UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








**FORM
      10-KSB/A**





**(Amendment
      No. 1)**





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the fiscal year ended
            December
                31, 2005o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the transition period from
            
            toCommission
                file number
            000-28399Gaming
                & 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.)16821
                Escalon Dr., Encino, CA
            
            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 registeredSecurities
                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
                oCheck
                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. xState
                issuer's revenues for its most recent fiscal year:
            $1,274,819Indicate
                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: $6,940,710
                ($0.35
                per share as of March 20, 2006).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 20, 2006).**DOCUMENTS
                INCORPORATED BY REFERENCE**None.









**TABLE
      OF CONTENTS**


**PART
                  I**
              
              
              **ii**ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              iiITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTY
              5ITEM
                  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
              23ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              59ITEM
                  8A.
              
              CONTROLS
                  AND PROCEDURES
              59**PART
                  III**ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT
              60ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              62ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              63ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              66ITEM
                  13.
              
              EXHIBITS
              69ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              71SIGNATURES
              
              
              72**EXHIBIT
                  INDEX**
              **71**







On
      March
      15, 2006, the Board of Directors of the Company concluded that based upon recent
      interpretations of the Securities and Exchange Commission (the "Commission")
      that certain of the Company's common stock subject to registration rights needed
      to be reclassified from shareholders' equity into temporary equity, and that
      a
      liability should be accrued for the fair value of penalty common stock related
      to these registration rights.




Accordingly,
      the Company has restated its financial statements for the interim periods ended
      March 31, 2005, June 30, 2005, September 30, 2005 and 2004, and the year ended
      December 31, 2004. Specifically, the Company reclassified amounts from
      shareholders' equity to temporary equity and recorded charges penalty common
      stock and the fair value of related warrants. This report contains restated
      financial information for all such periods. The financial impact of the
      adjustments is described in Note 3 of the Notes to Consolidated Financial
      Statements set forth herein and in Item 6 "Management Discussion and Analysis
      or
      Plan of Operation". Previously issued financial statements for such periods
      should not be relied upon.




None
      of
      the adjustments resulting from the restatements had any impact on cash balances
      for any period. However, the Company's consolidated balance sheets and statement
      of operations were restated to reflect the restated net loss and revisions
      to
      certain balance sheet accounts.




**PART
        I**




**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, 2005
      and
      2004, 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/A, 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.




-ii-




SUMMARY
        OFBUSINESS




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.





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





·
              Commercialization
                  of our AWP and Section 16 games in the United Kingdom initially,
                  and
                  thereafter in other European Union countries where these types
                  of games
                  are prominent




·
            Acquisition
                  of a United States-based provider of gaming machines to the Native
                  American gaming marketplace




·
            Partnering
                  with a major gaming equipment manufacturer for land-based gaming
                  applications of our central server gaming
                  platform


TARGETMARKETSTRATEGICINITIATIVES




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




Commencing
      in the late second quarter of 2006, we intend to market our Amusement With
      Prize
      (AWP) and "Section 16" (a reference to section 16 of the Lotteries and
      Amusements Act 1976) games in the United Kingdom through our strategic
      partnership Electrocoin Sales Ltd., an entity that has distributed and, through
      a related company, manufactured gaming machines throughout Europe for more
      than
      25 years. Electrocoin will manufacture and distribute all of our AWP and Section
      16 games on an exclusive basis. By doing so, we avoid the capital intensive
      costs of establishing a manufacturing facility as well as development of a
      sales
      and marketing team. Following our initial launch in the U.K., Electrocoin
      intends to offer the AWP and Section 16 games in other European gaming
      markets.


-2-




Over
      the
      past two years, we have developed a variety of AWP and Section 16 games in
      conjunction with Electrocoin. Our gaming machines have been tested in gaming
      establishments for more than nine months, and have demonstrated solid results.
      We have benefited greatly from the market knowledge of Electrocoin by working
      with them, gaming establishment operators and the players who use these games
      to
      offer gaming machines that we believe will have wide market appeal.
      Specifically, we have developed a suite of roulette games which we believe
      are
      unique to the industry in that they satisfy the gaming regulations applicable
      to
      both AWP gaming devices as well as Section 16 gaming devices. Our AWP and
      Section 16 roulette games offer gaming establishment owners the choice, on
      one
      gaming machine, to offer our roulette games in AWP or Section 16 format. The
      benefits of this option are significant in that in the United Kingdom, gaming
      machines are presently offered only on a purchase basis. Accordingly, gaming
      establishment operators are quite selective when making their acquisitions.
      We
      believe that our significant research and development efforts will provide
      the
      gaming establishment operators with the flexibility they demand in the rapidly
      changing United Kingdom gaming marketplace. We have spent considerable time
      in
      speaking with the players of these games to precisely understand what motivates
      them to play certain games, including, among other things, the graphics and
      other features that make some games much more successful than others.




The
      AWP
      market alone consists of more than 1,000,000 machines throughout Europe. The
      product offerings of today are much different than a few years ago. Players
      demand significantly more in graphics and playability than before. We anticipate
      that our extended research and development period will offer players roulette
      games that meet their demands and that will have long-term appeal.




In
      addition to our suite of roulette games, we have developed Section 16 slot
      games
      and a suite of AWP poker games. Once again, each of these games has been
      developed in close consultation with an experience provider to the marketplace,
      Electrocoin.




Our
      objective is to place a minimum of 500 gaming machines in our initial launch.
      Our arrangement with Electrocoin provides that we book all revenues associated
      with the sale of the machines and an even split of the profits. Given our recent
      reduction in staff following the sale of certain assets to Cantor, we have
      significantly reduced our fixed operating expenses. We believe the placement
      of
      750 gaming machines per year will achieve profitability, and while we can
      provide no assurances that this objective will be achieved, we have the
      significant benefit of entering into these markets with a well-known and
      established partner who has developed an extensive distribution throughout
      Europe over the last twenty-five years.




***United
      States –
      Native American Gaming***




We
      are
      currently conducting due diligence on a United States-based provider of gaming
      machines to the Native American gaming marketplace. We were approached by this
      entity earlier this year to explore the possibility of acquiring them. This
      entity has been in existence for several years and has placed products on a
      sale
      and revenue sharing basis at more than twenty casinos and anticipates entering
      into several new markets with additional products later this year. The
      acquisition target is profitable, and had significantly more revenues in 2005
      than the Company. At this time, there can be no assurance that we will be
      successful in consummating the acquisition, and the terms of such acquisition
      have not been determined. If we are successful in consummating the acquisition,
      it is likely that the terms will include a combination of cash and the issuance
      of shares of common stock, the latter of which would have a dilutive effect
      on
      our existing common stockholders. We intend to jointly decide whether to proceed
      in the coming months.


-3-


***Server-Based
      Gaming - Downloadable Games***




Twenty-five
      years ago, a majority of all gaming revenue in the United States was derived
      from traditional table games such as blackjack, craps and baccarat. Today,
      a
      majority of all gaming revenue in the United States is generated from gaming
      machines. The shift from traditional table games to gaming machines has occurred
      in the gaming markets outside the United States as well. Further, the proportion
      of total revenue originating from gaming machines is expected to continue to
      increase as a result of the higher margins produced by gaming machines when
      compared with increasing labor costs associated with the operation of table
      games and the ability to establish a fixed return on gaming
      devices.




Historically,
      the dominant architecture of gaming machines within traditional gaming venues
      has been stand-alone devices, where these devices are generally connected to
      the
      gaming property's monitoring system and may be connected to wide area
      progressive jackpot controllers. With the continued growth in gaming, especially
      in networked gaming, and the increased reliance on technology to deliver a
      superior gaming experience to patrons, substantial growth is occurring in
      networked gaming systems. To this end, the Gaming Standards Association has
      standardized the Ethernet and TCP/IP protocols for the networking of gaming
      machines. Our technology is compliant with these standards.




We
      are
      focused on technology that enables the inter-connectivity of individual gaming
      machines intra-casino and inter-casino. Many of the major gaming equipment
      manufacturers have already introduced, or are in development of, server-based
      downloadable gaming platforms and gaming machines into the marketplace. While
      we
      intend to continue to focus on partnering with a major gaming equipment
      provider, there can be no assurance that we will be successful in achieving
      this
      objective. Given the capital costs associated with this emerging market and
      the
      significant competition which exists therein, we do not intend to provide our
      server-based gaming platform unless a strategic partnership is consummated.


**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**




We
      have a
      knowledge base of all aspects of software and hardware game development and
      currently employ two professionals on a full-time basis for our ongoing research
      and development needs. We may retain additional software developers and graphics
      designers on a contract basis in the future. All development is undertaken
      at
      our North Sydney, Australia office.




-4-




**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, and in
      the
      case of our AWP and Section 16 games, manufactured and distributed by our
      partner Electrocoin. 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.


GAMINGREGULATION




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.


EMPLOYEES




As
      of
      March 1, 2006, we have six full-time employees, two of which are engaged in
      software development, hardware development, graphical design, and quality
      assurance, with the remaining four employees engaged in sales and marketing,
      finance/accounting, and management. In terms of the geographic location of
      our
      employees, we have four employees in our North Sydney, Australia office, one
      employee in our Encino, California office, and one employee based in London.




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




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




In
      2004,
      we relocated our corporate offices to 6757 Spencer Street, Las Vegas, Nevada
      89119. Our leased property consists of 7,200 square feet of office and warehouse
      space. Our lease is currently $10,700 per month, inclusive of common area
      maintenance charges, and the master lease agreement expires in November
      2009. We subleased all of the above premises, at the existing lease rate, to
      a
      third party on June 16, 2005. The sublease concludes on June 15, 2007, after
      which we will have twenty-nine months remaining on the master lease agreement.
      It is our intention to sublease the above premises upon the conclusion of the
      existing sublease agreement through the term of the master lease
      agreement.




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 16821 Escalon
      Dr.,
      Encino, California 91436. We do not pay rent at this location and fair market
      value would be immaterial.




We
      also
      maintain an office in North Sydney, Australia, where we lease approximately
      2,750 square feet at a monthly rate of $13,000 Australian dollars (US$9,390
      as
      of March 17, 2006). Commencing April 1, 2006, we will pay a nominal monthly
      rental amount for use of approximately 400 square feet in this office. It is
      our
      present intention to relocate our Australia operations to another location
      in
      Sydney in the third quarter of 2006 and we anticipate a monthly lease rate
      of
      approximately US$2,500 per month.


-5-


In
      the
      United Kingdom, we operate out of the offices of our manufacturing and
      distribution partner, Electrocoin, Ltd., in London. We do not pay rent at this
      location and fair market value would be immaterial.




**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, 2006, 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 20, 2006, 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:




**C****ALENDAR****Q****UARTER****E****NDED**
              
              **L****OW**
              
              **H****IGH**March
                  31, 2003
              
              $
              0.50
              
              $
              1.74June
                  30, 2003
              
              $
              0.25
              
              $
              1.49September
                  30, 2003
              
              $
              0.50
              
              $
              1.99December
                  31, 2003
              
              $
              0.25
              
              $
              0.99March
                  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
              
              $
              0.23December
                  31, 2005
              
              $
              0.13
              
              $
              0.23March
                  31, 2006 (through March 20, 2006)
              
              $
              0.13
              
              $
              0.40




The
      last
      reported sale price of our common stock on the Over The Counter Bulletin Board
      on March 20, 2006 was $0.35 per share. We are not aware of any public market
      for
      our options or warrants. The 2003 high and low bid prices reflect the legal
      acquirer in the January 2004 reorganization, or NorStar Group, Inc., and not
      the
      accounting acquirer, or the Company, adjusted for the 1-for 24.852732 reverse
      split.


-6-




**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 20, 2006, we have options outstanding to purchase 1,923,168
      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, 2005, we made the following issuances of
      our
      common stock which were not registered under the Act:




On
      October 10, 2003, we closed a private placement of units, or the 2003 Offering,
      consisting of up to 2,000,000 shares of common stock and warrants to purchase
      2,000,000 shares of common stock. In connection with the 2003 Offering, we
      sold
      748,332 shares of common stock, and issued warrants to purchase an equal number
      of shares of common stock. We received gross proceeds totaling $598,750 and
      incurred transaction costs of $145,211 for net proceeds of $453,539. We also
      issued 371,833 shares to underwriters, selected dealers and finders in the
      2003
      Offering.




The
      warrants issued in the 2003 Offering are freely transferable and entitle the
      owner to purchase shares of common stock at an exercise price of $1.50 through
      the close of business on October 10, 2005. A total of forty-nine investors
      purchased units in the 2003 Offering. We had reasonable grounds to believe
      forty-five were accredited investors and that the remaining four investors
      were
      sophisticated non-accredited investors as a result of (i) their business or
      financial experience, (ii) the business or financial experience of their
      professional advisors who were unaffiliated with and not compensated by the
      Company, any affiliate, or any underwriter or selected dealer of the Company
      either directly or indirectly, and/or (iii) their pre-existing business
      relationship with the Company or its officers, directors or controlling persons.
      In addition, 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. The
      certificates evidencing the securities issued in the 2003 Offering contain
      a
      legend restricting their transferability absent registration under the Act
      or
      the availability of an applicable exemption therefrom. The issuance of these
      securities was made in reliance upon the exemptions from the registration
      requirements of the Act pursuant to Section 4(2) of the Act and Rule 506 of
      Regulation D promulgated thereunder.


-7-




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.




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.******




Management's
      Discussion and Analysis for the years ended December 31, 2005 and 2004 presented
      below reflects certain restatements to the Company's previously reported results
      of operations for these periods. See Note 3 of the Notes to Consolidated
      Financial Statements for a discussion of these restatements.


**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-




OVERVIEW


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, 2005
      and
      2004, 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/A, 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.


-9-




***Description
      of Revenues***




Through
      December 31, 2005, 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.





At
      this
      time we are principally focused on the provision 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 suite consists of multiple versions of roulette and poker games, while
      our
      Section 16 games include slots and roulette.




Following
      an extended period of testing, successful field trials and multiple changes
      in
      the gaming laws of the United Kingdom, we anticipate commencing sales of AWP
      and
      Section 16 gaming machines in the late second quarter of 2006. To this end,
      we
      have established a strategic relationship with Electrocoin Sales, Ltd., located
      in London, for all manufacturing, distribution and maintenance of such gaming
      machines. Electrocoin has substantive manufacturing facilities in Cardiff,
      United Kingdom, and has been a manufacturer and distributor of gaming machines
      to the European market for more than twenty-five years. To this end, Electrocoin
      has established a significant network of sales representatives, sub-distributors
      and gaming operators during this period in becoming a well respected gaming
      machine provider.




Our
      arrangement with Electrocoin provides that we will realize all revenues related
      to the sale of our gaming machines and an equal split of the profits relating
      thereto.




The
      principal market for our AWP and Section 16 games will be local gaming arcades
      and possibly, to some extent, licensed betting offices in the jurisdictions
      Presently, there are more than one million AWP machines in existence. Many
      of
      these machines are using relatively old technology and staid graphics. We,
      in
      coordination with management for Electrocoin, have developed roulette gaming
      machines that are unique in that they satisfy the AWP and Section 16 gaming
      laws
      and regulations of the United Kingdom. As a result, gaming arcade and other
      operators who purchase our roulette gaming machines will be able to use our
      gaming machine either in AWP or Section 16 format, without having to purchase
      new gaming machines. We view this as a significant advantage.




The
      placement of gaming equipment is ordinarily a capital intensive exercise
      involving manufacturing, distribution and maintenance of gaming machines in
      the
      field. We have made the strategic choice to outsource all of the above in an
      effort to limit capital expense. With our partner Electrocoin, we have been
      able
      to not only achieve our objective of limiting capital expense, but maintain
      the
      ability to realize all revenues upon the sale of AWP and Section 16 games while
      equally sharing in the profits from such machines sales.


-10-




While
      we
      presently have no intention in doing so, if we elect to install our gaming
      machines on a revenue-sharing basis in the future, there will generally be
      no
      cost to the gaming operators, as we would share in the recurring revenues
      generated from the gaming machines. We would, however, retain ownership of
      the
      gaming machines and all software relating thereto throughout the term of the
      revenue-sharing agreement, and would maintain the right to refurbish and
      redeploy gaming machines returned to us either upon the expiration or early
      termination of the revenue-sharing agreements. The placement of gaming machines
      on a revenue sharing basis is a capital intensive exercise and would require
      us
      to procure debt financing or a strategic partner to underwrite the costs
      associated with such placements.




In
      addition to our anticipated placement of AWP and Section 16 gaming machines
      in
      the United Kingdom and other European Union countries where applicable, we
      are
      currently performing due diligence on a United States-based provider of gaming
      machines to the Native American gaming marketplace for the purpose of acquiring
      this company. Our due diligence investigation is in the early stage, and there
      can be no assurance that we will be successful in consummating a transaction
      with this company. The specific terms of the proposed acquisition are currently
      being discussed and will likely include a combination of cash and common stock.
      We anticipate completing our due diligence of this entity in the second quarter
      of this year, and a closing would occur, if a definitive agreement is reached,
      in the second half of 2006. The transaction, if consummated, would have a
      dilutive effect on our existing common stockholders while providing us with
      revenues significantly greater than we have realized from a historical
      perspective.




We
      are
      also actively searching for a strategic partner to implement our central server
      gaming system for downloadable gaming applications in slot machines at casinos.
      In this regard, we have met with several large gaming equipment manufacturers
      about our central server system and the potential sale or license of the system
      to them for implementation in casinos. At this time, there can be no assurance
      that we will be successful in entering into a definitive agreement with a third
      party to achieve the foregoing. Further, given the costs associated with
      commercializing our central server gaming system, our current cash position
      and
      the significant competition that exists for downloadable games and central
      server systems, we believe that procurement of a major gaming equipment partner
      is a prerequisite to commercialization.




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 deployment in the United Kingdom and other European Union
      countries where applicable.




We
      anticipate that our future revenues will be derived from the sale of AWP and
      Section 16 games in the above mentioned jurisdictions. In addition, if we are
      successful in consummating the acquisition of the United States-based provider
      of gaming machines to the Native American gaming marketplace, we will realize
      revenues generated therefrom. At this time, it is extremely difficult to predict
      with accuracy, the breakdown, and amount, of anticipated future revenues from
      each of the foregoing initiatives.




***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.


-11-




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, however, continue to 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 sale of gaming machines 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.




Revenues
      from the placement of our gaming machines on a revenue-sharing basis, as well
      as
      the placement of our central server gaming system on a license basis, if
      applicable, will be accounted for similar to an operating lease, with the
      revenues recognized as earned over the term of the agreement. We will negotiate
      our portion of the revenues generated under revenue-sharing contracts based
      upon
      the cost of the equipment installed, the location of a particular casino, and
      the estimated daily net win per gaming machine for each casino client. At this
      time, we do not anticipate the placement of our existing gaming machines on
      a
      revenue sharing basis. Further, unless we secure a major gaming equipment
      manufacturer as a partner, it is highly unlikely that we will commercialize
      our
      central server gaming system for downloadable gaming applications at
      casinos.




***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.





***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***




In
      accordance with the provisions of Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issued to Employees", we have used the intrinsic value
      method and recognize compensation costs as a result of the issuance of stock
      options to employees based on the excess, if any, of the fair value of the
      underlying stock at the date of grant or award (or at an appropriate subsequent
      measurement date) over the amount the employee must pay to acquire the stock.
      Therefore, we have not been required to recognize compensation expense as a
      result of any grants of stock options to employees at an exercise price that
      is
      equivalent to or greater than fair value. We have also made pro forma
      disclosures, as required by Statement of Financial Accounting Standards No.
      123,
      "Accounting for Stock-Based Compensation" ("SFAS 123"), of net income or loss
      as
      if a fair value based method of accounting for stock options granted to
      employees had been applied instead when such amounts differ materially from
      the
      historical amounts.


-12-




In
      accordance with SFAS 123, 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 123, and the
      assumption that all of the options or other equity instruments will ultimately
      vest. The effect of actual forfeitures will be recognized as they
      occur.




***Equity
      Issued with Registration Rights***




In
      connection with sales of our common stock and warrants to certain investors
      during the year ended December 31, 2004, the Company granted certain
      registration rights that provide for liquidated damages in the event of failure
      to timely perform under the agreements. Although the common stock purchase
      agreement does not provide for net-cash settlement, the existence of liquidated
      damages provides for a defacto net-cash settlement option. Therefore, common
      stock subject to such liquidated damages does not meet the tests required for
      shareholders' equity classification, and accordingly has been reflected between
      liabilities and equity in the accompanying consolidated balance sheet until
      such
      time as the conditions are eliminated.




***Warrant
      Liability***




In
      connection with the sale of certain equity instruments during the year ended
      December 31, 2004, as described above, the Company issued freestanding warrants.
      Although the terms of the warrants do not provide for net-cash settlement,
      in
      certain circumstances, physical or net-share settlement is deemed to not be
      within the Company's control and, accordingly, the Company is required to
      account for these freestanding warrants as a derivative financial instrument
      liability, rather than as stockholders' equity.




The
      warrant liability is initially measured and recorded at its fair value, and
      is
      then re-valued at each reporting date, with changes in the fair value reported
      as non-cash charges or credits to earnings. For warrant-based derivative
      financial instruments, the Black-Scholes option pricing model is used to value
      the warrant liability.




The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed at the end of
      each reporting period. Derivative instrument liabilities are classified in
      the
      balance sheet as current or non-current based on whether or not net-cash
      settlement of the derivative instrument could be required within 12 months
      of
      the balance sheet date.




The
      Company does not use derivative instruments to hedge exposures to cash flow,
      market, or foreign currency risks.




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




In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
      ("SFAS 123R"), which is a revision to SFAS 123. SFAS 123R establishes standards
      for the accounting for transactions in which an entity exchanges its equity
      instruments for goods or services. Primarily, SFAS 123R focuses on accounting
      for transactions in which an entity obtains employee services in share-based
      payment transactions. It also addresses transactions in which an entity incurs
      liabilities in exchange for goods or services that are based on the fair value
      of the entity's equity instruments or that may be settled by the issuance of
      those equity instruments.


-13-




SFAS
      123R
      requires the Company to measure the cost of employee services received in
      exchange for an award of equity instruments based on the grant-date fair value
      of the award. That cost will be recognized over the period during which an
      employee is required to provide service in exchange for the award, which is
      usually the vesting period. No compensation cost is recognized for equity
      instruments for which employees do not render the requisite service.





In
      accordance with the Securities and Exchanges Commission's Staff Accounting
      Bulletin 107, SFAS 123R is effective as of the beginning of the annual reporting
      period that begins after December 15, 2005. Under these guidelines, the Company
      will adopt SFAS 123R as of January 1, 2006. The Company expects the adoption
      of
      SFAS 123R will have a significant adverse impact on its future results of
      operations.





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS 151"),
      which is an amendment of ARB No. 43. SFAS 151 requires idle facility expenses,
      freight, handling costs, and wasted material (spoilage) costs to be recognized
      as current-period charges. It also requires that allocation of fixed production
      overhead costs to the cost of conversion be based on the normal capacity of
      the
      production facilities. SFAS No. 151 will be effective for us beginning January
      1, 2006 and resulting adjustments will be made on a prospective basis. We do
      not
      anticipate that the adoption of this standard will have a significant impact
      on
      our business, results of operations or financial position.





In
      December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 29". The guidance in APB Opinion
      No. 29, "Accounting for Nonmonetary Transactions", is based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the
      fair value of assets exchanged. The guidance in Opinion 29, however, included
      certain exceptions to that principle. SFAS 153 amends Opinion 29 to eliminate
      the exception for nonmonetary exchanges of similar productive assets that do
      not
      have commercial substance. A nonmonetary exchange has commercial substance
      if
      the future cash flows of the entity are expected to change significantly as
      a
      result of the exchange. SFAS 153 is effective for nonmonetary exchanges
      occurring in fiscal periods beginning after June 15, 2005. The adoption of
      SFAS 153 is not expected to have a material impact on our financial position
      and
      results of operations.




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
      ("SFAS 154"), which is a replacement of APB Opinion No. 20, "Accounting
      Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
      Statements". SFAS 154 changes the requirements for the accounting for and
      reporting a change in an accounting principle. Previously, most voluntary
      changes in accounting principle required recognition of a cumulative effect
      adjustment in the results of operations of the period of change. SFAS 154
      requires retrospective application to prior periods unless it is impracticable
      to determine either the period-specific effects or the cumulative effect of
      the
      change. SFAS 154 is effective for accounting changes and corrections of errors
      made in years beginning after December 15, 2005; however, it does not change
      the
      transition provisions of any existing accounting pronouncements, such as SFAS
      123R. We do not believe the adoption of SFAS 154 will have a material effect
      on
      our business, results of operations, or financial position.


**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.


-14-


**R** **ESULTS** **** **OF** **O** **PERATIONS** **- Y** **EARS** **E** **NDED** **D** **ECEMBER** **** **31,
        2005** **** **AND** **** **2004**


***Revenues***




During
      the year ended December 31, 2005, we generated revenues from maintenance and
      development of Internet gaming sites and technical support services of
      $1,274,819, as compared to revenues from technical support services of $312,401
      during the year ended December 31, 2004. The $962,418, or 308.1%, increase
      in
      revenues, consists of a $938,615 increase in services revenue and a $23,803
      increase in product sales revenue. The increase related to the significant,
      and
      consistent, Internet gaming development undertaken on behalf of Cantor in 2005.
      We anticipate a slight increase in revenue during the first quarter of 2006
      from
      the sale of certain assets to Cantor on February 15, 2006. Thereafter, we
      anticipate commencing sales of our AWP and Section 16 gaming machines in the
      United Kingdom in late second quarter of 2006.




***Cost
      of Revenues***




During
      the year ended December 31, 2005, our cost of revenues was $528,085, as compared
      to $305,343 during the year ended December 31, 2004. During the year ended
      December 31, 2005, our cost of revenues consisted of $507,348 attributable
      to
      services and $20,737 attributable to product sales. The $222,742 increase in
      the
      cost of revenues was directly attributable to the significant increase in
      Internet gaming development revenues, as compared to the year ended December
      31,
      2004. We anticipate that our revenues in future periods may escalate upon the
      future sales of AWP and Section 16 games in the United Kingdom initially, and
      in
      other European Union countries where such games are offered thereafter. Our
      cost
      of revenues may increase, but our margins are anticipated to improve with future
      sales of AWP and Section 16 games through our manufacturing and distribution
      partner Electrocoin, Ltd. 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. In
      addition, our arrangement provides that we will realize all revenues from the
      sale of such gaming machines and an equal split in the profit.




During
      the year ended December 31, 2005, we realized a gross margin of $746,734, as
      compared to a gross margin of $7,058 during the year ended December 31, 2004.
      The $739,676, or 10,480.0% increase in gross margin, related to the significant
      increase in Cantor related Internet gaming development revenues throughout
      2005
      as compared to only the fourth quarter of 2004.




***Operating
      Expenses***




During
      the year ended December 31, 2005, we incurred total operating expenses of
      $1,887,314, as compared to $3,157,693 during the year ended December 31, 2004,
      a
      decrease of $1,270,379, or 40.2%. We anticipate that our operating expenses,
      particularly as relates to selling, general and administrative expenses, will
      decrease in terms of percentage of revenues in 2006 as we focus on the sale
      of
      AWP and Section 16 games through our manufacturing and distribution partner,
      Electrocoin.




During
      the year ended December 31, 2005, we incurred research and development expenses
      of $459,029, as compared to $712,467 during the year ended December 31,
      2003, a decrease of $253,438, or 35.6%. The decrease in our research and
      development expenses was due primarily to the development of the Cantor Casino
      utilizing our existing Internet gaming platform, as compared to 2004 when we
      utilized more resources towards the development of our central server gaming
      system platform and related games and other products for deployment in
      land-based casinos. We anticipate making our initial deployment of AWP and
      Section 16 games into the United Kingdom market in late second quarter of this
      year utilizing our strategic partner, Electrocoin. Thereafter, we anticipate
      selling such gaming machines in other European Union jurisdiction where such
      games are offered. While this is our initial deployment of gaming machines
      into
      land-based gaming operations, we have minimized the risk by partnering with
      Electrocoin, an established manufacturing and distribution company. 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.


-15-




During
      the year ended December 31, 2005, we incurred selling, general and
      administrative expenses of $1,428,285, as compared to $2,445,226 during the
      year
      ended December 31, 2004, a decrease of $1,016,941, or 41.6%. The decrease in
      our
      selling, general and administrative expenses was due primarily to focusing
      on
      the development of the Cantor Casino in 2005 and substantially decreasing many
      expenses incurred in the prior fiscal year. In 2004, we incurred significant
      expense associated with travel, road shows for our private placement in the
      first half of 2004, retention of outside professionals, including gaming,
      intellectual property and other counsel, exhibiting at five industry tradeshows
      and conventions, salaries related to new employees, and non cash compensation
      expense of $660,403 relating to shares, options and warrants issued to
      consultants in consideration of strategic services. Included in these non cash
      compensation costs were $485,315 of expenses relating to the fair value of
      shares of restricted common stock issued to consultants in consideration for
      strategic advisory, investment banking, research and hardware and software
      documentation services during the year ended December 31, 2004. We anticipate
      that our selling, general and administrative expenses will be significantly
      lower in 2006 as we reduced the number of employees from fourteen to six in
      conjunction with the sale of certain assets to Cantor in February 2006, as
      well
      as our new focus on the sale of AWP and Section 16 games through Electrocoin
      in
      the United Kingdom. Our selling, general and administrative expenses may,
      however, increase if we are successful in consummating the acquisition of a
      United States-based provider of gaming machines to the Native American gaming
      marketplace. While we are currently undertaking a due diligence investigation
      on
      this entity, there is no assurance that we will be successful in consummating
      the transaction. If we are successful, the increase in selling, general and
      administrative expenses is expected to be offset by increased revenues upon
      the
      consolidation of such entity.




***Other
      Income (Expense)***




During
      the year ended December 31, 2005, other expense was $332,029, as compared to
      other expense of $205,727 during the year ended December 31, 2004, an increase
      of $126,302, or 61.39%. The increase is related primarily to an increase of
      $337,997 of interest expense and amortization of debt discount associated with
      the debt financing provided by Cantor, offset, in part, by the $124,614 increase
      in other income.




Gain
      on
      fair value of warrants for the years ended December 31, 2005 and 2004 was
      approximately $2,717 and $23,305. 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, 2005, we realized a net loss of $1,472,609, as
      compared to a net loss of $3,356,362 during the year ended December 31, 2004,
      a
      decrease in net loss of $1,883,753. The decrease in net loss resulted from
      a
      $962,418 increase in revenues, a decrease in operating expenses of $1,270,379,
      offset, in part, by a $126,302 increase in other expense. A decreased loss
      and
      increased revenues directly relates to our development activities on behalf
      of
      Cantor throughout 2005. 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 sale of AWP and Section games in the United Kingdom in late second quarter
      of 2006. In addition, we have reduced our staff to six 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 nearing
      commercialization. In the event we are successful in consummating the
      acquisition briefly described in this Annual Report, we would increase our
      staff
      through the addition of employees currently employed by the acquisition target,
      while revenues would increase significantly. There can be no assurance that
      we
      will be successful in consummating the acquisition.


-16-




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


***Overview***




As
      of
      December 31, 2005, we had cash of $122,318, accounts receivable of $90,142
      and
      total liabilities of $1,833,328, of which $669,683 are current liabilities.
      In
      addition, as of December 31, 2005, we had a working capital deficit of $457,223
      and a stockholders' deficiency of $1,195,821. During the year ended December
      31,
      2005, cash on hand decreased from $594,024 to $122,318.




Operating
      activities used net cash of $861,153 during the year ended December 31,
      2005, whereas operating activities used net cash of $2,530,387 during the year
      ended December 31, 2004. The net cash used in operating activities during
      the year ended December 31, 2005 related primarily to our net loss of
      $1,472,609, 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 a decrease in
      foreign taxes payable of $166,009, offset, in part, by amortization of debt
      discount of $222,068. During the year ended December 31, 2004, our operating
      activities used net cash of $2,530,387 related primarily to our net loss of
      $3,556,362, an increase in accounts receivable of $172,645, an increase in
      accounts payable of $102,298, a decrease in accrued expenses of $31,252, a
      decrease in accrued compensation - officers of $59,090, and an increase in
      foreign taxes payable of $19,500, offset, in part, by non-cash costs of
      investment banking, strategic advisory, research, and hardware and software
      documentation services of $660,403 paid through the issuance of restricted
      shares of common stock with a fair value of $485,315 and the issuance of options
      and warrants with a fair value of $175,088. Issuances of equity securities
      as
      payments for services and compensation result in non-cash charges to expense.




Investing
      activities used $96,229 during the year ended December 31, 2005, as compared
      to
      $114,967 during the year ended December 31, 2004. The decrease in use of cash
      in
      investing activities reflects a $68,738 decrease in acquisition of equipment
      and
      furnishings, offset by the $50,000 acquisition of intangible assets from
      Absolute Game, Ltd.




Our
      financing activities provided net cash of $500,000 during the year ended
      December 31, 2005, as compared to $3,227,644 during the year ended
      December 31, 2004. 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. The net cash provided
      by financing activities during the year ended December 31, 2004 reflects
      $2,143,242 in net proceeds from the sale of 2,445,000 shares of common stock
      in
      a private placement, $42,852 from stockholder loans, $1,500,000 from the
      issuance of a senior secured note and warrants, offset by $458,450 used to
      repay
      stockholder loans.




***Outlook***




We
      incurred losses of $1,472,609 and $3,356,362, and negative net cash flows from
      operating activities of $861,153 and $2,530,387, for the years ended December
      31, 2005 and 2004, respectively. As of December 31, 2005, we had an accumulated
      deficit of $8,315,625. The foregoing raises substantial doubt about our ability
      to continue as a going concern for a reasonable period of time.


-17-




Our
      principal objectives at this time are to (i) commence sales of AWP and Section
      16 gaming machines in the United Kingdom, and thereafter in other European
      Union
      countries where such gaming machines are utilized, through our manufacturing
      and
      distribution partner Electrocoin, Ltd., and (ii) to consummate the acquisition
      of United States-based provider of gaming machines to the Native American gaming
      marketplace. We anticipate that sales of AWP and Section 16 gaming machines
      will
      commence in late second quarter of this year. We cannot provide any assurance
      as
      to the consummation of the acquisition noted above.




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$9,390 as of March 20, 2006). Commencing April 1, 2006, we will pay a nominal
      monthly rental amount for use of approximately 400 square feet in this office.
      It is our present intention to relocate our Australia operations to another
      location in Sydney in the third quarter of 2006 and we anticipate a monthly
      lease rate of approximately US$2,500 per month, or less. In the United Kingdom,
      we operate out of the offices of our manufacturing and distribution partner,
      Electrocoin, Ltd., in London. We do not pay rent at this location.




While
      we
      have significantly reduced our fixed monthly operating expenses, we anticipate
      that for the twelve month period ending December 31, 2006, we will require
      a
      cash infusion for further working capital and to consummate the proposed
      acquisition. The amount of such cash infusion will be dependent upon the volume,
      and timing, of our anticipated sales of AWP and Section 16 gaming machines,
      as
      well as the cash component of the proposed acquisition. Further, until such
      time
      as we achieve a measurable amount of AWP and Section 16 gaming machines sales,
      our executive officers will defer all salaries payable to them.




In
      summary, until we generate sufficient cash from the sale of AWP and Section
      16
      gaming machines, 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 2006 with cash on hand. **** We
      will
      likely require additional cash from the issuance of equity or debt securities
      in
      the nine months ending September 30, 2006 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.


RISKFACTORS




*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,
      2005 and 2004, we have incurred operating losses of $1,472,609 and $3,356,362,
      respectively, and our operations have used $861,153 and $2,530,387 of cash,
      respectively. As of December 31, 2005, we had an accumulated deficit of
      $8,315,625 and stockholders' deficiency of $1,195,821. We anticipate realizing
      operating losses for the foreseeable future until such time as we realize
      revenues from the sale of AWP and Section 16 games sufficient to offset our
      operating expenses.


-18-




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 gaming machines. 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 2006. 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 placing AWP and Section 16 gaming machines in the U.K.
      through our partner Electrocoin, 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 our manufacturing and distribution partner Electrocoin is not
      successful in placing a significant number of gaming machines, 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 placement of AWP and Section 16 gaming
      machines 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 Electrocoin, Ltd., an established
      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
      placing a significant number of AWP and Section 16 gaming machines, our
      business, financial condition and results of operations could be materially
      adversely affected.




***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.***





While
      we
      have a well-established manufacturing and distribution partner in Electrocoin,
      Ltd., 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; provided, however, in the gaming
      markets we intend to enter, Electrocoin is well known.


-19-




***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 placing AWP and Section 16 gaming machines 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,
      Gregory L. Hrncir, our President and a Director, and Simon Daniel, our Chief
      Technology Officer have each contributed significantly to our business. If
      we
      lose the services of any 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.




***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 sales
      of
      AWP and Section 16 gaming machine sales 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.


-20-


***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 2005 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 placement of AWP
      and
      Section 16 gaming machines, will be made solely through our manufacturing and
      distribution partner Electrocoin Ltd. Electrocoin is our exclusive distributor,
      but also manufactures and distributes its own gaming machines as well as on
      behalf of other third parties. Our future revenues for AWP and Section 16 gaming
      machine sales will be entirely dependent on the efforts of Electrocoin 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 placed
      and the revenues derived therefrom.


**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.


-21-




***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 20,
      2006, was $0.35.




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.





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





As
      of
      March 20, 2006, there were outstanding options and warrants to purchase an
      aggregate of up to 8,476,622, with a weighted average exercise price of $0.64.
      Of this amount, Cantor holds warrants to purchase 5,703,704 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 $0.54 per share), there
      are options outstanding to purchase 1,906,168 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 $5,425,038 if all
      outstanding options and warrants were exercised with cash.


-22-


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




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





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Report
                of Independent Registered Public Accounting Firm
            24Consolidated
                Balance SheetDecember
                31, 2005
            25Consolidated
                Statements of OperationsYears
                Ended December 31, 2005 and 2004
            26Consolidated
                Statements of Stockholders' DeficiencyYears
                Ended December 2005 and 2004
            27Consolidated
                Statements of Cash FlowsYears
                Ended December 31, 2005 and 2004
            28Notes
                to Consolidated Financial Statements
            29





-23-




**Report
      of Independent Registered Public Accounting Firm**







To
      the
      Board of Directors and Stockholders


Gaming
      & Entertainment Group, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Gaming &
Entertainment Group, Inc. and Subsidiaries as of December 31, 2005, and the
      related consolidated statements of operations, stockholders' deficiency and
      cash
      flows for the years ended December 31, 2005 and 2004. 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 audits.




We
      conducted our audits 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 audits provide 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, 2005, and their results of
      operations and cash flows for the years ended December 31, 2005 and 2004, in
      conformity with accounting principles generally accepted in the United
      States.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As further discussed in Note
      2 to
      the consolidated financial statements, the Company's operations have generated
      recurring losses and negative net cash flows from operating activities, and
      it
      had an accumulated deficit and a stockholders' deficiency as of December 31,
      2005. Such matters raise substantial doubt about the Company's ability to
      continue as a going concern. Management's plans concerning these matters are
      also described in Note 2. The consolidated financial statements do not include
      any adjustments relating to the recoverability and classification of reported
      amounts or the amounts and classifications of liabilities that might result
      from
      the outcome of this uncertainty.




As
      discussed in Note 3, the Company has restated its consolidated financial
      statements for the year ended December 31, 2004.




/s/
      J. H.
      Cohn LLP




Roseland,
      New Jersey


March
      27,
      2006




-24-




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


**Consolidated
      Balance Sheet**


**December
      31, 2005**





**ASSETS****Current
                Assets**Cash
            
            $
            122,318Accounts
                receivable
            
            
            90,142Total
                current assets
            
            
            212,460**Equipment
                and Furnishings**,
                net of accumulated depreciation of $317,858
            
            
            132,625**Intangible
                Assets**,
                net of accumulated amortization of $31,350
            
            
            282,150**Other
                Assets**
            
            
            10,272Total
                assets
            
            $
            637,507**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            163,998Accrued
                expenses
            
            
            229,598Accrued
                compensation - officers
            
            
            220,539Notes
                payable - officers
            
            
            55,548Total
                current liabilities
            
            
            669,683**Senior
                Secured Note Payable**,
                net of unamortized debt discount of $869,407
            
            
            1,130,593**Deferred
                Rent**
            
            
            33,052Total
                liabilities
            
            
            1,833,328**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
            
            
            6,783,528Accumulated
                deficit
            
            
            (8,315,625
            )Accumulated
                other comprehensive income - foreign currency translation
                gains
            
            
            137,970Total
                stockholders' deficiency
            
            
            (1,195,821
            )Total
                liabilities and stockholders' deficiency
            
            $
            637,507




See
        Notes
        to Consolidated Financial Statements




-25-




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


**Consolidated
      Statements of Operations**


**For
      the Years Ended December 31, 2005 and 2004**





2005
              
              2004
                (Restated)**Revenues:**Services
              
              $
              1,251,016
              
              $
              312,401Product
              
              
              23,803
              
              
              -Total
                  revenues
              
              
              1,274,819
              
              
              312,401**Cost
                  of revenues:**Services
              
              
              507,348
              
              
              305,343Product
              
              
              20,737
              
              
              -Total
                  cost of revenues
              
              
              528,085
              
              
              305,343Gross
                  margin
              
              
              746,734
              
              
              7,058**Operating
                  expenses:**Research
                  and development
              
              
              459,029
              
              
              712,467Selling,
                  general and administrative
              
              
              1,428,285
              
              
              2,445,226Total
                  operating expenses
              
              
              1,887,314
              
              
              3,157,693Operating
                  loss
              
              
              (1,140,580
              )
              
              (3,150,635
              )**Other
                  income (expense):**Interest
                  expense and amortization of debt discount
              
              
              (419,377
              )
              
              (81,380
              )Foreign
                  currency transaction loss
              
              
              -
              
              
              (14,170
              )Other
                  income
              
              
              164,613
              
              
              39,999Gain
                  on fair value of warrants
              
              
              2,717
              
              
              23,305Fair
                  value of penalty common stock
              
              
              (79,982
              )
              
              (173,481
              )Total
                  other expense
              
              
              (332,029
              )
              
              (205,727
              )Net
                  loss
              
              $
              (1,472,609
              )
              $
              (3,356,362
              )**Weighted
                  average number of shares outstanding**
              
              
              19,665,724
              
              
              17,726,004**Net
                  loss per share - basic and diluted**
              
              $
              (0.07
              )
              $
              (0.19
              )




See
      Notes to
      Consolidated Financial Statements




-26-




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


**Consolidated
      Statements of Stockholders' Deficiency**


**Years
      ended December 31, 2005 and 2004 (Restated)**




**Common
                      Stock**
                  
                  **Additional**
                    **Paid-in
                      Capital**
                  
                  **Accumulated
                      Deficit**
                  
                  **Accumulated
                      Other Comprehensive Income**
                  
                  **Total**Shares
                  
                  Amount**Balance
                      at January 1, 2004**
                  
                  
                  11,947,872
                  
                  $
                  11,948
                  
                  $
                  2,538,678
                  
                  $
                  (3,486,654
                  )
                  $
                  206,766
                  
                  $
                  (729,262
                  )Common
                      stock issuance costs
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (301,758
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (301,758
                  )Effects
                      of reverse acquisition
                  
                  
                  4,058,756
                  
                  
                  148,118
                  
                  
                  (180,170
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (32,052
                  )Warrants
                      issued through private
                    placement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (26,022
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (26,022
                  )Common
                      stock issued for services
                  
                  
                  507,390
                  
                  
                  5,074
                  
                  
                  480,241
                  
                  
                  —
                  
                  
                  —
                  
                  
                  485,315Options
                      and warrants issued to nonemployees for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  175,088
                  
                  
                  —
                  
                  
                  —
                  
                  
                  175,088Warrants
                      issued in connection with senior secured note payable
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,110,340
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,110,340Foreign
                      currency translation loss (A)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (59,350
                  )
                  
                  (59,350
                  )Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,356,362
                  )
                  
                  —
                  
                  
                  (3,356,362
                  )**Balance
                      at December 31, 2004 as**
                    **restated**
                  
                  
                  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
                  )


(A)
      Comprehensive loss (net loss plus or minus foreign currency translation loss
      or
      gain) for the year ended December 31, 2005 and 2004 totaled $1,482,055 and
      $3,415,712, respectively.




See
      Notes
      to Consolidated Financial Statements




-27-


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


**Consolidated
      Statements of Cash Flows**


**Years
      Ended December 31, 2005 and 2004**




2005
                
                2004
                  (Restated)**Cash
                    flows from operating activities**Net
                    loss
                
                
                
                
                $
                (1,472,609
                )
                $
                (3,356,362
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Recoveries
                    of loan and note receivable and provision for bad debts
                
                
                
                
                
                -
                
                
                (2,419
                )Amortization
                    of debt discount
                
                
                
                
                
                222,068
                
                
                18,865Amortization
                    of intellectual property
                
                
                
                
                
                31,350
                
                
                -Depreciation
                    expense
                
                
                
                
                
                73,325
                
                
                91,927Shares
                    issued for services
                
                
                
                
                
                -
                
                
                485,315Options
                    and warrants issued to nonemployees for services
                
                
                
                
                
                -
                
                
                175,088Gain
                    on fair value of warrants
                
                
                
                
                
                (2,717
                )
                
                (23,305
                )Fair
                    value of penalty common stock
                
                
                
                
                
                79,982
                
                
                173,481Deferred
                    rent
                
                
                
                
                
                (14,713
                )
                
                47,765Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                
                
                
                84,478
                
                
                (172,645
                )Prepaid
                    expenses
                
                
                
                
                
                -
                
                
                10,000Other
                    assets
                
                
                
                
                
                -
                
                
                (9,553
                )Accounts
                    payable
                
                
                
                
                
                48,080
                
                
                102,298Accrued
                    expenses
                
                
                
                
                
                181,770
                
                
                (31,252
                )Accrued
                    compensation - officers
                
                
                
                
                
                73,842
                
                
                (59,090
                )Foreign
                    taxes payable
                
                
                
                
                
                (166,009
                )
                
                19,500Net
                    cash used in operating activities
                
                
                
                
                
                (861,153
                )
                
                (2,530,387
                )**Cash
                    flows from investing activities******Acquisition
                    of intangible assets
                
                
                
                
                
                (50,000
                )
                
                -****Acquisition
                    ofequipment
                    and furnishings
                
                
                
                
                
                (46,229
                )
                
                (114,967
                )Net
                    cash used in investing activities
                
                
                
                
                
                (96,229
                )
                
                (114,967
                )**Cash
                    flows from financing activities**Repayments
                    of related party loans
                
                
                
                
                
                -
                
                
                (458,450
                )Proceeds
                    from the issuance of senior secured note and warrants
                
                
                
                
                
                500,000
                
                
                1,500,000Proceeds
                    of related party loan
                
                
                
                
                
                -
                
                
                42,852Net
                    proceeds from sale of common stock and warrants
                
                
                
                
                
                -
                
                
                2,143,242Net
                    cash provided by financing activities
                
                
                
                
                
                500,000
                
                
                3,227,644Effect
                    of exchange rate changes on cash
                
                
                
                
                
                (14,324
                )
                
                (74,581
                )Net
                    increase (decrease) in cash
                
                
                
                
                
                (471,706
                )
                
                507,709**Cash,
                    beginning of year**
                
                
                
                
                
                594,024
                
                
                86,315**Cash,
                    end of year**
                
                
                
                
                $
                122,318
                
                $
                594,024**Supplemental
                    disclosure of cash flow information**Interest
                    paid
                
                
                
                
                $
                -
                
                $
                64,165**Supplemental
                    schedule of noncash investing and financing**
                  **activities:**Intangible
                    assets purchased in exchange for common stock
                  and
                    warrants
                
                
                
                
                $
                263,500
                
                $
                -Shares
                    of common stock and warrants issued for equipment
                
                
                
                
                $
                -
                
                $
                58,334





See
      Notes
      to Consolidated Financial Statements


-28-




**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 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 $1,472,609 and $3,356,362 and negative cash
      flows from operating activities of $861,153 and $2,530,387 for the years ended
      December 31, 2005 and 2004, respectively, and recurring losses in prior years.
      As of December 31, 2005, the Company had an accumulated deficit of $8,315,625
      and a stockholders' deficiency of $1,195,821. 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, 2005, the Company has funded its operations primarily through the issuance
      of common stock, 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,
      2006. Management believes, but cannot assure, that the Company will be able
      to
      obtain such financing and continue its operations through at least December
      31,
      2006. 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.


-29-




**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 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.


-30-




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


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




Statement
      of Financial Accounting Standards No. 123, "Accounting for Stock-Based
      Compensation" ("SFAS 123"), provides for the use of a fair value based method
      of
      accounting for employee stock compensation. However, SFAS 123 also allows an
      entity to continue to measure compensation cost for stock options granted to
      employees using the intrinsic value method of accounting prescribed by
      Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
      Employees" ("APB 25"), which only requires charges to compensation expense
      for
      the excess, if any, of the fair value of the underlying stock at the date a
      stock option is granted (or at an appropriate subsequent measurement date)
      over
      the amount the employee must pay to acquire the stock. The Company has elected
      to continue to account for employee stock options using the intrinsic value
      method under APB 25. By making that election, it is required by SFAS 123 and
      Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure" ("SFAS 148"), to provide pro forma
      disclosures of net loss and net loss per common share as if a fair value based
      method of accounting had been applied, if such amounts differ materially from
      the historical amounts.




In
      December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
      ("SFAS 123R"), which is a revision to SFAS 123. SFAS 123R establishes standards
      for the accounting for transactions in which an entity exchanges its equity
      instruments for goods or services. Primarily, SFAS 123R focuses on accounting
      for transactions in which an entity obtains employee services in share-based
      payment transactions. It also addresses transactions in which an entity incurs
      liabilities in exchange for goods or services that are based on the fair value
      of the entity's equity instruments or that may be settled by the issuance of
      those equity instruments.




SFAS
      123R
      requires the Company to measure the cost of employee services received in
      exchange for an award of equity instruments based on the grant-date fair value
      of the award. That cost will be recognized over the period during which an
      employee is required to provide service in exchange for the award, which is
      usually the vesting period. No compensation cost is recognized for equity
      instruments for which employees do not render the requisite service.





In
      accordance with the Securities and Exchanges Commission's Staff Accounting
      Bulletin 107, SFAS 123R is effective as of the beginning of the annual reporting
      period that begins after December 15, 2005. Under these guidelines, the Company
      will adopt SFAS 123R as of January 1, 2006. The Company expects the adoption
      of
      SFAS 123R will have a significant adverse impact on its future results of
      operations.





The
      exercise price of all of the options granted to employees has been equal to
      or
      greater than the stock price 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 consolidated financial statements. The Company's
      historical net loss and net loss per share and pro forma net loss and net loss
      per share assuming compensation cost had been determined based on the fair
      value
      of the options at the date of grant and amortized over the vesting period
      consistent with the provisions of SFAS 123 are set forth below:


-31-


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




**For
                Years Ended**
              **December
                31,****2005**
            
            **2004**
              **(Restated)**Net
                loss, as reported
            
            $
            (1,472,609
            )
            $
            (3,356,362
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (2,486
            )
            
            (464,307
            )Pro
                forma net loss
            
            $
            (1,475,095
            )
            $
            (3,820,669
            )Basic
                and diluted loss per common share as reported
            
            $
            (0.07
            )
            $
            (0.19
            )Basic
                and diluted loss per common share pro forma
            
            $
            (0.08
            )
            $
            (0.22
            )





In
      accordance with the provisions of SFAS 123, all other issuances of common stock,
      options or other equity instruments to employees and consultants as
      consideration for goods or services received by the Company are accounted for
      based on the fair value of the equity instruments issued (unless the fair value
      of the consideration received can be more reliably measured). The fair value
      of
      any options or similar equity instruments issued will be estimated based on
      the
      Black-Scholes option-pricing model, which meets the criteria set forth in SFAS
      123, and the assumption that all of the options or other equity instruments
      will
      ultimately vest.




***(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 which includes
      shares outstanding subject to continuing registration in 2004. 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, 2005 and
      2004,
      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, 2005 and 2004, the Company
      had
      options and warrants outstanding for the purchase of 15,889,918 and 19,754,565
      shares of common stock, respectively, that were not included in the computation
      of diluted loss per share.




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




Research
      and development costs are expensed as incurred.




**(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, 2005) 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.


-32-




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


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




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





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. Management also believes that the
      Company is not subject to any significant concentrations of credit risk related
      to accounts receivable at this time.




***(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.




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




In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS 151"),
      which is an amendment of ARB No. 43. SFAS 151 requires idle facility expenses,
      freight, handling costs, and wasted material (spoilage) costs to be recognized
      as current-period charges. It also requires that allocation of fixed production
      overhead costs to the cost of conversion be based on the normal capacity of
      the
      production facilities. SFAS No. 151 will be effective for the Company beginning
      January 1, 2006 and resulting adjustments will be made on a prospective basis.
      We do not anticipate that the adoption of this standard will have a significant
      impact on our business, results of operations or financial position.





In
      December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 29" ("SFAS 153"). The guidance in APB
      Opinion No. 29, "Accounting for Nonmonetary Transactions", is based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the
      fair value of assets exchanged. The guidance in APB 29, however, included
      certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the
      exception for nonmonetary exchanges of similar productive assets that do not
      have commercial substance. A nonmonetary exchange has commercial substance
      if
      the future cash flows of the entity are expected to change significantly as
      a
      result of the exchange. SFAS 153 is effective for nonmonetary exchanges
      occurring in fiscal periods beginning after June 15, 2005. The adoption of
      SFAS 153 is not expected to have a material impact on the Company's financial
      position and results of operations.




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
      ("SFAS 154"), which is a replacement of APB Opinion No. 20, "Accounting
      Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
      Statements". SFAS 154 changes the requirements for the accounting for and
      reporting a change in an accounting principle. Previously, most voluntary
      changes in accounting principle required recognition of a cumulative effect
      adjustment in the results of operations of the period of change. SFAS 154
      requires retrospective application to prior periods unless it is impracticable
      to determine either the period-specific effects or the cumulative effect of
      the
      change. SFAS 154 is effective for accounting changes and corrections of errors
      made in years beginning after December 15, 2005; however, it does not change
      the
      transition provisions of any existing accounting pronouncements, such as SFAS
      123R. We do not believe the adoption of SFAS 154 will have a material effect
      on
      our business, financial position, or results of operations.


-33-


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


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




Certain
      amounts for the year ended December 31, 2004 have been reclassified to conform
      to the presentation of the December 31, 2005 amounts.





**NOTE
      3 - RESTATEMENT FOR EQUITY ISSUED WITH REGISTRATION RIGHTS**




On
      May
      31, 2004, the Company received proceeds of $2,143,242, net of expenses of
      $301,758, from the sale of 244.5 units to investors at a price of $10,000 per
      unit through a private placement. Each unit consisted of 10,000 shares of common
      stock and a warrant to purchase 10,000 shares of common stock at $1.50 per
      share. The warrants expired on May 31, 2005. Pursuant to the private placement,
      the Company was obligated to file a registration statement (the "Registration
      Statement") no later than July 15, 2004.




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 on March 3, 2005.




The
      Emerging Issues Task Force ("EITF") is currently reviewing the accounting for
      securities with liquidated damages clauses as stated in EITF 05-04, "The Effect
      of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject
      to
      EITF 00-19" ("EITF 05-04"). There are currently several views as to how to
      account for this type of transaction and the EITF has not yet reached a
      consensus. In accordance with EITF 00-19, "Accounting for Derivative Financial
      Instruments Indexed To, and Potentially Settled in the Company's Own Stock,"
      ("EITF 00-19") and EITF 05-04, because the maximum potential liquidated damages
      for failure to file and have the registration statement declared effective
      is
      greater than the difference between the fair value of registered and
      unregistered shares, the value of the common stock subject to such
 registration rights should be classified as temporary equity.
      Additionally, in accordance with EITF 00-19 and the terms of the above warrants,
      the fair value of the warrants should be recorded as a liability, with an
      offsetting reduction to stockholders' equity. The warrant liability is
      initially measured at fair value using the Black-Scholes option pricing model,
      and is then re-valued at each reporting date, with changes in the fair value
      reported as non-cash charges or credits to earnings.





Historically,
      the Company classified the common stock and warrants with registration rights
      described above as stockholders' equity, as it believed these securities
      met the requirements necessary to record them as stockholders' equity. The
      Company has concluded that its financial statements for the year ended December
      31, 2004, and interim periods ended September 30, 2004, and March 31, 2005,
      will
      be restated. The restatement includes the reclassification of common stock
      subject to registration rights from stockholders' equity and into temporary
      equity, and the inclusion of the liability for the fair value of penalty common
      stock as of forty five (45) days after the closing date (July 15, 2004).





Based
      on
      the above determination, as of December 31, 2004, the Company reclassified
      $2,445,000 of common stock subject to registration rights from
      stockholders' equity and into temporary equity. On March 3, 2005, 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.
      Accordingly, the Company reclassified $2,445,000 from temporary equity and
      into stockholders' equity.


-34-




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


In
      addition, the Company measured the initial fair value of the warrants on the
      closing date at $26,022 and recorded the fair value to warrant liability. At
      the
      end of each reporting period, the value of the warrants was re-measured based
      on
      the fair value of the underlying shares, and changes to the warrant liability
      and related "gain or loss in fair value of the warrants" was recorded  as a
      non-cash charge or credit to earnings. The warrant liability was cancelled
      when
      the warrants expired on May 31, 2005.





The
      fair
      value of the warrants was estimated using the Black-Scholes option-pricing
      model, with the following assumptions: risk-free interest rate of 4.13% to
      4.50%, dividend yield of 0%, expected life of 0.67 to 0.17 years and volatility
      range of 71.01% to 86.32% were used.





For
      the
      years ended December 31, 2005 and 2004, the non-cash gain on fair value of
      warrants was $2,717 and $23,305 respectively. The gain on fair value of warrants
      is due principally to the decrease in the market value of the common stock
      of
      the Company. The non-cash gain on fair value of warrants has no effect on the
      Company's cash flows or liquidity.





In
      addition, the Company measured the initial fair value of the penalty common
      stock to be $86,365, and recorded as a non-cash charge. At the end of each
      reporting period, the increase in the penalty common stock was valued based
      on
      the fair value of the underlying shares, and changes to the penalty common
      stock
      liability and related non-cash charge was recorded. The penalty common stock
      liability was reclassified to stockholders' equity when the shares of
      common stock were registered under the Registration Statement on Form S-3 filed
      with the Securities and Exchange Commission and declared effective on March
      3,
      2005 and the shares of common stock were issued.





The
      restatement adjustments to the Company's consolidated balance sheets and
      statements of operations for the year ended December 31, 2004 and interim
      periods ended March 31, 2005, September 30, 2005 and 2004, and June 30, 2005
      are
      summarized below. Restated statements of cash flows for the interim periods
      have
      not been presented. The restatement adjustment had no effect on previously
      reported total operating, investing and financing activities.


-35-




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


**Restated
      Consolidated Balance Sheet September 30, 2004 (unaudited)**





As
                Previously Reported
              9/30/04
            
            Restatement
                Adjustment
              9/30/04
            
            As
                Restated
              9/30/04**ASSETS****Current
                Assets**Cash
            
            $
            36,646
            
            $
            -
            
            $
            36,646Accounts
                receivable
            
            
            60,000
            
            
            -
            
            
            60,000Prepaid
                expenses
            
            
            21,790
            
            
            -
            
            
            21,790Total
                current assets
            
            
            118,436
            
            
            -
            
            
            118,436**Equipment,**net
                of accumulated depreciation of $211,994
            
            
            161,608
            
            
            -
            
            
            161,608**Other
                Assets**
            
            
            706
            
            
            -
            
            
            706Total
                assets
            
            $
            280,750
            
            $
            -
            
            $
            280,750**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            219,496
            
            $
            -
            
            $
            219,496Accrued
                expenses
            
            
            46,428
            
            
            -
            
            
            46,428Current
                portion of notes payable - officers
            
            
            171,600
            
            
            -
            
            
            171,600Foreign
                taxes payable
            
            
            148,476
            
            
            -
            
            
            148,476Loan
                from stockholder
            
            
            43,007
            
            
            -
            
            
            43,007Warrant
                liability
            
            
            -
            
            
            26,022
            
            
            26,022Penalty
                Common Stock subject to continuing registration
            
            
            -
            
            
            86,365
            
            
            86,365Total
                current liabilities
            
            
            629,007
            
            
            112,387
            
            
            741,394**Senior
                secured note payable**
            
            
            250,000
            
            
            -
            
            
            250,000**Notes
                payable - officers, net of current portion**
            
            
            40,891
            
            
            -
            
            
            40,891Total
                liabilities
            
            
            919,898
            
            
            112,387
            
            
            1,032,285**Commitments
                and Contingencies****Common
                Stock with Registration Rights:**Common
                Stock subject to continuing registration, $0.0001 par
              value,
                2,445,000 shares issued and outstanding
            
            
            -
            
            
            2,445,000
            
            
            2,445,000Common
                Stock issued for equipment subject to continuing
              registration,
                $0.0001 par value, 58,334 shares issued and
              outstanding
            
            
            -
            
            
            58,334
            
            
            58,334-
            
            
            2,503,334
            
            
            2,503,334**Stockholders'
                Deficiency**Preferred
                Stock, par value $10 per share; 10,000,000 sharesauthorizedClass 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;16,514,018
                shares issued and outstanding
            
            
            190,173
            
            
            (25,033
            )
            
            165,140Additional
                paid-in capital
            
            
            5,190,380
            
            
            (2,504,323
            )
            
            2,686,057Accumulated
                deficit
            
            
            (6,182,261
            )
            
            (86,365
            )
            
            (6,268,626
            )Accumulated
                other comprehensive income –
                foreign
                currency translation gains
            
            
            162,560
            
            
            -
            
            
            162,560Total
                stockholders' deficiency
            
            
            (639,148
            )
            
            (2,615,721
            )
            
            (3,254,869
            )Total
                liabilities and stockholders' deficiency
            
            $
            280,750
            
            $
            -
            
            $
            280,750





-36-


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


**Restated
      Consolidated Balance Sheet December 31, 2004**





As
                Previously Reported
              12/31/04
            
            Restatement
                Adjustment
              12/31/04
            
            As
                Restated
              12/31/04**ASSETS****Current
                Assets**Cash
            
            $
            594,024
            
            $
            -
            
            $
            594,024Accounts
                receivable
            
            
            182,710
            
            
            -
            
            
            182,710Total
                current assets
            
            
            776,734
            
            
            -
            
            
            776,734******Equipment
                and Furnishings,**net
                of accumulated depreciation of $295,171
            
            
            162,580
            
            
            -
            
            
            162,580**Other
                Assets**
            
            
            10,321
            
            
            -
            
            
            10,321Total
                assets
            
            $
            949,635
            
            $
            -
            
            $
            949,635**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            129,292
            
            $
            -
            
            $
            129,292Accrued
                expenses
            
            
            50,330
            
            
            -
            
            
            50,330Accrued
                compensation - officers
            
            
            32,692
            
            
            
            
            
            32,692Current
                portion of notes payable - officers
            
            
            169,553
            
            
            -
            
            
            169,553Foreign
                taxes payable
            
            
            166,009
            
            
            -
            
            
            166,009Warrant
                liability
            
            
            -
            
            
            2,717
            
            
            2,717Penalty
                Common Stock subject to continuing registration
            
            
            -
            
            
            173,481
            
            
            173,481Total
                current liabilities
            
            
            547,876
            
            
            176,198
            
            
            724,074**Senior
                secured note payable,****net
                of unamortized debt discount of**
              **$1,091,475**
            
            
            408,525
            
            
            -
            
            
            408,525**Deferred
                rent**
            
            
            47,765
            
            
            -
            
            
            47,765Total
                liabilities
            
            
            1,004,166
            
            
            176,198
            
            
            1,180,364**Commitments
                and Contingencies****Common
                Stock with Registration Rights:**Common
                Stock subject to continuing registration, $0.0001 par value, 2,445,000
                shares issued and outstanding
            
            
            -
            
            
            2,445,000
            
            
            2,445,000Common
                Stock issued for equipment subject to continuing registration, $0.0001
                par
                value, 58,334 shares issued and outstanding
            
            
            -
            
            
            58,334
            
            
            58,334-
            
            
            2,503,334
            
            
            2,503,334**Stockholders'
                Deficiency**Preferred
                Stock, par value $10 per share; 10,000,000 sharesauthorized
                Class 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;16,514,018
                shares issued and outstanding
            
            
            190,173
            
            
            (25,033
            )
            
            165,140Additional
                paid-in capital
            
            
            6,300,720
            
            
            (2,504,323
            )
            
            3,796,397Accumulated
                deficit
            
            
            (6,692,840
            )
            
            (150,176
            )
            
            (6,843,016
            )Accumulated
                other comprehensive income –
                foreign
                currency translation gains
            
            
            147,416
            
            
            -
            
            
            147,416Total
                stockholders' deficiency
            
            
            (54,531
            )
            
            (2,679,532
            )
            
            (2,734,063
            )Total
                liabilities and stockholders' deficiency
            
            $
            949,635
            
            $
            -
            
            $
            949,635





-37-




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


**Restated
      Consolidated Balance Sheet March 31, 2005 (unaudited)**





As
                Previously Reported
              3/31/05
            
            Restatement
                Adjustment
              3/31/05
            
            As
                Restated
              3/31/05**ASSETS****Current
                Assets**Cash
            
            $
            367,506
            
            $
            -
            
            $
            367,506Accounts
                receivable
            
            
            106,200
            
            
            -
            
            
            106,200Total
                current assets
            
            
            473,706
            
            
            -
            
            
            473,706**Equipment
                and Furnishings**,
                net of accumulated depreciation of $281,123
            
            
            143,335
            
            
            -
            
            
            143,335**Intangible
                Assets**
            
            
            313,500
            
            
            
            
            
            313,500**Other
                Assets**
            
            
            10,312
            
            
            -
            
            
            10,312Total
                assets
            
            $
            940,853
            
            $
            -
            
            $
            940,853**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            140,028
            
            $
            -
            
            $
            140,028Accrued
                expenses
            
            
            84,737
            
            
            -
            
            
            84,737Accrued
                compensation - officers
            
            
            70,192
            
            
            
            
            
            70,192Current
                portion of notes payable - officers
            
            
            127,048
            
            
            -
            
            
            127,048Total
                current liabilities
            
            
            422,005
            
            
            -
            
            
            422,005**Senior
                secured note payable**,
                net of unamortized debt discount of
              $1,035,958
            
            
            714,042
            
            
            -
            
            
            714,042**Deferred
                rent**
            
            
            39,666
            
            
            -
            
            
            39,666Total
                liabilities
            
            
            1,175,713
            
            
            -
            
            
            1,175,713**Commitments
                and Contingencies****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;19,830,602shares issued and outstanding
            
            
            198,306
            
            
            -
            
            
            198,306Additional
                paid-in capital
            
            
            6,556,087
            
            
            227,441
            
            
            6,783,528Accumulated
                deficit
            
            
            (7,132,799
            )
            
            (227,441
            )
            
            (7,360,240
            )Accumulated
                other comprehensive income –
                foreign
                currency translation gains
            
            
            143,546
            
            
            -
            
            
            143,546Total
                stockholders' deficiency
            
            
            (234,860
            )
            
            -
            
            
            (234,860
            )Total
                liabilities and stockholders' deficiency
            
            $
            940,853
            
            $
            -
            
            $
            940,853





-38-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Balance Sheet June 30, 2005 (unaudited)**





As
                Previously Reported
              6/30/05
            
            Restatement
                Adjustment
              6/30/05
            
            As
                Restated
              6/30/05**ASSETS****Current
                Assets**Cash
            
            $
            312,431
            
            $
            -
            
            $
            312,431Accounts
                receivable
            
            
            115,758
            
            
            -
            
            
            115,758Total
                current assets
            
            
            428,189
            
            
            -
            
            
            428,189**Equipment
                and Furnishings**,
                net of accumulated depreciation of
              $295,635
            
            
            130,670
            
            
            -
            
            
            130,670**Intangible
                Assets**
            
            
            313,500
            
            
            
            
            
            313,500**Other
                Assets**
            
            
            10,304
            
            
            -
            
            
            10,304Total
                assets
            
            $
            882,663
            
            $
            -
            
            $
            882,663**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            69,814
            
            $
            -
            
            $
            69,814Accrued
                expenses
            
            
            133,552
            
            
            -
            
            
            133,552Accrued
                compensation - officers
            
            
            107,691
            
            
            
            
            
            107,691Current
                portion of notes payable - officers
            
            
            84,147
            
            
            -
            
            
            84,147Total
                current liabilities
            
            
            395,204
            
            
            -
            
            
            395,204**Senior
                secured note payable**,
                net of unamortized debt discount of $980,441
            
            
            1,019,559
            
            
            -
            
            
            1,019,559**Deferred
                rent**
            
            
            37,461
            
            
            -
            
            
            37,461Total
                liabilities
            
            
            1,452,224
            
            
            -
            
            
            1,452,224**Commitments
                and Contingencies****Stockholders'
                Deficiency**Preferred
                Stock, par value $10 per share; 10,000,000 sharesauthorized
                Class 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;19,830,602shares issued and outstanding
            
            
            198,306
            
            
            -
            
            
            198,306Additional
                paid-in capital
            
            
            6,556,087
            
            
            227,441
            
            
            6,783,528Accumulated
                deficit
            
            
            (7,470,426
            )
            
            (227,441
            )
            
            (7,697,867
            )Accumulated
                other comprehensive income - foreign currency translation
                gains
            
            
            146,472
            
            
            -
            
            
            146,472Total
                stockholders' deficiency
            
            
            (569,561
            )
            
            -
            
            
            (569,561
            )Total
                liabilities and stockholders' deficiency
            
            $
            882,663
            
            $
            -
            
            $
            882,663





-39-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Balance Sheet September 30, 2005 (unaudited)**





As
                Previously Reported
              9/30/05
            
            Restatement
                Adjustment
              9/30/05
            
            As
                Restated
              9/30/05**ASSETS****Current
                Assets**Cash
            
            $
            122,049
            
            $
            -
            
            $
            122,049Accounts
                receivable
            
            
            98,454
            
            
            -
            
            
            98,454Total
                current assets
            
            
            220,503
            
            
            -
            
            
            220,503**Equipment
                and Furnishings**,
                net of accumulated depreciation of $311,143
            
            
            151,212
            
            
            -
            
            
            151,212**Intangible
                Assets**,
                net of accumulated amortization of $15,675
            
            
            297,825
            
            
            
            
            
            297,825**Other
                Assets**
            
            
            10,302
            
            
            -
            
            
            10,302Total
                assets
            
            $
            679,842
            
            $
            -
            
            $
            679,842**LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****Current
                Liabilities**Accounts
                payable
            
            $
            55,249
            
            $
            -
            
            $
            55,249Accrued
                expenses
            
            
            186,087
            
            
            -
            
            
            186,087Accrued
                compensation - officers
            
            
            156,025
            
            
            
            
            
            156,025Current
                portion of notes payable - officers
            
            
            55,548
            
            
            -
            
            
            55,548Total
                current liabilities
            
            
            452,909
            
            
            -
            
            
            452,909**Senior
                secured note payable**,
                net of unamortized debt discount of $924,924
            
            
            1,075,076
            
            
            -
            
            
            1,075,076**Deferred
                rent**
            
            
            35,257
            
            
            -
            
            
            35,257Total
                liabilities
            
            
            1,563,242
            
            
            -
            
            
            1,563,242**Commitments
                and Contingencies****Stockholders'
                Deficiency**Preferred
                Stock, par value $10 per share; 10,000,000 sharesauthorized
                Class 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;19,830,602shares issued and outstanding
            
            
            198,306
            
            
            -
            
            
            198,306Additional
                paid-in capital
            
            
            6,556,087
            
            
            227,441
            
            
            6,783,528Accumulated
                deficit
            
            
            (7,783,289
            )
            
            (227,441
            )
            
            (8,010,730
            )Accumulated
                other comprehensive income - foreign currency translation
                gains
            
            
            145,496
            
            
            -
            
            
            145,496Total
                stockholders' deficiency
            
            
            (883,400
            )
            
            -
            
            
            (883,400
            )Total
                liabilities and stockholders' deficiency
            
            $
            679,842
            
            $
            -
            
            $
            679,842


-40-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Nine Months Ended September 30,
      2004 (unaudited)**





As
                Previously Reported
              9/30/04
            
            Restatement
                Adjustment
              9/30/04
            
            As
                Restated
              9/30/04**Revenues:**Services
            
            $
            140,894
            
            $
            -
            
            $
            140,894Product
            
            
            -
            
            
            -
            
            
            -Total
                revenues
            
            
            140,894
            
            
            -
            
            
            140,894**Cost
                of revenues:**Services
            
            
            37,462
            
            
            -
            
            
            37,462Product
            
            
            -
            
            
            -
            
            
            -Total
                cost of revenues
            
            
            37,462
            
            
            -
            
            
            37,462Gross
                margin
            
            
            103,432
            
            
            -
            
            
            103,432**Operating
                expenses:**Research
                and development
            
            
            711,772
            
            
            -
            
            
            711,772Selling,
                general and administrative
            
            
            2,053,686
            
            
            -
            
            
            2,053,686Total
                operating expenses
            
            
            2,765,458
            
            
            
            
            
            2,765,458Operating
                loss
            
            
            (2,662,026
            )
            
            -
            
            
            (2,662,026
            )**Other
                income (expense):**Interest
                expense
            
            
            (42,009
            )
            
            -
            
            
            (42,009
            )Foreign
                currency transaction loss
            
            
            (14,170
            )
            
            -
            
            
            (14,170
            )Other
                income
            
            
            22,598
            
            
            -
            
            
            22,598Fair
                value of penalty common stock
            
            
            -
            
            
            (86,365
            )
            
            (86,365
            )Total
                other income (expense)
            
            
            (33,581
            )
            
            (86,365
            )
            
            (119,946
            )Net
                loss
            
            $
            (2,695,607
            )
            $
            (86,365
            )
            $
            (2,781,972
            )**Weighted
                average number of shares outstanding**
            
            
            17,292,412
            
            
            17,292,412
            
            
            17,292,412**Net
                loss per share - basic and diluted**
            
            $
            (0.16
            )
            $
            0.00
            
            $
            (0.16
            )





-41-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Three Months Ended September 30,
      2004 (unaudited)**





As
                Previously Reported
              9/30/04
            
            Restatement
                Adjustment
              9/30/04
            
            As
                Restated
              9/30/04**Revenues:**Services
            
            $
            65,554
            
            $
            -
            
            $
            65,554Product
            
            
            -
            
            
            -
            
            
            -Total
                revenues
            
            
            65,554
            
            
            -
            
            
            65,554**Cost
                of revenues:**Services
            
            
            37,462
            
            
            -
            
            
            37,462Product
            
            
            -
            
            
            -
            
            
            -Total
                cost of revenues
            
            
            37,462
            
            
            -
            
            
            37,462Gross
                margin
            
            
            28,092
            
            
            -
            
            
            28,092**Operating
                expenses:**Research
                and development
            
            
            207,503
            
            
            -
            
            
            207,503Selling,
                general and administrative
            
            
            411,409
            
            
            -
            
            
            411,409Total
                operating expenses
            
            
            618,912
            
            
            
            
            
            618,912Operating
                loss
            
            
            (590,820
            )
            
            -
            
            
            (590,820
            )**Other
                income (expense):**Interest
                expense
            
            
            (15,249
            )
            
            -
            
            
            (15,249
            )Other
                income
            
            
            12,389
            
            
            -
            
            
            12,389Fair
                value of penalty common stock
            
            
            -
            
            
            (86,365
            )
            
            (86,365
            )Total
                other income (expense)
            
            
            (2,860
            )
            
            (86,365
            )
            
            (89,225
            )Net
                loss
            
            $
            (593,680
            )
            $
            (86,365
            )
            $
            (680,045
            )**Weighted
                average number of shares outstanding**
            
            
            19,132,084
            
            
            19,132,084
            
            
            19,132,084**Net
                loss per share - basic and diluted**
            
            $
            (0.03
            )
            $
            0.00
            
            $
            (0.04
            )


-42-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Year Ended December 31,
      2004**





As
                Previously Reported
              12/31/04
            
            Restatement
                Adjustment
              12/31/04
            
            As
                Restated
              12/31/04**Revenues:**Services
            
            $
            312,401
            
            $
            -
            
            $
            312,401Product
            
            
            -
            
            
            -
            
            
            -Total
                revenues
            
            
            312,401
            
            
            -
            
            
            312,401**Cost
                of revenues:**Services
            
            
            305,343
            
            
            -
            
            
            305,343Product
            
            
            -
            
            
            -
            
            
            -Total
                cost of revenues
            
            
            305,343
            
            
            -
            
            
            305,343Gross
                margin
            
            
            7,058
            
            
            -
            
            
            7,058**Operating
                expenses:**Research
                and development
            
            
            712,467
            
            
            -
            
            
            712,467Selling,
                general and administrative
            
            
            2,445,226
            
            
            -
            
            
            2,445,226Total
                operating expenses
            
            
            3,157,693
            
            
            -
            
            
            3,157,693Operating
                loss
            
            
            (3,150,635
            )
            
            -
            
            
            (3,150,635
            )**Other
                income (expense):**Interest
                expense and amortization of debt discount
            
            
            (81,380
            )
            
            -
            
            
            (81,380
            )Foreign
                currency transaction loss
            
            
            (14,170
            )
            
            -
            
            
            (14,170
            )Other
                income
            
            
            39,999
            
            
            -
            
            
            39,999Gain
                on fair value of warrants
            
            
            -
            
            
            23,305
            
            
            23,305Fair
                value of penalty common stock
            
            
            -
            
            
            (173,481
            )
            
            (173,481
            )Total
                other income (expense)
            
            
            (55,551
            )
            
            (150,176
            )
            
            (205,727
            )Net
                loss
            
            $
            (3,206,186
            )
            $
            (150,176
            )
            $
            (3,356,362
            )**Weighted
                average number of shares outstanding**
            
            
            17,726,004
            
            
            17,726,004
            
            
            17,726,004**Net
                loss per share - basic and diluted**
            
            $
            (0.18
            )
            $
            (0.01
            )
            $
            (0.19
            )





-43-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Three Months Ended March 31, 2005
      (unaudited)**





As
                Previously Reported
              3/31/05
            
            Restatement
                Adjustment
              3/31/05
            
            As
                Restated
              3/31/05**Revenues:**Services
            
            $
            229,780
            
            $
            -
            
            $
            229,780Product
            
            
            5,000
            
            
            -
            
            
            5,000Total
                revenues
            
            
            234,780
            
            
            -
            
            
            234,780**Cost
                of revenues:**Services
            
            
            99,042
            
            
            -
            
            
            99,042Product
            
            
            5,696
            
            
            -
            
            
            5,696Total
                cost of revenues
            
            
            104,738
            
            
            -
            
            
            104,738Gross
                margin
            
            
            130,042
            
            
            -
            
            
            130,042**Operating
                expenses:**Research
                and development
            
            
            158,210
            
            
            -
            
            
            158,210Selling,
                general and administrative
            
            
            378,936
            
            
            -
            
            
            378,936Total
                operating expenses
            
            
            537,146
            
            
            -
            
            
            537,146Operating
                loss
            
            
            (407,104
            )
            
            -
            
            
            (407,104
            )**Other
                income (expense):**Interest
                expense and amortization of debt discount
            
            
            (86,032
            )
            
            -
            
            
            (86,032
            )Other
                income
            
            
            53,177
            
            
            -
            
            
            53,177Gain
                on fair value of warrants
            
            
            -
            
            
            2,717
            
            
            2,717Fair
                value of penalty common stock
            
            
            -
            
            
            (79,982
            )
            
            (79,982
            )Total
                other income (expense)
            
            
            (32,855
            )
            
            (77,265
            )
            
            (110,120
            )Net
                loss
            
            $
            (439,959
            )
            $
            (77,265
            )
            $
            (517,224
            )**Weighted
                average number of shares outstanding**
            
            
            19,161,930
            
            
            19,161,930
            
            
            19,161,930**Net
                loss per share - basic and diluted**
            
            $
            (0.02
            )
            $
            0.00
            
            $
            (0.03
            )





-44-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Six Months Ended June 30, 2005
      (unaudited)**





As
                Previously Reported
              6/30/05
            
            Restatement
                Adjustment
              6/30/05
            
            As
                Restated
              6/30/05**Revenues:**Services
            
            $
            529,003
            
            $
            -
            
            $
            529,003Product
            
            
            5,000
            
            
            -
            
            
            5,000Total
                revenues
            
            
            534,003
            
            
            -
            
            
            534,003**Cost
                of revenues:**Services
            
            
            186,475
            
            
            -
            
            
            186,475Product
            
            
            5,630
            
            
            -
            
            
            5,630Total
                cost of revenues
            
            
            192,105
            
            
            -
            
            
            192,105Gross
                margin
            
            
            341,898
            
            
            -
            
            
            341,898**Operating
                expenses:**Research
                and development
            
            
            297,877
            
            
            -
            
            
            297,877Selling,
                general and administrative
            
            
            775,977
            
            
            -
            
            
            775,977Total
                operating expenses
            
            
            1,073,854
            
            
            -
            
            
            1,073,854Operating
                loss
            
            
            (731,956
            )
            
            -
            
            
            (731,956
            )**Other
                income (expense):**Interest
                expense and amortization of debt discount
            
            
            (187,675
            )
            
            -
            
            
            (187,675
            )Other
                income
            
            
            142,045
            
            
            -
            
            
            142,045Gain
                on fair value of warrants
            
            
            -
            
            
            2,717
            
            
            2,717Fair
                value of penalty common stock
            
            
            -
            
            
            (79,982
            )
            
            (79,982
            )Total
                other income (expense)
            
            
            (45,630
            )
            
            (77,265
            )
            
            (122,895
            )Net
                loss
            
            $
            (777,586
            )
            $
            (77,265
            )
            $
            (854,851
            )**Weighted
                average number of shares outstanding**
            
            
            19,498,113
            
            
            19,498,113
            
            
            19,498,113**Net
                loss per share - basic and diluted**
            
            $
            (0.04
            )
            $
            0.00
            
            $
            (0.04
            )





-45-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Restated
      Consolidated Statement of Operations for the Nine Months Ended September 30,
      2005 (unaudited)**





As
                Previously Reported
              9/30/05
            
            Restatement
                Adjustment
              9/30/05
            
            As
                Restated
              9/30/05**Revenues:**Services
            
            $
            910,487
            
            $
            -
            
            $
            910,487Product
            
            
            21,930
            
            
            -
            
            
            21,930Total
                revenues
            
            
            932,417
            
            
            -
            
            
            932,417**Cost
                of revenues:**Services
            
            
            390,673
            
            
            -
            
            
            390,673Product
            
            
            18,423
            
            
            -
            
            
            18,423Total
                cost of revenues
            
            
            409,096
            
            
            -
            
            
            409,096Gross
                margin
            
            
            523,321
            
            
            -
            
            
            523,321**Operating
                expenses:**Research
                and development
            
            
            353,466
            
            
            -
            
            
            353,466Selling,
                general and administrative
            
            
            1,128,357
            
            
            -
            
            
            1,128,357Total
                operating expenses
            
            
            1,481,823
            
            
            -
            
            
            1,481,823Operating
                loss
            
            
            (958,502
            )
            
            -
            
            
            (958,502
            )**Other
                income (expense):**Interest
                expense and amortization of debt discount
            
            
            (288,063
            )
            
            -
            
            
            (288,063
            )Other
                income
            
            
            156,116
            
            
            -
            
            
            156,116Gain
                on fair value of warrants
            
            
            -
            
            
            2,717
            
            
            2,717Fair
                value of penalty common stock
            
            
            -
            
            
            (79,982
            )
            
            (79,982
            )Total
                other income (expense)
            
            
            (131,947
            )
            
            (77,265
            )
            
            (209,212
            )Net
                loss
            
            $
            (1,090,449
            )
            $
            (77,265
            )
            $
            (1,167,714
            )**Weighted
                average number of shares outstanding**
            
            
            19,610,161
            
            
            19,610,161
            
            
            19,610,161**Net
                loss per share - basic and diluted**
            
            $
            (0.06
            )
            $
            0.00
            
            $
            (0.06
            )





-46-




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**N** **OTE** **4 - E** **QUIPMENT
        AND** **F** **URNISHINGS**


The
      components of equipment and furnishings are set forth below:





Estimated
                Useful LivesEquipment
            
            
            3
                Years
            
            $
            386,949Furniture
                and fixtures
            
            
            3
                Years
            
            
            15,769Improvements
            
            
            Life
                of lease
            
            
            47,765450,483Less:
                Accumulated depreciation
            
            
            
            
            
            (317,858
            )Total
            
            
            
            
            $
            132,625




Depreciation
      expense was $73,325 and $91,927 for the years ended December 31, 2005 and
      2004, respectively.


NOTE5 -
        INTANGIBLEASSETS




Intangible
      assets consist of the following:




December
                31, 2005Gross
                Carrying Amount
            
            Accumulated
                Amortization
            
            NetAmortizable
                intangible assetsIntellectual
                Property
            
            $
            313,500
            
            $
            31,350
            
            $
            282,150




On
      March
      13, 2005, the Company acquired $313,500 of intellectual property from Absolute
      Game, Ltd. ("Absolute") in exchange for $263,500 in stock and warrants and
      $50,000 in cash. The intellectual property consists of next generation digital
      casino and poker graphics. Amortization expense recorded for the year ended
      December 31, 2005 amounted to $31,350.




On
      February 15, 2006, Cantor
      paid the Company $500,000 in consideration for certain assets, including the
      above intellectual property from Absolute (Note 13).


**N** **OTE** **6 - C** **OMMITMENTS**


***Operating
      Leases***




In
      February 2004, the Company entered into a non-cancelable real property lease
      agreement for office space in Las Vegas, Nevada, commencing May 1, 2004. The
      term of the lease is 65 months. Minimum lease payments are approximately $10,700
      per month as of December 31, 2005, inclusive of common area maintenance charges.
      The Company has an option to renew the lease at the end of its initial term
      for
      an additional five-year period. Contingent rental provisions within the lease
      agreement require the minimum lease payments to be increased in accordance
      with
      the Consumer Price Index (the "CPI"), commencing with the thirteenth month
      of
      the lease. Rent expense for the years ended December 31, 2005 and 2004 was
      $185,428 and $155,846, respectively. This lease included an incentive for
      payment of costs for tenant improvements of $47,765. This incentive has been
      reflected as an addition to equipment and furnishings and amortized over the
      term of the lease.


-47-


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


On
      June
      16, 2005, the Company subleased (the "Sublease") its Las Vegas office to a
      third
      party (the "Sublessee"). The Sublease is for a period of two years and includes
      successive one-year renewable options. Under the terms of the Sublease, the
      Sublessee is 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 maintains the contractual responsibility for certain
      infrastructure located at the Las Vegas office. At the conclusion of the
      Sublease, and assuming the renewable options are not exercised, there will
      be 28
      months remaining on the Lease. The aggregate annual rentals for this Sublease
      for the succeeding calendar years are (i) $128,315 in calendar 2006; and
      (ii) $64,157 in calendar 2007.




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 16821 Escalon
      Dr.,
      Encino, California 91436. We do not pay rent at this location.




The
      Company also maintains an office in North Sydney, Australia, at a monthly rate
      of $13,000 Australian dollars (approx. US$10,250). This lease is subject to
      an
      oral agreement which requires 6-months advance written notice prior
      to vacating the premises. Notice to vacate was given on October 1, 2005.




The
      following table summarizes the Company's obligations with respect to real
      property leases:




FY2006
            
            FY2007
            
            FY2008
            
            FY2009
            
            TotalReal
                Property Leases
            
            $
            189,815
            
            $
            128,315
            
            $
            128,315
            
            $
            64,157
            
            $
            510,602







The
      foregoing table reflects the expiration of the North Sydney lease on March
      31,
      2006.




***Employment
      Agreements***




In
      August
      2003, the Company entered into employment agreements with Tibor N. Vertes
      and Gregory L. Hrncir. The employment agreements with Messrs. Vertes
      and Hrncir, who are directors and executive officers of the Company, were for
      four years, all subject to earlier termination under certain circumstances.
      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. Since
      September 1, 2004, Mr. Vertes has been paid a reduced annual salary of $130,000.
      The amounts by which payments were reduced have 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. Since September 1, 2004, Mr. Hrncir has
      been paid a reduced annual salary of $130,000. The amounts by which payments
      were reduced have 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 from
      October 1, 2004 based on a revised annual salary of $180,000.


-48-


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


As
      of
      December 31, 2005, accrued compensation related to these employees as a result
      of the reduced payments totaled $220,539.




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 is effective for a period of two years and includes Mr. Bengtsson
      and
      one additional game developer/graphic artist. Collectively, Mr. Bengtsson and
      the third party are being paid $12,000 per month.




The
      following table summarizes the Company's obligations with respect to outstanding
      employment agreements as of December 31, 2005:





2006
            
            2007
            
            TotalEmployment
                Agreements
            
            $
            360,000
            
            $
            210,000
            
            $
            570,000




N OTE 7 -
        S TOCKHOLDERS' E QUITY


***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
      granted under the 2003 Stock Option and Incentive Plan.


-49-




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




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





**2005**
            
            **2004****Number
                of**
              **Shares**
            
            **Weighted-average
                Exercise Price**
            
            **Number
                of**
              **Shares**
            
            **Weighted-average
                Exercise Price**Outstanding
                at beginning of year
            
            
            2,508,442
            
            $
            0.77
            
            
            2,262,989
            
            $
            0.75Granted
                to employees
            
            
            320,000
            
            $
            0.39
            
            
            531,582
            
            $
            0.85Granted
                to consultants
            
            
            -
            
            
            -
            
            
            112,325
            
            $
            0.87Cancelled
            
            
            (905,274
            )
            $
            0.66
            
            
            (398,454
            )
            $
            0.75Outstanding
                at end of year
            
            
            1,923,168
            
            $
            0.77
            
            
            2,508,442
            
            $
            0.78Options
                exercisable at year-end
            
            
            1,906,168
            
            $
            0.77
            
            
            2,449,067
            
            $
            0.77Weighted-average
                fair value of options granted during the year
            
            
            
            
            $
            0.08
            
            
            
            
            $
            0.21




Previously,
      William McMaster, our former Chief Technology Officer, resigned due to personal
      and family obligations. As a result of the foregoing, Mr. McMaster's options
      to
      purchase a total of 500,000 shares of common stock have been
      forfeited.





The
      following table summarizes information about stock options outstanding at
      December 31, 2005:




**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**$0.20
                - $1.00
            
            1,917,843
            
            6.03
            
            $0.77
            
            1,900,843
            
            $0.77$1.01
                - $1.31
            
            5,325
            
            8.17
            
            $1.13
            
            5,325
            
            $1.131,923,168
            
            
            
            
            
            1,906,168





***Warrants:***




In
      January 2004, the Company issued warrants to purchase 100,000 shares of common
      stock to consultants in exchange for services. Such warrants are exercisable
      for
      two years commencing January 16, 2004, are fully vested and have an exercise
      price of $0.75 per share. The Company recognized charges to selling, general
      and
      administrative expenses for the year ended December 31, 2004, for the fair
      value of the warrants issued, calculated using a Black-Scholes option-pricing
      model, which amounted to $75,337.




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 charges 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.


-50-


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




The
      following table summarizes all of the Company's warrant activity during the
      years ended December 31, 2005 and 2004:




**Number
                of Warrants Outstanding**
            
            **Weighted-Average
                Exercise Price**Outstanding
                at January 1, 2004
            
            
            1,476,039
            
            $
            1.50Granted
                (A)
            
            
            100,000
            
            $
            0.75Granted
                (B)
            
            
            2,811,750
            
            $
            1.50Granted
                (C)
            
            
            58,334
            
            $
            1.50Granted
                (D)
            
            
            8,000,000
            
            $
            0.60Granted
                (E)
            
            
            5,000,000
            
            $
            0.40Warrants
                forfeited
            
            
            (200,000
            )
            $
            1.50Outstanding
                at December 31, 2004
            
            
            17,246,123
            
            $
            0.76Granted
                (F)
            
            
            500,000
            
            $
            0.40Warrants
                cancelled
            
            
            (3,779,373
            )
            $
            1.50Outstanding
                at December 31, 2005
            
            
            13,966,750
            
            $
            0.55





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





(B)
      See
      description under "Stock Activity" below.





(C)
      See
      description under "Stock Activity" below.





(D)
      These
      warrants were issued in connection with the Investment Agreement (see Note
      8).





(E)
      These
      warrants were issued in connection with the Investment Agreement (see Note
      8).





(F)
      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:


****


2005
            
            2004Expected
                volatility
            
            
            66.16
            %
            
            80.90
            %Risk-free
                interest rate
            
            
            3.97
            %
            
            3.63
            %Expected
                life (years)
            
            
            1
                to 10
            
            
            1
                to 10Expected
                dividends
            
            
            0
            %
            
            0
            %





***Stock
      Activity:***




On
      May
      31, 2004, the Company received proceeds of $2,143,242, net of expenses of
      $301,758, from the sale of 244.5 units to investors at a price of $10,000 per
      unit through a private placement. Each unit consisted of 10,000 shares of common
      stock and a warrant to purchase 10,000 shares of common stock at $1.50 per
      share. The warrants expired on May 31, 2005.




On
      May 31, 2004, the Company issued warrants to purchase a total of 366,750
      shares of common stock in exchange for investment banking consulting services
      in
      connection with its private placement of units to investors at a price of
      $10,000 per unit, consisting of 10,000 shares of common stock and a warrant
      to
      purchase 10,000 shares of common stock. Such warrants are exercisable for two
      years commencing May 31, 2005, are fully vested and have an exercise price
      of
      $1.50 per share.


-51-


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


On
      May
      31, 2004, the Company issued 5.83 units with a fair value of $58,334 in exchange
      for equipment. Each unit consisted of 10,000 shares of common stock and a
      warrant to purchase 10,000 shares of common stock at $1.50 per share. The
      warrants expired on May 31, 2005.




During
      the year ended December 31, 2004, the Company issued 507,390 shares of common
      stock with a fair value of $485,315 to consultants for strategic advisory,
      investment banking and research services. The Company recognized a charge to
      selling, general and administrative expenses during the ended December 31,
      2004
      of $485,315.




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 (see Note 5).




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.




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.




**N** **OTE
        8 –** **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, 2005, the Company did not have any shares
      of preferred stock outstanding.




**N**OTE**
      9 – RELATEDPARTYTRANSACTIONS**




On
      September 6, 2004, the Company entered into promissory notes payable totaling
      $212,848 with Tibor N. Vertes, our Chief Executive Officer and Chairman, and
      Gregory L. Hrncir, our President and a Director, for accrued salary and
      consulting services rendered, respectively. Repayment of the notes commenced
      on
      October 1, 2004 and were required to continue until maturity on December 1,
      2005. The notes were non-interest bearing and had a balance of $55,548 at
      December 31, 2005. Default occurred in September 2005 and the principal amount
      of the notes was increased to reflect $21,285, being accrued interest of 10%
      per
      annum from August 1, 2003 to September 6, 2004 on the notes,
      collectively.





On
      September 30, 2004, Tibor Vertes, our Chief Executive Officer and Chairman,
      loaned the Company $42,852. The loan was repaid in October
      2004.


-52-


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


**N**OTE** 10 –
      SENIORSECUREDNOTEPAYABLE**




On
      September 2, 2004, the
      Company entered into a Senior Secured Bridge Note (the "Bridge Note") in the
      amount of $750,000 with GEG Holdings, LLC, a Delaware limited liability company
      ("GEG Holdings"), an affiliate of Cantor G&W (Nevada), L.P., a Nevada
      limited partnership ("Cantor"). The Bridge Note matures on August 30,
      2009.




The
      terms
      of the Bridge Note provide for the funding to occur in three tranches. The
      first
      funding of $250,000 occurred on September 2, 2004. The second and third
      tranches, each in the amount of $250,000, were funded on October 1 and November
      1, 2004. The Bridge Note was secured by a perfected first priority security
      interest in all of the intellectual property assets of the Company. No principal
      amount of this note may be repaid, in whole or in part, prior to maturity,
      without the express written approval of GEG Holdings at its sole
      discretion.




The
      outstanding principal amount of the Bridge Note accrued interest at the Federal
      Funds Effective Rate of Interest (4.00% as of December 31, 2005), in effect
      from
      time to time, plus 6% per annum and accrued semi-annually, in arrears, on
      December 1, 2004 and on each June 1 and December 1 thereafter. The Bridge Note
      did not require the Company to make cash interest payments until maturity.
      Interest was to be payable in cash only at maturity or, at the option of GEG
      Holdings, (A) by the issuance on each Interest Payment Date of an
      immediately exercisable five year warrant (an "Interest Warrant") to purchase
      shares of common stock at an exercise price per share of the lesser of
      (i) the average of the closing market price of the Company's common stock,
      for the 30 days prior to the applicable Interest Payment Date, but in any event
      not less than $0.40 per share, and (ii) $0.54 per share. Each Interest
      Warrant will reflect the number of shares of common stock equal to the interest
      payment then due, rounded up to the nearest share; or (B) by the issuance
      on any subsequent Interest Payment Date of an Interest Warrant, on the then
      fully accrued amount.




On
      December 8, 2004, the Company entered into a Loan Facility and Investment
      Agreement (the "Investment Agreement") with Cantor, pursuant to which, as more
      fully described below, Cantor agreed to provide up to an additional $1,250,000
      (the "Additional Amount") in senior secured debt financing to the Company,
      in
      exchange for, among other things, the right to acquire control of the Company
      upon the conversion and exercise of various securities that Cantor and its
      affiliates received from the Company and certain stockholders upon entering
      into
      the Investment Agreement. Immediately prior to the execution and delivery of
      the
      Investment Agreement, GEG Holdings assigned to Cantor, and Cantor assumed from
      GEG Holdings, all of GEG Holdings' rights and obligations with respect to the
      Bridge Financing (the "Assignment and Assumption Agreement"). Consequently,
      the
      Investment Agreement relates to an aggregate of $2,000,000 (the "Loan Amount")
      of senior secured financing.




Pursuant
      to the Investment Agreement, Cantor loaned the Additional Amount to the Company
      in four installments, subject in each instance to the satisfaction of customary
      closing conditions: (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 year senior
      secured promissory note (the "Note") which bears interest at the federal funds
      rate of interest in effect from time to time, plus 6% per annum. The Note
      matures on December 9, 2009. Interest accrues semi-annually, in arrears, on
      December 1 and June 1 of each year during the term of the Note (each, an
      "Interest Payment Date"). The Note does not require the Company to make cash
      interest payments until maturity, and the Loan Amount is secured by a perfected,
      first priority security interest in all of the intellectual property assets
      of
      the Company. Cantor's first priority security interest in the intellectual
      property is evidenced by a security agreement that was executed and delivered
      upon the entering into of the Bridge Financing (the "Security Agreement"),
      which
      was assigned to Cantor pursuant to the Assignment and Assumption
      Agreement.


-53-




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


During
      the term of the Investment Agreement, which extends for as long as Cantor holds
      any debt or equity securities that it acquired from the Company pursuant to
      the
      Investment Agreement, Cantor has various rights with respect to the Company.
      Specifically, during the term of the Investment Agreement, among other things:
      (i) Cantor has the right to board representation in the form of two board seats
      or two board observers (or a combination of the two); (ii) Cantor has the right
      to receive, on a periodic basis and upon request, various financial and other
      information from the Company; (iii) Cantor has pre-emptive rights with respect
      to the issuance of any additional equity securities; (iv) Cantor has "demand"
      and "piggyback" registration rights with respect to the equity securities of
      the
      Company owned by Cantor however acquired, either pursuant to the Investment
      Agreement or otherwise; and (v) without the affirmative prior written consent
      of
      Cantor, the Company may not, among other things, (a) issue any additional equity
      securities, (b) incur any additional indebtedness, (c) effect a change in
      control, (d) amend or modify the Company's by-laws or articles of incorporation,
      (e) modify or enter into new employment agreements with any executive officer
      of
      the Company, or (f) license any of its intellectual property. In addition,
      Cantor has the right to cause the Company to reincorporate in the State of
      Delaware (the "Reincorporation").




As
      noted
      above, in connection with entering into the Investment Agreement, Cantor
      received the right to acquire control of the Company pursuant to various equity
      instruments that it received from the Company and certain stockholders
      simultaneously with the entering into of the Investment Agreement. Specifically,
      the Company issued to Cantor a five year stock purchase warrant (the "Equity
      Warrant"), immediately exercisable in whole or in part, for up to at least
      8,000,000 shares of the Company's common stock, at an initial per share exercise
      price of $0.60, subject to adjustment. The Equity Warrant also has anti-dilution
      protection that provides that Cantor shall always be entitled to acquire a
      fixed
      percentage of the Company's issued and outstanding common stock on a fully
      diluted basis exclusive of the Equity Warrant and "Debt Warrant" (as defined
      below) issued to Cantor.




Cantor
      also received a stock purchase warrant relative to the Loan Amount (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 the
      common stock for the 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
      also has anti-dilution protection such that at all times it is exercisable
      into
      no less than a fixed percentage of the Company's 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, the Loan Amount evidenced by the Note will remain a
      continuing liability of the Company.




As
      noted
      above, interest on the Note is payable in cash only at maturity. Prior to the
      maturity, however, Cantor has the right to convert the accrued interest on
      the
      Note into shares of common stock pursuant to one or more interest warrants
      (each
      an "Interest Warrant") at a price per share equal to the lesser of (a) the
      average of the closing market price of the common stock for the 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.




Simultaneously
      upon entering into the Investment Agreement, Cantor also entered into an Option
      Agreement and Irrevocable Proxy (the "Option Agreement") with various parties,
      including the executive officers and directors of the Company (all such parties,
      collectively, the "Optionors"). Under the terms of the Option Agreement, Cantor
      has an irrevocable option (the "Option") to purchase up to 7,500,000 shares
      of
      common stock (the "Option Shares") beneficially owned by the Optionees 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 have the right to exercise the Option to acquire more than 54% of
      the
      common stock of the Company. 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.




-54-


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


Simultaneously
      upon the entering into of the Investment Agreement, Cantor and the Company,
      and
      the Company's wholly owned subsidiary, Gaming & Entertainment Technology Pty
      Ltd. ("GET"), also entered into an Amended and Restated Software Development
      and
      License Agreement (the "Software Agreement") which amends and supersedes that
      certain Software Development and License Agreement that the Company and GET
      entered into with GEG Holdings in connection with the Bridge Financing, and
      which was assumed by and assigned to Cantor pursuant to the Assignment and
      Assumption 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 pursuant to the Software Agreement
      as
      of December 31, 2005.




The
      Company's proprietary software which is the subject of the Software Agreement
      has been delivered into escrow with an unaffiliated third party pursuant to
      an
      escrow agreement. (the "Escrow Agreement") and Cantor has access to such
      escrowed software under various circumstances.




The
      Company received total proceeds of $500,000 and $1,500,000 from the Bridge
      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
      Bridge Note. This discount is amortized over the period of the related debt
      using the straight-line method. Amortization of the discount, which is included
      in interest expense, amounted to $222,068 and $18,865 for the years ended
      December 31, 2005 and 2004, respectively.




NOTE11 –
        INFORMATIONABOUTGEOGRAPHICALAREAS


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, 2005 and 2004:





**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**




-55-


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


**December
      31, 2004**





**Geographical
                area**
            
            **Revenues
                from external customers**
            
            **Long-lived
                assets**United
                States
            
            
            -
            
            $
            88,543United
                Kingdom
            
            
            -
            
            $
            2,415Australia
            
            $
            312,401
            
            $
            23,857**$**
            **312,401**
            
            **$**
            **114,815**




NOTE12 –
        INCOMETAXES


At
      December 31, 2005, the Company had available for U.S. federal and state income
      tax purposes, net operating loss carryforwards of approximately $1,400,000
      that
      expire through 2025 and foreign loss carryforwards of approximately $1,700,000.
      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 $1,700,000 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, 2005.





The
      Company had also offset the potential benefits from net operating loss
      carryforwards by equivalent valuation allowances as of December 31, 2005 and
      2004. As a result of decreases and increases in the valuation allowance of
      approximately $500,000 and $800,000 in 2005 and 2004, 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.




NOTE13 –
        SUBSEQUENTEVENTS




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




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 includes (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.


-56-




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


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
      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.





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.





On
      February 27, 2006, the Company paid off the note payable in favor of Mr. Vertes,
      relating to accrued salary through September 2004, and the note payable in
      favor
      of Mr. Hrncir, relating to consulting services provided during the period from
      May 1999 to August 2003. Mr. Vertes and Mr. Hrncir serve as our Chief Executive
      Officer and President, respectively.


-57-




**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, 2005, the end of the fiscal period covered by this Annual Report
      on
      Form 10-KSB/A. 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, 2005, 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.




-58-




**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
            
            57
            
            Chief
                Executive Officer and Chairman of the BoardGregory
                L. Hrncir
            
            39
            
            President,
                Secretary and a DirectorJay
                Sanet
            
            56
            
            Director








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




**Tibor N.
      Vertes** ,
      57,
      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** ,
      39, 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** ,
      55, 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.


-59-




KEYEMPLOYEES




**Simon
      Daniel,** 32,
      serves as our Chief Technology Officer. Mr. Daniel oversees all software and
      hardware development for the Company. Previously, Mr. Daniel worked as a java
      developer with Sony Europe and Compaq. Mr. Daniel received a Bachelor of Science
      in Mathematics from the University of Auckland.




**C** **OMMITTEES
        OF** **T** **HE** **B** **OARD
        OF** **D** **IRECTORS**


Our
      board
      has no authorized standing committees, but we anticipate forming an audit
      committee, compensation committee and nominating committee this year. In the
      interim, audit and compensation matters are reviewed by all of our board
      members.


BOARD
        OFDIRECTORSMEETINGS




We
      had
      four board meetings during the fiscal year ended December 31, 2005. All of
      the directors attended each of such meetings. The remaining matters were
      approved by the board of directors via unanimous written consent.


DIRECTORCOMPENSATION




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.




SECTION16(a)
        BENEFICIALOWNERSHIPREPORTINGCOMPLIANCE




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.




To
      our
      knowledge, based solely on review of the copies of such reports furnished to
      us
      and written representations that no other reports were required, during the
      fiscal year ended December 31, 2004, all reports required under Section
      16(a) were filed as required with the Commission.


CODE
        OFETHICS




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 2006 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.




-60-




**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 2005,
      2004 and 2003.




**Annual
                  Compensation**
              
              **Long-Term**
                **Compensation**
                **(Stock/**
                **Options)**
              
              **All
                  Other**
                **Compensation****Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus**
                **($)**Tibor
                  N. Vertes,
                Chief
                  Executive
                Officer
                  and
                Chairman1
              
              2005
              
              86,667
              
              0
              
              
              
              42,4002004
              
              179,167
              
              0
              
              0
              
              02003
              
              97,874
              
              0
              
              955,214
              
              0Gregory
                  L. Hrncir,
                President
                  and
                Secretary2
              
              2005
              
              92,083
              
              0
              
              0
              
              72,0002004
              
              172,500
              
              0
              
              0
              
              104,1252003
              
              15,000
              
              0
              
              800,000
              
              62,500Kevin
                  J Burman,
                Chief
                  Operating
                Officer3
              
              2005
              
              130,000
              
              0
              
              0
              
              02004
              
              121,565
              
              0
              
              200,000
              
              02003
              
              108,485
              
              0
              
              0
              
              0Jay
                  Sanet,
                  Director4
              
              2005
              
              0
              
              0
              
              0
              
              02004
              
              0
              
              0
              
              25,000
              
              2,0002003
              
              0
              
              0
              
              120,912
              
              0


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.




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 2003, 2004 and 2005 relates
      to payments for unpaid consulting services rendered during the period 1999
      through July 2003.




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.


-61-




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 and paid him $2,000 for consulting services.





**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 20,
      2006 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
      20, 2006 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., 16821 Escalon Dr., Encino, California
      91436.




NAME
                  OFDIRECTOR
                  OREXECUTIVEOFFICER
            
            NUMBER
                  OFSHARES
            
            PERCENTAGETibor
                N. Vertes1
            
            
            6,658,183
            
            
            24.1
            %Gregory
                L. Hrncir2
            
            
            2,388,567
            
            
            8.6
            %Jay
                Sanet3
            
            
            27,012
            
            
            0.1
            %Directors
                and executive officers as a group (4 persons)4
            
            
            9,073,762
            
            
            32.8
            %




NAME
                  OFFIVEPERCENTHOLDERS
            
            
            NUMBER
                  OFSHARES
            
            
            PERCENTAGECantor
                G&W (Nevada), L.P.5
            
            
            7,948,966
            
            
            28.7
            %







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, 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.




-62-


EQUITYCOMPENSATIONPLANI **NFORMATION**


2004STOCKOPTION
        ANDINCENTIVEPLAN


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 20, 2006, we have options outstanding to purchase
      1,906,168 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.




OPTIONGRANTS
        IN2004


On
      October 21, 2005, we issued one of our employees an option to purchase 20,000
      shares of common stock at $0.20 per share. The option is exercisable for a
      period of ten years and vests at the rate of 1,000 shares per month. This
      employee resigned effective February 15, 2006, at which time 3,000 of the shares
      of common stock underlying the option had vested. We did not grant stock options
      to our executive officers in fiscal year 2005.




**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.




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. Since
      September 1, 2004, Mr. Vertes has been paid a reduced annual salary of $130,000.
      The amounts by which payments were reduced have 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. Since September 1,
      2004, Mr. Hrncir has been paid a reduced annual salary of $130,000. The amounts
      by which payments were reduced have 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.


-63-




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, 2005 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
            
            
            0
            
            
            0.0
            %
            
            N/A
            
            
            N/ATotal
            
            
            0
            
            
            0.0
            %
            
            N/A




-64-




AGGREGATEDOPTION/SAREXERCISES
        INLASTFISCALYEAR
        ANDFISCALYEAR-ENDOPTION/SARVALUES


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.




**Shares
                  Acquired** **on**
              
              **Value
                  Realized**
              
              **Number
                      of Securities Underlying Unexercised Options/SARs at Fiscal
                      Year-End**
              
              **Value
                      of Unexercised in-the-Money Options/SARs at Fiscal
                      Year-End****Name**
              
              **Exercise
                  (#)**
              
              **($)**
              
              **Exercisable/Unexercisable**
              
              **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**




From
      our
      inception through June 30, 2002, Mr. Vertes, our Chairman and Chief
      Executive Officer, was not paid a salary. On
      December 31, 2002, Mr. Vertes converted his accrued salary, in the
      amount of $339,000, and short-term loans to us, in the amount of $19,281, into
      477,707 shares of our common stock and a warrant to purchase 477,707 shares
      of
      common stock. The foregoing conversions were made on terms identical to the
      securities sold by us in a private placement by us in 2003. As part of our
      reorganization with NorStar, the 477,707 shares were forward split on a
      1.22197:1 basis, the result of which is 583,746 shares of our common
      stock.




On
      October 28, 2003, Robit Nominees Pty Ltd., an entity controlled by Mr.
      Vertes, loaned $50,000 to us, as evidenced by a convertible promissory note.
      The
      terms of the convertible promissory note provided for a $5,000 cash interest
      payment upon maturity. In addition, Robit Nominees was issued a warrant to
      purchase 50,000 shares of our common stock, exercisable for a period of one
      year
      at an exercise price of $1.50 per share. The promissory note matured in February
      2004 and has been paid in full. The warrant terminated on October 28, 2004
      and
      was not exercised.




On
      November 6, 2003, Daniel Vertes, our controller and the son of Tibor N. Vertes,
      loaned us the sum of $25,000 Australian dollars ($17,729 as of such date).
      The
      loan was evidenced by a promissory note bearing simple interest at the rate
      of
      eight percent per annum. The promissory note matured on January 6, 2004 and
      has
      been paid in full.




On
      December 12, 2003, Mr. Vertes loaned $10,000 to us. The loan is evidenced by
      a
      promissory note bearing simple interest at the rate of eight percent per annum.
      The promissory note matured on January 31, 2004 and has been paid in
      full.




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.




-65-




**Transactions
      Involving Gregory L. Hrncir**




In
      March
      2003, we purchased an outstanding loan made by Gregory L. Hrncir, our President
      and a Director, to Innovative Gaming Corporation of America, or IGCA, in the
      original principal amount of $125,000 in consideration for the assignment by
      Mr.
      Hrncir of all rights as a secured creditor to certain assets of IGCA. The
      purchase involved the issuance of a promissory note in favor of Mr. Hrncir
      in
      the original principal balance amount of $133,657, the then outstanding
      principal balance and interest on the original loan made by Mr. Hrncir to IGCA.
      The original loan was made in contemplation of a Merger and Plan of
      Reorganization Agreement entered into in February 2002 between the Company
      and
      IGCA that was not completed. The note payable to Mr. Hrncir has been repaid
      in
      full.




On
      December 1, 2003, Gregory L. Hrncir loaned $10,000 to us. The loan was evidenced
      by a promissory note bearing simple interest at the rate of eight percent per
      annum. The promissory note matured on January 31, 2004 and has been repaid
      in
      full.




**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.




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.




-66-




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.




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.


-67-





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.





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/A, which is incorporated herein by
        reference.




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




The
      information required by this item is as follows:




J.H.
      Cohn
      LLP, or J.H. Cohn, has served as our independent registered public accounting
      firm for the fiscal years ended December 31, 2005 and 2004, 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 J.H. Cohn, with certain limited exceptions. Our board of directors
      has concluded that the non-audit services provided by J.H. Cohn are compatible
      with maintaining auditor independence. In 2005, no fees were paid to J.H. Cohn
      pursuant to the "de minimus" exception to the pre-approval policy permitted
      under the Exchange Act.




-68-




For
      the
      fiscal years ended December 31, 2005 and 2004, the fees for services provided
      by
      J.H. Cohn were as follows:




**2005**
            
            **2004**Audit
                fees(1)
            
            $
            101,759
            
            $
            81,507Audit-related
                fees (2)
            
            
            -
            
            
            -Tax
                fees (3)
            
            
            -
            
            
            1,635All
                other fees
            
            
            -
            
            
            -$
            101,759
            
            $
            83,142





(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.


-69-


**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.




**GAMING&
                  ENTERTAINMENTGROUP,
                  INC.**
              (Registrant)By:
            /s/ Gregory
              L. HrncirGregory
                L. Hrncir, PresidentDate:
            June
                  19, 2006




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.




**SIGNATURE**
            
            **TITLE**
            
            **DATE**/s/
                Tibor N. Vertes
            
            Chairman
                and Chief Executive Officer
            
            June
                19, 2006Tibor
                N. Vertes
            
            (Principal
                Executive Officer)/s/
                Gregory L. Hrncir
            
            President,
                Secretary and Director
            
            June
                19, 2006Gregory
                L. Hrncir
            
            (Principal
                Financial and Accounting Officer)/s/
                Jay Sanet
            
            Director
            
            June
                19, 2006Jay
                Sanet





-70-




**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)
  -71-
  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.
  -72-
  (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.




-73-