UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





[X]
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended  December 31, 2008[X]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      the transition period from _________ to ________Commission
      file number:000-30653





Secured Diversified
      Investment, Ltd(Exact
      name of registrant as specified in its
charter)




Nevada
            80-0068489(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)6980 O’Bannon Drive,
              Las Vegas,
      Nevada
            89117(Address
      of principal executive offices)
            (Zip
      Code)




Registrant’s
      telephone number:  702-939-3254




Securities
      registered under Section 12(b) of the Exchange Act:


Title
      of each class
            Name
      of each exchange on which registerednone
            not
      applicable




Securities
      registered under Section 12(g) of the Exchange Act:Title
      of each class
            Name
      of each exchange on which registeredCommon Stock, par
      value $0.001
            not
      applicable




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes [  ]  No
[X]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [  ]  No
[X]
 
 Check
whether the Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.  Yes
[X]       No
[   ]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes
[  ]     No [X]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes [ ]   No
[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 the
last business day of the registrant’s most recently completed fiscal quarter.
N/A
 
 Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  29,000,006 as of March 30,
2009.




Table of Contents




TABLE OF
CONTENTS





PagePART
      IItem 1.
            Business
            3Item 1A.
            Risk Factors
            13Item 1B.
            Unresolved Staff Comments
            13Item 2.
            Properties
            13Item 3.
            Legal Proceedings
            14Item 4.
            Submission of Matters to a Vote of Security
      Holders
            14PART
      IIItem 5.
            Market for Registrant’s Common Equity and Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            15Item 6.
            Selected Financial Data
            17Item 7.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            17Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            22Item 8.
            Financial Statements and Supplementary Data
            22Item 9.
            Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
            22Item 9A(T).
            Controls and Procedures
            22Item 9B.
            Other Information
            23PART
      IIIItem 10.
            Directors, Executive Officers and Corporate
      Governance
            23Item 11.
            Executive Compensation
            26Item 12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            30Item 13.
            Certain Relationships and Related Transactions, and Director
      Independence
            30Item 14.
            Principal Accountant Fees and Services
            30PART
      IVItem 15.
            Exhibits, Financial Statement Schedules
            31




2
 Table of Contents




PART I
 Item 1.   Description of
Business
 
 Introduction
 
 Through
our wholly-owned subsidiary, Galaxy Gaming, Inc. we are currently engaged in the
business of developing proprietary table games and other gaming products and
licensing those games and products to casinos in the United States and
internationally.
  Our plan
is to grow by developing new game content, enhancing our product portfolio with
electronics, expanding our global distribution network and, increasing the
performance of our sales force.
 
 Robert
Saucier is our President, Chief Executive Officer, Interim Chief Financial
Officer and Director.  William O’Hara is our Chief Operating Officer
and Director.
 
 Proprietary
Table Games
 
 Up until
approximately twenty years ago, casino-operated table games consisted mainly of
public domain games such as Blackjack, Craps, and Roulette. That began to
change, however, in 1988 when a game called Caribbean Stud was invented and
first played in an Aruban casino. Caribbean Stud is a variation of stud poker,
designed to be house-banked in a casino and played directly against a dealer,
rather than between players as is the traditional style in poker games.
Caribbean Stud features an optional side wager whereby, for one dollar, players
have the chance to win a progressive jackpot, that can reach as high as
several hundred thousand dollars.
 
 The
inventors applied for and obtained various U.S and international patents. They
then leased their game and its associated intellectual property to other
casinos. The game quickly proved its popularity in U.S. and foreign markets. The
popularity and financial success of Caribbean Stud led to the birth of the
proprietary table game industry.
 
 Numerous
other proprietary table games and side bets have been invented by other
individuals during the last twenty years as the industry has grown. The low
overhead costs and steady revenue stream associated with maintaining successful
proprietary table games have spurred the industry forward.
 
 Although
slowed by current global economic conditions, gaming continues to expand both
domestically and internationally. In certain jurisdictions (most notably Asia),
the table game segment continues to increase in proportion to other forms of
gaming. In other markets such as North America, the ratio between table games
and other segments of gaming appears to have stabilized. However, universally
the ratio between proprietary table games and those table games found in the
public domain has been steadily increasing in favor of proprietary games.
Current estimates of the international, live table game market are depicted in
the following table:
 
 3
 Table of Contents
 
 Live
      Table Games
              The
      Americas
              Europe
      & Africa
              Asia
      Pacific
              TotalPublic
      Domain Games
              16,335
              6,235
              8,895
              31,465Proprietary
      Card Games
              7,690
              530
              450
              8,670Dice
      Games
              1,100
              75
              330
              1,505Roulette
      Games
              2,470
              5,380
              900
              8,750Total
      Table Games
              27,595
              12,220
              10,575
              50,390
 
 History
and Development of Galaxy Gaming
 
 In 1997,
Galaxy’s founder and president, Robert Saucier, was an investor in a small
casino in Washington State. The casino had ten table games, primarily blackjack.
During his tenure at this casino, Mr. Saucier invented a side bet for blackjack
known as “Horseshoe Blackjack.” The side bet became very popular and the
casino’s winnings from the games increased significantly.  On October
7, 1997, a predecessor company, Galaxy Gaming Corporation, was formed and Mr.
Saucier exchanged all of his rights, title and interest in his invention for
stock in the corporation.  Other Washington casinos recognized the
popularity and profitability of this side bet and requested licenses to play
Horseshoe Blackjack side bets at their casinos. The side bet was modified and
its name was later changed to Lucky Ladiestm.
 
 Lucky
Ladiestm
remained Galaxy’s only product until late 2002, when we debuted a new casino
poker game called “Texas Shootout®”. This
game quickly became popular with casinos and their customers. About this
time, Galaxy also increased its sales force and expanded distribution into new
jurisdictions. Since then, Galaxy has grown methodically and intentionally by
reinvesting earnings and introducing new products at a regular
pace.
 
 Galaxy
has grown to become the second largest provider of casino table games (1,500+
tables) in the world behind industry giant Shuffle Master Gaming (4,000±
tables). A significant portion of Shuffle Master’s growth has been through
acquisitions of competitive companies and products. Galaxy has previously been
unable to compete for these acquisitions due to a limited capital structure.
Accordingly, most of Galaxy’s growth has been through direct sales leading to
placements of its installed base of games.
 
 In early
2008, Galaxy released Emperor’s Challenge®, which
is currently generating additional revenues. In the fourth quarter of 2008,
Galaxy introduced Lucky 8 Baccarattm, which
has also begun to generate additional revenues.
 
 Our
Products
 
 Currently,
we have an installed base of products on over 1,500 gaming tables. Our games are
briefly described below. Additional information regarding our games may be found
on our web site, www.galaxygaming.com. Information found on the web site should
not be considered part of this report.
 
 4
 Table of Contents
  Side
Bets
 
 Our
current line-up of table game products includes four side bets to the game of
blackjack and one to the game of baccarat, as described below:
 
 Lucky Ladies is an optional
bonus side bet for blackjack that considers the first two cards the player
receives. If the cards are equal to a point value of twenty, the player wins.
The amount the player wins varies upon the construction of the hands (e.g. both
cards of same suit, two Queen of Hearts, etc.) and ranges from 4 to 1 of their
wager up to 1,000 to 1. Lucky Ladies was our first product and has grown to
become the number one side bet in the world in terms of the number of tables in
play.
 
 Bonus Blackjack is an
optional bonus side bet for blackjack that considers the first two cards the
player receives and/or the first two cards the dealer receives. If the cards in
either the player’s hand or the dealer’s hand are equal to a point value of
twenty-one (a.k.a. “Blackjack”), the player wins, provided that they placed a
wager on the corresponding triggering event. The game also has a progressive
jackpot. If a player places a wager on both the dealer and player indicia and
they receive an Ace and Jack of Spades, the player wins the progressive
jackpot.
 
 Suited Royals is an optional
bonus side bet for blackjack that considers the first two cards the player
receives. If the cards are of the same suit, the player wins and is paid odds
according to a posted pay schedule. Higher odds are paid if the cards contain
certain combinations such as two suited face cards, a King and Queen in suit, or
a King and Queen of Diamonds – the highest triggering event, which results in
the player being awarded odds of 100 to 1 of their wager.
 
 Super Pairs is an optional
bonus side bet for blackjack that considers the first two cards the player
receives. If the first two cards are a pair, the player wins and is paid odds.
Higher odds (up to 50 to 1) are paid if the cards are of a certain suit such as
diamonds.
 
 Lucky 8 Baccarat is an
optional bonus side bet for the game of baccarat that considers the point total
of either the player’s hand, the banker’s hand, or both.  Players are
afforded the opportunity to wager on whether or not the selected hand contains
the point value of eight.  Typically, players may win from 3 to 1 up
to 1,000 to 1, or a bonus jackpot, depending upon the nature of the
configuration of the corresponding hand and, at times, the opposing
hand.
  Premium
Games
 
 We also
offer several stand-alone proprietary games. Typically these games generate more
revenue per unit than the side bet games listed above. These games
include:
 
 Texas Shootout is a unique
version of the popular game of Texas Hold’em. Whereas traditional poker is
played against other players, in Texas Shootout each player competes against the
casino dealer. The game is played with six decks of cards and the players
receive four cards each. Players then select which two cards to play and discard
the remaining two. Alternatively, players may split their four cards into two –
two card hands and increase their wager. The dealer selects
  5
 Table of Contents
  two of
his four cards, then deals five community cards face-up on the table. The
players and dealer each combine their two cards with the five community cards to
form the best five card poker hand possible. The player wins if his hand has a
greater value than the dealer’s hand. There is also a popular bonus side bet
that pays each player in the event their hand matches one of the qualifying
events listed on the posted pay schedule. Players may win up to 5,000 to 1 on
this bonus side bet.
 
 Emperor’s Challenge is a
variation of the game Pai Gow Poker. Although Pai Gow Poker is an extremely
popular casino game among players, casinos earn less money with the game because
approximately 42% of all hands result in a push or tie. Emperor’s Challenge Pai
Gow Poker offers multiple side bets and an opportunity for the player to engage
in a tie-breaking system which increases the casino’s potential earnings.
Players may be awarded up to 8,000 to 1 on one of the bonus side bets known as
the “Emperor’s Treasure” bet. The other side bet is known as “Pai Gow Insurance”
and provides the player an opportunity to protect against the outcome when
receiving a poor hand.
 
 Three Card Split. Players
place up to four wagers and receive three cards each. Players then split their
three card hand into a one card sub-hand and a two card sub-hand. The dealer
also receives three cards and likewise, splits his hand into two sub-hands. As a
result, the dealer and the players each have three sub-hands consisting of one,
two and three cards each. If any of the players’ sub-hands are greater than the
dealer’s, the player wins that corresponding wager. In addition, the game
contains an optional bonus side bet whereby the player’s three cards are
combined with a single community card to form a four card hand. The player’s
four card hand is compared to a posted pay schedule and the player is paid in
the event he has a qualifying hand.
 
 Competition
 
 We face
significant competition in the table game industry. Gaming is a dynamic,
high-growth market. Our competition for casino placement and players comes from
a variety of sources, including companies that design and market proprietary
table games, proprietary side bets and other gaming products.
 
 Many of
our competitors have longer operating histories, significantly greater
resources, greater brand recognition and more firmly established supply
relationships. Moreover, we expect additional competitors to emerge in the
future. We believe that the principal competitive factors in our market include
products that appeal to casinos and players, and a well-developed sales and
distribution network. Although we plan to compete effectively in this market, we
recognize that this market is relatively new and is evolving rapidly, and,
accordingly, there can be no assurance that we will be able to compete
effectively.
 
 As is
common with most new industries as they mature, there has been significant
consolidation of competitors in the proprietary table game industry. During the
past decade our leading competitor, Shuffle Master Gaming, has actively pursued
and consummated the acquisition of numerous smaller companies. As a result, the
number of significant competitors has dwindled, and in the process, Shuffle
Master has become the dominant competitor.
 
 6
 Table of Contents
  Recently,
new competition in the traditional table game space has been introduced by
electronic table game providers. Although not yet a significant factor in
directly competitive markets, their popularity is growing and it is anticipated
that these new fully automated and hybrid electronic table games will
increasingly become a competitive factor. Companies now competing for this
market include Shuffle Master, DigiDeal, Poker Tek and Table Max. In 2008, we
entered into a royalty agreement with Table Max to license our game content
whereby we will receive royalties for the use of our products on their
electronic platform.
 
 The
following table is our estimate of the most significant competitors in our
industry and their prominent proprietary games and side bets. For comparative
purposes, we have included our games in the table.
 
 Company
              Proprietary
      Games
              Side
      BetsGalaxy
      Gaming
              Texas
      Shootout; Three Card Split; Emperor's Challenge
              Lucky Ladies; Bonus Blackjack; Super Pairs;
      Suited Royals; Lucky 8 BaccaratShuffle
      Master Gaming
              3
      Card Poker; 4 Card Poker; Play Four Poker; Caribbean Stud; Let-it-Ride;
      Ultimate Texas Hold 'em; Texas Hold 'em Bonus; Casino
      War
              Bet-the-Set;
      Fortune Pai Gow Poker; Royal Match; Dragon BonusTCS
      / John Huxley
              Casino
      Hold 'em
              Perfect
      PairsMasque
      Publishing
              Spanish
      21
              Match
      the DealerPrime
      Table Games
              3
      Card Poker; Two Way Hold 'em
              21+3Hop
      Bet
              
              Fire
      Bet (Craps)Gaming
      Entertainment
              Pai
      Gow Plus; 3-5-7; Mini Pai Gow PokerCanadian
      21 Stook
              
              Lucky
      LuckyPaltronics
      / AC Coin
              
              Wheel
      of Madness; 21 Madness
  We
believe that our success will depend upon our ability to remain competitive in
our field. We compete with others in efforts to obtain or create innovative
products, obtain financing, and license and distribute products. The failure to
compete successfully in the market for proprietary table games and side bets and
for resources could have a material adverse effect on our business.
  Strategy
 
 Our
Company’s long-term business strategy is designed to capitalize on the current
opportunity we perceive within the gaming industry. Our goal is to grow our
Company by expanding the products we offer and by increasing our sales and
distribution network.
 
 7
 Table of Contents
  Intellectual
Property
 
 We invent
and fully develop proprietary casino table games. These game concepts and the
intellectual property associated with them are typically protected by domestic
and international patents, trademarks and copyrights.
 
 There can
be no assurance that the steps we have taken to protect our intellectual
property will be sufficient. In addition, the laws of some foreign countries do
not protect intellectual property to the same extent as the laws of the United
States, which could increase the likelihood of infringement. Furthermore, other
companies could develop similar or superior trademarks without violating our
intellectual property rights. If we resort to legal proceedings to enforce
our intellectual property rights, the proceedings could be burdensome,
disruptive and expensive, and distract the attention of management, and there
can be no assurance that we would prevail.
 
 Government
Regulation
 
 We are
subject to regulation by governmental authorities in most jurisdictions in which
we operate. Gaming regulatory requirements vary from jurisdiction to
jurisdiction, and obtaining licenses and findings of suitability for our
officers, directors, and principal stockholders, registrations, and other
required approvals with respect to us, our personnel, and our products are time
consuming and expensive. Generally, gaming regulatory authorities have broad
discretionary powers and may deny applications for or revoke approvals on any
basis they deem reasonable. We have approvals that enable us to conduct our
business in numerous jurisdictions, subject in each case to the conditions of
the particular approvals. These conditions may include limitations as to the
type of game or product we may sell or lease, as well as limitations on the type
of facility, such as riverboats, and the territory within which we may operate,
such as tribal nations.
  In
addition to jurisdictions in which we, and specific personnel, were required to
have authorizations with respect to some or all of our products and activities,
we have authorizations with respect to certain Native American tribes throughout
the United States that have compacts with the states in which their tribal
dominions are located or operate or propose to operate casinos. These tribes
generally require suppliers of gaming and gaming-related equipment to obtain
authorizations.
  Overview
 
 Gaming Devices and Equipment.We sell or license products and intellectual property that may be
considered “gaming devices’’ or “gaming equipment’’ in jurisdictions in
which gaming has been legalized. Although regulations vary among jurisdictions,
each jurisdiction requires various licenses, findings of suitability,
registrations, approvals, or permits for companies and their key personnel in
connection with the manufacture and distribution of gaming devices and
equipment.
  Associated Equipment.Some of
our products may fall within the general classification of “associated
equipment.’’ Associated equipment is equipment that is not classified as a
“gaming device,’’ but which has an integral relationship to the conduct of
licensed gaming. Regulatory authorities in
  8
 Table of Contents
  some
jurisdictions have the discretion to require manufacturers and distributors to
meet licensing or suitability requirements prior to or concurrently with the use
of associated equipment. In other jurisdictions, the regulatory authorities must
approve associated equipment in advance of its use at licensed locations. We
have obtained approval of our associated equipment in each jurisdiction that
requires such approval and in which our products that are classified as
associated equipment are sold or used.
  Regulation of Officers, Directors,
and Stockholders.In many jurisdictions, any officer or director is
required to file an application for a license, finding of suitability, or other
approval and, in the process, subject himself or herself to an investigation by
those authorities. As for stockholders, any beneficial owner of our voting
securities or other securities may, at the discretion of the gaming regulatory
authorities, be required to file an application for a license, finding of
suitability, or other approval and, in the process, subject himself or herself
to an investigation by those authorities. The gaming laws and regulations of
most jurisdictions require beneficial owners of more than 5% of our outstanding
voting securities to file certain reports and may require our key employees or
other affiliated persons to undergo investigation for licensing or findings of
suitability.
  In the
event a gaming jurisdiction determines that an officer, director, key employee,
stockholder, or other personnel of our company is unsuitable to act in such a
capacity, we will be required to terminate our relationship with such person or
lose our rights and privileges in that jurisdiction. This may have a materially
adverse effect on us. We may be unable to obtain all the necessary licenses and
approvals or ensure that our officers, directors, key employees, affiliates, and
certain other stockholders will satisfy the suitability requirements in each
jurisdiction in which our products are sold or used. The failure to obtain such
licenses and approvals in one jurisdiction may affect our licensure and
approvals in other jurisdictions. In addition, a significant delay in obtaining
such licenses and approvals could have a material adverse effect on our business
prospects.
  9
 Table of Contents
  Gaming Jurisdictions
 
 Many
jurisdictions that have legalized gaming require various licenses,
registrations, findings of suitability, permits and approvals of manufacturers
and distributors of gaming devices and equipment as well as licensure provisions
related to changes in control. In general, such requirements involve
restrictions and approvals.  We currently offer our games in
seventeen states, five Canadian provinces and multiple cruise ships throughout
the world.
  Native
American Gaming Regulation
 
 Gaming on
Native American lands within the United States is governed by the Federal Indian
Gaming Regulatory Act of 1988 ("IGRA") and specific tribal ordinances and
regulations. Class III gaming, as defined under IGRA, also requires a
Tribal-State Compact, which is a written agreement between a specific tribe and
the respective state. This compact authorizes the type of Class III gaming
activity and the standards, procedures and controls under which the
Class III gaming activity must be conducted. The National Indian Gaming
Commission ("NIGC") has oversight authority over gaming on Native American lands
and generally monitors tribal gaming including the establishment and enforcement
of required minimum internal control standards.  Each Tribe is
sovereign and must have a tribal gaming commission or office established to
regulate tribal gaming activity to ensure compliance with IGRA, NIGC, and its
Tribal-State Compact. We have complied with each of the numerous vendors
licensing and specific product approval and shipping notification requirements
imposed by Tribal-State Compacts and enforced by tribal and/or state gaming
agencies under IGRA in the Native American lands in which we do
business.
 
 10
 Table of Contents
  Application
of Future or Additional Regulatory Requirements
 
 In the
future, we intend to seek the necessary registrations, licenses, approvals, and
findings of suitability for us, our products, and our personnel in other
jurisdictions throughout the world where significant sales of our products are
expected to be made. However, we may be unable to obtain these registrations,
licenses, approvals, or findings of suitability, which if obtained may be
revoked, suspended, or conditioned. In addition, we may be unable to obtain on a
timely basis, or to obtain at all, the necessary approvals of our future
products as they are developed, even in those jurisdictions in which we already
have existing products licensed or approved. If a registration, license,
approval or finding of suitability is required by a regulatory authority and we
fail to seek or do not receive the necessary registration, license, approval or
finding of suitability, we may be prohibited from selling our products for use
in that jurisdiction or may be required to sell our products through other
licensed entities at a reduced profit.
  Employees
 
 We
have ten employees, including executive officers, management personnel,
accounting personnel, office staff, and sales staff.  Our employees
are co-employed by Advantstaff, Inc. a professional employer organization used
by us to provide payroll and human resource services.  As needed from
time to time, we also pay for the services of independent
contractors.
 
 Research
and Development Expenditures
  We have
incurred approximately $129,202 in research and development expenditures in the
year ended December 31, 2008. These costs were incurred primarily in the
development of new proprietary table games, side bets and otehr
products.
 
 Subsidiaries
  We
currently have one active wholly-owned subsidiary, Galaxy Gaming, Inc., which in
turn, currently has twelve wholly-owned active subsidiaries, which have
been utilized to divide its business operations into geographic regions. We are
currently in the process of transferring all assets and operations from these
subsidiaries to Galaxy. When this process is complete, Galaxy’s twelve
subsidiaries will be dissolved. All twelve subsidiaries are limited
liability companies and include:
 
 ·
              Galaxy
      Gaming of Arizona, LLC
 ·
              Galaxy
      Gaming of British Columbia, LLC
 ·
              Galaxy
      Gaming of California, LLC
 ·
              Galaxy
      Gaming of Manitoba, LLC
 ·
              Galaxy
      Gaming of Missisippi, LLC·
              Galaxy
      Gaming of New Jersey, LLC·
              Galaxy
      Gaming of Nova Scotia, LLC
 ·
              Galaxy
      Gaming of Oklahoma, LLC
 ·
              Galaxy
      Gaming of Ontario, LLC
 ·
              Galaxy
      Gaming of Oregon, LLC
 ·
              Galaxy
      Gaming of South Dakota, LLC
 ·
              Galaxy
      Gaming of Washington, LLC
  11
 Table of Contents
  Historical
Information and Bankruptcy of Secured Diversified Investment, Ltd.
  We were
initially formed under the laws of the State of Utah on November 22, 1978 to
pursue a position in the entertainment industry focusing on transactions
involving the purchase and sale of literary property rights in connection with
all types of theatrical pictures, plays, television films, music publications
and other forms of entertainment. Ultimately, our efforts in the entertainment
industry were unsuccessful, so we decided to search out other business
opportunities. On July 23, 2002, our shareholders voted to change the direction
of our business and pursue ownerships interests in a portfolio of real
properties. To further our new objective, we moved our domicile to Nevada and
changed our name from “Book Corporation of America” to “Secured Diversified
Investment Ltd.” Since pursuing this strategy, we have been unsuccessful in
generating revenues or profits from our investment properties. The majority of
our real estate assets became impaired, were liquidated or lost through
foreclosure.
 
 On June
26, 2008, we were served with an involuntary petition for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Nevada, Case No. 08-16332.   The Bankruptcy
Court’s Order for Relief was entered on July 30, 2008.  During the
pendency of our Chapter 11 bankruptcy case, we continued to operate our business
as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and
in accordance with the applicable provisions of the Bankruptcy Code and orders
of the Bankruptcy Court.
 
 Subsequent
to the reported period, by order entered January 27, 2009, the Bankruptcy Court
confirmed our Plan of Reorganization.  The Effective Date of the Plan,
as defined therein, was February 6, 2009.
 
 On
February 10, 2009, pursuant to the terms of the Plan, we entered into a Share
Exchange Agreement with Galaxy Gaming, Inc., a privately held Nevada
corporation. In connection with the closing of the Share Exchange Agreement, we
obtained 100% of the issued and outstanding shares of Galaxy, and Galaxy became
our wholly-owned subsidiary.  In addition, pursuant to the terms of
the Plan, all of our outstanding debt obligations (other than administrative
expenses related to Chapter 11 case) have been discharged in exchange for our
issuance of new common stock on a pro rata basis to our previous
creditors.
 
 Pursuant
to the terms and conditions of the Share Exchange Agreement:
 
 §
              We
      issued 25,000,000 shares of our common stock pro-rata to the former
      shareholders of Galaxy in exchange for obtaining ownership of 100% of the
      issued and outstanding shares of Galaxy;
and
 
 §
              Our
      sole officer and director, Munjit Johal has resigned from all named
      executive officer positions.  Mr. Robert Saucier, the President of
      Galaxy, has been appointed our President, CEO, Interim CFO
      and director.
 
 In
addition, pursuant to the terms of the Plan:
  12
 Table of Contents
 
 §
              We
      issued 4,000,006 shares of new common stock on a pro rata basis to our
      creditors in exchange for the discharge of our outstanding debts under
      Chapter 11 of the U.S. Bankruptcy
Code;
 
 §
              All
      of our pre-Share Exchange issued and outstanding equity interests were
      extinguished and rendered null and void;
and
 
 §
              As
      a result, following these events, there are currently 29,000,006 shares of
      our common stock issued and
outstanding
 
 Following
confirmation of the Plan and the consummation of the Share Exchange, we are now
pursuing the business plan of Galaxy Gaming.
 
 The Share
Exchange and the Plan are described more fully in our Current Report on Form 8-K
filed February 13, 2009.  This Annual Report on Form 10-K sets forth
both: (1) the results of operations and related information regarding our
pre-reorganization business as of the year ended December 31, 2008, and (2) the
business of Galaxy Gaming, Inc. as of the year ended December 31,
2008.
 
 Description
of Property
 
 We do not
own any real property used in the operation of our current business. We maintain
our corporate office at 6980 O’Bannon Drive, Las Vegas, NV. We pay rent in the
amount of $18,025 per month as a result of an assumption of a prior lease
entered into by Galaxy Gaming, LLC.  Our President, Robert Saucier is
a member of and the Manager of Galaxy Gaming LLC. The lease is set to expire in
August of 2010. We expect that our present corporate office provides facilities
suited to our current operations. As our business operations grow, it may be
necessary for us to seek additional or alternative office
space.
 
 Item 1A.   Risk Factors.
 
 A smaller
reporting company is not required to provide the information required by this
Item.
 
 Item 1B.   Unresolved Staff Comments
 
 A smaller
reporting company is not required to provide the information required by this
Item.
 
 Item 2.   Properties
 
 We own a
25% tenant-in-common interest in three buildings located at 5203 - 5205 East
Lincoln Drive in Paradise Valley, Maricopa County, Arizona 85253. Currently, the
property is subject to a first trust deed held by Marshall & Ilsey Bank with
a principal balance of $852,146 bearing an annual interest rate of 6.5% per
annum. The loan matures May 1, 2010.
 
 The
property is in good condition. There is no ground lease on the property. The
property is partially leased and situated between two new
residential/hospitality developments.
 
 13
 Table of Contents
  We will
not receive any rental income from the leased units and we are not obligated on
the note underlying the deed of trust on the property. Our co-owners are
responsible for all costs of operating the buildings including landscaping,
exterior maintenance, property management, and the payment of taxes, insurance
and loan payments.
 
 Subsequent
to the reported period, we entered into an arrangement to transfer this property
to our former CFO and CEO, Munjit Johal in exchange for the return and
cancellation of 50,000 of our common shares held by Mr. Johal.
 
 Item 3.   Legal Proceedings
 
 Sherron Associates, Inc. – A
judgment was issued in Washington state against Robert Saucier and others
unrelated to the Company in 1998 (the “Spokane Judgment”).  Sherron
Associates, Inc. later claimed to be the assignee of the Spokane Judgment and
previously sued Mr. Saucier and various Galaxy companies in Washington in
2005.  None of the defendants were served with the Summons and
Complaint and as a result, Sherron obtained a default judgment (the “Seattle
Judgment”) claiming they had obtained service by publication in a small town
newspaper.  After the defending parties learned of the lawsuit and the
accompanying default judgment, their attorneys appeared in the Washington Court
and, the Seattle Judgment was reversed and the lawsuit dismissed with prejudice.
Prior to its dismissal however, Sherron domesticated the Seattle Judgment to
Nevada, and it too was likewise dismissed.
 
 In 2008,
Sherron filed suit again in Washington, and Galaxy was included as a
defendant.  Sherron still claims the Spokane Judgment is valid, that
it is the assignee of the Spokane Judgment and that Galaxy is the alter-ego of
Robert Saucier.  We and Mr. Saucier claim that Sherron is not the
holder of the Spokane Judgment, that the Spokane Judgment is invalid and
unenforceable, and that Galaxy is an independent entity and not Mr. Saucier’s
alter-ego.  This case is currently in the discovery
phase.
 
 Also in
2008, Sherron filed suit against Galaxy in Nevada attempting to execute against
certain intellectual property of Galaxy, erroneously claiming the property
belongs to Mr. Saucier.  We believe that their claims are baseless and
without merit and are vigorously defending against all actions. This case is
currently in the discovery phase.
 
 We
have filed actions against Sherron in Nevada for various abuses of process
in the litigation and their malicious attempts to improperly enforce the alleged
judgment, not held by them.  This case is currently in the discovery
phase.
 
 Item 4.   Submission of Matters to a Vote of Security
Holders
 
 No
matters were submitted to a vote of the Company's shareholders during the fiscal
year ended December 31, 2008.
  14
 Table of Contents
 
 PART II
 
 Item 5.    Market for Registrant’s Common Equity and
Related Stockholder Matters and Issuer Purchases of Equity
Securities
 
 Market
Information
 
 Prior to
the Share Exchange, Galaxy was a privately-held company and there was no public
market for the securities of Galaxy. Galaxy has never declared or paid any cash
dividends on its capital stock. Our common stock has been quoted on the OTC
Bulletin Board (“OTCBB”), which is sponsored by FINRA under the symbol SDFD.OB.
The OTCBB is a network of security dealers who buy and sell stock. The dealers
are connected by a computer network that provides information on current "bids"
and "asks", as well as volume information.
 
 Pursuant
to the terms and conditions of the Share Exchange Agreement:
 
 §
              We
      issued 25,000,000 shares of our common stock pro-rata to the former
      shareholders of Galaxy in exchange for obtaining ownership of 100% of the
      issued and outstanding shares of Galaxy;
and
 
 §
              We
      issued 4,000,006 shares of new common stock on a pro rata basis to our
      creditors in exchange for the discharge of our outstanding debts under
      Chapter 11 of the U.S. Bankruptcy Code;
and
 
 §
              All
      of our pre-Share Exchange issued and outstanding equity interests were
      extinguished and rendered null and void;
and
 
 As a
result, none of the current issued and outstanding common stock has been traded
on any exchange.
 
 The
following table sets forth the range of high and low bid quotations for our
pre-bankruptcy common stock for each of the periods indicated as reported by the
OTCBB. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.  We have also note n/a in periods where no actual
trading had occurred.
 
 Fiscal
      Year Ending December 31, 2008Quarter
      Ended
              
              High
      $
              
              Low
      $December
      31, 2008
              
              n/a
              
              n/aSeptember
      30, 2008
              
              n/a
              
              n/aJune
      30, 2008
              
              n/a
              
              n/aMarch
      31, 2008
              
              1.01
              
              1.01
  15
 Table of Contents
 
 Fiscal
      Year Ending December 31, 2007Quarter
      Ended
              
              High
      $
              
              Low
      $December
      31, 2007
              
              0.15
              
              0September
      30, 2007
              
              0.15
              
              0.15June
      30, 2007
              
              n/a
              
              n/aMarch
      31, 2007
              
              n/a
              
              n/a
 
 Penny
Stock
 
 The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. Penny stocks are generally equity securities with
a market price of less than $5.00, other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system. The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document prepared by the SEC, that: (a) contains a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (b) contains a description of the
broker's or dealer's duties to the customer and of the rights and remedies
available to the customer with respect to a violation of such duties or other
requirements of the securities laws; (c) contains a brief, clear, narrative
description of a dealer market, including bid and ask prices for penny stocks
and the significance of the spread between the bid and ask price; (d) contains a
toll-free telephone number for inquiries on disciplinary actions; (e) defines
significant terms in the disclosure document or in the conduct of trading in
penny stocks; and (f) contains such other information and is in such form,
including language, type size and format, as the SEC shall require by rule or
regulation.
 
 The
broker-dealer also must provide, prior to effecting any transaction in a penny
stock, the customer with (a) bid and offer quotations for the penny stock; (b)
the compensation of the broker-dealer and its salesperson in the transaction;
(c) the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock; and (d) a monthly account statement showing the market value of each
penny stock held in the customer's account.
 
 In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement as to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement.
 
 These
disclosure requirements may have the effect of reducing the trading activity for
our common stock. Therefore, stockholders may have difficulty selling our
securities.
 
 16
 Table of Contents
  Holders
of Our Common Stock
 
 As of
March 30, 2009, we had 29,000,006 shares of our common stock issued and
outstanding, held by 24 shareholders of record. All of our pre-Share
Exchange issued and outstanding equity interests, preferred and common stock,
were extinguished and rendered null and void.
 
 Dividends
 
 There are
no restrictions in our articles of incorporation or bylaws that prevent us from
declaring dividends.  The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where after giving effect to the
distribution of the dividend:
 
 1. we
would not be able to pay our debts as they become due in the usual course of
business, or;
 
 2. our
total assets would be less than the sum of our total liabilities plus the amount
that would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
 
 We have
not declared any dividends and we do not plan to declare any dividends in the
foreseeable future.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 We do not
currently have any securities authorized for issuance under equity compensation
or incentive plans.
 
 Recent
Sales of Unregistered Securities
 
 None.
 
 Item 6.   Selected Financial Data
 
 A smaller
reporting company is not required to provide the information required by this
Item.
 
 Item 7.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
 Forward-Looking
Statements
 
 Certain
statements, other than purely historical information, including estimates,
projections, statements relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those statements are based,
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,”
“will,” “would,” “will be,” “will continue,”
  17
 Table of Contents
  “will
likely result,” and similar expressions. We intend such forward-looking
statements to be covered by the safe-harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and are including this statement for purposes of complying with those
safe-harbor provisions. Forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking
statements. Our ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have a material
adverse affect on our operations and future prospects on a consolidated basis
include, but are not limited to: changes in economic conditions,
legislative/regulatory changes, availability of capital, interest rates,
competition, and generally accepted accounting principles. These risks and
uncertainties should also be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise. Further information
concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with
the SEC.
 
 Plan
of Operation
 
 We are
currently seeking to expand our business. As noted previously, we are the second
largest company in the proprietary table games industry. We intend to expand our
installed base of table games, which will increase our recurring revenues, by
employing the following strategies:
 
 ·
              Develop
      new products and game content.
 ·
              Enhance
      our portfolio with electronics.
 ·
              Expand
      our distribution network.
 ·
              Increase
      the performance of our sales force.
  
 Develop
New Products and Game Content
 
 During
2008, Galaxy introduced two new table game products, Emperor’s Challenge and
Lucky 8 Baccarat which are contributing to our current growth trend. We hope
other products scheduled to be released in 2009 will positively impact our
revenues.
 
 We are
currently at a disadvantage to our leading competitor, Shuffle Master, in terms
of the number and variety of products offered. Due to the numerous game titles
in their possession, they have the ability to control 100% of the proprietary
table mix in many casinos. Therefore, we intend to increase the number of table
games in our portfolio. We have numerous new games in various stages of
development which, when fully released, we believe will overcome this
disadvantage.
 
 Currently,
the majority of our product development is performed by our founder and CEO, Mr.
Saucier. Our future growth plans include the creation of a research and
development team to lessen our dependency on our CEO for this important
element.
 
 18
 Table of Contents
  Enhance
Our Portfolio with Electronics
 
 The games
Caribbean Stud and Let it Ride benefitted from electronic enhancements.
Previously, only our Bonus Blackjack game utilized electronics. We are currently
developing other electronic enhancements for table games and expect them to be
released and generating revenues in 2009.
 
 Expand
Our Distribution Network
 
 We intend
to increase our recurring revenues and market share not only in North America,
but throughout all available international markets. Expanding our distribution
network requires that we first seek and obtain registration or licensing in most
additional gaming jurisdictions. In regulated gaming jurisdictions, this is not
a simple task. A collaborative effort between our inside legal counsel and/or
compliance officer and outside specialized local gaming attorneys will be
required to expand our markets. We do not currently have the necessary skilled
specialist in house to accomplish this in an expedited manner. Recruiting such a
professional will be vital to our gaming jurisdiction expansion
plans.
 
 Increase
Sales Force Performance
 
 We
recognize that the quality and performance of our sales team is integral to our
expansion and success. We intend to recruit, train, monitor and reward a group
of highly motivated sales professionals. We also intend to implement a
comprehensive sales training program for the purpose of continually increasing
our sales executives’ performance.
 
 Currently,
our sales team’s progress is monitored and tracked by a highly sophisticated,
custom sales force automation / client relationship management system. We have
spent considerable capital and human resources to develop this system and
believe it is a significant factor in the past and future success of our sales
force. This system is under constant development and improvement by us and
contains numerous unique and proprietary features we developed..
 
 Because
of the high margin, recurring revenue nature of our products, we believe that
significant expenditures on improving our sales and client retention efforts are
justified. Accordingly, we provide significant incentives and rewards to our
sales executives based upon their performance.
  19
 Table of Contents
 
 Financing
 
 In
anticipation of our current aggressive growth plans, we require additional
funding. Because we will be unable to adequately fund the growth initiatives
outlined herein without new sources of investor financing, we are currently
attempting to raise funds through the sale of our common stock and loans. If we
fail to raise capital, we will still pursue acquisitions and growth, however,
our growth strategy will be negatively impacted.
 
 Results
of Operations of Galaxy Gaming, Inc. for the Years Ended December 31, 2007 and
2008
 
 For the
years ended December 31, 2007 and 2008, we generated gross revenues of
$1,969,680 and $2,067,445, respectively. Our Cost of Goods Sold was $230,467,
our Operating Expenses were $1,822,269, our Other Expenses were $597, and our
Provision for Income Taxes was $0 for the year ended December 31, 2007. Our Cost
of Goods Sold was $119,248, our Operating Expenses were $2,359,459, our Other
Expenses were $92,942, and our Provision for Income Taxes was $0 for the year
ended December 31, 2008. Therefore, our Net Loss for the years ended December
31, 2007 and 2008 was $83,653 and $504,204, respectively.
  During
the first part of 2007, we maintained positive operating profits and cash
flow.  In the summer of 2007, we built our infrastructure and
increased our overhead in anticipation of becoming a public
company.  As a result, our costs of operation increased, largely due
to increases in payroll and outside professional consultants.  This
ultimately led to the reported Net Loss of $83,653 in 2007 notwithstanding early
profits in the first part of that year.  These increased operating
expenses continued through the first half of 2008 when we actively reduced our
operating costs.  These cuts, along with growing revenues in the
second half of 2008, led to a net positive cash flow during the fourth
quarter.  Management believes that continued growth from existing and
new products will result in continue Net Profits and positive cash flow during
fiscal year ending December 31, 2009.
 
 Results
of Operations of Pre-reorganization Business of Secured Diversified Investment,
Ltd. for the Years Ended December 31, 2007 and 2008
 
 The
pre-reorganization business of Secured Diversified Investment, Ltd. earned no
revenues during the years ended December 31, 2007 and 2008.  The
General and Administrative Expenses were $411,859, the interest expenses were
$6,144, the impairment expenses were $300,000, and other income was $11,639 for
the year ended December 31, 2007. Income from discontinued operations was
$397,298 during the year ended December 31, 2007.  The General and
Administrative Expenses were $252,736, the interest expenses were $239, the
impairment expenses were $100,000, other expenses were $18,612, and the
provisions for income taxes was $800 for the year ended December 31,
2008.  Therefore, the Net Loss for the years ended December 31, 2007
and 2008 was $309,066 and $372,387, respectively.
 
 20
 Table of Contents
  Liquidity
and Capital Resources
 
 As of
December 31, 2008, Galaxy had total current assets of $408,312 and total assets
in the amount of $1,151,364. Galaxy’s total current liabilities as of December
31, 2008 were $1,079,282.  Galaxy, therefore, had a working capital
deficit of $670,970 as of December 31, 2008.
 
 Galaxy’s
operating activities used $36,830 in cash for the year ended December 31, 2008
and $156,750 in cash for the year ended December 31, 2007. The primary
components of our negative operating cash flow for the year ended December 31,
2008 were our Net Loss of $504,204 offset by a $151,107 increase in Accrued
Expenses and Taxes, a $98,808 increase in Accounts Payable, a $74,182 decrease
in Prepaid Expenses and Taxes, and a$46,964 increase in deferred revenue. Cash
flows provided by financing activities during the year ended December 31, 2008
were $162,992, consisting of Proceeds from Notes Payable (related party) of
$183,578 offset by Payments on Notes Payable of $20,586. Investing Activities
used $102,912 in cash during the year ended December 31, 2008, consisting of
$150,000 in Purchase of intangible assets, offset by $47,088 in Payment Received
on Note Receivable.
 
 We intend
to fund operations through increased sales and debt and/or equity financing
arrangements, which may be insufficient to fund expenditures or other cash
requirements. We plan to seek additional financing in a private equity offering
to secure funding for operations. There can be no assurance that we will be
successful in raising additional funding. If we are not able to secure
additional funding, the implementation of our business plan will be impaired.
There can be no assurance that such additional financing will be available to us
on acceptable terms or at all. In addition, we expect to incur higher capital
expenditures in the future to expand our operations. We will from time to time
acquire products and businesses complementary to our business. As a public
entity, we may issue shares of our common stock and preferred stock in private
or public offerings to obtain financing, capital or to acquire other businesses
that can improve our performance and growth.
  Going
Concern
 
 We have
incurred net losses from operations for each of the last two fiscal years, have
negative working capital, and require additional capital in order to expand our
operations and become profitable. Our ability to raise additional capital
through the future issuances of common stock and other means is unknown. The
obtainment of additional financing, the successful development of our
contemplated plan of operations, and our transition, ultimately, to the
consistent attainment of profitable operations are necessary for us to continue
operations.  For these reasons, our auditors stated in their report
that they have substantial doubt we will be able to continue as a going
concern.
 
 Off
Balance Sheet Arrangements
 
 As of
December 31, 2008, there were no off balance sheet arrangements.
 
 21
 Table of Contents
  Significant
Equipment
 
 We do not
intend to purchase any significant equipment for the next twelve
months.
 
 Item 7A.   Quantitative and Qualitative Disclosures About
Market Risk
 
 A smaller
reporting company is not required to provide the information required by this
Item.
 
 Item 8.   Financial Statements and Supplementary
Data
 
 See the
financial statements annexed to this annual report.
 
 Item
9.   Changes In and Disagreements with Accountants on Accounting
and FinancialDisclosure
 
 No events
occurred requiring disclosure under Item 307 and 308 of Regulation S-K during
the fiscal year ending December 31, 2008.
 
 Item 9A(T).  Controls and Procedures
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in company reports filed or
submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed in company reports filed or
submitted under the Exchange Act is accumulated and communicated to management,
including our chief executive officer and treasurer, as appropriate to allow
timely decisions regarding required disclosure.
 
 As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive
officer and chief financial officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008. Based on their evaluation, they concluded
that our disclosure controls and procedures were effective.
 
 Our
internal control over financial reporting is a process designed by, or under the
supervision of, our chief executive officer and chief financial officer and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial
reporting includes policies and procedures that pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets; provide reasonable assurance that transactions
are recorded as necessary to permit preparation of our financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the authorization of our
board of directors and management; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial
statements.
 
 22
 Table of Contents
  Under the
supervision and with the participation of our management, including our chief
executive officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this evaluation
under the criteria established in Internal Control – Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2008.
 
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
 
 During
the most recently completed fiscal quarter, there has been no change in our
internal control over financial reporting that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
 
 Item 9B.   Other Information
 
 None
 PART III
 
 Item 10.  Directors, Executive Officers and Corporate
Governance
 
 The
following information sets forth the current names of our current directors and
executive officers and their ages.
 
 Name
              Age
              Office(s) heldRobert
      Saucier
              54
              President,
      CEO, Interim CFO, and DirectorWilliam
      O’Hara
              68
              COO
      and Director
 
 Set forth
below is a brief description of the background and business experience of each
of our current executive officers and directors.
 
 Robert B. Saucier is our
President, CEO, Interim CFO and a Director.   Mr. Saucier is the
founder of Galaxy and has served as President and CEO of that company and its
accounting and operational predecessors since 1997. Besides leading the
executive team, Mr. Saucier’s primary responsibilities include product
development, strategic planning, developing acquisition strategies and investor
relations. During his career, Mr. Saucier has founded and grown five start-up
companies. He was founder and CEO of the Mars Hotel Corporation, (1992 - 1998) a
  23
 Table of Contents
  company
that developed and managed the first non-tribal casino in Washington.
Previously, Mr. Saucier founded International Pacific and served as its
President and Chairman (1986 -1992). He also founded and led Titan
International, Inc. (1981 - 1986), a company that was engaged in electronic
safety, security and surveillance systems. Throughout his career, Mr. Saucier
has consulted with and invested in numerous business ventures and real estate
development projects.
 
 William O’Hara is our Chief
Operating Officer and a Director and is in charge of the day-to-day operations
of our business.  After a successful 21-year career in the cosmetic,
cosmetology and aesthetic industry, Mr. O’Hara began his gaming industry career
as the first employee of Shuffle Master Gaming in 1991. Mr. O’Hara relocated to
Las Vegas in 1992 to head up that company’s sales, service and
marketing.  In 1998, he joined Casinovations, Inc. as Senior Vice
President of operations and president of its Mississippi
subsidiary.  In 2000, Mr. O’Hara joined PDS Gaming as the Senior Vice
President of their newly formed electronic table games division. Mr. O’Hara
joined Galaxy Gaming in February 2008.
  Directors
  Our
bylaws authorize no less than one (1) and no more than fifteen (15) directors.
We currently have two Directors.
  Term
of Office
  Our
Directors are appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our Board of Directors and hold
office until removed by the Board.
 
 Family
Relationships
 
 There are
no family relationships between or among the Directors, executive officers or
persons nominated or chosen by the Company to become Directors or executive
officers.
 
 Director
or Officer Involvement in Certain Legal Proceedings
 
 To the
best of our knowledge, except as described below, during the past five years,
none of the following occurred with respect to a present or former director or
executive officer of the Company: (1) any bankruptcy petition filed by or
against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that
time; (2) any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (3)
being subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; and (4) being found
by a court of competent jurisdiction (in a civil action), the Securities and
Exchange Commission or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.
 
 24
 Table of Contents
 Sherron Associates,
Inc. –Mr. Saucier and the Company are currently engaged in litigation
with Sherron Associates, Inc., a Washington company.  For information
regarding the litigation see Item 3, “Legal Proceedings,” above.
 
 Committees
of the Board
 
 We do not
currently have a compensation committee, executive committee, or stock plan
committee.
 
 Audit
Committee
 
 We do not
have a separately-designated standing audit committee. The entire Board of
Directors performs the functions of an audit committee, but no written charter
governs the actions of the Board when performing the functions of what would
generally be performed by an audit committee. The Board approves the selection
of our independent accountants and meets and interacts with the independent
accountants to discuss issues related to financial reporting. In addition, the
Board reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants our annual
operating results, considers the adequacy of our internal accounting procedures
and considers other auditing and accounting matters including fees to be paid to
the independent auditor and the performance of the independent
auditor.
 
 Nominating
Committee
 
 Our Board
of Directors does not maintain a nominating committee. As a result, no written
charter governs the director nomination process. The size of our Board, at this
time, does not require a separate nominating committee.
 
 When
evaluating director nominees, our directors consider the following
factors:
 
 ·
              The
      appropriate size of our Board of
Directors;
 ·
              Our
      needs with respect to the particular talents and experience of our
      directors;
 ·
              The
      knowledge, skills and experience of nominees, including experience in
      finance, administration or public service, in light of prevailing business
      conditions and the knowledge, skills and experience already possessed by
      other members of the Board;
 ·
              Experience
      in political affairs;
 ·
              Experience
      with accounting rules and practices;
and
 ·
              The
      desire to balance the benefit of continuity with the periodic injection of
      the fresh perspective provided by new Board
  members.
 
 Our goal
is to assemble a Board that brings together a variety of perspectives and skills
derived from high quality business and professional experience. In doing so, the
Board will also consider candidates with appropriate non-business
backgrounds.
 
 25
 Table of Contents
  Other
than the foregoing, there are no stated minimum criteria for director nominees,
although the Board may also consider such other factors as it may deem are in
our best interests as well as our stockholders. In addition, the Board
identifies nominees by first evaluating the current members of the Board willing
to continue in service. Current members of the Board with skills and experience
that are relevant to our business and who are willing to continue in service are
considered for re-nomination. If any member of the Board does not wish to
continue in service or if the Board decides not to re-nominate a member for
re-election, the Board then identifies the desired skills and experience of a
new nominee in light of the criteria above. Current members of the Board are
polled for suggestions as to individuals meeting the criteria described above.
The Board may also engage in research to identify qualified individuals. To
date, we have not engaged third parties to identify or evaluate or assist in
identifying potential nominees, although we reserve the right in the future to
retain a third party search firm, if necessary. The Board does not typically
consider shareholder nominees because it believes that its current nomination
process is sufficient to identify directors who serve our best
interests.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Exchange Act requires our directors and executive officers and
persons who beneficially own more than ten percent of a registered class of the
Company’s equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company.  Officers, directors and greater than ten percent
beneficial shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.  To the best of our
knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments
thereof) received by us during or with respect to the year ended December 31,
2008 the following persons have failed to file, on a timely basis, the
identified reports required by Section 16(a) of the Exchange Act during fiscal
year ended December, 2008:
 
 Name
      and principal position
              Number
      oflate
      reports
              Transactions
      nottimely
      reported
              Known
      failures tofile
      a required formMunjit
      Johal
              0
              0
              0Jan
      Wallace
              0
              0
              0Robert
      Saucier
              n/a
              n/a
              n/aWilliam
      O’Hara
              n/a
              n/a
              n/a
 
 Code
of Ethics
 
 As of
December 31, 2008, we had not adopted a Code of Ethics for Financial Executives,
which would include our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions.
 
 Item 11.  Executive Compensation
 
 Compensation
Discussion and Analysis
 
 The
Company’s current executive compensation system consists of cash compensation to
the
  26
 Table of Contents
  executive
officers who are primarily responsible for the day-to-day management and
continuing development of its business.  The Company’s Chief Operating
Officer (“COO”), William O’Hara is party to a three-year employment agreement
with the Company.  Mr. O’Hara’s compensation arrangement consists of a
base annual salary together with a potential monthly bonus to be awarded for
those months in which the Company achieves higher sales figures than in any
previous month.  The objective of this arrangement is to provide Mr.
O’Hara with regular compensation which is reasonable in light of the cash
constraints faced by the Company’s developing business while also providing an
incentive for the COO to lead the operations towards a continually expanding
revenue base.
 
 The
Company presently does not have an employment agreement or any fixed policy
regarding compensation of Robert Saucier, its President, CEO, and Interim
CFO.  Currently, Mr. Saucier receives cash compensation of
approximately $30,000 per year.  As the founder of the Company, Mr.
Saucier holds a strong entrepreneurial interest in developing and expanding the
Company to the best of his ability.
 
 Summary
Compensation Table
 
 The table
below summarizes all compensation awarded to, earned by, or paid to our current
executive officers for each of the last two completed fiscal years.
 
 SUMMARY
      COMPENSATION TABLEName
                and
                principal
                position
              Year
              Salary
                ($)
              Bonus
                ($)
              Stock
      Awards
                ($)
              Option
                Awards
                ($)
              Non-Equity
                Incentive
      Plan
                Compensation
                ($)
              Nonqualified
                Deferred
                Compensation
                Earnings
      ($)
              All
      Other
                Compensation
                ($)
              Total
                ($)Robert
      Saucier,
                CEO,
      Interim CFO President, Director
              2008
                2007
              30,000
                30,000
              0
                0
              0
                0
              0
                0
              0
                0
              0
                0
              0
                0
              30,000
                30,000William
      O’Hara, COO, Director
              2008
                2007
              100,141
                n/a
              3,865
                n/a
              0
                n/a
              0
                n/a
              0
                n/a
              0
                n/a
              0
                n/a
              104,006
                n/aMunjit
      Johal, former CFO, CEO, President, and Director(2)
              2008
                2007
              15,000
                84,000
              0
                0
              0
                0
              0
                0
              0
                0
              0
                0
              0
                0
              15,000
                84,000Jan
      Wallace, former President and CEO and Director(1)
              2008
                2007
              n/a
                180,000
              n/a
                0
              n/a
                0
              n/a
                0
              n/a
                0
              n/a
                0
              n/a
                0
              n/a
                180,000
  (1)
              Effective
      January 17, 2008, Ms. Jan Wallace resigned from all positions as an
      officer of our Company. Ms. Wallace did not obtain any payment for her
      services in 2007; all such monies noted in “salary” were accrued by the
      Company as debt and subsequently discharged under chapter 11 of the United
      States Bankruptcy Code.(2)
              Mr.
      Johal did not obtain any payment for his services in 2007; all such monies
      noted in “salary” were accrued by the Company as debt. Mr. Johal received
      $15,000 in total compensation in 2008, all received prior to the filing of
      our proceeding under chapter 11 of the U.S. Bankruptcy Code. Upon the
      closing of the Share Exchange, Mr. Johal resigned as our director and from
      all named executive officer
positions.
  27
 Table of Contents
  Narrative
Disclosure to the Summary Compensation Table
 
 We do not
have a written employment contract with our President, CEO, and Interim CFO
Robert Saucier. We currently pay him an annual salary of
$30,000.   The Company’s COO, William O’Hara is party to a
three-year Employment Agreement with the Company.  Mr. O’Hara receives
a base annual salary of $150,000.  In addition, for each month in
which our total sales are higher than any previous month, Mr. O’Hara earns a
bonus equal to 10% of the increased sales above the prior monthly
record.
 
 Outstanding
Equity Awards At Fiscal Year-end Table
 
 The table
below summarizes all unexercised options, stock that has not vested, and equity
incentive plan awards for each named executive officer outstanding as of the end
of our last completed fiscal year.
 
 OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
              STOCK
      AWARDSName
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Exercisable
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Unexercisable
              Equity
                Incentive
                Plan
                Awards:
                Number
      of
                Securities
                Underlying
                Unexercised
                Unearned
                Options
                (#)
              Option
                Exercise
                Price
                ($)
              Option
                Expiration
                Date
              Number
                of
                Shares
                or
      Shares
                of
                Stock
      That
                Have
                Not
                Vested
                (#)
              Market
                Value
                of
                Shares
                or
                Shares
                of
                Stock
                That
                Have
                Not
                Vested
                ($)
              Equity
                Incentive
                Plan
                Awards:
                Number
                of
                Unearned
                Shares,
                Shares
      or
                Other
                Rights
                That
      Have
                Not
                Vested
                (#)
              Equity
                Incentive
                Plan
                Awards:
                Market
      or
                Payout
                Value
      of
                Unearned
                Shares,
                Shares
      or
                Other
                Rights
                That
                Have
      Not
                Vested
                (#)Robert
      Saucier, CEO, Interim CFO, President, Director
              -
              -
              -
              -
              -
              -
              -
              -
              -William
      O’Hara, COO and Director
              -
              -
              -
              -
              -
              -
              -
              -
              -Munjit
      Johal, former CFO, CEO, President, and Director
              -
              -
              -
              -
              -
              -
              -
              -
              -Jan
      Wallace, former President and CEO
              -
              -
              -
              -
              -
              -
              -
              -
              -
 
 28
 Table of Contents
  Compensation
of Directors Table
 
 The table
below summarizes all compensation paid to our directors for our last completed
fiscal year.
 
 DIRECTOR
      COMPENSATIONName
              Fees
      Earned or
                Paid
      in
                Cash
                ($)
              Stock
      Awards
                ($)
              Option
      Awards
                ($)
              Non-Equity
                Incentive
                Plan
                Compensation
                ($)
              Non-Qualified
                Deferred
                Compensation
                Earnings
                ($)
              All
                Other
                Compensation
                ($)
              Total
                ($)RobertSaucier
              30,000
              0
              0
              0
              0
              0
              30,000William
      O’Hara
              104,006
              0
              0
              0
              0
              0
              104,006Munjit
      Johal(former
      director)
              0
              0
              0
              0
              0
              0
              0Jan
      Wallace(former
      Director)
              0
              0
              0
              0
              0
              0
              0
 
 Narrative
Disclosure to the Director Compensation Table
 
 Directors
do not currently receive any cash compensation from the Company or for their
service as members of the Board of Directors.  The compensation
summarized above reflects the compensation each of our directors and former
directors received in their capacities as executive officers of the
Company.  We may compensate our directors through stock options once a
plan has been put in place.  We have no stock option plan as of the
date of this report.  We may also reimburse our directors a nominal
fee for attending meetings and for travel expenses.
 
 Stock
Option Grants
 
 We have
not granted any stock options to the executive officers or directors since our
inception.
 
 29
 Table of Contents
  Item
12.  Security Ownership of Certain Beneficial Owners and Management
and RelatedStockholder
Matters
 
 The
following table sets forth, as of March 31, 2009, the beneficial ownership of
our common stock by each executive officer and director, by each person known by
us to beneficially own more than 5% of the our common stock and by the executive
officers and directors as a group.  Except as otherwise indicated, all
shares are owned directly and the percentage shown is based on 29,000,006 shares
of common stock issued and outstanding on March 31, 2009.
 
 Title
      of class
              Name
      and addressof
      beneficial owner (1)
              Amount
      ofbeneficial
      ownership
              Percentof
      classExecutive
      Officers & Directors:Common
              Triangulum
      Partners, LLC(2)
                6980
      O’Bannon Drive
                Las
      Vegas, Nevada 89117
              25,000,000
              86.21%Total
      of All Directors and Executive Officers:
              25,000,000
      Shares
              86.21%More
      Than 5% Beneficial Owners:None.
  (1)
              As
      used in this table, "beneficial ownership" means the sole or shared power
      to vote, or to direct the voting of, a security, or the sole or shared
      investment power with respect to a security (i.e., the power to dispose
      of, or to direct the disposition of, a security). In addition, for
      purposes of this table, a person is deemed, as of any date, to have
      "beneficial ownership" of any security that such person has the right to
      acquire within 60 days after such date.(2)
              Mr.
      Robert Saucier, our CEO, Interim CFO, President, and Director, is the
      Manager of Triangulum Partners, LLC.  In that capacity, he is
      able to direct voting and investment decisions regarding the entity’s
      shares of common stock.
  Item 13.   Certain Relationships and Related
Transactions, and Director Independence
 
 Except as
set forth below, none of our directors or executive officers, nor any proposed
nominee for election as a director, nor any person who beneficially owns,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate
family (including spouse, parents, children, siblings, and in-laws) of any of
the foregoing persons has any material interest, direct or indirect, in any
transaction over the last two years or in any presently proposed transaction
which, in either case, has or will materially affect us:
 
 1.           We
maintain our corporate office at 6980 O’Bannon Drive, Las Vegas,
NV.  We sub-lease the property from Galaxy Gaming, LLC at a cost of
$18,025 per month.   Mr. Robert Saucier, our CEO, Interim CFO,
President, and Director, holds a 10% membership interest in Galaxy Gaming, LLC
and is the Manager of that entity.
 
 Item 14.   Principal Accounting Fees and
Services
 
 Below is
the table of Audit Fees (amounts in US$) billed by our auditor in connection
with the audit of the Company’s annual financial statements for the years
ended:
 
 Financial
      Statements for the Year Ended December 31Secured
      Diversified Investment, Ltd.
              Audit
      Services
              Audit
      Related Fees
              Tax
      Fees
              Other
      Fees2008
              $17,500
              $4,375
              $0
              $02007
              $0
              $0
              $0
              $0
 
 Financial
      Statements for the Year Ended December 31Galaxy
      Gaming, Inc.
              Audit
      Services
              Audit
      Related Fees
              Tax
      Fees
              Other
      Fees2008
              $12,000
              $0
              $3,250
              $02007
              $10,500
              $0
              $3,250
              $0
 
 30
 Table of Contents
 PART IV
 
 Item 15.   Exhibits, Financial Statements
Schedules
 
 Index to
Financial Statements Required by Article 8 of Regulation S-X:
 
 Audited
      Financial Statements for Galaxy Gaming, Inc.:F-1
              Report of Independent Registered Public Accounting
      FirmF-2
              Consolidated Balance Sheets as of December 31,
      2008  and 2007F-3
              Statements of Operations for the years ended December 31, 2008
      and 2007F-4
              Statement of Stockholders’ Deficit as of December 31,
      2008F-5
              Statements of Cash Flows for the years ended December 31, 2008
      and 2007F-6
              Notes to Financial
Statements
  Audited
      Financial Statements for Secured Diversified Investment,
    Ltd.:F-14
              Report of Independent Registered Public Accounting
      FirmF-15
              Balance Sheets as of December 31, 2008  and
      2007F-16
              Statements of Operations for the years ended December 31, 2008
      and 2007F-17
              Statement of Stockholders’ Deficit as of December 31,
      2008F-18
              Statements of Cash Flows for the years ended December 31, 2008
      and 2007F-19
              Notes to Financial
Statements
  Exhibit
      Number
              Description3.1
              Articles
      of Incorporation (1)3.2
              Bylaws
      (1)23.1
              Consent of Moore & Associates, Chtd., Certified
      Public Accountants23.2
              Consent of Maddox Ungar Silberstein, PLLC, Certified
      Public Accountants31.1
              Certification of Chief Executive Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.2
              Certification of Chief Financial Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
              Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 200299.1
              Unaudited pro forma consolidated balance sheet as of
      December 31, 2008; and unaudited pro forma consolidated statement of
      operations as of December 31,
2008
 
 1
              Incorporated
      by reference to Current Report on Form 8-K filed February 13,
      2009.
 
 31
 Table of Contents
 SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Secured Diversified Investment,
Ltd.
  By:
              /s/Robert
SaucierRobert
      Saucier
                President, Chief
      Executive Officer, InterimChief
      Financial Officer and DirectorMarch
      31, 2009
 
 In
accordance with Section 13 or 15(d) of 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:
 
 
 By:
              /s/Robert
    SaucierRobert
      Saucier
                President,
      Chief Executive Officer, InterimChief
      Financial Officer and DirectorMarch
      31, 2009
  By:
              /s/William O'HaraWilliam
      O”Hara
                Chief
      Operating Officer and DirectorMarch
      31, 2009




32
 Table of Contents


Maddox
Ungar Silberstein, PLLCCPAs and Business
Advisors
 Phone
(248) 203-0080
 Fax (248)
281-0940
 30600
Telegraph Road, Suite 2175
 Bingham
Farms, MI 48025-4586
 www.maddoxungar.com
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 To the
Boards of Directors
 Galaxy
Gaming, Inc.
 Las
Vegas, Nevada
 
 We have
audited the accompanying balance sheets of Galaxy Gaming, Inc., a Nevada
Corporation, as of December 31, 2008 and 2007 and the related statements of
operations, stockholders’ deficit, and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
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 audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  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 financial statements referred to above present fairly, in all
material respects, the financial position of Galaxy Gaming, Inc., as of December
31, 2008 and 2007 and the results of its operations and cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
 
 The
accompanying financial statements have been prepared assuming that Galaxy
Gaming, Inc. will continue as a going concern.  As discussed in Note
17 to the financial statements, the Company has incurred losses from operations,
has negative working capital, and is in need of additional capital to grow its
operations so that it can become profitable.  These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.  Management’s plans with regard to these matters are
described in Note 17. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 /s/ Maddox Ungar
Silberstein, PLLC
 Maddox
Ungar Silberstein, PLLC
 
 Bingham
Farms, Michigan
 February
12, 2009
  F-1
 Table of Contents
 GALAXY
GAMING, INC.
 BALANCE SHEETS
 AS
OF DECEMBER 31, 2008 AND 2007
 2008
                
                2007ASSETSCurrent
      AssetsCash
                $
                25,885
                
                $
                2,635Accounts
      receivable - trade, net
                
                234,315
                
                
                253,689Miscellaneous
      receivables
                
                7,516
                
                
                6,590Prepaid
      expenses and taxes
                
                19,773
                
                
                94,881Inventory
                
                46,177
                
                
                43,759Accrued
      interest receivable
                
                5,029
                
                
                0Note
      receivable - current portion
                
                69,617
                
                
                55,245Total
      Current Assets
                
                408,312
                
                
                456,799Property
      and Equipment, net
                
                23,389
                
                
                39,857Other
      AssetsIntellectual
      property, net
                
                133,919
                
                
                140,967Intangible
      assets
                
                150,000
                
                
                0Note
      receivable - long term
                
                435,744
                
                
                497,202Total
      Other Assets
                
                719,663
                
                
                638,169TOTAL
      ASSETS
                $
                1,151,364
                
                $
                1,134,825LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesAccounts
      payable
                $
                146,336
                
                $
                47,526Accrued
      expenses and taxes
                
                266,519
                
                
                115,412Accrued
      interest – related party
                
                30,745
                
                
                0Deferred
      revenue
                
                196,579
                
                
                149,615Due
      to employee
                
                31,639
                
                
                1,514Notes
      payable - related party
                
                384,450
                
                
                200,872Note
      payable - current portion
                
                23,014
                
                
                20,365Total
      Current Liabilities
                
                1,079,282
                
                
                535,304Long-term
      DebtNote
      payable
                
                1,192,280
                
                
                1,215,515TOTAL
      LIABILITIES
                
                2,271,562
                
                
                1,750,819STOCKHOLDERS’
      DEFICITCommon
      stock
                
                10,000
                
                
                10,000Additional
      paid in capital
                
                125
                
                
                125Accumulated
      deficit
                
                (1,130,323)
                
                
                (626,119)TOTAL
      STOCKHOLDERS’ DEFICIT
                
                (1,120,198)
                
                
                (615,994)TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                $
                1,151,364
                
                $
                1,134,825
 
 The
accompanying notes are an integral part of the financial
statements.
 F-2
 Table of Contents
 GALAXY
GAMING, INC.
 STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 
 2008
              
              2007Gross
      Revenues
              $
              2,067,445
              
              $
              1,969,680Cost
      of Goods Sold
              
              119,248
              
              
              230,467Gross
      Profit
              
              1,948,197
              
              
              1,739,213Operating
      Expenses
              
              2,359,459
              
              
              1,822,269Net
      Operating Loss
              
              (411,262)
              
              
              (83,056)Other
      Income (Expense)
              
              (92,942)
              
              
              (597)Net
      Loss before Income Taxes
              
              (504,204)
              
              
              (83,653)Provision
      for Income Taxes
              
              0
              
              
              0Net
      Loss
              $
              (504,204)
              
              $
              (83,653)Weighted
      Average Number of Shares Outstanding
              
              10,000,000
              
              
              10,000,000Net
      Loss Per Share
              $
              (.05)
              
              $
              (.01)
 
 The
accompanying notes are an integral part of the financial
statements.
 F-3
 Table of Contents
 GALAXY
GAMING, INC.
 STATEMENT OF STOCKHOLDERS’ DEFICIT
 AS
OF DECEMBER 31, 2008
 
 Common
      Stock
              
              Additional
              
              AccumulatedShares
              
              Amount
              
              Paid
      in Capital
              
              Deficit
              
              TotalBeginning
      Balance, January 1, 2007
              -
              
              $
              0
              
              $
              0
              
              $
              172,686
              
              $
              172,686LLC
      Adjustment
              -
              
              
              -
              
              
              -
              
              
              (172,686)
              
              
              (172,686)Share
      Issuance
              10,000,000
              
              
              10,000
              
              
              125
              
              
              0
              
              
              10,125Dividend
      Distribution
              -
              
              
              -
              
              
              -
              
              
              (542,466)
              
              
              (542,466)Net
      Loss for the Year Ended December 31, 2007
              -
              
              
              -
              
              
              -
              
              
              (83,653)
              
              
              (83,653)Balance,
      December 31, 2007
              10,000,000
              
              
              10,000
              
              
              125
              
              
              (626,119)
              
              
              (615,994)Net
      Loss for the Year Ended December 31, 2008
              -
              
              
              -
              
              
              -
              
              
              (504,204)
              
              
              (504,204)Balance,
      December 31, 2008
              10,000,000
              
              $
              10,000
              
              $
              125
              
              $
              (1,130,323)
              
              $
              (1,120,198)
 
 The
accompanying notes are an integral part of the financial
statements.
 F-4
 Table of Contents
 GALAXY
GAMING, INC.
 STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 2008
                
                2007Cash
      Flows from Operating Activities:Net
      loss for the period
                $
                (504,204)
                
                $
                (83,653)Adjustments
      to Reconcile Net Loss to Net Cash Used in Operating
      Activities:Depreciation
      expense
                
                16,374
                
                
                13,271Amortization
      expense
                
                7,048
                
                
                0Loss
      on the disposal of property and equipment
                
                92
                
                
                0Provision
      for bad debts
                
                7,185
                
                
                8,422Changes
      in Assets and Liabilities(Increase)
      decrease in accounts receivable
                
                12,189
                
                
                (262,111)(Increase)
      decrease in prepaid expenses and taxes
                
                74,182
                
                
                (101,471)(Increase)
      in Inventory
                
                (2,418)
                
                
                (43,759)(Increase)
      in accrued interest receivable
                
                (5,029)
                
                
                0Increase
      in accounts payable
                
                98,810
                
                
                47,525Increase
      in accrued expenses and taxes
                
                151,107
                
                
                115,411Increase
      in due to employee
                
                30,125
                
                
                0Increase
      in accrued interest – related party
                
                30,745
                
                
                0Increase
      in deferred revenue
                
                46,964
                
                
                149,615Net
      Cash Used in Operating Activities
                
                (36,830)
                
                
                (156,750)Cash
      Flows from Investing Activities:Acquisition
      of property and equipment
                
                0
                
                
                (53,127)Purchase
      of intangible assets
                
                (150,000)
                
                
                0Payments
      received on note receivable
                
                47,088
                
                
                0Net
      Cash Used in Investing Activities
                
                (102,912)
                
                
                (53,127)Cash
      Flows from Financing Activities:Proceeds
      from notes payable – related party
                
                183,578
                
                
                202,387Payments
      on note payable
                
                (20,586)
                
                
                0Proceeds
      from issuance of common stock
                
                0
                
                
                10,125Net
      Cash Provided by Financing Activities
                
                162,992
                
                
                212,512Net
      Increase in Cash and Cash Equivalents
                
                23,250
                
                
                2,635Cash
      and Cash Equivalents – Beginning of Year
                
                2,635
                
                
                0Cash
      and Cash Equivalents – End of Year
                $
                25,885
                
                $
                2,635Supplemental
      Cash Flow Information:Cash
      paid for interest
                $
                90,178
                
                $
                0Cash
      paid for income taxes
                $
                0
                
                $
                0
 
 The
accompanying notes are an integral part of the financial
statements.
 F-5
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 Note
1:  Nature
of Operations
 
 Galaxy
Gaming, Inc. (“the Company”) was incorporated in the State of Nevada on December
29, 2006 and is based in Las Vegas, Nevada.  The Company designs
casino games played in land-based and cruise ship gaming establishments. The
game concepts and the intellectual property associated with these games are
typically protected by patents, trademarks and copyrights. The Company licenses
its intellectual property via its own sales force to approximately 200 casinos
throughout North America. The clients pay royalties in the form of recurring
revenues based upon a negotiated monthly fee. To date, the Company has
concentrated on creating and licensing live casino table games.
 
 On
January 1, 2007, Galaxy Gaming LLC (the “LLC”), which was organized as a Nevada
Limited Liability Company on September 27, 2000, entered into several agreements
with the newly formed Company .  Pursuant to these agreements, the LLC
sold selected assets, such as inventory and fixed assets, to the
Company.
 
 On
December 31, 2007, the Company acquired, through an asset purchase agreement,
the LLC’s remaining intellectual property including patents, patent
applications, trademarks, trademark applications, copyrights, know-how and trade
secrets related to the casino gaming services including but not limited to
games, side bets, inventions and ideas.
 
 Note
2:  Significant Accounting
Policies
 
 This
summary of significant accounting policies of the Company is presented to assist
in understanding the Company’s financial statements.  The financial
statements and notes are representations of the Company’s management, who are
responsible for their integrity and objectivity.  These accounting
policies conform to generally accepted accounting principles and have been
consistently applied to the preparation of the financial
statements.
 
 Basis of
Accounting
 The
financial statements have been prepared on the accrual basis of accounting in
conformity with accounting principles generally accepted in the United States of
America.  Revenues are recognized as income when earned and expenses
are recognized when they are incurred. The Company does not have significant
categories of cost as its income is recurring with high margins. Expenses such
as wages, consulting expenses, legal and professional fees, and rent are
recorded when the expense is incurred.
 
 Cash and Cash
Equivalents
 The
Company considers cash on hand, cash in banks, certificates of deposit, and
other short-term securities with maturities of three months or less when
purchased, as cash and cash equivalents.
 
 Fair Value of Financial
Instruments
 The fair
value of cash, accounts receivable and accounts payable approximates the
carrying amount of these financial instruments due to their short-term nature.
The fair value of long-term debt, which approximates its carrying value, is
based on current rates at which the Company could borrow funds with similar
remaining maturities.
  F-6
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
  Note
2:  Significant Accounting
Policies (continued)
 
 Property and
Equipment
 The
capital assets are being depreciated over their estimated useful lives using the
straight-line method of depreciation for book purposes. On January 1, 2007, the
Company acquired the majority of its capital assets at the lower of cost or
market from the LLC.
 
 Intangible
Assets
 Effective
December 31, 2007, the Company acquired, with an asset purchase agreement from
the LLC, the remaining intellectual property including patents, patent
applications, trademarks, trademark applications, copyrights, know-how and trade
secrets related to the casino gaming services including, but not limited to,
games, side bets, inventions and ideas.
 
 These
intangible assets have finite lives and are being amortized using the
straight-line method over their economic useful lives and analyzed for potential
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. These assets were transferred at
cost.
 
 During
the year ended December 31, 2008, the Company entered into an agreement to
purchase back a regional territory from an outside sales
representative.  The total value of this agreement was $150,000 and
the resulting intangible asset has an infinite life.
 
 Revenue
Recognition
 Substantially
all revenue is recognized when it is earned. Clients are invoiced one month in
advance and the advance billings are carried as deferred revenue on the balance
sheet. The monthly recurring invoices are based on signed agreements with each
client.
 
 Management
Estimates
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.  Estimates and assumptions have been made in
determining the depreciable lives of such assets and the allowance for doubtful
accounts receivable. Actual results could differ from those
estimates.
 
 Basis of
Presentation
 The
financial statements include the accounts of the Company.  Certain
prior year amounts in the financial statements have been reclassified to conform
to the fiscal 2008 presentation.
 
 Recently Issued Accounting
Guidance
 The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flow.
  F-7
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 Note
3:  Note
Receivable
 
 The note
receivable at December 31 was as follows:
 
 2008
                
                2007Note
      receivable
                $
                505,361
                
                $
                552,447Less:
      current portion
                
                (69,617)
                
                
                (55,245)Long-term
      Note Receivable
                $
                435,744
                
                $
                497,202
 
 Effective
December 31, 2007, the Company acquired, with an asset purchase agreement from
the LLC, the note receivable stated above, as part of the purchase of the
remaining intellectual property including patents, patent applications,
trademarks, trademark applications, copyrights, know-how and trade secrets
related to the casino gaming services including but not limited to games, side
bets, inventions and ideas. The purchase was financed by a ten year note with a
6% fixed interest rate.
 
 Management
evaluates collectability on a regular basis and will set up reserves for
uncollectible amounts when it has determined that some or all of this receivable
may be uncollectible.  At December 31, 2008 and 2007, management
believed that 100% of the notes receivable principal and interest amounts are
collectable.
 
 Note
4:  Inventory
 
 Inventory
consists of products designed to enhance table games, such as signs, layouts and
bases for the different signs. The inventory value is determined by the average
cost method and management maintains inventory levels based on historical and
industry trends. Signs and layouts do not change unless the table game changes.
At December 31, 2008 and 2007, the Company had $46,177 and $43,759 in inventory,
respectively.
 
 Note
5:  Prepaid
Expenses and Taxes
 
 Prepaid
expenses and taxes consist of the following as of December 31:
 
 2008
                
                2007Refundable
      Canadian withholding
                $
                0
                
                $
                43,702Prepaid
      IT system
                
                5,772
                
                
                26,482Prepaid
      supply inventory
                
                10,000
                
                
                5,117Prepaid
      insurance
                
                431
                
                
                3,311Prepaid
      legal
                
                0
                
                
                1,905Prepaid
      other
                
                3,570
                
                
                14,364Total
      Prepaid Expenses and Taxes
                $
                19,773
                
                $
                94,881
 
 During
the year ended December 31, 2008, the Company determined that the Canadian
withholding tax may  not be refunded.  The remaining balance
was written off at December 31, 2008. The amounts paid of approximately $87,000
will be available for use in the future as a foreign tax credit to offset
federal income tax owed.
  F-8
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 Note
6:  Property
and Equipment
 
 The
Company owned property and equipment, recorded at cost, which consisted of the
following at December 31:
 
 2008
                
                2007Computer
      equipment
                $
                22,768
                
                $
                22,920Furniture
      and fixtures
                
                19,888
                
                
                19,888Office
      equipment
                
                10,320
                
                
                10,320Subtotal
                
                52,976
                
                
                53,128Less:
      Accumulated depreciation
                
                (29,587)
                
                
                (13,271)Property
      and Equipment, net
                $
                23,389
                
                $
                39,857
 
 The
Company acquired the majority of the property and equipment in the purchase
agreement between the Company and the LLC on January 1, 2007.  The
Company disposed of $150 of property and equipment during 2008 for a total loss
of $92.  Depreciation expense was $16,374 and $13,271 for the years
ended December 31, 2008 and 2007, respectively.
 
  Note
7:  Accrued
Expenses and Taxes
 The
Company recorded accrued expenses and taxes which consisted of the following at
December 31:
 
 2008
                
                2007Wages
      and related costs
                $
                28,166
                
                $
                38,659Accrued
      expenses and taxes
                
                86,313
                
                
                66,827Accrued
      intangible asset costs
                
                137,500
                
                
                0Accrued
      royalties - third party
                
                14,540
                
                
                9,926Total
      Accrued Expenses and Taxes
                $
                266,519
                
                $
                115,412
 
 The
Company entered into an agreement to purchase back a sales territory for
$150,000 during the year ended 2008.  The remaining balance will be
paid during the year ending 2009.
 
  Note
8:  Long –
term Debt
  Long -
term debt consists of the following at December 31:
 2008
                
                2007Note
      payable
                $
                1,215,294
                
                $
                1,235,880Less:  current
      portion
                
                (23,014)
                
                
                (20,365)Total Long - Term
      Debt
                $
                1,192,280
                
                $
                1,215,515
  The note
payable is due to a commercial bank in monthly installments of $9,159 including
fixed interest of 7.3%, for ten years, through February 2017, at which time
there is a balloon payment of $1,003,230. This liability was assumed with the
asset purchase agreement from the LLC.  The note payable financed the
purchase of the remaining intellectual property including patents, patent
applications, trademarks, trademark applications, copyrights, know-how and trade
secrets related to the casino gaming services including but not limited to
games, side bets, inventions and ideas. The note agreement remains in the name
of the LLC.
 F-9
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
  Note
9:  Notes
Payable - Related Party
 The
Company received working capital loans from the LLC, a related party, in 2008
and 2007.  The loans bear 9% interest and are due 90 days after
demand.  The terms of the loan call for interest to be accrued on
interest if payments are not made.
 
  Note
10:  Commitments and
Contingencies
 Operating Lease
Obligation
 
 The
Company sub-leases its offices from the LLC, a related party.  The
lease expires August 31, 2010 and has an option for a six year
renewal.  The monthly minimum rental payment is $17,500 and rent
increases 3% every year on September 1st.  Rent to be paid under this
lease agreement including the renewal option is summarized as
follows:
 
 2008December
      31, 2009
                $
                212,100December
      31, 2010
                
                218,464December
      31, 2011
                
                225,020December
      31, 2012
                
                231,772December
      31, 2013
                
                238,728Thereafter
                
                671,356Total
      Lease Obligation
                $
                1,797,440
 
 Legal
Proceedings
 
 Sherron
Associates, Inc.
 
 The
Company’s current material litigation is briefly described below. The Company
assumes no obligation to update the status of pending litigation, except
as  required by applicable law, statute or regulation.
 
 Sherron
Associates, Inc. (“Plaintiff”) filed claims against the Company, its
shareholders, and one of the Company’s wholly owned subsidiaries (“Defendants”)
alleging that Defendants are liable for a judgment obtained by a predecessor of
the Plaintiff against the Company’s president as an individual in 1998 in the
Superior Court of the State of Washington for the County of
Spokane.  Plaintiff's  first case, which was filed in 2005
in the Superior Court of the State of Washington for the County of King, was
reversed in the Company’s favor by the Court of Appeals, Division I, of the
State of Washington in 2007.  Plaintiff recently filed a second suit
in the Superior Court of the State of Washington for the County of
King.
 
 The
Company and its president brought two separate actions in Clark County, Nevada
against Plaintiff and its controlling principals and related entities alleging
that Plaintiff had no right to collect on the Spokane judgment.
 
 The claim
against the Company was dismissed with prejudice and the Company was awarded
their costs in a judgment on March 26, 2008.
  F-10
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
  Note
10:  Commitments and
Contingencies (continued)
 Legal Proceedings
(continued)
 
 California Administrative
Licensing Action
 
 In 2002,
Galaxy Gaming of California, LLC, which is a wholly owned subsidiary of the
Company, submitted an application to the California Gambling Control Commission
(the “Commission”) for a determination of suitability for licensure to do
business with tribal gaming operations in California.  The Division of
Gambling Control of the California Department of Justice (the “Division”)
processed the application and in late 2005 made an initial recommendation to the
Commission that the subsidiary was not suitable.  The subsidiary
believes that the process, as conducted by the State of California, was
seriously flawed and biased and in December 2006, exercised its right to have an
administrative law judge instead of the Commission further adjudicate the
process.  Although the Commission assigned the matter for adjudication
before an administrative law judge, the Division has yet to file its issue of
charges to begin the adjudication.
 
 In the
ordinary course of conducting its business, the Company is, from time to time,
involved in other litigation, administrative proceedings and regulatory
government investigations including but not limited to those in which the
Company is a plaintiff.
 
 Note
11:  Allowance for Doubtful
Accounts
 
 The
Company records an allowance for doubtful accounts based on periodic reviews of
accounts receivable.  As of December 31, 2008 and 2007, the Company
recorded a provision of $15,607 and $8,422, respectively.
 
 Note
12:  Dividend
Distribution
 
 The
Company recorded a one-time, non-cash dividend on December 31, 2007 of
approximately $542,466. This dividend resulted due to the continuous efforts of
acquiring all the intellectual property from the LLC.
 
 Through
this dividend, the Company acquired a note receivable (see Note 3) and a note
payable (see Note 8).  These notes were assumed in connection with the
asset purchase agreement from the LLC. Both the notes stated are part of the
purchase of the remaining intellectual property including patents, patent
applications, trademarks, trademark applications, copyrights, know-how and trade
secrets related to the casino gaming services including but not limited to
games, side bets, inventions and ideas.
 
 Note
13:  Capital
Stock
 
 The
Company had 65,000,000 shares of $.001 par value common stock and 10,000,000
shares of $.001 par value preferred stock authorized as of December 31, 2008 and
2007.  There were 10,000,000 common shares and -0- preferred shares
issued and outstanding at December 31, 2008 and 2007.
  F-11
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 Note
14:  Related
Party Transactions
 The
Company received working capital loans from the LLC, a related party, in 2008
and 2007.  The initial inventory and fixed assets acquired on January
1, 2007 were acquired from the same related party.
 
 The
Company acquired from the same party, a note receivable (see Note 3) and a note
payable (see Note 8). These notes were assumed with the asset purchase agreement
from LLC.  Both of the notes are part of the purchase of the remaining
intellectual property including patents, patent applications, trademarks,
trademark applications, copyrights, know-how and trade secrets related to the
casino gaming services including but not limited to games, side bets, inventions
and ideas.
 
 The
Company sub-leases its office space from the LLC, a related party, for $17,500
per month.  Rent expense was $210,000 for each of the years ended
December 31, 2008 and 2007.
 
 Note
15: Income
Taxes
 
 For the
period ended December 31, 2008, the Company incurred a net loss of $504,204 and,
therefore, has no tax liability. The Company has a previous net operating loss
carry-forward of $83,653.  The losses will be carried forward and can
be used through the year 2028 to offset future taxable income up to a cumulative
total of approximately $588,000.  The cumulative net operating loss
carry-forward for income tax purposes may differ from the cumulative financial
statement loss due to permanent differences and timing differences between book
and tax reporting.  Additionally, the Company has a foreign tax credit
carry-forward of approximately $87,000 that can be used in the future to offset
federal income tax owed.
 
 The
cumulative tax effect at the expected rate of 34% of significant items
comprising our net deferred tax amount is as follows:
 
 2008
                
                2007Deferred
      tax asset attributable to:Net
      operating loss carryover
                $
                171,429
                
                $
                28,442Valuation
      allowance
                
                (171,429)
                
                
                (28,442)Net
      Deferred Tax Asset
                $
                -
                
                $
                -
 
 Note
16: Other Income
(Expenses)
 
 Other
income (expenses) of the Company consists of the following at December
31:
 
 2008
                
                2007Interest
      income
                $
                31,602
                
                $
                74Loss
      on the sale of property and equipment
                
                (92)
                
                
                0Interest
      expense
                
                (123,880)
                
                
                (671)Miscellaneous
      other expense
                
                (572)
                
                
                0Total
      Other Income (Expenses)
                $
                (92,942)
                
                $
                (597)
 F-12
 Table of Contents
 GALAXY
GAMING, INC.
 NOTES
TO FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
  Note
17: Going
Concern
 
 The
Company has negative working capital, has incurred operating losses since
inception, and its operating activities to date have required financing from
outside institutions and related parties. The accompanying financial statements
have been prepared assuming that the Company will continue as a going
concern.  The Company will continue to need outside financing to
support its internal growth.
 
 Management
continues to seek funding to pursue its business plans.
 
 Note
18: Non-Cash Investing
and Financing Activities
 
 During
the year ended December 31, 2007, the Company acquired from the LLC, a related
party, a note receivable of $552,447 (see Note 3) and a note payable of
$1,235,880 (see Note 8). These notes were assumed with the asset purchase
agreement from the LLC. Both the notes stated are part of the purchase of the
remaining intellectual property including patents, patent applications,
trademarks, trademark applications, copyrights, know-how and trade secrets
related to the casino gaming services including but not limited to games, side
bets, inventions and ideas valued at $140,967.  The Company recorded a
one-time, non-cash dividend of $542,466 to complete this
transaction.
 
 There
were no additional non-cash investing or financing transactions during the years
ended December 31, 2008 and 2007.
 
 Note
19: Subsequent
Events
 
 On
February 10, 2009, Secured Diversified Investment, Ltd (“SDI”), a publicly held
Nevada Corporation, entered into a Share Exchange Agreement with the Company. In
connection with the closing of the Share Exchange Agreement, SDI obtained 100%
of the issued and outstanding shares of the Company, and the Company became a
wholly-owned subsidiary (the “Share Exchange”).  Also pursuant to the
terms of SDI's Bankruptcy  Plan (“the Plan”) , all of SDI’s
outstanding debt obligations (other than administrative expenses related to
chapter 11 case) have been discharged in exchange for its issuance of new common
stock on a pro rata basis to its creditors.
 
 Pursuant
to the terms and conditions of the Share Exchange Agreement and the terms of the
Plan, SDI issued 25,000,000 shares of common stock pro-rata to the former
shareholders of the Company in exchange for obtaining ownership of 100% of the
issued and outstanding shares of the Company and 4,000,000 shares of new common
stock on a pro rata basis to its creditors in exchange for the discharge of the
outstanding debts under chapter 11 of the U.S. Bankruptcy Code. All of SDI’s
pre-Share Exchange issued and outstanding equity interests were extinguished and
rendered null and void.  As a result, following these events, there
are currently 29,000,000 shares of common stock issued and
outstanding.
 
 Following
confirmation of the Plan and the consummation of the Share Exchange, SDI is now
pursuing the business plan of the Company.
 F-13
 Table of Contents
 
 MOORE
& ASSOCIATES, CHARTERED
 ACCOUNTANTS AND
ADVISORS
 PCAOB REGISTERED
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
the Board of Directors
 Secured
Diversified Investment, Ltd.
 
 We have
audited the accompanying balance sheets of Secured Diversified Investment, Ltd.
as of December 31, 2008 and 2007, and the related statements of operations,
stockholders’ equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the 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 financial statements referred to above present fairly, in all
material respects, the financial position of Secured Diversified Investment,
Ltd. as of December 31, 2008 and 2007, and the related statements of operations,
stockholders’ equity (deficit) and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has accumulated deficit of $9,395,645 as of
December 31, 2008. The company reported net loss of $372,387 as of December 31,
2008, which raises substantial doubt about its ability to continue as a going
concern.  Management’s plans concerning these matters are also
described in Note 1.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 /s/ Moore
& Associates, Chartered
 
 Moore
& Associates Chartered
 Las
Vegas, Nevada
 February
20, 2009
 
 6490 West Desert Inn Rd, Las
Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
  F-14
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD. Balance Sheets
 ASSETSDecember
      31,2008
                
                December
      31,2007CURRENT
      ASSETSCash
      and cash equivalents
                $
                12,279
                
                $
                1,684Net
      assets held for sale
                
                -
                
                
                18,612Total
      Current Assets
                
                12,279
                
                
                20,296Real
      estate investments
                
                100,000
                
                
                200,000TOTAL
      ASSETS
                $
                112,279
                
                $
                220,296LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                $
                242,028
                
                $
                173,747Accrued
      expenses
                
                305,830
                
                
                154,741Accrued
      payroll liabilities
                
                90,426
                
                
                90,426Total
      Current Liabilities
                
                638,284
                
                
                418,914LONG
      TERM LIABILITIESNotes
      payable
                
                45,000
                
                
                -Total
      Long Term Liabilities
                
                45,000
                
                
                -STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, $0.001 par value, 10,000,000 sharesauthorized, -0-
      shares issued and outstanding
                
                -
                
                
                -Common
      stock, $0.001 par value, 65,000,000 sharesauthorized, 162,862
      shares issued and outstanding
                
                163
                
                
                163Unissued
      shares
                
                5,830
                
                
                5,830Additional
      paid-in capital
                
                8,818,647
                
                
                8,818,647Accumulated
      deficit
                
                (9,395,645)
                
                
                (9,023,258)Total
      Stockholders' Equity (Deficit)
                
                (571,005)
                
                
                (198,618)TOTAL
      LIABILITIES AND STOCKHOLDERS'EQUITY
      (DEFICIT)
                $
                112,279
                
                $
                220,296
  The
accompanying notes are an integral part of these financial
statements.
 F-15
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD. Statements of Operations
 For
      the Years Ended
                December
      31,2008
              
              2007REVENUES
              $
              -
              
              $
              -OPERATING
      EXPENSESGeneral
      and administrative
              
              252,736
              
              
              411,859Total
      Operating Expenses
              
              252,736
              
              
              411,859INCOME
      (LOSS) FROM OPERATIONS
              
              (252,736)
              
              
              (411,859)OTHER
      INCOME AND EXPENSEInterest
      expense
              
              239
              
              
              6,144Impairment
      expense
              
              100,000
              
              
              300,000Other
      (income) and expense
              
              18,612
              
              
              (11,639)Total
      Other Expenses
              
              118,851
              
              
              294,505NET
      INCOME (LOSS) FROMCONTINUING
      OPERATIONS
              
              (371,587)
              
              
              (706,364)Discontinued
      operations
              
              -
              
              
              397,298NET
      INCOME (LOSS) BEFORE TAXES
              
              (371,587)
              
              
              (309,066)Income
      taxes
              
              (800)
              
              
              -NET
      INCOME (LOSS)
              $
              (372,387)
              
              $
              (309,066)BASIC
      INCOME (LOSS) PERCOMMON
      SHARE
              $
              (2.29)
              
              $
              (1.90)WEIGHTED
      AVERAGE NUMBER OFCOMMON SHARES
      OUTSTANDING
              
              162,862
              
              
              162,862
 The
accompanying notes are an integral part of these financial
statements.
 F-16
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Statements of Stockholders' Equity (Deficit)


Preferred
      Stock
                
                Preferred
      Stock
                
                Preferred
      StockSeries
      A
                
                Series
      B
                
                Series
      C
                
                Common
      Stock
                
                AdditionalPaid-In
                
                Unissued
                
                Accumulated
                
                Stockholders'
                  EquityShares
                Amount
                
                Shares
                
                Amount
                
                Shares
                
                Amount
                
                Shares
                
                Amount
                
                Capital
                
                Shares
                
                Deficit
                
                (Deficit)Balance,
      December 31, 2006
                17,799
                
                $
                178
                
                402
                
                $
                4
                
                -
                
                $
                -
                
                144,841
                
                $
                145
                
                $
                8,817,893
                
                $
                5,830
                
                $
                (8,714,192)
                
                $
                109,694Conversion
      of preferred stock
                  common
      stock
                (17,799)
                
                
                (178)
                
                (402)
                
                
                (4)
                
                -
                
                
                -
                
                18,021
                
                
                18
                
                
                754
                
                
                -
                
                
                -
                
                
                754Net
      income (loss) for the yearended December 31,
      2007
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (309,066)
                
                
                (309,066)Balance,
      December 31, 2007
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -
                
                162,862
                
                
                163
                
                
                8,818,647
                
                
                5,830
                
                
                (9,023,258)
                
                
                (198,618)Net
      income (loss) for yearended December 31,
      2008
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (372,387)
                
                
                (372,387)Balance,
      December 31, 2008
                -
                
                $
                -
                
                -
                
                $
                -
                
                -
                
                $
                -
                
                162,862
                
                $
                163
                
                $
                8,818,647
                
                $
                5,830
                
                $
                (9,395,645)
                
                $
                (571,005)
 The
accompanying notes are an integral part of these financial
statements.
 F-17
 Table of Contents


SECURED
DIVERSIFIED INVESTMENT, LTD. Statements of Cash Flows


For
      the Years EndedDecember
      31,2008
                
                2007OPERATING
      ACTIVITIESNet
      income (loss)
                $
                (372,387)
                
                $
                (309,066)Adjustments
      to Reconcile Net Loss to NetCash
      Used by Operating Activities:Depreciation
      and Amortization
                
                -
                
                
                -Bad
      debt expense
                
                -
                
                
                -Minority
      Interest
                
                -
                
                
                -Loss
      from discontinued operations
                
                -
                
                
                -Impairment
      of real estate
                
                100,000
                
                
                300,000Gain
      on settlement of debt and litigation
                
                -
                
                
                -Increase
      (decrease) in assets and liabilities:Prepaid
      expenses
                
                -
                
                
                10,907Asset
      held for sale
                
                18,612
                
                
                4,932Accounts
      payable and accrued expenses
                
                219,370
                
                
                113,628Payroll
      liabilities
                
                -
                
                
                86,961Net
      Cash Provided (Used) by Operating Activities of Continuing
      Operations
                
                (34,405)
                
                
                207,362Net
      Cash Provided (Used) by Operating Activities of Discontinued
      Operations
                
                -
                
                
                (218,563)Net
      Cash Provided (Used) by Operating Activities
                
                (34,405)
                
                
                (11,201)INVESTING
      ACTIVITIES
                
                -
                
                
                -FINANCING
      ACTIVITIESProceeds
      from notes payable
                
                45,000
                
                
                -Net
      cash used in financing activities of discontinued
    operations
                
                
                
                
                -Net
      Cash Used by Financing Activities
                
                45,000
                
                
                -NET
      DECREASE IN CASH
                
                10,595
                
                
                (11,201)CASH
      AT BEGINNING OF PERIOD
                
                1,684
                
                
                12,885CASH
      AT END OF PERIOD
                $
                12,279
                
                $
                1,684SUPPLEMENTAL
      DISCLOSURES OFCASH
      FLOW INFORMATIONCASH
      PAID FOR:Interest
                $
                239
                
                $
                30,394Income
      Taxes
                $
                800
                
                $
                -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:The
      Company settled following debts through transfer ofproperty/ownership
      interest as of December 31, 2007$
                370000Mortgage
      note payable
                
                
                
                $
                646340Mortgage
      note payable
                
                
                
                $
                110000Mortgage
      note payable
                
                
                
                $
                71630Mortgage
      note payable-related party
                
                
                
                $
                67000Mortgage
      note payable-related party
 The
accompanying notes are an integral part of these financial
statements.
 F-18
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
1 – BASIS OF PRESENTATION AND GOING CONCERN
 
 Basis
of presentation:
 
 The
accompanying consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission for the
presentation of financial information, and include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
 
 Going
concern:
 
 The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principle, which contemplate continuation of the
Company as a going concern.  However, the Company has accumulated
deficit of $9,395,645 as of December 31, 2008.  The Company reported
net loss of $372,387 at December 31, 2008. The Company has no cash reserves to
pay its existing obligations and has exhausted all possibilities in efforts to
raise the necessary capital to meet its obligations for the next 12
months.  Since our inception we have been unsuccessful in pursing
revenues with our investment properties.  Several of our acquired
properties, including the T-Rex Plaza, the Hospitality Inn, and the Katella
Center, among others, were or became impaired assets that were
underperforming.  These properties were incapable of generating
adequate revenues.  A major contributing factor to the lack of
revenues for these properties was high-cost of debt and ground lease obligations
underlying these properties.  The assets that sufficiently produced
cash to service their obligations, but not sufficient cash to support the
Company’s overhead, such as Decatur Center, Spencer Springs and the Cannery
West, had to be sold to continue our operations, including the high costs
associated with being a public company, in addition to absorbing the costs
associated with our impaired assets. Current management has restructured the
Company’s operations by selling many of its poorly performing properties and
reducing the associated high cost of debt and ground leases.  The
Company significantly reduced overhead and rolled backed the stock in order to
restructure the Company’s capital structure.  As of December 31, 2007,
the Company had effectively discontinued its operations with the exception of
two real estate investments.  Following loss of the Cactus property to
foreclosure in July of 2008, the Company had one remaining real estate
investment as of December 31, 2008.
 
 Since
June 16, 2008, the Company has operated under the protection of Chapter 11 of
the United States Bankruptcy Code.  The Company’s chapter 11
bankruptcy case has been pending in the U.S. Bankruptcy Court for the District
of Nevada (the “Court”) as Case No. BK-S-08-16332-LBR.  By order
entered January 27, 2009, the Court confirmed the company’s Plan of
Reorganization (the “Plan”).  The Effective Date of the Plan, as
defined therein, was February 6, 2009.  Please see Note 12, Subsequent
Events, for more information.
 
 NOTE
2 – NATURE OF OPERATIONS
 
 The
Company was incorporated under the laws of the state of Utah on November 22,
1978.  On July 23, 2002, the shareholders approved a change in
domicile from Utah to Nevada.  In accordance with Nevada corporate
law, a change of domicile is effected by merging the foreign corporation with
and into a Nevada corporation.  On August 9, 2002, a merger between
the Company and Book Corporation of America was completed.  Upon
completion of the merger Book Corporation of America was
dissolved.  On September 18, 2002, the OTCBB symbol for the Company’s
common stock was changed from BCAM to SCDI.  The shareholders also
approved amendments to the Company’s Articles of Incorporation to change the par
value of the Company’s Common Stock from $.005 to $.001 and to authorize
50,000,000 shares of Preferred Stock (Series A, B and C), par value
$0.01.  On November 15, 2002, the Company changed its fiscal year end
from October 31 to December 31.
  F-19
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to
Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
2 – NATURE OF OPERATIONS (Continued)
  During
2002, the Company began pursuing the acquisition of ownership interests in real
estate properties that are geographically and functionally diverse in order to
be more stable and less susceptible to devaluation resulting from regional
economic downturns and market shifts.  Currently, the Company owns two
properties in Phoenix, Arizona which were acquired in the first quarter of
2006.
  NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES
 
 Income
(Loss) per share
 
 Basic
loss per share is based on the weighted average number of common shares
outstanding during the period.  Diluted loss per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.  At
December 31, 2008 and 2007, all potential common shares are excluded from the
computation of diluted loss per share, as the effect of which was
anti-dilutive.
 
 Income
Taxes
 
 Deferred
income tax assets and liabilities are computed annually for differences between
the consolidated financial statements and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
laws and rates applicable to the periods in which the differences are expected
to affect taxable income (loss). Valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
 
 Segment
Reporting
 
 Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about
Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company.
 
 During
the first quarter of 2006, the Company acquired investment interest in two
separate properties in Arizona.
 
 On
January 6, 2006, the Company acquired a 25 percent Tenant-in-Common interest in
a commercial property located in Paradise Valley, Arizona for
$300,000.  The tenant-in common partners include a director of the
Company, 25 percent, and an unrelated third party, 50 percent and SDI
25%.  The unrelated third party will be responsible for all costs of
operation including, but not limited to, landscaping, maintenance, taxes,
insurance, property management and debt payments.
 
 On
February 15, 2006, the Company acquired a 33.3 percent interest in a property
located in Phoenix, Arizona for $200,000.  The property consists of a
2,180 square foot structure on approximately 38,587 square feet of
land.  The Company’s interest was purchased from Ms Jan Wallace, an
officer and director of the Company.  The property will be used to
house the Company’s headquarters.  The Company is not responsible for
any of the expenses and does not share in the revenue stream associated with
these properties. This investment was lost to foreclosure in July of
2008.
 
 For the
years ended December 31, 2008 and 2007, all of the Company’s investment
properties are located in Arizona. Properties in Arizona do not contribute to
the income or expense stream of the Company.
 F-20
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to
Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Investment
in Real Estate
 
 The
Company reports its investment in real estates at historical
cost.  Those properties were acquired with the intention that when the
value of properties will appreciate the Company will sell its share in those
properties.
 
 The
Company used cost method of accounting based on SOP 78-9 paragraph .08 which
states that
 
 “The
division believes that the accounting recommendations for use of the equity
method of accounting for investments in general partnerships are generally
appropriate for accounting by limited partners for their investments in limited
partnerships. A limited partner's interest may be so minor that the limited
partner may have virtually no influence over partnership operating and financial
policies. Such a limited partner is, in substance, in the same position with
respect to the investment as an investor that owns a minor common stock interest
in a corporation, and, accordingly, accounting for the investment using the cost
method may be appropriate.”
 
 Recent
Accounting Pronouncements
 
 In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the
computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, “Earnings per
Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning on or after December 15, 2008 and earlier adoption is
prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe
that FSP EITF 03-6-1 would have material effect on our consolidated financial
position and results of operations if adopted.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial Guarantee Insurance Contracts-and interpretation of
FASB Statement No. 60”.  SFAS No. 163 clarifies how Statement 60
applies to financial guarantee insurance contracts, including the recognition
and measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. SFAS No. 163 has no effect on the
Company’s financial position, statements of operations, or cash flows at this
time.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles”.  SFAS No.
162 sets forth the level of authority to a given accounting pronouncement or
document by category. Where there might be conflicting guidance between two
categories, the more authoritative category will prevail. SFAS No. 162 will
become effective 60 days after the SEC approves the PCAOB’s amendments to AU
Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on
the Company’s financial position, statements of operations, or cash flows at
this time.
  F-21
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to
Audited Financial Statements
 December
31, 2008 and 2007


NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent
Accounting Pronouncements (Continued)
  In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities—an amendment of
FASB Statement No. 133.  This standard requires companies to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has not yet
adopted the provisions of SFAS No. 161, but does not expect it to have a
material impact on its consolidated financial position, results of operations or
cash flows.
 
 In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding
the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with SFAS No. 123 (R), Share-Based Payment.  In particular,
the staff indicated in SAB 107 that it will accept a company's election to use
the simplified method, regardless of whether the company has sufficient
information to make more refined estimates of expected term. At the time SAB 107
was issued, the staff believed that more detailed external information about
employee exercise behavior (e.g., employee exercise patterns by industry and/or
other categories of companies) would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not expect a
company to use the simplified method for share option grants after December 31,
2007. The staff understands that such detailed information about employee
exercise behavior may not be widely available by December 31, 2007. Accordingly,
the staff will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company currently uses the
simplified method for “plain vanilla” share options and warrants, and will
assess the impact of SAB 110 for fiscal year 2009. It is not believed that this
will have an impact on the Company’s consolidated financial position, results of
operations or cash flows.
 
 In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.  This
statement amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this statement was issued,
limited guidance existed for reporting non-controlling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This statement improves
comparability by eliminating that diversity. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008 (that is, January 1, 2009, for entities with calendar
year-ends). Earlier adoption is prohibited. The effective date of this statement
is the same as that of the related Statement 141 (revised 2007). The Company
will adopt this Statement beginning March 1, 2009. It is not believed that this
will have an impact on the Company’s consolidated financial position, results of
operations or cash flows.


F-22
 Table of Contents


SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to
Audited Financial Statements
 December
31, 2008 and 2007
   NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent
Accounting Pronouncements (Continued)
  In
December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations’.  This Statement replaces FASB Statement No. 141,
Business Combinations, but retains the fundamental requirements in
Statement 141.  This Statement establishes principles and
requirements for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The effective date of this statement is the same as
that of the related FASB Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements.  The Company will adopt this
statement beginning March 1, 2009. It is not believed that this will have an
impact on the Company’s consolidated financial position, results of operations
or cash flows.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Liabilities—Including an Amendment of FASB Statement No.
115.  This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities. Most of the provisions in FAS 159 are elective;
however, an amendment to FAS 115 Accounting for Certain Investments in Debt and
Equity Securities applies to all entities with available for sale or trading
securities. Some requirements apply differently to entities that do not report
net income. SFAS No. 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of the previous fiscal year provided that the entity makes that
choice in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157 Fair Value Measurements.  The Company will
adopt SFAS No. 159 beginning March 1, 2008 and is currently evaluating the
potential impact the adoption of this pronouncement will have on its
consolidated financial statements.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
 This statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this statement does
not require any new fair value measurements. However, for some entities, the
application of this statement will change current practice. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year. The Company will adopt this statement
March 1, 2008, and it is not believed that this will have an impact on the
Company’s consolidated financial position, results of operations or cash
flows.
 
 NOTE
4 – PROPERTY AND EQUIPMENT
 For the
year ended December 31, 2008, the Company held investments in one property
(see Note 3 Significant
Accounting Policies – Segment Reporting).  These properties do
not contribute to the income or expense stream of the
Company.
 F-23
 Table of Contents


SECURED
DIVERSIFIED INVESTMENT, LTD.


Notes to
Audited Financial Statements
 December
31, 2008 and 2007
   NOTE
4 – PROPERTY AND EQUIPMENT (Continued)
  It is the
Company’s policy to assess its long lived assets for impairment on an annual
basis, or more frequently if warranted by circumstances.  Because of
the slow down of the real estate market and decline in value of properties the
Company impaired its investment in Paradise Valley, Arizona property from
$300,000 to $100,000 and recorded an impairment loss of
$200,000.  Additionally, the Company has impaired its Phoenix Cactus
Street property 100% recording an impaired loss of $200,000.  This
investment was foreclosed on in June 2008.  In light of the current
real estate market and projected trends, the Company does not see recovery of
these investments in the foreseeable future.
 NOTE
5 – RELATED PARTY TRANSACTIONS
  Sutterfield Family Trust and C.
Wayne Sutterfield (Sutterfield). At December 31, 2005, the Company owed
Sutterfield, a former director and shareholder, two notes, $67,000 and $71,630
both secured by  trust deeds on 5030 Campus Drive.  The
notes bear interest at 8% and mature on February 17 2007, and December 31, 2006,
respectively. The Company is in default on the $71,630 note and the other note
of $67,000. Sutterfield was a minority owner (46.2%) in DCB.  In
addition to the interest payment on the 3rd trust
deed, the Company, pursuant to the terms of the operating agreement, liable to
pay Sutterfield a preferred return on his investment.  The Company has
not made payments to Sutterfield pursuant to the terms of the operating
agreement.  Sutterfield has advised the Company of its
default.  As a result of our default, the Company on October 17, 2007,
transferred its 53.8% membership interest in DCB, in exchange for: (a) an
indemnity on certain obligations pertaining to the Campus Property, including a
ground lease, first and second trust deeds, and property taxes; and (b) a
release from Sutterfield on any debt we owe, including two promissory notes in
the principal amount of $138,630.32 and all accrued interest
thereon.
 
 As at
December 31, 2007, the Company has eliminated the operations and cash flows of
DCB from its ongoing operations and it is not involved in the continuing
operations of DCB and reported as discontinued operations in the accompanying
financial statements.
 NOTE
6 – MORTGAGES PAYABLE
 
 As of
December 31, 2007, the Company settled its mortgages payable as
follows:
 
 1. Mortgage note payable
$370,000
 
 The
Company had note payable of $370,000 with 11.5% interest and maturity date of
June 25, 2007. The note was secured on 1st trust
deed on the Katella property and was in default due to non payment. On October
8, 2007 the Board of Directors authorized the disposal of property in exchange
for the settlement of debt including interest. On October 23, 2007, the Company
transferred the property in full satisfaction of all obligations secured by the
deed of trust.
 
 2. Mortgage note payable
$646,340
 
 The
Company had note payable of $646,340 with 8% interest and maturity date of
February 2, 2013. The note was secured on 1st trust
deed on the 5030 Campus (DCB) property. The note was settled as part of transfer
of interest in DCB to Sutteffield (See note 5).
 
 3. Mortgage note payable
$110,000
 
 The
Company had note payable of $110,000 with 8% interest and maturity date of
February 4, 2008. The note was secured on 2nd trust deed on the 5030 Campus
(DCB) property. The note was settled as part of transfer of interest in DCB to
Suttefield(See note 5).
  F-24
 Table of Contents


SECURED
DIVERSIFIED INVESTMENT, LTD.


Notes to
Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
7 – MORTGAGES PAYABLE – RELATED PARTY
 
 The
Company had note payable of $71,630 and $67,000 to a related party Wayne
Sutterfiled. The notes had 8% interest and matured on December 31, 2006 and
February 17, 2007 respectively. Both the notes were secured by trust deed on
5030 Campus (DCB) property respectively. The Company was in default on the notes
payment including interest. On October 17, 2007, the Company transferred its
100% interest in DCB property to its minority shareholder Wayne Sutterfiled in
full settlement of its note payable including interest (See note
5).
  NOTE
8 – WARRANTS
 
 At
December 31, 2008, the Company had the following subscriptions for warrants
outstanding:
 
 Date
                Number
      of Warrants
                Exercise
      Price
                Expiration
      DateApril
      4, 2005
                400,000
                Range
      from $0.50 to $2.00
                April
      4, 2010
 
 Following
is a summary of the warrant activity:
 
 Warrants
      Outstanding
                
                Aggregate
      Intrinsic ValueOutstanding
      at December 31, 2007
                400,000
                
                $
                -Granted
                -
                
                
                -Forfeited
                -
                
                
                -Exercised
                -
                
                
                -Outstanding
      at December 31, 2008
                400,000
                
                $
                -
 
 Following
is a summary of the status of warrants outstanding at December 31,
2008:
 
 Outstanding
      Warrants
                
                Exercisable
      WarrantsPrice
                
                Number
                
                Remaining
      Contractual Life
                
                Weighted
      Average Exercise Price
                
                Number
                
                Weighted
      Average Exercise Price$0.50
      - $2.00
                
                400,000
                
                2
      years
                
                $1.25
                
                75,000
                
                $1.25
 
 The fair
value was calculated using the Black-Scholes option pricing model assuming no
dividends, a risk-free interest rate of 6.5%, an expected life of 5 years and
expected volatility of 100%.
  NOTE
9 - LITIGATION
 
 On
January 5, 2007, the Company entered into a Confidential Settlement and General
Release Agreement (the “Settlement Agreement”) with Mr. Clifford L. Strand to
resolve litigation in the matters of Clifford L. Strand v. Secured Diversified
Investment, Ltd. (case no. 06CC02350) in the Superior Court of California,
County of Orange, as well as other claims involving Mr. Strand and our company
as set forth in the Agreement. The Settlement Agreement with Mr. Strand provides
that a stipulation and order of disbursement will be filed on the remaining
$89,998 as follows: $80,000 to Mr. Strand and $9,998 to our company. In
addition, Mr. Strand expressly waived any and all rights he may have had in
connection with reemployment with our company, and agreed to refrain from
pursuing complaints against our company and our officers and directors in any
court or government agency. Further, Mr. Strand granted an irrevocable proxy in
connection with any shares of stock beneficially owned by him.
 F-25
 Table of Contents
 SECURED
DIVERSIFIED INVESTMENT, LTD.
 Notes to
Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
10 – DISCONTINUED OPERATIONS
 As at
December 31, 2007 the Company discontinued following operations:
 
 1. Katella
Center
 
 On
October 8, 2007 the Board of Directors of the Company approved to sign the Deed
and Lieu of Foreclosure on the Katella Center.
 
 On
October 23, 2007 the Grant Deed in Lieu of Foreclosure was assigned in full
satisfaction of all obligations secured by the deed of trust including note
payable of $370,000 with any accrued and unpaid interest thereon.
 
 As at
December 31, 2008, the Company has eliminated the operations and cash flows of
Katella Center from its ongoing operations and it is not involved in the
continuing operations of Katella Center and reported as discontinued operations
in the accompanying financial statements.
 
 2. 5030 Campus (DCB)
Property
 
 On
September 29, 2007 the Board of Directors of the Company approved to transfer
its 53.8% membership interest in DCB, LLC to the Sutterfield Family Trust and
Wayne Sutterfiled in exchange for (a) an indemnity on certain obligations
pertaining to the Campus Property, including a ground lease, first and second
trust deeds, and property taxes; and (b) a release from Sutterfield on any debt
we owe, including two promissory notes in the principal amount of $138,630.32
and all accrued interest thereon.
 
 As at
December 31, 2008, the Company has eliminated the operations and cash flows of
DCB from its ongoing operations and it is not involved in the continuing
operations of DCB and reported as discontinued operations in the accompanying
financial statements.
 
 3. Secured
Lending
 
 During
2006 the Company established a new wholly owned subsidiary, Secured Lending,
LLC, to engage in mortgage banking activities in the state of Arizona. The new
subsidiary was incorporated on June 15th, 2006 and it began funding loans in
July. However, Secured Lending was not able to sustain its mortgage banking
activities and these relationships were mutually terminated. The Company
discontinued its mortgage banking activity at December 31, 2006. The Company
recognized a loss of $6,030 as a result of discontinued operations and recorded
net assets held for sale of $18,612 in the accompanying financial
statements.
 
 Following
is the summary of discontinued operations as at December 31, 2007.
  Katella
      Center
                    
                    DCB,
      LLC
                    
                    Secured
      Lending
                    
                    TotalIncome
      (loss) from discontinued operations
                    $
                    31,465
                    
                    $
                    (21,249)
                    
                    $
                    (6,030)
                    
                    $
                    4,186Gain
      on disposal
                    
                    386,425
                    
                    
                    7,648
                    
                    
                    -
                    
                    
                    394,073Total
                    $
                    417,890
                    
                    $
                    (13,601)
                    
                    $
                    (6,030)
                    
                    $
                    398,259
 
 Gain on
disposal includes $386,425 gain on settlement of mortgage note payable of
$370,000 including interest which was secured on Katella Center.
 F-26
 Table of Contents


SECURED
DIVERSIFIED INVESTMENT, LTD.


Notes to
Audited Financial Statements
 December
31, 2008 and 2007
  NOTE
11 – CONVERSTION OF PREFERRED STOCK TO COMMON
 
 Effective
September 24, 2007, the Company converted it Series A and Series B preferred
shares to common stock.  The total outstanding shares of Series A
preferred stock, 355,978 shares, where converted to 352,453 shares of common
stock at a conversion ratio of 1:1.01.  The total outstanding shares
of Series B preferred stock, 8,044 shares, were converted to 7,954 shares of
common stock at a conversion ratio of 1:1.01.  The conversion
increased the total number of common shares outstanding from 2,896,820 to
3,257,237.
 
 On
October 24, 2007, the Company completed a 20 to 1 rollback of its outstanding
common shares thereby reducing its outstanding common shares from 3,257,237 to
162,862.
  NOTE
12 -  SUBSEQUENT EVENTS
 
 On
February 10, 2009, pursuant to the terms of the Plan, the Company entered into a
Share Exchange Agreement with Galaxy Gaming, Inc., a privately held Nevada
Corporation (“Galaxy”). In connection with the closing of the Share Exchange
Agreement, the Company obtained 100% of the issued and outstanding shares of
Galaxy, and Galaxy became a wholly-owned subsidiary (the “Share
Exchange”).  Also pursuant to the terms of the Plan, all of the
Company’s outstanding debt obligations (other than administrative expenses
related to chapter 11 case) have been discharged in exchange for its issuance of
new common stock on a pro rata basis to its creditors.
 
 Pursuant
to the terms and conditions of the Share Exchange Agreement:
 
 §
                The
      Company  issued 25,000,000 shares of common stock pro-rata to
      the former shareholders of Galaxy in exchange for obtaining ownership of
      100% of the issued and outstanding shares of Galaxy;
  and
 
 In
addition, pursuant to the terms of the Plan:
 
 §
                The
      Company  issued 4,000,000 shares of new common stock on a pro
      rata basis to its creditors in exchange for the discharge of the
      outstanding debts under chapter 11 of the U.S. Bankruptcy
      Code;
 
 §
                All
      of the Company’s  pre-Share Exchange issued and outstanding
      equity interests were extinguished and rendered null and void;
      and
 
 §
                As
      a result, following these events, there are currently 29,000,000 shares
      of  common stock issued and
  outstanding.
 
 Following
confirmation of the Plan and the consummation of the Share Exchange, the Company
is now pursuing the business plan of Galaxy through Galaxy, its wholly-owned
subsidiary.