
      G****RANTS
      IN****L****AST****F****ISCAL****Y****EAR****




The
      following table sets forth information regarding grants of stock options during
      the fiscal year ended December 31, 2006 made to our executive officers.




**Individual
                Grants**




**Name**
            
            **Number
                of Securities Underlying Options/Sirs Granted**
            
            **Percent
                of Total Options/Sirs Granted to Employees in Fiscal
                Year**
            
            **Exercise
                or Base Price ($/Share)**
            
            **Expiration
                Date**Tibor
                N. Vertes
            
            
            0
            
            
            0.0
            %
            
            N/A
            
            
            N/AGregory
                L. Hrncir
            
            
            0
            
            
            0.0
            %
            
            N/A
            
            
            N/AKevin
                J. Burman
            
            
            0
            
            
            0.0
            %
            
            N/A
            
            
            N/AJay
                Sanet
            
            
            75,000
            
            
            100.0
            %
            $
            0.11
            
            
            November
                14, 2016Total
            
            
            75,000
            
            
            100.0
            %
            $
            0.11




-
          26
          -
 
  ****A****GGREGATED****O****PTION****/SAR
        E****XERCISES********IN****L****AST****F****ISCAL****Y****EAR
        AND****F****ISCAL****Y****EAR****-E****ND****O****PTION****/SAR
        V****ALUES****


The
      following table sets forth information regarding the exercise of stock options
      by Messrs. Vertes, Hrncir, Burman and Sanet as relates to the fiscal year-end
      value of unexercised stock options held by our named executive officers and
      directors. We have not issued any stock appreciation rights.




**Name**
              
              **Shares
                  Acquired on Exercise (#)**
              
              **Value
                  Realized ($)**
              
              **Number
                  of Securities Underlying Unexercised Options/SARs at Fiscal Year-End
                  Exercisable/Unexercisable**
              
              **Value
                  of Unexercised in-the-Money Options/SARs at Fiscal Year-End
                  Exercisable/Unexercisable**Tibor
                  N. Vertes
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/AGregory
                  L. Hrncir
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/AKevin
                  J. Burman
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/AJay
                  Sanet
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A
              
              
              N/A




**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED T****RANSACTIONS**




**Transactions
      Involving Tibor N. Vertes**




On
      September 30, 2004, Tibor Vertes, our Chief Executive Officer and Chairman,
      loaned the Company $42,852. The loan was repaid in October 2004 without
      interest.




On
      May 1,
      2006, the Company entered into an agreement with Robit Nominees Pty Limited
      to
      lease offices in Edgecliff, Sydney, Australia, with a monthly lease rate of
      $4,000 Australian dollars (approx. US$3,000). Tibor Vertes, our Chief Executive
      Officer and Chairman is a Director of Robit Nominees Pty Limited. The lease
      is
      an arms length transaction and subject to an oral agreement which requires
      three
      months advance written notice prior to vacating the premises. On October 31,
      2006 written notice was given to vacate the premises by January 31, 2007.




**Transactions
      Involving Cantor G&W (Nevada), L.P.**




In
      August
      2004, GEG Holdings, LLC, or GEG, an affiliate of Cantor, loaned us $750,000
      pursuant to a senior secured bridge financing facility, or the Bridge Financing. On
      December 8, 2004, we entered
      into a loan facility and investment agreement, or the Investment Agreement,
      with
      Cantor pursuant to which Cantor agreed to provide up to an additional
      $1,250,000, or the Additional Amount, in senior secured debt financing to us,
      in
      exchange for, among other things, the right to acquire control of us upon the
      conversion and exercise of various securities issued to Cantor and by certain
      of
      our stockholders. Immediately prior to the execution and delivery of the
      Investment Agreement, GEG assigned to Cantor, and Cantor assumed from GEG,
      all
      of GEG’s rights and obligations with respect to the Bridge Financing pursuant to
      an assignment and assumption agreement executed by Cantor and GEG, or the
      Assignment and Assumption Agreement. Consequently, the Investment Agreement
      relates to an aggregate of $2,000,000 of senior secured financing, or the Loan
      Amount.




-
          27
          -




Pursuant
      to the Investment Agreement, Cantor made the following loans to us: (i) $250,000
      upon the execution of the Investment Agreement; (ii) $500,000 on December 31,
      2004; (iii) $250,000 on March 31, 2005; and (iv) $250,000 on June 30, 2005.
      The
      Loan Amount is evidenced by a five (5) year senior secured promissory note,
      or
      the Note, which matures in December 2009 and bears
      interest at the federal funds rate of interest in effect from time to time,
      plus
      six percent (6%) per annum. Interest accrues semi-annually, in arrears, on
      December 1 and June 1 of each year during the term of the Note . The
      Note
      does not require us to make cash interest payments until maturity. The Note
      is
      secured by a perfected, first priority security interest in all of our
      intellectual property assets. Cantor’s first priority security interest in the
      intellectual property is evidenced by a security agreement, or the Security
      Agreement, that was executed and delivered upon the execution of the Bridge
      Financing and was assigned to Cantor pursuant to the Assignment and Assumption
      Agreement.




In
      connection with the Investment Agreement, Cantor received the right to acquire
      control of the Company pursuant to various equity instruments that we issued
      to
      Cantor, as well as the option and irrevocable proxy agreement issued to Cantor
      by certain of our stockholders. Specifically, we issued Cantor a five (5) year
      stock purchase warrant, or the Equity Warrant,
      immediately exercisable in whole or in part for up to at least eight million
      (8,000,000) shares of our common stock, at an exercise
      price of $0.60 per share.




Cantor
      also received a
      stock
      purchase warrant relative to the Loan Amount, or the Debt Warrant, which is
      immediately exercisable in whole or in part by Cantor, at its election, either
      for cash, or by converting all or a portion of the then outstanding principal
      amount of the Note into shares of common stock .
      The
      initial per share exercise price of the Debt Warrant, subject to adjustment,
      is
      equal to the lesser of (i) the average of the closing market price of our
      common stock for the thirty (30) days prior to the applicable exercise date,
      but
      in no event less than $0.40 per share, and (ii) $0.54 per share. The Debt
      Warrant has also has anti-dilution protection such that at all times it is
      exercisable into no less than a fixed percentage of our issued and outstanding
      common stock on a fully diluted basis exclusive of the Equity Warrant and the
      Debt Warrant issued to Cantor. In the event and to the extent Cantor exercises
      the Debt Warrant with cash, rather than converting the then outstanding
      principal amount of the Note, the Loan Amount evidenced by the Note will remain
      a continuing liability of the Company.




Interest
      on the Note is payable in cash only at maturity. Cantor has the right to convert
      the accrued interest on the Note into shares of common stock pursuant to one
      or
      more interest warrants, or the Interest Warrant, at a price per share equal
      to
      the lesser of (a) the average of the closing market price of our common
      stock for the thirty (30) days prior to the applicable interest payment date,
      but in any event not less than $0.40 per share, and (b) $0.54 per share,
      rounded up to the nearest share.




Cantor
      also entered into an option agreement and irrevocable proxy, or the Option
      Agreement, with various parties, including certain of the executive officers
      and
      directors of the Company, or the Optionors. Under the terms of the Option
      Agreement, Cantor has an irrevocable option, or the Option, to purchase up
      to
      7,500,000 shares of common stock, or the Option Shares, beneficially owned
      by
      the Optionors on the following terms: (A) upon the execution of the Option
      Agreement until December 31, 2005, up to 7,500,000 Option Shares, at an exercise
      price of $0.60 per share; (B) from January 1, 2006 until December 31, 2006,
      the
      balance of the 7,500,000 Option Shares not purchased prior to this period,
      not
      to exceed 5,000,000 Option Shares, at an exercise price of $0.80 per share;
      and
      (C) from January 1, 2007 until December 31, 2007, the balance of the 7,500,000
      Option Shares not purchased prior to this period, not to exceed 2,500,000 Option
      Shares, at an exercise price of $1.00 per share; provided , however ,
      that
      Cantor shall not be able to exercise the Option to acquire more than 54% of
      the
      Common Stock. The Optionors also granted Cantor a right of first refusal with
      respect to any proposed sale by an Optionor of their Option Shares. Upon the
      execution of the Option Agreement, the Optionors agreed to vote all of their
      shares of Common Stock, including but not limited to their Option Shares, in
      favor of any Cantor nominee to the Board of Directors. Finally, the Optionors
      have granted Cantor an irrevocable proxy with respect to all of their shares
      of
      Common Stock, including their Option Shares, which shall only be effective
      upon
      Cantor’s acquisition of beneficial ownership of at least 11,700,000 shares of
      the Company’s common stock.




-
          28
          -




Simultaneously
      upon the entering into the Investment Agreement, Cantor, the Company, and the
      Company’s wholly owned subsidiary, Gaming & Entertainment Technology Pty
      Ltd., or GET, also entered into an Amended and Restated Software Development
      and
      License Agreement, or the Software Agreement. The Software Agreement provides
      for royalties and development revenues to be paid by Cantor to the Company,
      and
      requires that the Company develop for and license to Cantor, on an exclusive
      basis throughout the world (subject only to a pre-existing license previously
      granted by the Company and GET to a third party), the Company’s proprietary
      gaming software for use in connection with the
      Internet and/or any other technology, whether now existing or hereafter devised
      using a computer or similar device. The Company was engaged in software
      development for Cantor throughout fiscal year 2005.




On
      February 15, 2006, the Company, GET and Cantor entered into an asset purchase
      agreement, or the Cantor Asset Purchase Agreement. Pursuant
      to the terms of the Cantor Asset Purchase Agreement, Cantor paid the Company
      $500,000 in consideration for certain assets, including (i) the source and
      object code relating to the software previously licensed by Cantor pursuant
      to
      the License Agreement, including all intellectual property rights thereto,
      and
      all related documentation, (ii) all graphics relating to the source code for
      all
      Internet casino developed previously by the Company, excluding certain graphics
      owned by third parties and (iii) various hardware consisting of computer
      servers, personal computers and other computer equipment.




The
      terms
      of the Cantor Asset Purchase Agreement also include (I) the termination of
      the
      License Agreement between the Company and Cantor, (II) the termination of the
      Investment Agreement between the Company and Cantor, (III) an amendment to
      the
      Note issued in favor of Cantor which provides for the following: (a) for the
      forgiveness, on an annual basis during the period the Note remains outstanding,
      of outstanding principal and accrued interest under the Note in an amount equal
      to the royalties that would have been payable to the Company relating to the
      Cantor Casino and all future “white-label” Internet casino clients of Cantor had
      the License Agreement not been terminated; (b) an amendment to paragraph 5(b)
      of
      the Note relating to a “change of control” of the Company so that Cantor may
      only require immediate repayment of the Note in the event a “person” or “group”
(as such terms are used in Section 13(d) and 14(d) of the Securities Exchange
      Act of 1934, as amended) becomes the beneficial owner, directly or indirectly,
      of 51% of the voting common stock of the Company (i) through acquisition of
      common stock of the Company, (ii) as a result of a merger or consolidation
      involving the Company, or (iii) as a result of the sale of all or substantially
      all of the assets of the Company, and (c) allows for prepayments of the
      outstanding principal and accrued interest under the Note, (IV) an amendment
      to
      the Security Agreement between the Company and Cantor which provides that
      Cantor’s security interest in the assets of the Company shall be subordinated
      with respect to any collateral acquired by the Company with the proceeds of
      any
      future debt or equity issuances, (V) an amendment to the Equity Warrant to
      reduce the number of shares exercisable thereunder, at a price of $0.60 per
      share, from 8,000,000 shares to 2,000,000 shares, and (VI) the termination
      of
      the Option Agreement.





In
      conjunction with the Cantor Asset Purchase Agreement, all further obligations
      of
      the Company, pursuant to the Absolute Asset Purchase Agreement have been
      terminated, including the cancellation of the remaining $100,000 due Absolute
      Game, Ltd. thereunder. In addition, the consulting agreement with Peter
      Bengtsson has been terminated, which includes the cancellation of $156,000
      in
      consulting fees under such agreement.




-
          29
          -





On
      February 15, 2006, **** Kevin
      J.
      Burman, Chief Operating Officer of the Company and a director of each of its
      wholly-owned subsidiaries, resigned from all of the above positions. Mr. Burman
      accepted employment with Cantor as its Chief Development Officer. The foregoing
      was mutually agreed upon by Mr. Burman, the Company and Cantor. Mr. Burman’s
      resignation did not involve any disagreement with the Company, its officers
      or
      directors.





**Indemnification
      of Directors and Officers**




We
      have
      provided for indemnification to the fullest extent permitted under Utah law
      in
      our articles of incorporation and bylaws. We do not currently maintain a
      directors’ and officers’ liability insurance policy, but may do so in the
      future.




**ITEM
              13.**
            **EXHIBITS**




(a)  Please
      see exhibits listed on the Exhibit Index following the signature page of this
      Annual Report on Form 10-KSB, which is incorporated herein by
      reference.




**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES.**




The
      information required by this item is as follows:




Hansen
      Barnett & Maxwell, has served as our independent registered public
      accounting firm for the fiscal year ended December 31, 2006 and was
      selected by our board for the fiscal year ended December 31, 2006.




J.H.
      Cohn
      LLP, or J.H. Cohn, served as our independent registered public accounting firm
      for the fiscal year ended December 31, 2005, and was selected by our board
      for the fiscal year ended December 31, 2005, and a majority of our stockholders
      as our independent registered public accounting firm for the fiscal year ended
      December 31, 2004.




Our
      board
      is responsible for pre-approving all audit and permissible non-audit services
      provided by Hansen Barnett & Maxwell, with certain limited exceptions. Our
      board of directors has concluded that the non-audit services provided by Hansen
      Barnett & Maxwell are compatible with maintaining auditor independence. In
      2006, no fees were paid to Hansen Barnett & Maxwell pursuant to the “de
      minimus” exception to the pre-approval policy permitted under the Exchange
      Act.




For
      the
      fiscal years ended December 31, 2006 and 2005, the fees for services provided
      by
      Hansen Barnett & Maxwell and J.H. Cohn were as follows:




**2006**
            
            **2005**Audit
                fees(1)
            
            $
            51,968
            
            $
            101,759Audit-related
                fees (2)
            
            
            -
            
            
            -Tax
                fees (3)
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -$
            51,968
            
            $
            101,759




(1)
              Audit
                  fees: Fees for the professional services rendered for the audit
                  of our
                  annual financial statements, review of financial statements included
                  in
                  our Form 10-QSB filings, and services normally provided in connection
                  with
                  statutory and regulatory filings or engagements, including registration
                  statements.
  (2)
              Audit-related
                  fees: Fees for assurance and related services that are reasonably
                  related
                  to the performance of the audit or review of our financial
                  statements.
 (3)
              Tax
                  fees: Fees for professional services rendered with respect to tax
                  compliance, tax advice and tax planning. This includes preparation
                  of tax
                  returns, claims for refunds, payment planning and tax law interpretation.
  -
            30
            -


**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
      duly
      caused this report to be signed on our behalf by the undersigned, thereunto
      duly
      authorized.


**G****AMING****&
                    E****NTERTAINMENT****G****ROUP,****I****NC.**
                (Registrant)By:
            /s/
                Gregory L. HrncirGregory
                L. Hrncir, PresidentDate:
                March
                20, 2007





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**S****IGNATURE**
            
            **T****ITLE**
            
            **D****ATE**/s/
                Tibor N. Vertes
            
            Chairman
                and Chief Executive Officer
            
            March
                21, 2007Tibor
                N. Vertes
            
            (Principal
                Executive Officer)/s/
                Gregory L. Hrncir
            
            President,
                Secretary and Director
            
            March
                21, 2007Gregory
                L. Hrncir
            
            (Principal
                Financial and Accounting Officer)/s/
                Jay Sanet
            
            Director
            
            March
                21, 2007Jay
                Sanet




-
          31
          -


**EXHIBIT
                INDEX**




**E****XHIBIT****N****UMBER**
            
            **E****XHIBIT****D****ESCRIPTION**
            
            **P****AGE**2.1
            
            Agreement
                and Plan of Reorganization dated as of September 18, 2003, by and
                among
                NorStar Group, Inc., a Utah corporation, Gaming & Entertainment Group,
                Inc., a Nevada corporation, and certain of the holders of shares
                of common
                stock of Gaming & Entertainment Group, Inc., a Nevada corporation.
            
            (1)3.1
            
            Amended
                and Restated Articles of Incorporation
            
            (2)3.2
            
            Amended
                and Restated Bylaws
            
            (2)4.1
            
            Stock
                Certificate Specimen
            
            (2)10.1
            
            Employment
                Agreement of Tibor N. Vertes dated August 31, 2003
            
            (2)10.2
            
            Employment
                Agreement of Gregory L. Hrncir dated August 31, 2003
            
            (2)10.3
            
            Employment
                Agreement of Will McMaster dated August 31, 2003
            
            (2)10.4
            
            Lease
                Agreement by and among Gaming & Entertainment Group, Inc. and Airport
                Plaza Associates, LLC dated February 24, 2004; First Amendment to
                Lease
                Agreement dated March 10, 2004
            
            (2)10.5
            
            Employment
                Agreement of Kevin J. Burman dated September 1, 2004
            
            (2)10.6
            
            Loan
                Facility and Investment Agreement by and between Gaming &
                Entertainment Group, Inc. and Cantor G&W (Nevada), L.P. dated December
                8, 2004
            
            (3)10.7
            
            Senior
                Secured Note by and between Gaming & Entertainment Group, Inc. and
                Cantor G&W (Nevada), L.P. dated December 8, 2004
            
            (3)10.8
            
            Equity
                Warrant issued in favor of Cantor G&W (Nevada), L.P. dated December 8,
                2004
            
            (3)10.9
            
            Debt
                Warrant issued in favor of Cantor G&W (Nevada), L.P. dated December 8,
                2004
            
            (3)10.10
            
            Form
                of Interest Warrant to be issued in favor of Cantor G&W (Nevada), L.P.
            
            (3)10.11
            
            Option
                Agreement and Irrevocable Proxy by and between Cantor G&W (Nevada),
                L.P., on the one hand, and Tibor N. Vertes, the Vertes Family Trust,
                Gregory L. Hrncir, the Hrncir Family Trust, Kevin J. Burman, Sheldon
                Harkness, Zen Investments Pty Ltd, Andrew Sorensen, and Gaming &
                Entertainment Group, Ltd., on the other hand, dated December 8,
                2004
            
            (3)10.12
            
            Amended
                and Restated Software Development and License Agreement by and between
                Cantor G&W (Nevada), L.P., on the one hand, and Gaming &
                Entertainment Group, Inc. and Gaming & Entertainment Technology Pty
                Ltd, on the other hand, dated December 8, 2004
            
            (3)10.13
            
            Amended
                and Restated Source Code Escrow Agreement by and between Gaming &
                Entertainment Group, Inc.,Gaming
                and Entertainment Technology, Pty Ltd, Cantor G&W (Nevada), L.P., GEG
                Holdings, LLC, a Delaware limited liability company having an address
                at
                135 East 57thStreet, New York, New York 10022 (“Licensee”), Zukerman Gore &
                Brandeis, LLP, located at 875 Third Avenue, New York, New York 10022
                (“ZGB”) and BMM International Pty Limited of Level 3, 37-41 Prospect
                Street, Box Hill, Victoria 3128, Australia (“BMM”), dated December 8,
                2004
            
            (3)




-
          32
          -


10.14
            
            Asset
                Purchase Agreement by and between Gaming & Entertainment Group, Inc.
                and Absolute Game, Ltd. dated March 14, 2005
            
            (4)10.15
            
            Consulting
                Agreement by and between Gaming & Entertainment Group, Inc. and Peter
                Bengtsson dated March 14, 2005
            
            (4)10.16
            
            Common
                Stock Purchase Warrant issued in favor of Peter Bengtsson dated March
                14,
                2005
            
            (4)10.17
            
            Asset
                Purchase Agreement by and between Gaming and Entertainment Group,
                Inc.,
                Gaming & Entertainment Technology Pty Limited and Cantor G&W
                (Nevada), L.P. dated February 15, 2006
            
            (5)10.18
            
            Amendment
                No. 1 to Senior Secured Note issued in favor of Cantor G&W (Nevada),
                L.P. dated February 15, 2006
            
            (5)10.19
            
            Amendment
                No. 1 to Security Agreement by and between Gaming and Entertainment
                Group,
                Inc., Gaming & Entertainment Technology Pty Limited and Cantor G&W
                (Nevada), L.P. dated February 15, 2006
            
            (5)10.20
            
            Amended
                and Restated Equity Warrant issued in favor of Cantor G&W (Nevada),
                L.P. dated February 15, 2006
            
            (5)10.21
            
            Bill
                of Sale by and between Gaming and Entertainment Group, Inc., Gaming
&
                Entertainment Technology Pty Limited and Cantor G&W (Nevada), L.P.
                dated February 15, 2006
            
            (5)21.1
            
            List
                of Subsidiaries
            
            7431.1
            
            Certifications
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350
            
            7531.2
            
            Certifications
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350
            
            7632.1
            
            Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350
            
            77





(1)
            Previously
                filed as an exhibit to the registrant’s Proxy Statement on Schedule 14A,
                as filed with the Commission on December 22, 2003.(2)
            Previously
                filed as an exhibit to the registrant’s Annual Report on Form 10-KSB, as
                filed with the Commission on April 14, 2004.(3)
            Previously
                filed as an exhibit to the registrant’s Current Report on Form 8-K, as
                filed with the Commission on December 9, 2004.(4)
            Previously
                filed as an exhibit to the registrant’s Current Report on Form 8-K, as
                filed with the Commission on March 18, 2005.(5)
            Previously
                filed as an exhibit to the registrant’s Current Report on Form 8-K/A, as
                filed with the Commission on February 22,
                2006.




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