**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-QSB/A**

 
| x                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                               |
| **For the Quarterly Period Ended March 31,  2007** |
|                                               |
| **OR**                                             |
|                                               |
| o                                                  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from                to               .**

 

**Commission file number: 001-32161**

 

**ElixirGaming Technologies, Inc.**

(Exact name of registrant as specified in itscharter)

 

| **Nevada**                                                      | ** ** | **91-1696010**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification no.) |

 

**1120 Town Center Dr, Ste 260Las Vegas, NV 89144**

(Address of principal executive offices,including zip code)

 

**(702) 733-7195**(Registrant’s telephone number, including area code)

 

Check whether the issuer (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES  x  NO  o

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 

YES  o  NO  x

 

The number of shares of registrant’s common stock outstanding as of May3, 2007 was 33,858,654

 

Transitional Small business disclosure Format (checkone):     YES  o  NO  x

 

 

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**ELIXIR GAMING TECHNOLOGIES, INC.**

 

**(FORMERLY VENDINGDATA CORPORATION) ANDSUBSIDIARIES FORM 10-QSB**

 

**TABLE OF CONTENTS**

 
|                                    |                                                                      | **PAGE**                                   |       |
|-----------------------------------------|---------------------------------------------------------------------------|--------------------------------------------|------------|
|                                    |                                                                      |                                       |       |
| **PART I – FINANCIAL INFORMATION** | **4**                                                                     | ** **                                 |
| ** **                              | ** **                                                                | ** **                                 | ** ** |
|                                    | ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS                                 | 4                                          |       |
|                                    |                                                                      |                                       |       |
|                                    |                                                                      | Balance Sheets                             | 4          |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | Statements  of Operations and Deficit      | 5          |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | Statements  of Cash Flows                  | 6          |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | Notes to Consolidated Financial Statements | 7          |   |
|                                    |                                                                      |                                       |       |
|                                    | ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN  OF OPERATIONS. | 11                                         |       |
|                                    |                                                                      |                                       |       |
|                                    |                                                                      | OVERVIEW                                   | 12         |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | RESULTS  OF OPERATIONS                     | 12         |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | LIQUIDITY AND CAPITAL RESOURCES            | 15         |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | CRITICAL ACCOUNTING POLICIES AND ESTIMATES | 16         |   |
|                                    |                                                                      |                                       |       |   |
|                                    |                                                                      | RISK FACTORS                               | 17         |   |
|                                    |                                                                      |                                       |       |   |
|                                    | ITEM 3.CONTROLS AND PROCEDURES                                            | 20                                         |       |
|                                    |                                                                      |                                       |       |
| **PART  II – OTHER INFORMATION**   | **22**                                                                    | ** **                                 |
| ** **                              | ** **                                                                | ** **                                 | ** ** |
|                                    | ITEM 6. EXHIBITS.                                                         | 22                                         |       |
|                                         |                                                                           |                                            |            |  |  |

 

2

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EXPLANATORYNOTE

 

This Amendment No. 1 on Form 10-QSB/A (“AmendmentNo. 1”) is being filed to effect a restatement of the previouslyissued consolidated financial statements of Elixir GamingTechnologies, Inc. (formerly known as VendingData Corporation) (either the “Company,”“we” or “our”), as of and for the three months ended March 31, 2007. Thepurpose for and effects of the restatements are described in Note 10 tothe condensed consolidated financial statements contained herein.

 

ThisAmendment No. 1 amends and restates Part I, Items 1, 2 and 3 of our QuarterlyReport on Form 10-QSB for the three months ended March 31, 2007 in the formfiled on May 15, 2007 (“Original Form 10-QSB”) to reflect the effects of therestatements described in Note 10 to the consolidated financial statementscontained herein. The remaininginformation contained withinthis Amendment No. 1 consists ofall other information contained in the Original Form 10-QSB. This AmendmentNo. 1 does not reflect events occurring after the filing of the Original Form 10-QSB or modify or updatethose disclosures in any way other than as required to reflect theeffects of the restatements.

 

Inaddition, in accordance with Rule 12b-15 promulgated under the Securitiesand Exchange Act of 1934, as amended, this Amendment No. 1 also includes updated certifications from ourChief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2 and32.1 and 32.2.

 

3

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# **PARTI — FINANCIAL INFORMATION**

# ** **

# **Item 1. Financial Statements.**

# ** **

**ELIXIRGAMING TECHNOLOGIES, INC (FORMERLY VENDINGDATA CORPORATION) AND SUBSIDIARIES**

### **Consolidated Balance Sheets**

 
| ** **                                                                                                   | ** ** | **March 31, 2007** | ** ** | **December 31, 2006  (1)** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------------|------------|
| ** **                                                                                                   | ** ** | **(As restated)**  | ** ** | ** **                 | ** ** |
| ** **                                                                                                   | ** ** | **(Unaudited)**    | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                   | ** ** | ** **         | ** ** | ** **                 | ** ** |
| **Current assets:**                                                                                          | ** ** | ** **         | ** ** | ** **                 | ** ** |
| Cash and cash equivalents                                                                                    |       | $                  | 4,644,051  |                       | $          | 333,888 |   |
| Current portion of accounts receivable,  trade, net of allowance for uncollectibles of $258,000 and $267,154 |       | 1,992,369          |       | 1,856,898                  |       |
| Due from affiliate                                                                                           |       | 180,903            |       | 138,181                    |       |
| Other receivables                                                                                            |       | 2,355              |       | —                     |       |
| Inventories                                                                                                  |       | 3,526,021          |       | 3,407,361                  |       |
| Prepaid expenses and other current assets                                                                    |       | 81,893             |       | 46,494                     |       |
|                                                                                                         |       | 10,427,592         |       | 5,782,822                  |       |
|                                                                                                         |       |               |       |                       |       |
| Equipment rented to customers, net of  accumulated depreciation of $58,803 and $67,673                       |       | 50,654             |       | 94,777                     |       |
| Property and equipment, net of accumulated  depreciation of $2,673,302 and $2,472,897                        |       | 3,527,476          |       | 3,493,817                  |       |
| Intangible assets, net of accumulated  amortization of $1,034,420 and $819,753                               |       | 8,721,894          |       | 8,936,561                  |       |
| Goodwill                                                                                                     |       | 11,195,737         |       | 11,195,737                 |       |
| Accounts receivable, trade, net of current  portion, less unamortized discount                               |       | 246,830            |       | 358,841                    |       |
| Deferred expenses                                                                                            |       | 444,669            |       | 450,404                    |       |
| Prepaid commission                                                                                           |       | 6,010,148          |       | —                     |       |
| Other assets                                                                                                 |       | 309,399            |       | 305,282                    |       |
| Total assets                                                                                                 |       | $                  | 40,934,399 |                       | $          | 30,618,241 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                               | ** ** | ** **         | ** ** | ** **                 | ** ** |
| **Current liabilities:**                                                                                     | ** ** | ** **         | ** ** | ** **                 | ** ** |
| Deferred revenues, current portion                                                                           |       | $                  | 668        |                       | $          | 43,599 |   |
| Short-term debt                                                                                              |       | 534,614            |       | 3,676,600                  |       |
| Capital leases payable, current portion                                                                      |       | 443,995            |       | 440,719                    |       |
| Current portion of notes payable                                                                             |       | 1,300,000          |       | 299,494                    |       |
| Accounts payable                                                                                             |       | 2,153,644          |       | 2,354,163                  |       |
| Accrued expenses                                                                                             |       | 3,808,923          |       | 3,657,792                  |       |
| Customer deposits                                                                                            |       | 174,925            |       | 14,257                     |       |
|                                                                                                         |       | 8,416,769          |       | 10,486,624                 |       |
|                                                                                                         |       |               |       |                       |       |
| Deferred revenues, net of current portion                                                                    |       | 72,882             |       | 43,199                     |       |
| Leases payable, net of current portion                                                                       |       | 166,972            |       | 269,272                    |       |
| Deferred tax liability                                                                                       |       | 1,765,383          |       | 1,765,383                  |       |
| Notes payable, net of current portion, net  of debt discount of $2,532,463 and $2,837,911                    |       | 10,217,472         |       | 13,955,613                 |       |
|                                                                                                         |       | 20,639,478         |       | 26,520,091                 |       |
| **Stockholders’ equity:**                                                                               | ** ** | ** **         | ** ** | ** **                 | ** ** |
| Preferred stock, $.001 par value,  10,000,000 shares authorized, no shares issued and outstanding            |       | —             |       | —                     |       |
| Common stock, $.001 par value, 70,000,000  shares authorized, 34,296,007 shares and 30,015,099 shares issued |       | 34,297             |       | 30,016                     |       |
|  Treasury stock 448,053 common shares at cost                                                           |       | (846,820           | )          | (846,820                   | )          |
|  Additional paid-in capital                                                                             |       | 122,398,711        |       | 106,221,270                |       |
| Deferred compensation expense                                                                                |       | (4,934,323         | )          | (8,348,483                 | )          |
| Accumulated other comprehensive loss                                                                         |       | (3,153             | )          | —                     |       |
| Deficit                                                                                                      |       | (96,353,791        | )          | (92,957,833                | )          |
| Total stockholders’ equity                                                                              |       | 20,294,921         |       | 4,098,150                  |       |
| Total liabilities and stockholders’ equity                                                              |       | $                  | 40,934,399 |                       | $          | 30,618,241 |   |

 

----

(1)          The Companypreviously restated its consolidated financial statements as of and for theyear ended December 31, 2006 by way of an Amendment No. 1 to Annual Report onForm 10-KSB/A for that year filed with the SEC on November 13, 2007.

 

See accompanying notes to consolidatedfinancial statements.

 

4

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**ELIXIRGAMING TECHNOLOGIES, INC (FORMERLY VENDINGDATA CORPORATION) AND SUBSIDIARIES**

### **Consolidated Statements of Operations and Deficit**

 

**(Unaudited)**

** **
| ** **                            | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|
| ** **                            | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(As restated)**                     | ** ** | ** ** | ** ** |
| **Revenues:**                         |       |                                  |       |   |   |
| Sales                                 |       | $                                     | 1,738,677  |   | $ | 577,207 |   |
| Rental                                |       | 64,563                                |       | 111,064 |   |
| Non-gaming revenue                    |       | 1,430,877                             |       | — |   |
| Other                                 |       | 166,656                               |       | 24,229 |   |
|                                  |       | 3,400,773                             |       | 712,500 |   |
| **Operating expenses:**               |       |                                  |       |   |   |
| Cost of sales - gaming                |       | 1,487,063                             |       | 714,802 |   |
| Cost of sales - non-gaming            |       | 1,594,197                             |       | — |   |
| Selling, general and administrative   |       | 3,324,653                             |       | 2,178,951 |   |
| Research and development              |       | 262,758                               |       | 222,138 |   |
|                                  |       | 6,668,671                             |       | 3,115,891 |   |
| Operating loss                        |       | (3,267,898                            | )          | (2,403,391 | ) |
|                                  |       |                                  |       |   |   |
| Other income (expense):               |       |                                  |       |   |   |
| Interest expense                      |       | (628,063                              | )          | (351,507 | ) |
| Other income                          |       | 500,000                               |       | — |   |
|                                  |       |                                  |       |   |   |
| **Net loss**                          |       | $                                     | (3,395,961 | ) | $ | (2,754,898 | ) |
|                                  |       |                                  |       |   |   |
| Basic and dilutive net loss per share |       | $                                     | (0.10      | ) | $ | (0.16 | ) |
|                                  |       |                                  |       |   |   |
| Weighted average shares outstanding   |       | 32,359,950                            |       | 17,689,358 |   |

** **

**Seeaccompanying notes to consolidated financial statements.**

 

5

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** **

**ELIXIRGAMING TECHNOLOGIES, INC (FORMERLY VENDINGDATA CORPORATION) AND SUBSIDIARIES**

**Consolidated Statementsof Cash Flows**

**(Unaudited)**

** **
| ** **                                                                        | ** ** | **Three Months Ended March 31,** | ** **      |
|-----------------------------------------------------------------------------------|------------|---------------------------------------|-----------------|
| ** **                                                                        | ** ** | **2007**                              | ** **      | **2006** | ** ** |
| ** **                                                                        | ** ** | **(As restated)**                     | ** **      | ** ** | ** ** |
| **Cash flows from operating activities:**                                         | ** ** | ** **                            | ** **      | ** ** | ** ** |
| Net loss                                                                          |       | $                                     | (3,395,961      | ) | $ | (2,754,898 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:      |       |                                  |            |   |   |
| Depreciation and amortization of property  and equipment                          |       | 144,228                               |            | 119,517 |   |
| Amortization of intangible assets                                                 |       | 214,666                               |            | — |   |
| Amortization of deferred interest                                                 |       | 14,251                                |            | 16,561 |   |
| Amortization of debt discount                                                     |       | 296,935                               |            | 39,258 |   |
| Stock-based compensation expense                                                  |       | 375,459                               |            | 510,236 |   |
| Loss on disposition of assets                                                     |       | —                                |            | (32,805 | ) |
| Write down of inventory                                                           |       | —                                |            | 23,153 |   |
| Increase in operating (assets) liabilities:                                       |       |                                  |            |   |   |
| Trade accounts receivable                                                         |       | (68,536                               | )               | 255,975 |   |
| Inventory                                                                         |       | (79,751                               | )               | 135,469 |   |
| Prepaid expenses and other current                                                |       | 97,336                                |            | 365,776 |   |
| Accounts payable                                                                  |       | (231,627                              | )               | (440,074 | ) |
| Accrued expenses, deferred revenues and  other current liabilities                |       | 298,551                               |            | 210,666 |   |
| Net cash used in operating activities                                             |       | (2,334,449                            | )               | (1,551,166 | ) |
|                                                                              |       |                                  |            |   |   |
| **Cash flows from investing activities:**                                         | ** ** | ** **                            | ** **      | ** ** | ** ** |
| Acquisition of intangibles                                                        |       | —                                |            | (238,465 | ) |
| Disposition of property, plant and  equipment                                     |       | —                                |            | 90,292 |   |
| Acquisition of property, plant and  equipment                                     |       | (93,259                               | )               | — |   |
| Net cash used in investing activities                                             |       | (93,259                               | )               | (148,173 | ) |
|                                                                              |       |                                  |            |   |   |
| **Cash flows from financing activities:**                                         | ** ** | ** **                            | ** **      | ** ** | ** ** |
| Repayment of leases payable                                                       |       | (99,024                               | )               | (259,057 | ) |
| Repayment of notes payable                                                        |       | (297,490                              | )               | — |   |
| Proceeds from sale of stock                                                       |       | 4,484,385                             |            | 233,862 |   |
| Proceeds from subscriptions receivable                                            |       | 2,650,000                             |            | — |   |
| Proceeds from convertible debt                                                    |       | —                                |            | 1,000,000 |   |
| Net cash provided by financing activities                                         |       | 6,737,871                             |            | 974,805 |   |
| Increase (decrease) in cash and cash  equivalents                                 |       | 4,310,163                             |            | (724,534 | ) |
| Cash and cash equivalents at beginning of  period                                 |       | 333,888                               |            | 935,243 |   |
| Cash and cash equivalents at end of period                                        |       | $                                     | 4,644,051       |   | $ | 210,709 |   |
|                                                                              |       |                                  |            |   |   |
| **Supplemental cash flow information:**                                           | ** ** | ** **                            | ** **      | ** ** | ** ** |
| **Non-cash investing and financing  activities:**                                 | ** ** | ** **                            | ** **      | ** ** | ** ** |
| Warrants issued under securities purchase  agreement                              |       | $                                     | 6,147,000       |   |   |   |
| Loans converted into common stock,  including $4,377,927 to a related party  |       | $                                     | 5,877,927  |   |   |   |
|                                                                                   |            |                                       |                 |  |  |  |  |  |

** **

**See accompanying notes to consolidated financial statements.**

 

6

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ELIXIR GAMING TECHNOLOGIES, INC (FORMERLY VENDINGDATA CORPORATION) AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

**1.****                                     ****Basis of presentation.**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principles pursuantto the rules and regulations incorporated in Regulation S-B of theSecurities and Exchange Commission (SEC) and reflect all adjustments,consisting of normal recurring adjustments, which management believes arenecessary to fairly present the financial position, results of operations andcash flows of Elixir Gaming Technologies, Inc. (formerly VendingDataCorporation), a Nevada corporation and its subsidiaries (the “Company”), forthe respective periods presented. The results of operations for an interimperiod are not necessarily indicative of the results that may be expected forany other interim period or the year as a whole. The accompanying unauditedcondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto in the Company’sAmendment No. 1 to Annual Report on Form 10-KSB/A for the fiscal year endedDecember 31, 2006, filed with the SEC on November 13, 2007.

 

Reclassification

 

TheCompany has determined that approximately $2.5 million of previously recordedcash outflows from investing activities and inflows from financing activitiesshould have been recorded as a non-cash transaction. The transaction consistedof the purchase of patents in exchange for the Company’s securities.

 

**2.****                                     ****Segments**

 

TheCompany currently operates in two business segments: (i) gaming operations and (ii) non-gamingoperations, which consists of the Dolphin Advanced Technologies Pty Ltd(DolphinTM) medical and automotive sectors. The accounting policies of these segments areconsistent with the Company’s policies for the unaudited condensed consolidatedfinancial statements.

 

Thetable below presents information as to the Company’s revenues and operatingloss by segment:

 
| ** **              | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| ** **              | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| Revenues                |       |                                    |       |   |   |
| Gaming operations       |       | $                                       | 1,969,896  |   | $ | 712,500 |   |
| Non-gaming operations   |       | 1,430,877                               |       | — |   |
| Total Revenue           |       | $                                       | 3,400,773  |   | $ | 712,500 |   |
|                    |       |                                    |       |   |   |
| Operating income (loss) |       |                                    |       |   |   |
| Gaming operations       |       | $                                       | 482,833    |   | $ | (2,302 | ) |
| Non-gaming operations   |       | (163,320                                | )          | — |   |
| Corporate/other         |       | (3,587,411                              | )          | (2,401,089 | ) |
| Total operating loss    |       | $                                       | (3,267,898 | ) | $ | (2,403,391 | ) |

 

7

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The segments identified forgeographic region-based enterprise-wide data are as follows:

 
| ** **    | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------|------------|-----------------------------------------|------------|
| ** **    | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| Asia          |       | $                                       | 1,685,605  |   | $ | 440,000 |   |
| United States |       | 221,992                                 |       | 272,500 |   |
| Australia     |       | 1,430,877                               |       | — |   |
| Europe        |       | 40,696                                  |       | — |   |
| Other         |       | 21,603                                  |       | — |   |
|          |       | $                                       | 3,400,773  |   | $ | 712,500 |   |

 

For the three month periodended March 31, 2007, in the gaming sector, one customer represented 48.6% oftotal sales. Within the non-gaming sector the Company had one customer thatrepresented 15% of sales.

 

**3.****                                     ****Earnings (loss) per share**

 

Basic loss per share iscomputed by dividing the reported net loss for the period by the weightedaverage number of common shares outstanding during the period. Loss per shareis unchanged on a diluted basis since the assumed exercise of common stockequivalents would have an anti-dilutive effect.

 

**4. ****                                  ****Stock options**

 

Currentperiod stock option activity for the periods ended March 31, 2007 and 2006 issummarized below:

 
| ** **                                    | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Remaining  Contractual  Term** | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **(per share)**                   | ** ** | **(years)**                      | ** ** |
| Balance outstanding as of December 31, 2005   |       | 3,953,472  |       | $                                      | 3.55       |                             | 4.61       |   |
| Granted                                       |       | 55,000     |       |                                   |       |                             |       |
| Exercised                                     |       | (77,600    | )          |                                   |       |                             |       |
| Forfeited or expired                          |       | (55,000    | )          |                                   |       |                             |       |
| Balance outstanding as of March 31, 2006  (1) |       | 3,875,872  |       | $                                      | 2.06       |                             | 4.55       |   |
|                                          |       |       |       |                                   |       |                             |       |
| Balance outstanding as of December 31, 2006   |       | 4,654,412  |       | $                                      | 2.17       |                             | 4.52       |   |
| Granted                                       |       | 522,500    |       |                                   |       |                             |       |
| Exercised                                     |       | (50,100    | )          |                                   |       |                             |       |
| Forfeited or expired                          |       | (960       | )          |                                   |       |                             |       |
| Balance outstanding as of March 31, 2007  (1) |       | 5,125,852  |       | $                                      | 2.20       |                             | 4.57       |   |
|                                          |       |       |       |                                   |       |                             |       |
| Exercisable as of March 31, 2007              |       | 1,195,716  |       | $                                      | 2.09       |                             | 3.42       |   |

 

----

(1)Includes 1,050,000,share that are issued and vested only through a change incontrol provision.

 

8

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**5 .****                                  ****Sale and issuance of stockand warrants**

 

OnMarch 28, 2007, the Company completed the sale of 1,625,000 shares of theCompany’s common stock and warrants to purchase 1,625,000 shares of commonstock to an institutional investor for the aggregate price of $4,306,250. Thewarrants are exercisable at an exercise price of $2.65 per share for a periodof five years beginning on March 28, 2007. In addition, the Company has agreedto provide the investor with limited rights of first refusal to purchase itssecurities over a two-year period expiring no later than March 28, 2009.The Company also granted the investor certain registration rights requiring theCompany to file a selling shareholder registration statement with the SEC byJune 15, 2007, for purposes of registering the resale of the shares of theCompany’s common stock issued to the investor pursuant to the transaction,including all shares that are issued, or may be issued, upon exercise of thewarrants.

 

OnJanuary 25, 2007, the Company issued warrants to purchase up to 16,000,000shares of the Company to our Asian distributor as an incentive to meet certainsales targets. These warrants were accounted for in accordance with FASBEmerging Issues Task Force Issue No. 96-18, *Accounting for EquityInstruments That Are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods or Services.*The warrants have afair market value of $6,147,000 and are classified in the balance sheet asprepaid commissions and will be amortized to commission expense at a rate of 8%of the gross revenue generated by the distributor.

 

Seealso Note 9.

 

**6.****                                     ****Acquisition**

 

Duringthe past year, the Company completed the acquisition of Dolphin. A portion ofthe consideration included convertible debt issued to a former principal of thebusiness. The note was converted to shares in January 2007. Pursuant to aprice resale guarantee associated with the acquisition, the Companyremains obligated if the holder sells such shares at market for lesser of theguaranteed price of $3.50 per share. As of March 31, 2007, there were 2,614,286shares remaining still subject to this guarantee.

 

The condensed pro forma,consolidated statement of operations for the three months ended March 31, 2006,as if the Dolphin acquisition had taken place as of January 1, 2006 is asfollows: 

 
| Net Revenue                        |   | $          | 2,213,687  |   |
|------------------------------------|--------|------------|------------|--------|
| Operating expenses                 |   | 4,253,078  |       |
|  Loss  from operations        |   | (2,039,391 | )          |
| Other expenses                     |   | 366,289    |       |
| Net loss                           |   | $          | (2,405,680 | )      |
| Basic and  dilutive loss per share |   | $          | (0.14      | )      |
| Weighted average number of share   |   | 17,689,358 |       |

 

**7.****                                     ****Contingencies**

 

The Company is a party tocertain claims, legal actions, and complaints, including a patent infringementaction between the Company and one of its main competitors and the sales taxdispute discussed in the following paragraph. The Company cannot predict orestimate the likely outcome of any such litigation or other disputes andaccordingly, no provision has been made for any minimum estimated losses withregard to such matters.

 

*Sales tax audit.*  InFebruary 2004, the State of Nevada initiated a sales/use tax audit of theCompany’s equipment lessors. As of this filing the State of Nevada has not madea determination if there has been a shortfall in the payment of the sales/usetax. The Company sold and leased back shufflers and Deck Checkers in prioryears. The auditor for the State of Nevada is trying to determine at whatlevel a sales/use tax needs to be collected. The Company now collects from ourcustomers in Nevada and remits payments to the State of Nevada. If the State ofNevada determines that the sales of the products to the

 

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leasing companies is thelevel at which sales/use tax should have been collected, liability of theleasing companies would be passed to the Company. The amount of the potentialliability could range from a refund of $144,000 to the payment of sales/use taxwith interest and penalties of up to $500,000. Accordingly, no provision hasbeen made for any possible losses in connection with this matter. A hearingwith the State of Nevada Department of Taxation originally scheduled for thefourth quarter 2006 has been postponed due to a change in the Department’sleadership. The Company intends to vigorously defend its position in thismatter.

 

**8.****                                     ****Income taxes**

 

At March 31, 2007, theCompany had net operating loss carryforwards for U.S. federal income taxpurposes of approximately $(89,558,043) that may be available to offset againstfuture taxable income. These operating loss carryforwards expire in the years2010 through 2025. With respect to the U.S, no tax benefit has been reported inthe financial statements for the current period or prior periods, and since thepotential tax benefits of the net operating loss carryforwards are effectivelyoffset by a 100% valuation allowance, as a result of significant uncertaintiesas to ability to realize them in the future because, as a result of the Company’soperating history, management is unable to conclude at this time thatrealization of such benefits is more likely than not. In addition, the Companymay be limited in its ability to fully utilize these net operating losscarryforwards and realize any benefit therefrom in the event of certainownership changes described in U.S. Internal Revenue Code Section 382.

 

The Company’s managementalso evaluated its positions taken in previously filed tax returns for all openyears income tax provision in accordance with Financial Accounting StandardsBoard Interpretation 48 (FIN 48), *Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement No. 109.* Basedon its evaluation, management believes that adopting FIN 48 did not have amaterial effect on the Company’s net operating loss carryforwards or therelated deferred tax assets or the valuation allowance

 

**9.****                                     ****Subsequent event**

 

On May 3, 2007, the Companyentered into an agreement with four investors for the Company’s sale of 600,000shares of its common stock for the aggregate price of $1,650,000 ($2.75 pershare). The transaction is expected to close before the end of May 2007,subject to the satisfaction of certain closing conditions, including theAmerican Stock Exchange’s approval of an additional listing application for thecommon shares to be sold to the investors.

 

**10.****                              ****Restatements**

 

The Company is restating itspreviously issued consolidated financial statements as of March 31, 2007, andfor the quarter then ended, to correct errors which resulted from its failureto record expenses of certain warrants issued in connection with debtfinancings completed during the years ended December 31, 2003 and 2006, and theresulting effect on the quarter ended March 31, 2007. In addition, the Companycorrected and reversed a contigent liability of $1.4 million as it did not meetthe criteria under SFAS 141 *Business Combinations*.The Company previously restated its fiscal year 2006 consolidated financialstatements pursuant to Amendment No. 1 to annual report on Form 10-KSB/A for the year ended December31, 2006 filed with the SEC on November 13, 2007 (“2006 AmendedForm 10-KSB”).

 

During 2006, the Company issued2,600,000 warrants with an estimated fair value of $3,380,000 in conjunctionwith a $13 million financing. In connection with the preparation of the Company’sfinancial statements as of and for the year ended December 31, 2006 made partof the Company’s annual report on Form 10-KSB for year ended December 31,2006 filed with the SEC on April 13, 2007, the Company failed to record theestimated fair value of these warrants as a “debt discount” and thereforefailed to appropriately amortize the cost of these warrants subsequently overthe life of the debt. In connection with the preparation of the Company’sfinancial statements made part of the Company’s quarterly report on Form 10-QSBas of and for the three months ended March 31, 2007 filed with the

 

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SEC on May 15, 2007, the Companymade certain reclassifications to its December 31, 2006 balance sheet to recordthe warrants and a catch-up amortization entry was recorded as of March 31,2007 to bring the total net deferred debt issuance cost current. In addition,in October 2003, the Company issued 900,000 warrants with an estimated fairvalue of $700,000 in conjunction with a $7,500,00 financing. At that time, theCompany failed to record the estimated fair value of those warrants andamortize their cost over the life of the debt.

 

In its restated financialstatements included in the 2006 Amended Form 10-KSB, the Company corrected theabove-described errors. Also, in connection with the restatements included inthe 2006 Amended Form 10-KSB, the Company determined that a $4,300,000portion of goodwill associated with an acquisition conducted in 2006 should havebeen allocated to certain identifiable intangibles. The 2006 AmendedForm 10-KSB reclassified the $4,300,000 of goodwill as an intangible asset.Also, the Company recorded a tax liability in the amount of $1.8 million forthe differences between the assigned values and the tax basis of recognizedassets in a business combination and corrected the contingent liability by$301,000.

 

In addition, the Companyreversed a contingent liability in the amount of $1.4 million as it did notmeet the criteria under SFAS 141 *Business Combinations*.The entry was originally recorded against additional paid in capital.

 

The financial statements andother financial information in this Amendment No. 1 have been restated to give effectin the first quarter of 2007 to the restatement of the fiscal year 2006financial statements included in the 2006 Amended Form 10-KSB, describedabove. As summary of the effects of theserestatements are shown in the following table:

 
| **For the three month period  ended March 31,** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Net loss, as originally reported                |       | $        | (4,135,547 | )        | $          | (2,754,897 | ) |
| Amortization of debt discount                   |       | (264,621 | )          | —   |       |
| Reversal of catch-up amortization               |       | 515,999  |       | —   |       |
| Reversal of previously expensed warrants        |       | 570,900  |       | —   |       |
| Amortization of intangibles                     |       | (82,692  | )          | —   |       |
| Net loss, as restated                           |       | $        | (3,395,961 | )        | $          | (2,754,897 | ) |

 

## **ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS ORPLAN OF OPERATIONS.**

## ** **

**CAUTIONARY STATEMENT**

 

Youshould read the following discussion and analysis in conjunction with ourunaudited condensed consolidated financial statements and the related notesthereto contained elsewhere in this report. The information contained in thisquarterly report on Form 10-QSB is not a complete description of ourbusiness or the risks associated with an investment in our common stock. Weurge you to carefully review and consider the various disclosures made by us inthis report and in our other reports filed with the Securities and ExchangeCommission, or SEC, including our annual report on Form 10-KSB for theyear ended December 31, 2006 and subsequent reports on Form 8-K, whichdiscuss our business in greater detail.

 

Inthis report we make, and from time to time we otherwise make, written and oralstatements regarding our business and prospects, such as projections of futureperformance, statements of management’s plans and objectives, forecasts ofmarket trends, and other matters that are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Statements containing the words or phrases “willlikely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,”“projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,”“objective,” “should” or similar expressions identify forward-lookingstatements, which may appear in documents, reports, filings with the Securitiesand Exchange Commission, news releases, written or oral presentations made byofficers or other representatives made by us to analysts, stockholders,investors, news organizations and others, and discussions with management andother of our representatives. For such statements, we claim the protection ofthe safe harbor for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995.

 

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Ourfuture results, including results related to forward-looking statements,involve a number of risks and uncertainties. No assurance can be given that theresults reflected in any forward-looking statements will be achieved. Anyforward-looking statement speaks only as of the date on which such statement ismade. Our forward-looking statements are based upon assumptions that aresometimes based upon estimates, data, communications and other information fromsuppliers, government agencies and other sources that may be subject torevision. Except as required by law, we do not undertake any obligation toupdate or keep current either (i) any forward-looking statement to reflectevents or circumstances arising after the date of such statement, or (ii) theimportant factors that could cause our future results to differ materially fromhistorical results or trends, results anticipated or planned by us, or whichare reflected from time to time in any forward-looking statement.

 

In addition to other mattersidentified or described by us from time to time in filings with the SEC, thereare several important factors that could cause our future results to differmaterially from historical results or trends, results anticipated or planned byus, or results that are reflected from time to time in any forward-lookingstatement. Some of these important factors, but not necessarily all importantfactors, include those matters included in the section “Risk Factors” furtherbelow. Please also refer to the section “Risk Factors” in our annual report onForm 10-KSB for the year ended December 31, 2006.

 

The Company owns or hasrights to certain trademarks that it uses in connection with the sale of itsproducts, including, but not limited to, the following: *VendingData*TM,*Deck Checker*TM, *RandomEjection*TM, *Random Plus*TM, *PokerOne*TM, *ChipWasher*TM, *ShufflePro*TM, *DeckSetter*® and *Dolphin*TM. This report also makes reference to trademarks andtrade names of other companies.

 

### **OVERVIEW**

### ** **

Ourstrategy is to develop cost-effective niche products for the global gamingindustry. We focus on products that increase the security, productivity andprofitability of casino operations. Our strategy involves marketing certain ofour products for sale (or rent), depending on the product, the geographiclocation of the customer and other factors. We rely on our internal sales staffand distributor relationships for the sale and rental of our products.

 

InJuly, 2006, we acquired all of the capital shares of Dolphin. Dolphin isengaged in the business of producing high-precision plastic injection moldedcomponents and associated tooling, including casino chips and plaques, for thegaming, medical and automotive industries. As a result of the Dolphinacquisition, we have two segments for financial reporting purposes, our gamingoperations and our non-gaming operation, which consists of the Dolphinoperations in the medical and automotive sectors.

 

### **Results of Operations**

### ** **

##### ***Comparison of Three Months Ended March 31, 2007 and 2006***

##### *** ***

Forthe three months ended March 31, 2007, we increased revenue by $2.7 million or377% to $3.4 million compared to $0.7 million in the corresponding period inthe prior year. This increase was primarily driven by an increase in casinochip revenue and non-gaming product revenue due to the acquisition of Dolphinin July 2006 and was partially offset by a decrease in shuffler products andDeckChecker sales. Lower sales and rentals of shuffler and DeckChecker productsduring the period were attributable to (a) US sales transitioning to adistributor based model and (b) Asian sales being transitioned to our newdistributor, Elixir Group Limited (“Elixir”), a Hong Kong company wholly-ownedby Melco International Development Limited (Melco). We expect that these saleschannel changes will take time to develop traction in these markets. Grossmargin decreased to 14% for the three months ended March 31, 2007 compared tothe corresponding period in the prior year as a result of the increase in lowermargin casino chip and non-gaming product revenue. Specific product lineresults for the three months ended March 31, 2007 and 2006 are provided below.

 

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| ** **              | ** ** | **Three months  ended  March 31, 2007** | ** ** | **Three months  ended  March 31, 2006** | ** ** | **Percentage  change** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|------------------------|------------|
|                    |       |                                    |       |                                    |       |                   |       |
| **Shuffler Sales**      | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| Revenue                 |       | 65,651                                  |       | 259,609                                 |       | (75                    | )%         |
| Gross Margin %          |       | 73                                      | %          | 33                                      | %          | 41                     | %          |
|                    |       |                                    |       |                                    |       |                   |       |
| **Shuffler Rentals**    | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| Revenue                 |       | 43,788                                  |       | 72,134                                  |       | (39                    | )%         |
| Gross Margin %          |       | 88                                      | %          | 86                                      | %          | 2                      | %          |
|                    |       |                                    |       |                                    |       |                   |       |
| **DeckChecker Sales**   | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| Revenue                 |       | 115,911                                 |       | 606,003                                 |       | (81                    | )%         |
| Gross Margin %          |       | 75                                      | %          | 78                                      | %          | (3                     | )%         |
|                    |       |                                    |       |                                    |       |                   |       |
| **DeckChecker Rentals** | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| Revenue                 |       | 20,775                                  |       | 38,930                                  |       | (47                    | )%         |
| Gross Margin %          |       | 96                                      | %          | 88                                      | %          | 8                      | %          |
| **Casino Chips**        |       |                                    |       |                                    |       |                   |       |
| Revenue                 |       | 1,579,577                               |       | —                                  |       | —                 |       |
| Gross Margin %          |       | 27                                      | %          |                                    |       |                   |       |
| **Non-gaming products** |       |                                    |       |                                    |       |                   |       |
| Revenue                 |       | 1,430,877                               |       | —                                  |       | —                 |       |
| Gross Margin %          |       | (11                                     | )%         |                                    |       |                   |       |
| ** **              | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| **Other**               | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **             | ** ** |
| Revenue                 |       | 144,194                                 |       | (264,176                                | )          | 154                    | %          |
| Gross Margin            |       | (144,638                                | )          | (656,926                                | )          | 76                     | %          |

 

**Shuffler Sales.**Revenuedecreased $194,000, as a result of a decrease in unit sales from thecorresponding period of the prior year. The decrease in unit sales was a resultof the sales channel transition factors discussed above as well as ourtransition to a new shuffler product due out to the market in the secondquarter of 2007. Gross margin improved to 73% for the three month period as aresult of a decrease in costs associated with upgrading products as compared tothe corresponding period in the prior year.

 

**Shuffler Rentals.**Rental revenuedecreased $28,000 as a result of the decrease in the number of units installedfor the same reasons as the decrease in DeckChecker sales.

 

**DeckChecker Sales.**The decrease inDeckChecker sales was primarily a result of transition issues related to movingAsian distribution to Elixir Gaming from our prior distributorship, during thethree months ended March 31, 2007. Additionally, the sales price to our newdistributor decreased which resulted in a decrease in our gross margin of 3%.We believe that the volume of future sales will offset any future decreases inmargin. Domestically, our decision to transform our domestic sales to adistributor based model caused us to re-evaluate sales territories inanticipation of our hand-off of domestic sales to a new distributor.

 

**Deck Checker Rentals.**The decrease inDeck Checker rental revenue was the result of a decrease in units deployed forthe same reasons as the decrease in DeckChecker sales. Our cost of salesincluded Deck Checker rental depreciation of $849 during the first quarter of2006 a reduction from $4,764 for the same period of the prior year.

 

**Casino Chips.**The increase inrevenue is a result of this product line being introduced during the secondquarter of 2006 and revenue recognition from the sale of RFID chips to a casinoin Macau. Our gross

 

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margin of 27% is expected toimprove during the current fiscal year as sales and average sales pricesincrease.

 

**Non-Gaming Products.**With theacquisition of Dolphin in July 2006 there is additional revenue of $1,430,000not related to the gaming business. This segment was not part of the Companyduring the same period in 2006. Over 80% of this revenue relates to theautomotive line of business. Our negative gross margin on these sales isexpected to improve as we improve our production efficiencies.

 

**Other Income.**The increase inother revenues was due to a decrease in sales returns and allowances whichtotaled $22,500 for the quarter ended March 31, 2007, compared to $288,404during the corresponding period of the prior year as a result of returns ofearlier versions of our shuffler products.

 

###### **General and AdministrativeExpense**

###### ** **

Forthe three months ended March 31, 2007, our general and administrative expensesincreased 53% over the corresponding period of the prior year. This increase isprimarily related to the following:

 

•                  An increase in share based compensation of$449,000 primarily due to the increase in stock options granted in the currentperiod compared to the corresponding period of the prior year. We grantedapproximately 520,000 options in the three month period ended March 31, 2007compared to 55,000 options in the corresponding period in the prior year.

 

•                  An increase in consulting and otherprofessional fees of $453,000 as a result of the beginning of ourimplementation of new accounting software and an increase in accounting fees aswe prepare to comply with Section 404A of Sarbanes-Oxley. We expect these coststo increase over the current fiscal year.

 

•                  An increase in wages and salaries of $446,000as a result of the increase in headcount associated with the acquisition ofDolphin during the third quarter of 2006.

 

**Research and Development Expense**

 

For the three months endedMarch 31, 2007, research and development expenses were $263,000, or 18% morethan the period ended March 31, 2006. The increase in research and developmentexpenses was due to expenses related to the development of our ShufflePro andChipWasher products.

 

###### **Interest Expense**

###### ** **

For the three months endedMarch 31, 2007, we incurred interest expenses of $628,000, a $277,000, anincrease or 79% from the corresponding period of the prior year. The increase isprimarily attributable to an increase in financing fees of approximately $431,000related to the amortization of debt issuance costs of debt acquired in theprior year. This cost relates to the expensing of warrants issued in connectionwith the debt financing and is a non-cash expense. Please see note 1 in the Notesto the Consolidated Financial Statements. The remaining increase in interestexpense was primarily attributable to the debt service related to our 8% seniorsecured note arrangement, Dolphin’s short term overdraft facilities and, for the first three months of2006, the 9% senior secured notes, the 10% senior secured covertible notes andthe $5 million 9% line of credit. In April 2007, we repaid principal in theamount of $2.15 million of outstanding debt with the proceeds from the stocksale described in Note 5, which will reduce our interest expense going forward.

 

Dolphin was acquired through a combination of cash and stock and didnot utilize a debt component.

 

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### **LIQUIDITY AND CAPITAL RESOURCES**

### ** **

Ourworking capital has increased to $1,141,581 at March 31, 2007 compared to $(4,703,802)at December 31, 2006. The working capital improvement is attributable to thefollowing:

 

•                  In January 2007, we completed sale ofintellectual property related to the discontinued SecureDrop product line. Theproceeds of the transaction totaled $500,000.

 

•                  In January 2007, Elixir purchased, for theaggregate price of $2.65 million, 1,000,000 shares of our commonstock and warrants to purchase 16,000,000 shares of our common stock atexercise prices ranging from $2.65 to $5.50 per share for a period of36 months beginning on December 31, 2007.

 

•                  On March 28, 2007, we completed a sale of1,625,000 shares of common stock at $2.65 per share for total proceeds of$4,306,250.

 

Inaddition, on May 3, 2007, we entered into an agreement with four investors forour sale of 600,000 shares of our common stock for the aggregate price of$1,650,000 ($2.75 per share). The transaction is expected to close in mid-May2007 subject to the satisfaction of certain closing conditions, including theAmerican Stock Exchange’s approval of an additional listing application for thecommon shares to be sold to the investors.

 

We have historically incurred losses fromoperations. During the fiscal year ended December 31, 2006 and the three monthsended March 31, 2007, we incurred negative cash flow from operations of($7,709,812) and ($2,334,449), respectively. We expect to continue toexperience negative cash flow from operations until such time as we are able tosubstantially increase revenues and control expenses at levels that will allowus to operate on a cash flow positive basis. Our Company’s ability to maintainadequate liquidity in the medium-to-long term will be impacted by anycontinuing losses from operations and management’s plans to address andovercome prior operating losses. Management has developed and refined its 2007operating plan to increase its sales through the rollout of new shufflerproducts, sale of its high frequency RFID casino chip product to new casinoopenings in Macau, and improving its sales efforts domestically andinternationally through newly announced distributorship arrangement with Elixirin Asia and TCSJohnHuxley in Europe. Management continues in its efforts toreduce operating costs through the transfer of manufacturing operations toChina. Management has focused on financial condition and liquidity improvementsthrough its capital raising efforts in 2006 and earlier, resulting in improvedcash and working capital position. While management continues in its endeavorsto attain a profitable level of operations, there can be no assurance that wewill be able to substantially increase revenues and control expenses at levelsthat will allow us to operate on a cash flow positive basis.

 

Pursuantto a price resale guarantee associated with the acquisition, the Companyremains obligated for up to $1,404,241 until July 12, 2008, if the holdersells such shares at market for lesser of the guaranteed price of $3.50 pershare or 90% of the average closing price for a period of ten consecutivetrading days immediately prior to such sale, which obligation has been recordedas part of the purchase price.

 

We believe that our existing cash and cashequivalents together with expected cash generated by operations and the tworecent equity financing described above, will be sufficient to meet our workingcapital needs, capital expenditures, and commitments through the end of fiscal2007. In the event it is not sufficient, we will endeavor to raise additionalrequired funds through various financing sources, including the sale of ourequity and debt securities and the procurement of commercial debt financing.However, as result of our present level of debt and certain restrictions on ourability to incur additional indebtedness under our existing credit agreement,it is unlikely we will be able to obtain additional debt-based capital, unlessa significant portion of the proceeds are used to retire existing debt. Therecan be no guarantees that such funds will be available on commerciallyreasonable terms, if at all. If such financing is not available on satisfactoryterms, we may be unable to expand or continue our business as desired andoperating results may be adversely affected.

 

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### **CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

### ** **

Followingis a summary of what our management believes are the critical accountingpolicies related to our operations. The application of these policies, in somecases, requires management to make subjective judgments and estimates regardingthe effect of matters that are inherently uncertain. See Note 1, “Descriptionof Business and Significant Accounting Policies,” to financial statementsincluded in this annual report for a more detailed discussion of our accountingpolicies. Except as described below, we do not employ any critical accountingpolicies selected from among available alternatives or that require theexercise of significant management judgment to apply, and we believe none ofour estimates are so highly uncertain or susceptible to change as to present asignificant risk of a material impact on our financial condition or operatingperformance.

 

***Allowance for Doubtful Accounts.***

 

Inconnection with the preparation of our financial statements, management reviewsand evaluates the collectability of our trade receivables and adjusts ourallowance for estimated uncollectible accounts as deemed necessary in thecircumstances. These estimates have the potential for critically affecting thedetermination of results of operations for any given period. Factors consideredby management in making such estimates and adjustments include anyconcentrations among customers, changes in our relationships therewith, paymenthistory and the apparent financial condition of our customers.

 

***Revenue Recognition.***

 

We recognize revenue fromthe sale of our shuffler and Deck Checker products upon shipment againstcustomer contracts or purchase orders. Sales are recognized immediately when shufflersthat are rented are converted to purchases depending on the creditworthinessand payment history of the casino company since payment terms are from 20 to 48months.

 

We recognize revenue fromthe sale of our casino chip and RFID casino chip products upon shipment againstcustomer contracts or purchase orders.

 

We recognize revenue fromour sales to independent distributors upon shipment against distributorcontracts or purchase orders of our product.

 

Revenue from shufflerrentals is recorded at the first of each month in accordance with rentalcontract terms. All rental contracts are cancelable upon 30-day written noticeby the customer. Maintenance expense for rental units is recorded in the periodit is incurred.

 

The extended warranty andmaintenance components that are part of long term sales contracts are unbundledand recognized as deferred revenue amortized over the remaining life of thesales agreement after the initial 90-day warranty as required by the EmergingIssues Task Force Issue No. 00–21, *Revenue Arrangements withMultiple Deliverables*.

 

We provide currently forestimated warranty repair costs associated with sales contracts. Although thereare no extended warranties offered for our products, and our recorded warrantyliability is, therefore, not material, we do provide for maintenance contractsthat are billed and recognized on a monthly basis.

 

If the customer does notpossess the required creditworthiness or an established payment history withus, we would then book the revenue as an installment sale and recognize it overtime as payments are received.

 

Although sales are notgenerally made with a right to return, upon occasion, usually associated withthe performance warranty, sales returns and allowances are recorded afterreturned goods are received and inspected.

 

Wealso recognize revenue on bill and hold transactions when the product iscompleted and is ready to be shipped and the risk of loss is transferred to thecustomer. In a certain case, at the customers’ request, we store the productfor a brief period of time. Management evaluates the criteria set forth in SAB104

 

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relatedto “bill-and-hold” transactions, precedent to revenue recognition wheneverdelivery has not occurred.

 

***Intangible Assets.***

 

We currently amortize ourintangible assets (patent and technology rights) on a straight-line basis overcurrently estimated useful lives of 10 years. Management believes that theuseful life of patents and technology rights equals the full term of thepatent.

 

***Legal defense costs***

 

Wedo not accrue for future litigation defense costs, if any, to be incurred by usin connection with outstanding litigation and other disputed matters but,instead, record such costs as the related legal and other services arerendered.

 

***Recent AccountingPronouncements***

 

In September2006,FinancialAccounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)No. 157, *FairValue Measurements*, which defines fair value, establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS No. 157 will become effective for financialstatements issued for fiscal years beginning after November 15, 2007. InFebruary 2007, the FASB issued SFAS No. 159, *The**FairValue Option for Financial Assets and Financial Liabilities — Including an**amendment of FASB Statement No. 115*,which will permit the option of choosing to measure certain eligible items atfair value at specified election dates and report unrealized gains and lossesin earnings. SFAS No. 159 will become effective for us for financialstatements issued for periods beginning in 2008. We are currently evaluatingthe effect that SFAS Nos. 157 and 159, if any, will have on our financialposition, results of operations and operating cash flows.

 

**Off-Balance Sheet Arrangements**

 

Wehave no off-balance sheet arrangements.

 

### **RISK FACTORS**

### ** **

***We may require additional funding in thefuture to continue to operate our business.***Our working capital has increased to $2,010,823at March 31, 2007 compared to $(4,703,802) at December 31, 2006. In addition,we have entered into an agreement in May 2007 to sell 600,000 common shares tofour investors for the aggregate purchase price of $1.65 million.

 

Webelieve that the proposed financing, in addition to our existing cash and cashequivalents together with expected cash generated by operations, will meet ourworking capital needs, capital expenditures, and commitments through the end offiscal 2007. In the event it is not sufficient, we will endeavor to raiseadditional required funds through various financing sources, including the saleof our equity and debt securities and the procurement of commercial debtfinancing. However, as result of ourpresent level of debt and certain restrictions on our ability to incuradditional indebtedness under our exiting credit agreements, it is unlikely wewill be able to obtain additional debt-based capital, unless a significantportion of the proceeds are used to retire existing debt. There can beno guarantees that such funds will be available on commercially reasonableterms, if at all. If such financing is not available on satisfactory terms, wemay be unable to expand or continue our business as desired and operatingresults may be adversely affected. Any debt financing will increase expensesand must be repaid regardless of operating results and may involve restrictionslimiting our operating flexibility. If we issue equity securities to raiseadditional funds, the following results may occur:

 

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•                  the percentage ownership of our existingstockholders will be reduced;

 

•                  our stockholders may experience additionaldilution in net book value per share; or

 

•                  the new equity securities may have rights,preferences or privileges senior to those of the holders of our common stock.

 

***We have a history ofsignificant operating losses and anticipate continued operating losses for atleast the near term.***For the three months ended March 31, 2007 andthe years ended December 31, 2006 and 2005, we have incurred net losses of$3,395,961, $14,605,762 and $23,401,529, respectively, and our operations haveused $2,334,449, $7,709,812 and $10,085,798 of cash, respectively. As of March31, 2007, December 31, 2006 and December 31, 2005, we had accumulateddeficits of $96,353,791, $92,957,833 and $78,352,071, respectively. Based on ourpresently known commitments and plans, we believe that we have sufficientfunding through the end of 2007. If we are unable togenerate additional funds fromoperational cash flow, we will be required to locate additional sourcesof capital from private or publicplacements of debt or equity, or from institutional or other lending sources.If our revenues do not increase very substantially, or if our spending levelsexceed our expectations, we will not become profitable. Revenues may not growin the future, and we may not generate sufficient revenues for profitability.If we become profitable, we may not be able to sustain profitable operations.

 

***Our leased shufflers aremore susceptible to replacement by customers.***All of ourleased shufflers are placed with customers under short-term lease arrangements,which, unlike long-term leases or permanent sales of our products, can easilybe terminated by a customer. The manner in which such short-term leases arestructured puts our shufflers at greater risk of replacement due to pressurefrom competitors, changes in economic conditions, obsolescence and decliningpopularity. Casino operators may terminate the use of our products, and we maynot be able to maintain and expand the number of installed shufflers throughenhancement of existing shufflers, introduction of new shufflers, customerservice or otherwise.

 

***We may be unable to adequately protect our intellectual property right***. Our success depends upon maintaining theconfidentiality and proprietary nature of our intellectual property rights. Our ability tocompete may be damaged, and our revenues may be reduced if we are unable toprotect our intellectual property rights adequately. To protect theserights, we rely principally on a combination of:

 

•                  contractualarrangements providing for non-disclosure and prohibitions on use;

 

•                  patents andpending patent applications;

 

•                  trade secret,copyright and trademark laws; and

 

•                  certainbuilt-in technical product features.

 

Patent, trade secret,copyright and trademark laws provide limited protection. The protectionsprovided by laws governing intellectual property rights do not prevent ourcompetitors from developing, independently, products similar or superior to ourproducts and technologies. In addition, effective protection of copyrights,trade secrets, trademarks, and other proprietary rights may be unavailable orlimited in certain foreign countries. We may be unaware of certain non-publiclyavailable patent applications, which, if issued as patents, could relate to ourservices and products as currently designed or as we may modify them in thefuture. Legal or regulatory proceedings to enforce our patents, trademarks orcopyrights could be costly, time consuming, and could divert the attention ofmanagement and technical personnel.

 

***It is possible that our future products will be the subject of futurepatent litigation if the products are sold and installed in the United Statesand, if commenced, could subject us to continuing litigation costs and risks.***To the extent that we introduce new productsthat incorporate the same or similar

 

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technology, it is likelythat a competitor will bring one or more claims against us seeking damages,injunctive or other equitable relief, or both. We cannot predict the outcome ofany present or future litigation that may occur.

 

If our future productsincorporate technology that infringes the proprietary rights of third partiesand we do not secure licenses from them, we could be liable for substantialdamages that would cause a material reduction in revenues and impair ourprospects for achieving growth and profitability.

 

In furtherance of thedevelopment of our services or products, we may need to acquire licenses forintellectual property to avoid infringement of third party rights or claims ofinfringement. These licenses may not be available on commercially reasonableterms, if at all. Claims for infringement, if made, could damage our businessprospects, our results of operations and financial condition, whether or notthe claims have merit, by:

 

•                  consumingsubstantial time and financial resources required to defend against them;

 

•                  diverting theattention of management from growing our business and managing operations;

 

•                  resulting incostly litigation; and

 

•                  disruptingproduct sales and shipments.

 

If any third party prevailsin an action against us for infringement of its proprietary rights, we could berequired to pay damages and either enter into costly licensing arrangements orredesign our products so as to exclude the infringing technology. As a result,we would incur substantial costs and delays in product development, sales andshipments, our revenues may decline substantially and we may not be able toachieve the growth required for us to achieve profitability

 

***We rely on distributors ininternational markets, and our limited sales experience in foreign countriescould cause us to lose sales.***Substantially all sales of our productsoutside the U.S. are achieved through distributor relationships, and by the second half of2007, our U.S. sales will also be achieved through a distributor relationship. We believe the distributors that wehave engaged are experienced and reputable; however, if we are unable to managethese relationships, our ability to generate revenue and profits in thenon-U.S. market may be adversely affected. To the extent that we engage indirect sales outside the U.S., we have limited sales experience and history inforeign markets.

*** ***

***Our management holds acontrolling interest in our common stock, giving our management significantpower to control matters submitted to our stockholders.***As of May 3,2007, our executive officers and members of our board beneficially ownapproximately 10,851,865 shares of common stock, or approximately 32% of theoutstanding shares of our common stock. Accordingly, these stockholders havethe power to significantly influence all matters requiring approval by ourstockholders, including the election of directors and approval of mergers andother significant corporate transactions. This concentration of ownership maymake it more difficult for non management stockholders to effect substantialchanges in our company, and also has the effect of delaying, preventing orexpediting, as the case may be, a change in control of our company.

 

***Our board of directors mayissue blank check preferred stock, which may affect the voting rights of ourholders and could deter or delay an attempt to obtain control of us.***Our board ofdirectors is authorized, without stockholder approval, to issue preferred stockin series and to fix and state the voting rights and powers, designation,preferences and relative, participating, optional or other special rights ofthe shares of each such series and the qualifications, limitations andrestrictions thereof. Preferred stock may rank prior to our common stock withrespect to dividends rights, liquidation preferences, or both, and may havefull or limited voting rights. Accordingly, issuance of shares of preferredstock could adversely affect the voting power of holders of our common stockand could have the effect of deterring or delaying an attempt to obtain controlof us.

 

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## **ITEM 3.**                             CONTROLSAND PROCEDURES

## ** **

(a)                                  *Evaluation of DisclosureControls.*In connection withthe preparation of this Amendment No. 1, our management, with the participationof our chief executive officer and chief financial officer, conducted, as ofOctober 2007, an evaluation of the effectiveness of our disclosure controls andprocedures as of March 31, 2007. Disclosure controls and procedures are controlsand other procedures that are designed to ensure that information required tobe disclosed by us in the reports that we file or submit under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by us in the reports that we file underthe Exchange Act is accumulated and communicated to our management, asappropriate to allow timely decisions regarding required disclosure. Based ontheir current evaluation, our chief executive officer and chief financialofficer have concluded that our disclosure controls and procedures were not effectiveas of March 31, 2007, for the reasons described below.

 

Inconnection with the completion of its audit of, and the issuance of its reporton, our fiscal year 2006 consolidated financial statements included in ouroriginal annual report on Form 10-KSB for the year ended December 31, 2006filed with the SEC on April 13, 2007 (“Original 2006 Form 10-KSB”), ourindependent registered public accounting firm, Piercy Bowler Taylor &Kern, identified a significant deficiency and two material weaknesses in ourinternal controls. The significant deficiency concerned authorization ofpayment of vendor invoices. The material weaknesses included: (i) our inabilityto properly control financial records and analyses, which was evident inconnection with our acquisition of Dolphin, to assure the proper allocation ofpurchase price to the net assets acquired, and (ii) the collective experienceof our personnel responsible for financial reporting.

 

Priorto the April 2007 filing of our Original 2006 Form 10-KSB, management initiatedpreliminary remediation steps to address the material weaknesses and thesignificant deficiency identified. These remediation steps included planningfor and documenting the implementation of formal disclosure checklist processesand procedures to ensure that there is proper authorization of payment onvendor invoices. We also initiated a search for an addition to our accountingteam with strong public accounting financial reporting experience. During thesecond quarter of fiscal 2007, we strengthened our financial organization byhiring an additional member to our management team, with extensive experiencein SEC reporting and GAAP, who will be responsible for providing added trainingand financial discipline to the financial reporting process.

 

InAugust 2007, we became aware of certain errors in reporting of our financialstatements for the quarter ended March 31, 2007. For further discussionregarding the errors, see Note 10 to the condensed consolidated financialstatements included in this Amendment No. 1. Prior to their discovery, we hadalready taken steps to remediate the deficiencies that underlay these reportingerrors, including the hiring of the above-described member to our managementteam, with extensive experience in SEC reporting and GAAP. We also added to ouraccounting staff, a certified public accountant formerly with a “Big Four”auditing firm and with significant experience in SEC reporting and GAAP. We arecontinuing to assess and strengthen our financial organization by seekingadditional qualified staff. Additionally, we are training other appropriatepersonnel in the required approach and documentation standard for each keyaccount analysis.

 

InOctober 2007, and in connection with the restatement of our financial statementsfor the quarter ended March 31, 2007, a re-evaluation was performed under thesupervision and with the participation of our management, including our chiefexecutive officer and chief financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures as of March 31,2007. Based on that re-evaluation, our management, including our chiefexecutive officer and chief financial officer, has concluded that ourdisclosure controls and procedures were not effective as of March 31, 2007 as aresult

 

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ofthe improper accounting for warrants and financing fees and the improperamortization of certain costs, as described above.

 

*(b)**                               Changesin Internal Control*. During the quarterended March 31 2007, we implemented the changes to our internal controlsdescribed above. No other change in our internal control over financialreporting occurred during the quarter ended March 31 2007, that has materiallyaffected, or is reasonably likely to affect, our internal control overfinancial reporting.

 

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# **PART II – OTHER INFORMATION**

# ** **

## **ITEM 6. EXHIBITS.**

## ** **

(a)                                  Exhibits.

 
| 10.1   | Securities Purchase Agreement (1)                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                               |
| 10.2   | Registration Rights Agreement (1)                                                                                                                                  |
|   |                                                                                                                                                               |
| 31.1   | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                         |
|   |                                                                                                                                                               |
| 31.2   | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                         |
|   |                                                                                                                                                               |
| 32.1   | Certification of Principal Executive Officer and Principal Financial  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  Section 1350). |

 

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(1)  Filed as an exhibit to the Company’squarterly report on Form 10-QSB for the three months ended March 31, 2007 filedwith the SEC on May 15, 2007.

 

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**SIGNATURE**

** **

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| ** ** | ** **        | **ELIXIR GAMING  TECHNOLOGIES, INC. (FORMERLY KNOWN  AS VENDINGDATA CORPORATION)** | ** **                                                                                               |
|------------|-------------------|------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|       |              | (Registrant)                                                                       |                                                                                                     |
|       |              |                                                                               |                                                                                                     |   |
| Date:      | November 12, 2007 | By:                                                                                |   /s/ Gordon  Yuen                                                                             |   |   |
|       |              |                                                                               |   Gordon Yuen                                                                                  |   |
|       |              | Its:                                                                               |   President,  Chief Executive Officer and    Treasurer (Principal Executive Officer) |   |
|       |              |                                                                               |                                                                                                     |   |
|       |              |                                                                               |                                                                                                     |   |
| Date:      | November 12, 2007 | By:                                                                                |   /s/ David R.  Reberger                                                                       |   |   |
|       |              |                                                                               |   David R.  Reberger                                                                           |   |
|       |              | Its:                                                                               |   Chief  Financial Officer and Secretary    (Principal Financial Officer)            |   |

 

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