**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      20-F**





**(Mark
      One)**





[
                ]
            **REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934**





OR




[X]
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the fiscal year ended December 31,
                2006._________________________________**





OR





[
                ]
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





OR





[
                ]
            **SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934**for the
              transition period from __________ to ___________Commission
              file number____________________________





**DYNASTY
      GAMING, INC.**


(Exact
      name of the Registrant as specified in its charter)





**Quebec,
      Canada**


(Jurisdiction
      of incorporation or organization)





**759
      Square Victoria, Suite 300**


**Montreal,
      Quebec**


**Canada
      H2Y 2J7**


(Jurisdiction
      of incorporation or organization)










Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act:




Title
      of Each Class




None




Name
      of each exchange on which registered




Not
      applicable




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





COMMON
      SHARES WITH NO PAR VALUE


(Title
      of
      Class)





Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:
      None





On
      December 31, 2006, the registrant had 91,526,893 shares of common stock
      outstanding. As of May 31, 2007, the number of outstanding common shares was
      92,347,574.





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.




oYes
            xNo







If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of the Securities Exchange Act of 1934.




oYes
            xNo




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




xYes
            oNo




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer.




oLarge Accelerated filer
            oAccelerated filer
            xNon-accelerated filer





Indicate
      by check mark which financial statement item the registrant has elected to
      follow.




xItem 17
            oItem 18




If
      this is an annual report, indicate by check mark whether the registrant is
      a
      shell company (as defined in Rule 12b-2 of the Exchange Act).




oYes
            xNo




(APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
      YEARS)




Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities
      Exchange Act of 1934 subsequent to the distribution of the securities under
      a
      plan confirmed by a court.




oYes
            oNo















**EXPLANATORY
      NOTE**





The
      Company’s consolidated financial statements are stated in Canadian Dollars
      (CDN$) and are prepared in accordance with Canadian Generally Accepted
      Accounting Principles (GAAP), the application of which, in the case of the
      Company, conforms in all material respects for the periods presented with United
      States GAAP, except as discussed in footnotes to the financial statements.
      All
      dollar amounts referred to herein are in Canadian dollars, unless otherwise
      specified.





The
      financial statements as required under ITEM #17 are attached hereto and found
      immediately following the text of this Registration Statement. The audit reports
      of the Company are included herein immediately preceding the financial
      statements.






2




**TABLE
      OF CONTENTS**







**PART
                I**
            **Page**Item
                1.
            Identity
                Of Directors, Senior Management And Advisers
            5Item
                2.
            Offer
                Statistics and Expected Timetable
            5Item
                3.
            Key
                Information
            5*A.*
            *Selected
                financial data**B.*
            *Capitalization
                and indebtedness**C.*
            *Reasons
                for the offer and use of proceeds**D.*
            *Risk
                factors*Item
                4.
            Information
                On The Company
            14*A.*
            *History
                and Development of Dynasty Gaming, Inc.**B.*
            *Business
                overview**C.*
            *Organizational
                structure**D.*
            *Property,
                plants and equipment*Item
                4A.
            Unresolved
                Staff Comments
            22Item
                5.
            Operating
                and Financial Review and Prospectus
            22Item
                6.
            Directors,
                Senior Management And Employees
            28*A.*
            *Directors
                and senior management**B.*
            *Compensation**C.*
            *Board
                practices**D.*
            *Employees**E.*
            *Share
                ownership*Item
                7.
            Major
                Shareholders and Related Transactions
            34*A.*
            *Major
                shareholders**B.*
            *Related
                party transactions**C.*
            *Interests
                of experts and counsel*Item
                8.
            Financial
                Information
            36*A.*
            *Consolidated
                Statements and Other Financial Information**B.*
            *Significant
                Changes*Item
                9.
            The
                Offer and Listing
            36*A.*
            *Offer
                and listing details**B.*
            *Plan
                of distribution**C.*
            *Markets**D.*
            *Selling
                shareholders**E.*
            *Dilution**F.*
            *Expenses
                of the issue*Item
                10.
            Additional
                Information
            38*A.*
            *Share
                capital**B.*
            *Memorandum
                and articles of association**C.*
            *Material
                contracts**D.*
            *Exchange
                controls**E.*
            *Taxation**F.*
            *Dividends
                and paying agents**G.*
            *Statement
                by experts**H.*
            *Documents
                on display**I.*
            *Subsidiary
                Information*Item
                11.
            Quantitative
                and Qualitative Disclosure About Market Risk
            44Item
                12.
            Description
                of Securities Other Than Equity Securities
            44**PART
                II**Item
                13.
            Defaults,
                Dividend Arrearages And Delinquencies
            44Item
                14.
            Material
                Modifications To The Rights Of Security Holders And Use Of
                Proceeds
            44Item
                15.
            Controls
                and Procedures
            44Item
                16
            [Reserved]
            45Item
                16A
            —
                Audit Committee Financial Expert
            45Item
                16B
            —
                Code of Ethics
            45Item
                16C
            —
                Principal Accountant Fees and Services
            45Item
                16D
            —
                Exemption from the Listing Standards for Audit Committees
            46Item
                16E
            —
                 Purchases of Equity Securities by the Issuer and Affiliated
                Purchasers
            46**PART
                III**Item
                17
            Financial
                Statements
            46Item
                18.
            Financial
                Statements
            46Item
                19
            Exhibits
            46**Signatures**
            
            49




3





**CERTAIN
      INFORMATION**





As
      used
      in this Annual Report on Form 20-F (the “Annual Report”), “we,” “us,”
“our,” the “Company,” “DNY” and “Dynasty” refers to Dynasty Gaming Inc. and its
      subsidiaries, Mahjong Systems Ltd., Mahjong Systems (Cyprus) Limited, DNY (BVI)
      Limited and Mahjong Development Inc., except where it is clear that such terms
      mean only Dynasty Gaming Inc.





We
      maintain our books of account in Canadian dollars, and accordingly, have
      provided the financial data in this Annual Report in Canadian dollars in
      accordance with generally accepted accounting principles in Canada. Canadian
      GAAP standards conform in all material respects with generally accepted
      accounting principles in the United States, except as noted in our financial
      statements attached. See “Item 19.” All references to dollar amounts in this
      Annual Report, unless otherwise indicated, are in Canadian dollars. See “Item 3.
      Key Information—Selected Financial Data—Exchange Rate Information” for
      historical information regarding the noon buying rates in New York City for
      cable transfers in Canadian dollars as certified for customs purposes by the
      Federal Reserve Bank of New York with respect to the Canadian dollar. You should
      not construe these translations as representations that the Canadian dollar
      amounts actually represent such US dollar amounts or could have been or could
      be
      converted into US dollars at the rates indicated or at any other rates. Such
      rates are the number of United States dollars per one Canadian dollar and are
      the inverse of rates quoted by the Federal Reserve Bank of New York for Canadian
      dollars per US$1.00. The average exchange rate is based on the average of the
      daily exchange rates during such periods. On June 14, 2007, the exchange rate
      was approximately Cdn.$1.00 per US$0.9360 *As reported by Bank of
      Canada




**FORWARD-LOOKING
      STATEMENTS**





This
      Annual Report contains ‘‘forward-looking statements’’ that represent our
      beliefs, projections and predictions about future events. All statements other
      than statements of historical fact are ‘‘forward-looking statements’’, including
      any projections of earnings, revenue or other financial items, any statements
      of
      the plans, strategies and objectives of management for future operations, any
      statements concerning proposed new projects or other developments, any
      statements regarding future economic conditions or performance, any statements
      of management’s beliefs, goals, strategies, intentions and objectives, and any
      statements of assumptions underlying any of the foregoing. Words such as
‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘predicts’’,
‘‘potential’’, ‘‘continue’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘future’’,
‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’ and similar expressions, as
      well as statements in the future tense, identify forward-looking
      statements.




These
      statements are necessarily subjective and involve known and unknown risks,
      uncertainties and other important factors that could cause our actual results,
      performance or achievements, or industry results, to differ materially from
      any
      future results, performance or achievements described in or implied by such
      statements. Actual results may differ materially from expected results described
      in our forward-looking statements, including with respect to correct measurement
      and identification of factors affecting our business or the extent of their
      likely impact, the accuracy and completeness of the publicly available
      information with respect to the factors upon which our business strategy is
      based or the success of our business. Furthermore, industry forecasts are likely
      to be inaccurate, especially over long periods of time and in relatively new
      and
      rapidly developing industries such as ethanol.





Forward-looking
      statements should not be read as a guarantee of future performance or results,
      and will not necessarily be accurate indications of whether, or the times by
      which, our performance or results may be achieved. Forward-looking statements
      are based on information available at the time those statements are made and
      management’s belief as of that time with respect to future events, and are
      subject to risks and uncertainties that could cause actual performance or
      results to differ materially from those expressed in or suggested by the
      forward-looking statements. Important factors that could cause such differences
      include, but are not limited to, those factors discussed under the headings
      ‘‘Risk Factors’’, ‘‘Management’s discussion and analysis of financial condition
      and results of operations,’’ ‘‘Business’’ and elsewhere in this Annual
      Report.







4






**PART
      I**


**ITEM
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**





**A.**
            **Directors
                and Senior Management**




Not
      required.




**B.**
            **Advisors**




Not
      required.




**C.**
            **Auditors**




Not
      required.





**ITEM
      2. OFFER STATISTICS AND EXPECTED TIMETABLE**





Not
      required.





**ITEM
      3. KEY INFORMATION**





**A.**  **Selected
      financial data**





The
      following tables summarize selected financial data for the Company (stated
      in
      Canadian dollars) for the years ended December 31, 2006, December 31, 2005,
      December 31, 2004, December 31, 2003 and December 31, 2002, prepared in
      accordance with Canadian generally accepted accounting principles (“Canadian
      GAAP”).  The information in the table was extracted from the more detailed
      audited financial statements and related notes included herein and should be
      read in conjunction with these financial statements and with the information
      appearing under the heading “Item 5 - Operating And Financial Review And
      Prospects”.  Note 17 of the financial statements of the Company included
      herein sets forth the measurement differences were such information to be
      presented in conformity with United States generally accepted accounting
      principles (“U.S. GAAP”).





Our
      fiscal year ends on December 31. We designate our fiscal year by the year in
      which that fiscal year ends; e.g., fiscal year 2006 refers to our fiscal year
      ended December 31, 2006.




**I****NFORMATION
                IN ACCORDANCE WITH CANADIAN GAAP:**




**Year
                Ended December 31****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**(a)
                Total revenue
            
            $
            82,277
            
            $
            161,700
            
            $
            26,053
            
            $
            -
            
            $
            2,610(b)
                Loss from continuing operations
            
            $
            (6,885,683
            )
            $
            (1,378,923
            )
            $
            (474,698
            )
            $
            (387,072
            )
            $
            (194,547
            )Total
            
            $
            (6,733,958
            )
            $
            (1,371,174
            )
            $
            (434,438
            )
            $
            (340,874
            )
            $
            (194,547
            )Per Share1
            
            $
            (0.09
            )
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.01
            )
            
            ($0.01
            )(c)
                Earnings (loss) from discontinued operations
            
            $
            (186,626
            )
            $
            186,615
            
            $
            (2,874,136
            )
            $
            (463,890
            )
            $
            238,702Total
            
            $
            (161,911
            )
            $
            186,615
            
            $
            (1,770,466
            )
            $
            (362,594
            )
            $
            361,969Per Share1
            
            $
            0.00
            
            $
            0.00
            
            $
            (0.05
            
            $
            (0.01
            )
            $
            0.01(d)
                Total assets
            
            $
            10,404,422
            
            $
            11,286,534
            
            $
            3,023,375
            
            $
            9,535,808
            
            $
            11,581,996(e)
                Total long-term debt
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -(f)
                Capital stock
            
            $
            17,675,355
            
            $
            12,405,434
            
            $
            3,589,810
            
            $
            3,831,116
            
            $
            3,831,116(g)
                Total shareholders’ equity
            
            $
            9,618,359
            
            $
            8,774,587
            
            $
            721,987
            
            $
            3,112,702
            
            $
            3,887,565(h)
                Cash dividends declared per share
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a(i)
                Net earnings (loss) for the periodTotal
            
            $
            (6,895,869
            )
            
            (1,184,559
            )
            
            (2,204,904
            )
            $
            (703,468
            )
            $
            167,422Per Share1
            
            $
            (0.09
            )
            
            (0.03
            )
            
            (0.06
            )
            $
            (0.02
            )
            $
            0.00




(1)
                      The effect of potential share issuances pursuant
                to the exercise of options and warrants would be anti-dilutive and,
                therefore, basic and diluted losses are the
                same.




5




**INFORMATION
                IN ACCORDANCE WITH U.S. GAAP:**




**Year
                Ended December
                31****2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**(a)
                Total revenue
            
            $
            82,277
            
            $
            161,700
            
            $
            26,053
            
            $
            -
            
            $
            2,610(b)
                Earnings (loss) from continuing operations
            
            $
            (6,885,683
            )
            $
            (1,378,923
            )
            $
            (489,781
            )
            $
            (401,722
            )
            $
            (200,422
            )Total
            
            $
            (6,733,958
            )
            $
            (1,371,174
            )
            $
            (449,521
            )
            $
            (355,524
            )
            $
            (200,422
            )Per Share
            
            $
            (0.09
            )
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.01
            )(c)
                (Loss) earnings from discontinued operations
            
            $
            (186,626
            )
            $
            186,615
            
            $
            (2,874,136
            )
            $
            (463,890
            )
            $
            238,702Total
            
            $
            (161,911
            )
            $
            186,615
            
            $
            (1,770,466
            )
            $
            (362,594
            )
            $
            361,969Per Share
            
            $
            0.00
            
            $
            0.00
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            0.01(c)
                Total assets
            
            $
            10,404,422
            
            $
            11,286,534
            
            $
            3,023,375
            
            $
            9,535,808
            
            $
            11,581,996(d)
                Total long-term debt
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -(e)
                Capital stock
            
            $
            17,675,355
            
            $
            12,139,934
            
            $
            3,589,810
            
            $
            3,831,116
            
            $
            3,831,116(f)
                Total shareholders’ equity
            
            $
            9,618,359
            
            $
            8,774,587
            
            $
            721,987
            
            $
            3,112,702
            
            $
            3,887,565(g)
                Cash dividends declared per share
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a
            
            
            n/a(h)
                Net earnings (loss) for the periodTotal
            
            $
            (6,895,869
            )
            $
            (1,238,554
            )
            $
            (2,285,145
            )
            $
            (789,513
            )
            $
            162,176Per Share
            
            $
            (0.09
            )
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.02
            )
            $
            0.00





**Currency
      and Exchange Rates**




The
      following table sets out the exchange rates for U.S. dollars expressed in terms
      of one Canadian dollar in effect at the end of the following periods, and the
      average exchange rates (based on the average of the exchange rates on the last
      day of each month in such periods)):




**U.S.
                Dollars Per One Canadian Dollar****Year
                Ended December 31****January
                - May 2007**
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**End
                of period
            0.90
            0.86
            
            0.86
            
            0.83
            
            0.77
            
            0.63Average
                for the period
            0.88
            0.88
            
            0.82
            
            0.76
            
            0.71
            
            0.63





The
      following table sets out the high and low exchange rates for U.S. dollars
      expressed in terms of one Canadian dollar in effect at the end of the following
      periods:




**U.S.
                Dollars per One Canadian Dollar****May**
              **2007**
            
            **April**
              **2007**
            
            **March**
              **2007**
            
            **February**
              **2007**
            
            **January**
              **2007**
            
            **December**
              **2006**High
                for the month
            0.93
            
            0.90
            
            0.87
            
            0.86
            
            0.86
            
            0.90Low
                for the month
            0.90
            
            0.86
            
            0.85
            
            0.84
            
            0.85
            
            0.89





6


Exchange
      rates are based upon the noon buying rate in New York City for cable transfers
      in foreign currencies, as certified for customs purposes by the United States
      Federal Reserve Bank of New York. The noon rate of exchange on June 14, 2007
      as
      reported by the United States Federal Reserve Bank of New York for the
      conversion of Canadian dollars into United States dollars was CDN$1.00 =
      U.S.$0.9360.




**B.**  **Capitalization
      and Indebtedness**




Not
      required.





**C** . **Reasons
      for the Offer and use of Proceeds**





Not
      required.





**D.**
            **Risk
                factors**





*Investing
      in our securities will provide you with an equity ownership interest in Dynasty.
      As one of our shareholders, your investment will be subject to risks inherent
      in
      our business. If any of the following risks actually occur, our business could
      be harmed. In that event, the trading price of our shares might decline, and
      you
      could lose all or part of your investment. You should carefully consider the
      following factors as well as other information contained in this Annual Report,
      including under Item 5: "Operating and Financial Review and Prospects" and
      in
      our financial statements and accompanying notes, before making any investment.
      Additional risks that are not currently known to us or that we deem immaterial
      may also harm us and the value of your investment. An investment in our
      securities involves a high degree of risk.*  *When
      evaluating our business and product opportunities investors should carefully
      review and consider the following risk factors in addition to the other
      information contained in this Annual Report.*




DNY
      and
      its subsidiaries operate in rapidly changing environments that involve numerous
      risks and uncertainties, many of which are beyond our control and which could
      have a material effect on our business, revenues, operating results and
      financial condition. The following discussion highlights some, although not
      all,
      of these risks and uncertainties.




**Risks
      Related to Our Financial Condition**





**We
      must raise money from investors to fund our operations. If we are unable to
      fund
      our operations, we may cease doing business.**





As
      at
      December 31, 2006, we had cash reserves, consisting of cash and restricted
      cash,
      of $7,594,047. In fiscal year ended December 31, 2006, we incurred a net loss
      of
      $6,895,569. In fiscal year ended December 31, 2005, we incurred a net loss
      of
      $1,184,559, and in fiscal year ended December 31, 2004, we incurred a net loss
      of $2,204,904. In November 2006, we completed two private placement agreements
      with third-party investors and issued 12,000,000 common shares at a price of
      $0.50 per share for gross proceeds of $6,000,000. In connection with these
      private placements, 12,000,000 warrants were granted, each warrant entitling
      the
      holder to acquire one additional common share at a price of $0.75 for a period
      of two years. The out-of-pocket issuance costs related to these placements
      were
      $431,844.




Without
      additional funding and achieving profitable operations, we will have inadequate
      funds to continue our existing corporate, administrative, and operational
      functions beyond the fourth quarter of 2008. The average monthly amount of
      cash
      that we are using, and expect to use over the next 12-18 months for all of
      our
      operations, is approximately $3,000,000 to $4,000,000. For a further discussion
      of our liquidity and capital resources, you should also refer to Item 5:
      "Operating and Financial Review and Prospects" in this Annual Report. We expect
      to continue to seek additional sources of funding to finance operations into
      the
      future, through public or private equity or debt financings, and/or from other
      sources. We cannot assure you that additional financing will be available or,
      even if it is available, that it will be sufficient and available on terms
      acceptable to us.





**We
      have a history of operating losses and we expect to incur future losses. If
      we
      are unable to achieve significant revenues in the future, we will cease doing
      business.**





Since
      our
      inception, we have incurred significant losses each year. Our accumulated
      deficit from inception to December 31, 2006 is $11,122,899. We expect to
      continue to incur significant operating losses as we continue to engage in
      the
      development, marketing and licensing of proprietary online gaming software.
      These losses, among other things, have had and will continue to have an adverse
      effect on our shareholders’ equity and working capital. Unless we are able to
      generate sufficient software and licensing revenue, we will continue to incur
      losses from operations and may not achieve or maintain
      profitability.





We
      will
      need to generate significant revenues in order to achieve and maintain
      profitability. Our ability to generate revenue in the future is dependent,
      in
      large part, on completing software development, and commercializing, or entering
      into agreements with third parties to commercialize and/or license our software.
      We cannot assure you that we will ever successfully commercialize, license
      or
      achieve revenues from sales of our online gaming software or that we will ever
      achieve or maintain profitability. Even if we do achieve profitability, we
      may
      not be able to sustain or increase profitability.






7




We
      expect
      to continue to incur significant expenses in connection with our continuing
      efforts to develop, market and license our proprietary online gaming software.
      We also expect to incur significant general and administrative expenses in
      support of our increased operations as well as the ongoing costs to operate
      as a
      company listed on the Over-The-Counter Bulletin Board (the
“OTCBB”).




Over
      the
      longer term, the costs referred to above will fluctuate, primarily dependant
      on
      the success of our products.




**We
      will continue to need significant amounts of additional capital that may not
      be
      available to us on favorable terms or at all or which may be
      dilutive.**




To
      date,
      we have funded our operations and capital expenditures with proceeds from the
      sale of our securities and interest on investments.




In
      order
      to achieve our goal of being a leader in the development, marketing and
      licensing of proprietary online gaming software manufacture, and achieve sales
      and marketing necessary to complete the full development of our online gaming
      software, we may require substantial additional funds in addition to the funds
      received in connection with the US private offerings and the various Canadian
      placements completed in 2006.




To
      meet
      these financing requirements, we may raise funds through public or private
      equity offerings, debt financings, and through other means, including
      collaborations and license agreements. Raising additional funds by issuing
      equity or convertible debt securities may cause our shareholders to experience
      significant additional dilution in their ownership interests. Raising additional
      funds through debt financing, if available, may involve covenants that restrict
      our business activities. Additional funding may not be available to us on
      favorable terms, or at all. If we are unable to obtain additional funds, we
      may
      be forced to delay, reduce the scope of or terminate development of some or
      all
      of our products, which may have a material adverse effect on our business and
      operations.




**If
      we fail to obtain additional financing, we may be unable to fund our operations
      and commercialize our product candidates.**




We
      expect
      that our cash expenditure will remain relatively constant over 2007 and 2008,
      and that we will spend substantial amounts to complete the development,
      commercialization and marketing of our online gaming software. We believe that
      our existing cash and short-term investments will be sufficient to meet our
      projected operating requirements to the fourth quarter of 2008.




Our
      future funding requirements will depend on many factors, including:




•
            
            the
                costs and timing of seeking and obtaining regulatory approvals, as
                applicable;




•
            
            the
                costs of filing, prosecuting, defending and enforcing any patent
                claims
                and other intellectual property
                rights;




•
            
            the
                costs of developing sales and marketing capabilities and establishing
                distribution capabilities;




•
            
            the
                cost of developing our commercial-scale
                capabilities;




•
            
            the
                cost of additional management, manufacturing, and sales and marketing
                personnel. We will be required to increase the number of our personnel
                over time;




•
            
            the
                terms, timing and cash requirements of any future acquisitions,
                collaborative arrangements or licensing of software
                products;




•
            
            the
                effects of market developments.





If
      we are
      not able to secure additional funding when needed, we may have to delay, reduce
      the scope of, or eliminate some or all of the development, marketing and
      licensing of our proprietary online gaming software or future commercialization
      efforts.





**Risks
      Related to Our Business**





***We
      face risk in connection with our change of business focus, change in source
      of
      revenues and the limited operating history of Mahjong
      Mania.***





On
      September 30, 2006, Dynasty Gaming signed a non-arm’s length agreement with CPC
      Canada Inc., whereby the latter acquired all of the issued and outstanding
      shares of our three wholly-owned subsidiaries that were not aligned with our
      primary business focus: CPC Econometrics, Inc. (“CPC”); Cadence Healthcare
      Communications Inc. (“CHCI”) and MedEvents Inc. (“MedEvents”) (collectively, the
“Non-Aligned Subsidiaries”). CPC Canada Inc. is a company owned by Barry Sheehy,
      who is a senior officer of CPC. Based on an independent valuation of the three
      Non-Aligned Subsidiaries, our board of directors determined that the offer
      of
      $300,000 from CPC Canada Inc. represented the best offer that could have been
      obtained. The sale of these three Non-Aligned Subsidiaries now allows the
      Company to focus on its primary business of commercializing its Mahjong gaming
      software in China and abroad.


8





During
      the course of FY 2006, Dynasty Gaming incorporated two new wholly-owned
      subsidiaries. On June 27, 2006, the Company incorporated Mahjong Systems
      (Cyprus) Limited, a wholly-owned subsidiary located in Cyprus. We believe that
      this will create a more tax efficient structure for our software licensing
      division, which is currently under Mahjong Systems Limited, a Turks and Caicos
      corporation. On September 14, 2006, the Company incorporated a new wholly-owned
      subsidiary in the British Virgin Islands: DNY (BVI) Limited (“DNY (BVI)”). DNY
      (BVI) will be the Company’s investment vehicle for its prepaid card, marketing
      and other operating activities in China.





*China
      Strategy*





Through
      its wholly owned subsidiaries, Dynasty Gaming Inc. is pursuing agreements with
      major companies in the People’s Republic of China for the development, marketing
      and distribution of government-approved online applications for its proprietary *Mahjong
      Mania* software. In the year ended December 31, 2006, the Company made significant
      progress in securing multiple marketing and distribution channels in China for
      its Mahjong software. For the year ended December 31, 2006, and as of the date
      of this present Form 20-F Annual Report, the Company had not yet generated
      any
      revenues from its China Strategy.





In
      China,
      Dynasty Gaming will operate its Mahjong software through its local operating
      partner, Beijing 95 Jinglong Technology Co. Ltd. (“95Joy”), in an online,
      multiplayer, non-wagering format. Since online gambling is generally prohibited
      in China, players visiting our sites in China will play for points, which can
      be
      won or lost and redeemed for prizes. Players can also qualify online for the
      World Cup of Mahjong, which is an offline tournament to be held in
      Macau.





In
      FY
      2006, the Company, through 95Joy, signed an agreement with Beijing Junnet Union
      Science and Technology Ltd. (“Junnet”; www.junnet.cn ).
      Junnet, which is one of the largest prepaid card distributors in China, has
      approximately 76,000 points of distribution throughout China, 70,000 of which
      are Internet cafés. According to Junnet, some 20 million people visit their
      points of distribution each day. Dynasty Gaming has engaged Junnet for the
      promotion, marketing and distribution of prepaid cards throughout its network,
      with an initial roll-out in 7,200 selected Internet cafés. Dynasty Gaming has
      made available its proprietary Mahjong gaming software on the www.mjworldcup.com site,
      which is operated by 95Joy. Players in China will be able to access this site
      through the use of prepaid cards that will be sold and distributed by
      Junnet.





Dynasty
      Gaming also signed a Strategic Cooperation Agreement with Beijing Sohu New
      Era
      Information Technology Co. Ltd. (“Sohu”), a subsidiary of Sohu.com Inc.
      ( www.sohu.com ;
      NASDAQ:
      SOHU), in the year ended December 31, 2006. Sohu is one of China’s leading
      portals, with more than 100 million registered users and one of the most widely
      used interactive online sources for information, entertainment and
      communications in China. As per the terms of this agreement and the formal
      agreement that was subsequently signed between the parties in January 2007,
      Sohu
      agreed to integrate our Mahjong software into their casual game
      platform.





In
      December 2006, Dynasty Gaming announced the signing of a letter of intent with
      Sun Media Investment Holding Ltd. (“Sun Media”; www.chinasunmedia.com ).
      Sun
      Media is China’s largest privately owned media company, with 34 magazines and
      newspapers, 10 television networks and numerous websites and various multimedia
      products. Through its media channels, Sun Media has a reach of 80 million people
      in China per week, or 100 million worldwide. As per this agreement, Sun Media
      and Dynasty Gaming agreed to form a joint venture that will own and operate
      an
      Internet portal in China that will also employ Dynasty Gaming’s Mahjong
      software.





*China
      Strategy - Subsequent Events*





Subsequent
      to the year ended December 31, 2006, Dynasty Gaming announced in March 2007
      that
      its Mahjong software was installed on the Sohu portal ( games.sohu.com/mj/index.htm )
      and on
      the www.mjworldcup.com site
      operated by 95Joy. The Company received final approval from China’s Ministry of
      Culture in April 2007. The Company is now in a position to launch its
      play-for-points model in China for real consideration.





*Aggregate
      Strategy*





Outside
      of China, the Company licenses its *Mahjong
      Mania* software
      to leading Internet gaming operators in a multiplayer, cash-wager format; we
      and
      our licensees then share the rake, or commissions on winnings. For the year
      ended December 31, 2006, and as of the date of this Form 20-F Annual Report,
      the
      Company generated revenues of $82,777 from the Aggregate Strategy.





In
      January 2006, Dynasty Gaming announced the integration of its *Mahjong
      Mania* software
      on the Ladbrokes site ( www.ladbrokes.com ;
      LSE:
      LAD). UK-based Ladbrokes is one of the world’s largest sports books and online
      gaming operators. In May 2006, the Company announced a master licensing and
      reseller agreement with Microgaming Systems Ltd. (“Microgaming”, www.microgaming.com ),
      an
      innovative supplier of online gaming solutions to many of the world’s leading
      online casinos and sports book operators. Under the terms of this agreement,
      Dynasty Gaming will earn a licensing fee and share of the rake from each online
      operator supplied with the aggregate, cash-wager version of *Mahjong
      Mania* by
      Microgaming. The first Microgaming client - Vegas Partners Lounge - presently
      offers Mahjong Mania to its customers on the www.28mahjong.com site.





Although
      the Aggregate Strategy has been slower in delivering meaningful revenues than
      we
      had initially expected, we remain confident that our initial partners, including
      Ladbrokes and Microgaming, will soon begin to market *Mahjong
      Mania* to their
      player databases and partners.


9


If
      we are
      unable to successfully execute our new business plan and derive meaningful
      revenues from our new sources of revenues, there might be a material adverse
      effect on our business and operations, and we might be forced to curtail or
      cease our operations entirely.





***In
      connection with our change in business focus, our management team has limited
      experience in the area of online gaming***




Our
      Company’s management team has limited experience in the area of online gaming,
      and therefore the likelihood of our success depends upon our management team’s
      ability to identify the online gaming market, understand industry matters,
      and
      fully implement our business plan successfully. With limited training or
      experience in these areas, our management may not
      be
      fully aware of the specific requirements related to working within this
      industry. Despite the fact that Mark Billings has obtained previous experience
      with Golden Palace group of companies, his decisions and choices may not take
      into account standard gaming market or managerial approaches commonly used
      in
      the industry. Consequently, our likelihood of success, earnings, and ultimate
      financial success could suffer irreparable harm due to management's limited
      experience in this industry.





***Our
      ability to sustain or increase revenues will depend upon establishing a market
      demand for Mahjong Mania***





Although
      the Company believes that the market for its *Mahjong
      Mania* product
      is potentially large, there is no assurance that consumers will adopt the
      Company’s gaming software or that the Company will be successful in selling this
      product into new markets. If the markets in which our gaming products fail
      to
      grow, or if the business of our existing and future licensees fails to grow,
      or
      grows more slowly than DNY presently anticipates, this could have a material
      adverse effect on the business, revenues, operating results and financial
      position of the Company.





***New
      or existing government regulations could prohibit Internet gambling, and
      therefore adversely affect our business***





On
      September 29, 2006, the United States Congress passed the Unlawful Internet
      Gambling Enforcement Act (“UIGEA”), which was signed into law by President Bush
      on October 13, 2006. UIGEA essentially prohibits financial transaction
      processing in the US online gaming market.





Although
      UIGEA has had a material impact on the operations and financial conditions
      of
      many operators in the Internet gaming industry, we believe that the impact
      of
      UIGEA on our business and operating results will be minimal. The focus of the
      Company is presently on the launch of a play-for-points Mahjong game in China.
      We will operate under a legal and fully-licensed framework as established by
      the
      Chinese government. Outside of China, the Company will continue to market its
      software to leading online gaming operators in a wagering format. Our licensees
      are not permitted, however, to accept wagers from players in the United States.
      If as a result of the passing of UIGEA other countries, including China, adopt
      similar prohibitive legislations, this could have a material adverse effect
      on
      the business, revenues, operating results and financial position of the
      Company.





***General
      risk factors regarding government regulation***





Dynasty
      and its licensees are subject to applicable laws in the jurisdictions in which
      they operate. The laws and regulations of these jurisdictions may change in
      the
      future, or new laws and regulations may be adopted, which could place
      restrictions on our abilities to operate from these jurisdictions or increase
      the costs of doing so.





Existing
      legislation in some jurisdictions has been and could continue to be construed
      to
      prohibit or restrict Internet gaming, and there is a risk that governmental
      authorities may view DNY and/or our licensees as having violated such statutes.
      Therefore, there is a risk that legal proceedings could be initiated against
      us,
      our licensees, Internet Service Providers and others involved in the Internet
      gaming industry. Such proceedings could have a material adverse effect on our
      business, revenues, operating results and financial condition, as well as
      diverting the attention of management.





Given
      the
      popularity of Mahjong in Asia, one of the markets of great interest to the
      Company is the People’s Republic of China (“China”). It is the Company’s
      understanding that gambling, including Internet gambling, is generally
      prohibited in China. DNY intends to market its Mahjong product into China in
      a
      non-wager format in accordance with its understanding of the current laws in
      place in China. Changes to the regulatory framework in China could, however,
      have a material adverse effect on the Company’s business, revenues, operating
      results and financial condition. There can be no assurance that DNY’s attempts
      to market its products in China will be successful.





***Risks
      specific to the Mohawk Territory of Kahnawake***





The
      Mohawk Territory of Kahnawake is located south of the island of Montreal, in
      the
      province of Quebec, Canada. Although the Mohawks of Kahnawake claim that,
      through treaties with the British that have been incorporated into Canada’s
      legal framework, they are a sovereign nation and have the ability to license
      and
      regulate Internet gaming without further approval, such sovereignty is not
      officially recognized by Canada or other nations. It is the view of the
      government of Canada and several provinces in Canada that Internet gaming is
      illegal. If such illegality were deemed to apply to the Mohawk Territory of
      Kahnawake, this could have a material adverse effect on the Company and its
      licensees.


10


***Risks
        specific to Gibraltar***


Gibraltar
      is located at the southern tip of Spain, which has historically claimed
      Gibraltar as its own territory from the British. If tensions were to rise
      between Great Britain and Spain, it is possible that this could lead to
      interruptions in telecommunications or other services, which could have an
      adverse effect on the operations of our licensees. The Company is not aware
      of
      any specific law in Spain that addresses Internet gaming, although Spain is
      in
      the process of liberalizing its gaming laws. The Basque Country recently became
      the first Spanish region to reform its laws to allow sports betting from
      licensed betting shops.





***Risks
      specific to Malta***





While
      Malta and Gibraltar have adopted a regulated approach to online gaming, opposing
      views have developed within the European Union, of which Malta is a member.
      Some
      EU states, including Germany, Italy and the Netherlands where there are
      state-owned monopolies, are taking action aimed at banning foreign gaming
      operators. Such actions by these EU member states are in contrast with a
      favorably-viewed ruling from the European Court of Justice and have prompted
      the
      European Commission to look at creating new legislation that could harmonize
      online gaming within the EU, in line with the European Commission’s goal to
      encourage a free and open cross-border market.





To
      date,
      we have generated our initial revenues from the Mohawk Territory of Kahnawake
      and Gibraltar. These amounts, however, are not material.





***We
      face strong competition in the Internet gaming market
      sector***





Although
      DNY believes it is one of the first to develop an aggregate player, online
      cash-wager version of Mahjong, the Internet gaming market is quite competitive,
      with a large number of gaming and software operators and developers, and is
      subject to rapid technological change. The Company’s direct source of current or
      potential competitors comes from other developers of Internet gaming software.
      Some of these potential competitors have significantly greater financial,
      technical, marketing and sales resources and may be able to respond more quickly
      than DNY to new or emerging technologies and to changes in customers’
requirements, thereby rendering the Company’s existing or future services
      obsolete, unmarketable or less competitive. Current and potential competitors
      may make strategic acquisitions or establish cooperative relationships amongst
      themselves or with other solution providers, thereby increasing the ability
      of
      their services to address the needs of DNY’s prospective clients. This could
      have a material adverse effect on the Company’s revenues, operating results and
      financial condition.





Based
      on
      our research and market intelligence, we believe that we are one of a limited
      number of companies that has developed an online multiplayer, cash-wager version
      of Mahjong. We are aware of only three companies that have a similar offer,
      which are: FunTown, which was recently acquired by GigaMedia, a Taiwanese
      company listed on NASDAQ; TankSoft, a private company that signed a partnership
      agreement with Playtech Ltd., a software provider listed on the London Stock
      Exchange, in early June 2006; and during the third quarter of our 2006 fiscal
      year, a private company that operates a multiplayer, online version of Mahjong
      out of Shanghai, China emerged in the online multiplayer, cash-wager Mahjong
      market.





***Our
      operations are subject to our system infrastructure and Internet viability,
      which may be interrupted, therefore adversely affecting our
      business***





The
      growth of Internet usage has caused interruptions and delays in processing
      and
      transmitting data over the Internet. There can be no assurance that the Internet
      infrastructure or the Company’s own network systems will continue to be able to
      support the demands placed on us by the continued growth of the Internet, the
      overall online gaming industry or that of our clients.





The
      Internet’s viability could be affected by delays in the development or adoption
      of new standards and protocols to handle increased levels of Internet activity
      or due to increased government regulation. If critical issues concerning the
      commercial use of the Internet are not favorably resolved (including, but not
      limited to, security, reliability, cost, accessibility and quality of service),
      if the necessary infrastructure is not sufficient, or if other technologies
      and
      technological devices eclipse the Internet as a viable channel, this may
      negatively affect Internet usage, and our business, revenues, operating results
      and financial condition will be materially adversely affected.





End-users
      of our software depend on Internet Service Providers, online service providers,
      gaming site operators and our system infrastructure for access to the sites
      operated by our licensees. Many of these services have experienced service
      outages in the past and could experience service outages, delays and other
      difficulties due to system failures, instability and interruption. Our licensees
      may lose customers as a result of delays or interruption in service, including
      delays or interruptions relating to high volumes of traffic or technological
      problems. As a result, we may not be able to meet the level of service that
      we
      have contracted for, and we may be in breach of our contractual commitments,
      which could have a material adverse effect on DNY’s business, revenues,
      operating results and financial condition.


***If
      we consume cash more quickly than expected or are unable to raise additional
      capital, we may be forced to curtail operation. If DNY does not obtain
      additional financing, then there is a risk that DNY will not be able to complete
      commercial development of its technology or achieve net revenues from the
      commercial application of its technology.***




11


There
      can
      be no assurance that DNY will operate profitably at any time in the future.
      The
      Company believes that it will be able to launch successfully with its current
      financial resources, and that this does not presently require substantial cash
      resources. There is no assurance that DNY will be able to secure such financing,
      when needed, or that such financing will be obtained on terms favorable to
      the
      Company. Failure to obtain adequate financing could result in significant delays
      in the development of DNY's products and a substantial curtailment of
      operations. Future financings could result in substantial dilution to DNY's
      existing shareholders.




***If
      DNY is not able to successfully manage its growth, DNY’s operating and capital
      expenses may be higher than anticipated and its revenues may be lower than
      anticipated.***




If
      DNY
      becomes successful, it will have to anticipate rapid growth and plan for it.
      Future operating results will depend on our management's ability to manage,
      hire
      and retain qualified employees, properly generate revenues and control expenses
      and many promising businesses have been unsuccessful in managing
      growth.





***The
      loss of the services of our chief executive officer, chief financial officer
      and/or the president of Mahjong Systems Ltd. and failure to attract and retain
      key personnel could have a material adverse effect on our
      business.***





The
      Company depends on a number of key management individuals, consisting of Albert
      Barbusci and Mark Billings, the loss of any one of whom may have a material
      adverse effect on the Company’s business. Competition for highly skilled
      management, technical and sales personnel is intense. While the company
      maintains employment agreements with its directors and executive personnel
      (see
      Item 6. Directors, Senior Management, and Employees), the inability to retain
      and keep employees and to attract and retain additional key employees who have
      the requisite skills may have a material adverse effect on the Company’s
      business.





***Fluctuations
      in foreign currency exchange could have a negative effect on our reported
      earnings***





Our
      financial results are reported in Canadian dollars, which is subject to
      fluctuations in respect of the currencies of the countries in which we may
      operate, including US dollars, British pound sterling, Euros and Canadian
      dollars. Accordingly, fluctuations in the exchange rate of world currencies
      could have a positive or negative effect on our reported results. DNY currently
      does not utilize a hedging program. There can be no assurance that we will
      not
      experience currency losses in the future, which could have a material adverse
      effect on our business, revenues, operating results and financial
      condition.





***Foreign
      or domestic laws may not afford us sufficient protections of our intellectual
      property***





The
      Company relies on a combination of laws and contractual provisions to establish
      and protect our rights in our software and proprietary technology. Currently,
      Mahjong Development Inc., a Canadian software development company which is
      the
      Company’s wholly owned subsidiary, is the owner of the trademark “Mahjong Mania
& Design” issued by the Canadian Intellectual Property Office. In addition,
      the intellectual property for *Mahjong
      Mania* is held
      by Mahjong Systems Ltd., a Turks and Caicos company, and Mahjong Development
      Inc. (formerly, 9143-3250 Quebec Inc.). Our ability to protect our proprietary
      information is crucial to our ability to compete and to the success of our
      business. Despite our efforts to protect our proprietary rights, unauthorized
      parties may attempt to infringe aspects of our products or services or to obtain
      and use information that we regard as proprietary. There can be no assurance
      that the steps we have taken to protect our proprietary rights will be adequate
      to deter misappropriation of our technology. Any such misappropriation could
      have a material adverse effect on DNY’s business, revenues, operating results
      and financial condition.





***We
      conduct certain elements of our business internationally, and the decisions
      of
      sovereign governments could have a material adverse effect on our financial
      condition.***




We
      may
      conduct certain elements of our business internationally. Sovereign governments,
      including Canada, may establish laws or regulations that will be deleterious
      to
      our interests or that will affect our ability, as a foreign corporation, to
      obtain access to local markets in foreign jurisdictions or laws specifically
      applicable to online gaming. Governments have also, from time to time,
      established foreign exchange controls which could have a material adverse effect
      on our business, financial condition, and results of operations. To date,
      neither our operations nor our financial conditions have been detrimentally
      affected in any material way due to laws or regulations of sovereign
      governments.





***Because
      our officers and directors, as well as most of our subsidiaries are located
      outside the United States, there is potential Unenforceability of Civil
      Liabilities and Judgments***





The
      Company and all of its officers and all of its directors are residents of
      countries other than the United States. All of the Company's assets are located
      outside the United States. As a result, it may not be possible for
      investors to effect service of process within the United States upon such
      persons or enforce in the United States against such persons judgments obtained
      in United States courts, including judgments predicated upon the civil liability
      provisions of United States federal securities laws or state securities
      laws.





The
      Company believes that a judgment of a United States court predicated solely
      upon
      civil liability under United States securities laws would probably be
      enforceable in Canada if the United States court in which the judgment was
      obtained has a basis for jurisdiction in the matter that was
      recognized by a Canadian court for such purposes.  However, there is doubt
      whether an action could be brought in Canada in the first instance on the basis
      of liability predicated solely upon such laws.


12





**Risks
      related to our common stock** **:**





***We
      may need additional capital that could dilute the ownership interest of
      investors.***





We
      require substantial working capital to fund our business. If we raise additional
      funds through the issuance of equity, equity-related or convertible debt
      securities, these securities may have rights, preferences or privileges senior
      to those of the rights of holders of our common stock may experience additional
      dilution. We cannot predict whether additional financing will be available
      to us
      on favorable terms when required, or at all. Since our inception, we have
      experienced negative cash flow from operations and expect to experience
      significant negative cash flow from operations in the future. The issuance
      of
      additional common stock by our management may have the effect of further
      diluting the proportionate equity interest and voting power of holders of our
      common stock, including investors in this offering.





***The
      shares of common stock eligible for future sale could negatively affect the
      market price of our common stock.***





Sales
      of
      substantial amounts of our common shares in the public market could adversely
      affect the market price of our common shares. These sales also may make it
      more
      difficult for us to sell equity or equity-related securities in the future
      at a
      time and price that we deem reasonable or appropriate. Stockholders who have
      previously acquired or were issued shares in our private placements and/or
      acquisitions, will be able to sell their shares pursuant to Rule 144 under
      the
      Securities Act of 1933, beginning one year after the stockholders acquired
      their
      shares.





***Because
      the price of our stock is volatile, you may not be able to resell your shares
      at
      or above your investment price***





The
      market price of our common shares has experienced fluctuations and may continue
      to fluctuate significantly. The market price of our common shares may be
      adversely affected by various factors, including proposed Internet gaming
      legislation or enforcement of existing laws, innovation and technological
      changes, the emergence of new competitors, quarterly variations in revenue
      and
      results of operations, speculation in the press or analyst community and general
      market conditions or market conditions specific to particular industries,
      including the Internet and gaming.





***There
      is a limited market for our common stock which may make it more difficult for
      you to dispose of your stock***





Our
      common stock has been quoted on the TSX Venture Exchange under the symbol "DNY"
      since December 9, 2005. Prior to our name change, our stock was listed under
      the
      symbol “EIH” and “YRA.” Our common shares haven been traded on the OTCBB since
      February 16, 2007. There is a limited trading market for our common stock.
      Accordingly, there can be no assurance as to the liquidity of any markets that
      may develop for our common stock, the ability of holders of our common stock
      to
      sell our common stock, or the prices at which holders may be able to sell our
      common stock.





***Our
      historic stock price has been volatile and the future market price for our
      common stock may continue to be volatile. Further, the limited market for our
      shares will make our price more volatile. This may make it difficult for you
      to
      sell our common stock for a positive return on your
      investment.***




***Our
      shares qualify as penny stock and as such, we are subject to the risks
      associated with “penny stocks”. Regulations relating to “penny stocks” limit the
      ability of our shareholders to sell their shares and, as a result, our
      shareholders may have to hold their shares
      indefinitely.***




The
      Company’s common shares may be deemed to be “penny stock” as that term is
      defined in Regulation Section “240.3a51 -1” of the Securities and Exchange
      Commission (the “SEC”). Penny stocks are stocks: (a) with a price of less than
      U.S. $5.00 per share; (b) that are not traded on a “recognized” national
      exchange; (c) whose prices are not quoted on the NASDAQ automated quotation
      system (NASDAQ - where listed stocks must still meet requirement (a) above);
      or
      (d) in issuers with net tangible assets of less than U.S. $2,000,000 (if the
      issuer has been in continuous operation for at least three years) or U.S.
      $5,000,000 (if in continuous operation for less than three years), or with
      average revenues of less than U.S. $6,000,000 for the last three
      years.




Section
      “15(g)” of the United States Securities Exchange Act of 1934, as amended, and
      Regulation Section “240.15g(c)2” of the SEC require broker dealers dealing in
      penny stocks to provide potential investors with a document disclosing the
      risks
      of penny stocks and to obtain a manually signed and dated written receipt of
      the
      document before effecting any transaction in a penny stock for the investor’s
      account. Potential investors in the Company’s common shares are urged to obtain
      and read such disclosure carefully before purchasing any common shares that
      are
      deemed to be “penny stock”.




Moreover,
      Regulation Section “240.15g -9” of the SEC requires broker dealers in penny
      stocks to approve the account of any investor for transactions in such stocks
      before selling any penny stock to that investor. This procedure requires the
      broker dealer to: (a) obtain from the investor information concerning his or
      her
      financial situation, investment experience and investment objectives; (b)
      reasonably determine, based on that information, that transactions in penny
      stocks are suitable for the investor and that the investor has sufficient
      knowledge and experience
      as to be reasonably capable of evaluating the risks of penny stock transactions;
      (c) provide the investor with a written statement setting forth the basis on
      which the broker dealer made the determination in (ii) above; and (d) receive
      a
      signed and dated copy of such statement from the investor confirming that it
      accurately reflects the investor’s financial situation, investment experience
      and investment objectives. Compliance with these requirements may make it more
      difficult for investors in the Company’s common shares to resell their common
      shares to third parties or to otherwise dispose of them. Stockholders should
      be
      aware that, according to Securities and Exchange Commission Release No.
      34-29093, dated April 17, 1991, the market for penny stocks has suffered in
      recent years from patterns of fraud and abuse. Such patterns
      include:


13




(i)
      control of the market for the security by one or a few broker-dealers that
      are
      often related to the promoter or issuer;




(ii)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases;




(iii)
      boiler room practices involving high-pressure sales tactics and unrealistic
      price projections by inexperienced sales persons;




(iv)
      excessive and undisclosed bid-ask differential and markups by selling
      broker-dealers; and





(v)
      the
      wholesale dumping of the same securities by promoters and broker-dealers after
      prices have been manipulated to a desired level, along with the resulting
      inevitable collapse of those prices and with consequent investor
      losses.





Our
      management is aware of the abuses that have occurred historically in the penny
      stock market. Although we do not expect to be in a position to dictate the
      behavior of the market or of broker-dealers who participate in the market,
      management will strive within the confines of practical limitations to prevent
      the described patterns from being established with respect to our
      securities.




***As
      a foreign private issuer, we are subject to different U.S. securities laws
      and
      rules than a domestic issuer, which may, among other things, limit the
      information available to holders of our securities.***




As
      a
      foreign private issuer, we are subject to requirements under the Securities
      Act
      and the Securities Exchange Act of 1934, as amended, or the Exchange Act, which
      are different from the requirements applicable to domestic U.S. issuers. For
      example, our officers, directors, and principal shareholders are exempt from
      the
      reporting and "short-swing" profit recovery provisions of Section 16 of the
      Exchange Act and the rules there under with respect to their purchases and
      sales
      of our common shares. The periodic disclosure required of foreign private
      issuers is more limited than the periodic disclosure required of U.S. issuers
      and therefore there may be less publicly available information about us than
      is
      regularly published by or about U.S. public companies in the United States.
      Also, we are not required to comply with Regulation FD, which restricts the
      selective disclosure of material information.





***We
      do not intend to pay dividends on our common stock.***  ****





We
      do not
      anticipate paying any cash dividends on our common stock in the foreseeable
      future. We currently anticipate that we will retain all of our available cash,
      if any, for use as working capital and for other general corporate purposes,
      including to service our debt and to fund the development and operation of
      our
      business. Any payment of future dividends will be at the discretion of our
      Board
      of Directors and will depend upon, among other things, our earnings, financial
      condition, capital requirements, level of indebtedness, statutory and
      contractual restrictions applying to the payment of dividends and other
      considerations that the Board of Directors deems relevant. Investors must rely
      on sales of their common stock after price appreciation, which may never occur,
      as the only way to realize a return on their investment. Investors seeking
      cash
      dividends should not purchase our common stock.





**ITEM
      4. INFORMATION ON OUR COMPANY**





**A.**  **History
      and Development of the Company.**





Dynasty
      Gaming Inc. / Jeux Dynasty Inc. was incorporated in Quebec, Canada on August
      11,
      1994 under the name 3059219 Canada Inc. pursuant to the Canada Business
      Corporation Act. The Company proceeded to change its name numerous times prior
      to adopting the name Dynasty Gaming Inc. Specifically, the Company changed
      its
      name pursuant to the Canada Business Corporation Act as follows: Gramcorp
      Aggregate Inc. on June 8, 1995, Golden Gram Resources Inc. on March 19, 1996,
      Events International Holding Corporation (“EIHC”) on October 15, 2001, and
      Dynasty Gaming Inc. on December 5, 2005.





DNY
      is
      headquartered in Montreal, Canada and, together with its subsidiaries, employs
      18 full-time professional and support staff.




The
      principal office of the Company is located at 759 Square Victoria, Suite 300,
      Montreal, Quebec, Canada H2Y 2J7, and its telephone number is (514)
      288-0900.





The
      Company and its subsidiaries are solidifying a two-phased strategy to secure
      a
      lead position in the Chinese market and within the international online gaming
      sector with its first-to-market software for an aggregate player, cash-wager
      version of Mahjong.


14





In
      May
      2002, the Company, then known as EIHC, established a new subsidiary known as
      MedEvents Inc., and launched its first Internet portal known as obgynevents.com,
      which exclusively focused on women’s health. At the time, EIHC was a world
      leader in the field of planning and managing world conferences for international
      professional medical federations. The new portal, which was managed by
      MedEvents, Inc., would allow EIHC to offer an online, virtual congress to a
      wide
      range of conference non-attendees.





On
      August
      8, 2002, the shareholders approved the acquisition of CPC Econometrics Inc.,
      a
      company controlled by Barry Sheehy, a shareholder of the Company. Following
      receipt of regulatory approval, the transaction was closed on August 26, 2002.
      The purchase price was satisfied by the issuance of 800,000 common shares of
      the
      Company.





Cadence
      Healthcare Communications Inc. was launched in October 2002 to support the
      business of Events International Meeting Planners Inc. (“EIMP”), which was at
      that time Dynasty’s primary business.  Over the years, EIMP had developed
      important relationships with several pharmaceutical companies. These
      pharmaceutical companies were important exhibitors and sponsors for many of
      the
      events, organized by EIMP. It seemed a natural extension of the Company’s
      business model to form an advertising agency, with healthcare expertise to
      provide marketing, promotional and advertising services to both EIMP and its
      clients. EIMP became Cadence Healthcare’s first and most important client. The
      Agency subsequently began to focus on the pharmaceutical industry and developed
      new clients from some of the EIMP contacts.





In
      September 2004, the Company, which was then known as Events International
      Holding Corporation, disposed of its EIMP business by means of a sale. EIMP
      was
      sold to Edward Polak, a former President and director of the Company, who had
      originally been part owner of EIMP prior to it being acquired by the Company
      in
      October 2001.





On
      September 19, 2005, DNY received regulatory approval from the TSX Venture
      Exchange to finalize the acquisition of *Mahjong
      Mania* . *Mahjong
      Mania* is a
      trade name used by Mahjong Systems Limited and Mahjong Development Inc.,
      formerly known as 9143-3250 Québec Inc.




On
      September 21, 2005, the Company finalized the purchase of Mahjong Systems
      Limited (MSL) and Mahjong Development Inc. (MDI), collectively known as the *Mahjong
      Mania* companies. MSL is based in the Turks and Caicos Islands and licenses Internet
      gaming software developed by its affiliate MDI, a company based in Montreal,
      Quebec, Canada. MSL is licensed for Internet gaming operations by the Mohawk
      Territory of Kahnawake, which is located outside Montreal, Quebec, Canada.
      MSL’s
      objectives are to sign licensing agreements with gaming operators for our
      aggregate model ( *see
      Market Strategy section below* ).





The
      acquisition was satisfied through the issue of 9,000,000 DNY common shares.
      The
      assets of MSL and MDI include the intellectual property, software and
      development work involving the *Mahjong
      Mania* Internet
      gaming software, as well as software licensing agreements. *Mahjong
      Mania* Internet
      gaming software is a unique technology and is considered to be the
      first-to-market of an aggregated multiplayer Mahjong gaming system developed
      for
      the Internet. Currently, MDI is the owner of the trademark “Mahjong Mania &
Design” issued by the Canadian Intellectual Property Office.




On
      November 25, 2005, at the DNY annual and special meeting of shareholders, DNY’s
      shareholders approved a change of name for the Company from Events International
      Holding Corporation to Dynasty Gaming Inc. The primary purpose of the name
      change was to ensure that the Company’s new name would be more suitable in light
      of the Company’s newly acquired business strategy, which is the development and
      marketing of our *Mahjong
      Mania* gaming
      software. At the meeting, Kiyoshi Eguchi, a resident of Japan and retired
      executive of Dentsu Inc., was elected to the board in addition to the reelection
      of Albert Barbusci, Linda Lemieux and David Wolk.   Effective January 1,
      2007, Mr. David Wolk resigned from the board of directors of the Company and
      Robert Nihon II was appointed to the board of directors.




On
      September 29, 2006, DNY signed an agreement with CPC Canada Inc. in which the
      latter agreed to purchase MedEvents Inc. (“MED”), Cadence Healthcare
      Communications Inc. (“CHCI”) and CPC Econometrics Inc. (“CPC”) for $300,000 in
      cash. On October 6, 2006, the Company received regulatory approval from the
      TSX
      Venture Exchange to finalize this divestiture. The agreement closed on December
      15, 2006 at the sale price of $300,000: $150,000 paid in cash and $150,000
      receivable in three equal instalments respectively on the 120 th day,
      240 th day and
      365 th day
      following the closing date. **** This
      is a
      non-arms length transaction, as these three subsidiaries were purchased by
      CPC
      Canada Inc., a company owned and controlled by Barry Sheehy, a former director
      of the Company and president of the CPC Econometrics subsidiary.





On
      February 16, 2007, our common shares commenced listing on the OTCBB under the
      symbol “DNYFF.OB”.





**B.**  **Business
      Overview**




The
      Company and its subsidiaries are solidifying a dual-track strategy to secure
      a
      lead position in the Chinese market and within the international online gaming
      sector with its first-to-market software for an aggregate player, cash-wager
      version of Mahjong. Track One, referred to as the Aggregate Strategy, targets
      the international gaming community worldwide, including the 34 million Chinese
      who live overseas. Track Two, referred to as the China Strategy, targets
      mainland China. Under *Track
      One, Mahjong Mania* will
      benefit from two streams of income - software licensing fees (initial and
      renewal), and a share (or commission) of winnings from each game played.
      Agreements with
      online gaming operators will initially provide for 15% to 40% of this commission
      to be paid to MSL. The balance of commission derived from*Mahjong
      Mania*(85% to
      60% respectively) is divided pro rata between the providing website partners.*Mahjong
      Mania’s*sales
      and marketing strategy will be to pursue licensing contracts with leading
      software houses and online casinos. Under*Track
      Two,*our
      strategy in China is to follow existing and proven practices of offering
      subscriptions using prepaid cards and points, which can be converted into
      prizes. Marketing of prepaid cards is legal in China and is the backbone of
      Internet interchange. The prepaid card strategy relies on establishing a network
      with one or more prepaid card distributors in China to produce and distribute
      the cards to retailers, who purchase the cards from the distributor and earn
      a
      percentage of the card value when sold.


15





Prior
      to
      the launch of our *Mahjong
      Mania* software, people could play Mahjong on the Internet, primarily in a solitaire
      version. Our software enables four people to sit at a virtual Mahjong table
      and
      play against one another for cash consideration in a wagering format; this
      is
      what we refer to as our “cash-wager version” of Mahjong. As an example, at a $3
      table, four players would play a hand of Mahjong. The person with the winning
      hand would get $3, or $1 from each of the three losers. We also call this an
      “aggregate player” model because clients of our licensees are aggregated at
      common Mahjong tables on a single gaming server. As an example, at a virtual
      Mahjong table, players from Ladbrokes and Microgaming - two of our licensees
      -
      could be competing against one another.





This
      model is significant to our business because, based on our research, we are
      the
      first company to offer such a game in which players wager on Mahjong over the
      Internet. Our revenue model is as follows. As per the $3 example above, Dynasty
      Gaming, the software licensor, collects a rake, or commission, on the winning
      hand; this is equal to 10% of the amount won. In this example, the rake is
      equal
      to $0.30. This rake is then shared between Dynasty Gaming and our licensee,
      from
      where the winning hand came. Our rake share ranges between 12.5% and 50% (with
      an average of 20%), with the remaining 50% to 87.5% going to the licensee.
      In
      this example, and assuming a 20% rake share for Dynasty Gaming, we would receive
      $0.06, and our licensee would receive $0.24. We would recognize the $0.06 as
      revenue.





Our
      revenue model is then based on signing up new licensees, who would in turn
      bring
      more players to the aggregated Mahjong tables. Dynasty Gaming would receive
      approximately 2% of the winnings on every hand of Mahjong played.





In
      connection with our two-phased strategy, MDI has completed its first phase
      of
      development work on its *Mahjong
      Mania* gaming
      software, including the back office support systems, and clients of
      Mahjongclub.com and Ladbrokes.com are now playing a cash wager version of the
      game. MSL executives are in continuous discussions and negotiations with other
      major online gaming site operators to expand the market for *Mahjong
      Mania* .
      To
      date, 12 licensing agreements have been signed and management of MSL believes
      that a number of additional licensing agreements will be signed this
      year.




The
      12
      licensing agreements, together with the signature dates and initial terms of
      these contracts, are indicated below:




**Licensee**
            **Signature
                Date**
            **Initial
                Term**International
                Gaming and Entertainment Limited
            May
                19, 2004
            10
                yearsApex
                Holdings
            March
                27, 2005
            3
                yearsBetex
                (Group) PLC
            August
                3, 2005
            3
                yearsAction
                Poker Gaming Inc.
            August
                3, 2005
            2
                yearsDr.
                Ho Gambling.com
            October
                11, 2005
            2
                yearsHo
                Casinos.com
            October
                20, 2005
            2
                yearsOrbis
                Technology Inc.
            October
                24, 2005
            2
                yearsAbsolute
                Entertainment SA
            October
                28, 2005
            3
                yearsLadbrokes
                International Limited
            January
                25, 2006
            3
                yearsGolden
                Palace Limited
            March
                8, 2006
            3
                yearsInteractive
                Gaming Holdings PLC
            March
                28, 2006
            3
                yearsMicrogaming
                Software Systems Limited
            August
                24, 2006
            N/A





As
      indicated above, Dynasty Gaming Inc. has signed 12 licensing agreements with
      the
      above parties. It should be noted that the contracts with Orbis Technology
      Inc.
      and Microgaming Software Systems Limited are reseller contracts, i.e. they
      will
      license this technology to their clients but will not operate the Mahjong Mania
      software themselves. As per the contracts above, the rake share that will be
      generated by the Company ranges from 12.5% to 50%.




The
      Company is committed to devoting its management and financial resources to
      the *Mahjong
      Mania* business, following the divestiture of CPC Econometrics, Inc., Cadence
      Healthcare Communications Inc. and MedEvents Inc.





With
      the
      acquisition of the *Mahjong
      Mania* business
      in 2005, the principal focus of Dynasty is in three lines of business: our
      aggregate or licensing model outside China, our prepaid card strategy in China
      and the World Cup of Mahjong. The following table highlights the projected
      capital budgets for 2007, 2008 and 2009.





16





Year
            
            **Aggregate**
            
            **Prepaid**
            
            **World
                Cup**
            
            **Total**2007
            
            
            $500,000
            
            
            $1,100,000
            
            
            $0
            
            
            $1,600,0002008
            
            
            $380,000
            
            
            $100,000
            
            
            $0
            
            
            $480,0002009
            
            
            $200,000
            
            
            $500,000
            
            
            $0
            
            
            $700,000Total
            
            
            $1,080,000
            
            
            $1,700,000
            
            
            $0
            
            
            $2,780,000





Since
      the
      aggregate model is 100% owned by Dynasty Gaming, 100% of the capital
      expenditures for this business unit will be our responsibility. As for the
      prepaid card strategy, this will most likely be set up through DNY (BVI)
      Limited, our investment vehicle for China. As these funds will most likely
      be
      advanced to our local operating partner, 95Joy, through DNY (BVI) Limited,
      these
      capital expenditures will not appear on the DNY balance sheet; this will either
      appear as a receivable or an investment, in accordance with generally accepted
      accounting principles. Moreover, there are no anticipated capital expenditures
      associated with the World Cup of Mahjong as the management of this event is
      expected to be subcontracted to a third party and there will be no capital
      outlays required on our part.




*Potential
      Markets*




Mahjong,
      often referred to as Asian Poker, is the most widely played game in China and
      has gained widespread popularity in Japan, Taiwan, Korea and other Asian
      countries with surprisingly high levels of play in the USA and Europe. The
      Company’s management believes that it is the basis for an enormous terrestrial
      gambling market in Asia, but has yet to translate into the Internet gaming
      space.





Dynasty
      Gaming is well positioned to establish partnerships with top level Internet
      gaming operators and leverage existing player bases through its aggregate model.
      The Company’s management believes that the market for multiplayer skill games is
      well established. We have established strategic relationships, primarily via
      licensing agreements, with some of the most powerful gaming operators and
      distributors in the world, including:




**Ladbrokes**
            Ladbrokes
                is a U.K.-based organization, and is one of the world’s largest online
                sportsbook operations. A customized version of Mahjong Mania was
                recently
                launched on this site (www.ladbrokes.com).**Microgaming**
            On
                August 24, 2006, Dynasty Gaming Inc., through its wholly owned subsidiary
                Mahjong Systems (Cyprus) Limited, signed licensing agreements with
                Microgaming Software Systems Limited. Copies of these agreements
                are
                attached separately.


*
      For
      further detail regarding these licensing agreements, please see Item 10.C.
      Material Contracts.





*Mahjong
      Mania*





*Mahjong
      Mania* is a
      unique and first-of-its-kind Mahjong game designed specifically for use by
      online gaming casinos, sports books and poker rooms. Although Mahjong is widely
      available on the Internet in a solitaire version, as well as multi-player free
      play and incidental two-player paying games, no website has yet created a
      quality Mahjong game inside an Internet gaming room with real cash wagers. *Mahjong
      Mania* is the
      first to offer this model through licensed casino and sports book partners,
      complete with customized casino branding and an aggregate gaming system back
      up.





*Mahjong
      Mania* offers a
      graphically appealing implementation of the multiplayer game of Mahjong with
      the
      associated accounting and transactional systems to enable play-for-cash wagers.
      Its aggregate gaming system, which allows players from different partner
      websites to be pooled into a single game room, ensures a constant source of
      online players for multiple table stakes and options. Management believes that
      no other Mahjong software currently provides this aggregation feature.
      Multi-language support, private game rooms and multi-currency payments are
      several of the additional and distinctive features offered by *Mahjong
      Mania* .





The intellectual property for *Mahjong
      Mania* is held
      by Mahjong Systems Ltd. (MSL), a Turks and Caicos company, and Mahjong
      Development Inc. (MDI, formerly, 9143-3250 Quebec Inc.), a Canadian software
      development company. MSL and MDI are wholly owned subsidiaries of the Company.
      MSL is primarily engaged in the licensing of this software while MDI manages
      all
      technology development.





Mahjong
      is the owner of a number of Internet domain names as listed below:





6245664.com
            mahjong.ws
            mahjongpalace.combetmahjong.com
            mahjongcentral.com
            mahjongportal.comclubmahjong.com
            mahjongcity.com
            mahjongtemple.comegawan.com
            mahjongclub.com
            monstermahjong.comegawan.net
            mahjongclub.net
            play888.com






17






egawan.org
            mahjongfamily.com
            play888.netgoldenmahjong.com
            mahjongfun.com
            play888.orggomahjong.com
            mahjongheaven.com
            sikwoo.comimperialmahjong.com
            mahjonglounge.com
            sikwu.commahjong-mania.com
            mahjongmania.com
            speedmahjong.commahjong-systems.com
            Mahjongmayhem.com
            worldseriesofmahjong.comworldseriesofmahjongg.com





During
      the early development stages of the Mahjong Mania software, MDI’s management, in
      anticipation of commercializing their product, reserved the above-mentioned
      internet domain names. These domains are either specific to our business, such
      as mahjongmania.com and mahjong-systems.com or may form part of licensing
      agreements with future clients.





DNY
      is
      not dependent upon patents or licenses. However, the company maintains
      proprietary software, for use under license by online gaming and sports book
      operators, and generates revenue by developing, marketing, and licensing its
      online software under the trade name of “ *Mahjong
      Mania* ”.
      The
      Company also maintains an Internet gaming license from the Mohawk Territory
      of
      Kahnawake. As indicated previously, Dynasty Gaming Inc., through its wholly
      owned subsidiary Mahjong Systems Limited, is licensed and regulated by the
      Mohawk Territory of Kahnawake. Our servers, which reside at Kahnawake, host
      the
      games for our aggregate model. Players from our licensees will play hands of
      Mahjong on the Company’s servers located at Kahnawake. For this reason, our
      license from the Kahnawake Gaming Commission (“Gaming Commission”) to host the
      aggregate model is an important element of our business model.





As
      indicated by the Gaming Commission, in order to maintain our license, we have
      to
      abide by three basic principles established by the Gaming
      Commission:





1.
            That
                only suitable persons and entities are permitted to operate within
                Kahnawake;2.
            That
                the games offered are fair to the player; and3.
            That
                winners are paid.





Further
      information on the initial and ongoing licensing requirements can be found
      on
      the Gaming Commission’s web site: http://www.kahnawake.com/gamingcommission/ .





As
      per
      principle (1) above, we have had to provide extensive information on the
      Company, its officers and directors and other people involved in our gaming
      operations. All of this is subject to the Gaming Commission’s due diligence and
      is independently verified. As per principle (2), we have to abide by the
      technical standards of the Gaming Commission and to subject ourselves to
      independent technical audits carried out by qualified firms engaged by the
      Gaming Commission. As per principle (3) above, winners have the right to submit
      complaints to the Gaming Commission about entities licensed by the Gaming
      Commission; all such complaints will be investigated by the Gaming
      Commission.





In
      addition, as part of the ongoing requirements to maintain our license, we are
      subject to operational monitoring and audits on a monthly basis in order to
      ensure that we comply with the Gaming Commission’s rules and
      regulations.





To
      date,
      Dynasty Gaming Inc., through its wholly owned subsidiary, Mahjong Systems
      Limited, has been in full compliance with all rules and regulations of the
      Gaming Commission.





*China
      Strategy*





In
      China,
      the Company will earn revenues through the sale of prepaid cards.( *See*  *Marketing
      Strategy* )
      Revenue
      through the sale of these prepaid cards will be generated directly by our local
      operating partner, 95Joy, with whom we will have a service contract and
      licensing agreement. Royalty payments and service fees will then be paid by
      95Joy to our wholly foreign-owned enterprise (“WFOE”) in China, which is a
      special corporate structure in China that facilitates easily the flows of
      capital into and out of China. DNY (BVI) Limited, a wholly-owned subsidiary
      of
      Dynasty Gaming, will own 100% of the WFOE. The prepaid cards will enable
      individuals to play a certain number of Mahjong games online. Players’ accounts
      can be replenished through online banking or the purchase of another
      card.





At
      the
      time of writing (June 27, 2007), the set-up of the WFOE had not been completed.
      We anticipate that this structure will be completed in the third quarter of
      2007.





*Marketing
      Strategy*





*Mahjong
      Mania* is
      proceeding with a dual-track market strategy. Track One, referred to as the
      Aggregate Strategy, targets the international gaming community worldwide,
      including the 34 million Chinese who live overseas. Track Two, referred to
      as
      the China Strategy, targets mainland China.


18




*Track
      One, Aggregate Strategy* : *Mahjong
      Mania* will
      benefit from two streams of income: software licensing fees (initial and
      renewal), and a share (or commission) of winnings from each game played.
      Agreements with online gaming operators will initially provide for 15% to 40%
      of
      this commission to be paid to MSL. The balance of commission derived from *Mahjong
      Mania* (85% to
      60% respectively) is divided pro rata between the providing website partners.
      The Mahjong game consists of a Lobby and many Game Rooms, each game room
      containing a number of tables. At each table there must be 4 players for the
      game to commence. The total winnings from every game are shared with the website
      partners pro-rata.   The winnings are divided by 4 (one portion per
      player) and the website operator is credited a share according to the number
      of
      players it contributed to the game and the agreed percentage.   If
      four different website partners contributed to the game then each will get
      a
      share equal to 1⁄4 of the winnings; if all 4 players came from a single
      partner then that partner will receive 100%.  Our Company retains the
      agreed percentage of each partners’ pro-rata share. There is no risk to the
      casino operator or MSL since the house does not take a position in this
      game.




*Mahjong
      Mania’s* sales
      and marketing strategy will be to pursue licensing contracts with leading
      software houses and online casinos. In the early phases, marketing will depend
      largely on the ability and willingness of online partners to promote the game
      and bring the greatest number of players to *Mahjong
      Mania* .
      This
      will ensure that a critical mass of players and a high level of interest will
      be
      achieved very rapidly.





License
      fees range from $25,000 to $75,000; below is a table summarizing the range
      of
      durations for our license agreements, as well as whether the license fees are
      paid only once or periodically:




**Contract**
            **License Fee**
            **Contract
                Signed**
            **Termination
                Date**Absolute
                Entertainment SA
            No
                fee
            October
                29, 2005
            October
                28, 2008Action
                Poker Gaming Inc.
              (Las
                Vegas from Home)
            One
                time fee
            August
                3, 2005
            August
                2, 2007Betex
            Annual
                fee
            August
                3, 2005
            August
                2, 2008Dr.
                Ho
            No
                fee
            October
                2005
            October
                2007Gambling
                Federation
            One
                time fee
            May
                27, 2005
            May
                26, 2008Golden
                Palace
            One
                time fee
            March
                15, 2006
            March
                14, 2009
              *Subject
                to right of termination - Schedule 2*Ho
                Casinos.com
              Homahjong
            No
                fee
            October
                20, 2005
            October
                19, 2007Interactive
                Gaming Holdings PLC
              (Premier
                Bet)
            Annual
                fee
            March
                28, 2006
            March
                27, 2009Intertops
              Int’l
                Gaming & Entertainment
            One
                time fee
            May
                19, 2004
            May
                18, 2014Ladbrokes
            One
                time fee
            May
                24, 2006
            May
                23, 2009Microgaming
            No
                fee
            August
                24, 2006
            N/AOrbis
            No
                fee
            October
                5, 2005
            October
                4, 2007




Together
      with our licensee partners, we intend to collect a 10% commission, or rake,
      on
      each winning game of Mahjong. This rake will then be split between the Company
      and our licensees, with 60% to 85% of the rake being paid to our licensees
      and
      15% to 40% remaining with the Company. The rake share paid to the licensee
      is
      determined on an individual basis, as per the contracts we sign with them.
      The
      number of players per gaming partner ranges from a low of 30,000 to a high
      of
      10,000,000. Approximately 75 online gaming partnerships have been targeted
      through 2009.


19


The
      initial growth strategy of *Mahjong
      Mania* in Track
      One focuses on providing a new product for a niche cyber-market whose demand
      for
      a paying, multi-player game has not yet been met. To our knowledge, no
      successful online multi-player Mahjong gaming solution has previously
      existed.





There
      are
      two pricing decisions we have made with respect to the aggregate strategy.
      First, we have decided to charge a rake of 10% of each winning hand of Mahjong.
      This is consistent with the 10% rake collected by the Mahjong clubs in Hong
      Kong, for example. As the value of the winning hands gets bigger, our rake
      percentage may decrease. Second, we split this rake with our licensees. Our
      share is between 15% and 40%, with the licensee taking the remainder. This
      split
      is consistent with our market intelligence and experience in the Internet gaming
      industry. We believe that these percentages are reasonable and are along the
      lines offered by other Internet gaming software providers for licenses of their
      technology.




*Track
      Two, China Strategy* :
      The
      Asia-Pacific region already constitutes the world's largest Internet market,
      exceeding both Europe and North America. Usage is growing annually at 57% and
      nearly 160 million users, of which 80 million have access to broadband, are
      expected to be online by the end of 2006. (Source: China Gaming Market Analysis
      and Forecast 2004 - 2009 report)





Gambling
      is technically not allowed in China, although interpretations of the legal
      codes
      in this area are ambiguous. The strategy in China follows existing and proven
      practices of offering subscriptions using prepaid cards and points, which can
      be
      converted into prizes. Marketing of prepaid cards is legal in China and is
      the
      backbone of Internet interchange. The prepaid card strategy relies on
      establishing a network with one or more prepaid card distributors in China
      to
      produce and distribute the cards to retailers, who purchase the cards from
      the
      distributor and earn a percentage of the card value when sold. As mentioned
      above, Dynasty Gaming Inc. will generate licensing fees and service fees from
      its local operating partner, 95Joy. 95Joy, in turn, generates revenue from
      the
      sale of prepaid cards. These licensing fees and service fees will be paid to
      our
      WFOE, which is wholly-owned by DNY’s wholly-owned subsidiary, DNY (BVI) Limited.
      The prepaid cards will enable individuals to play a certain number of Mahjong
      games online. Players’ accounts can be replenished through online banking or the
      purchase of another card. The Company will not recognize any rake in connection
      with online Mahjong games in China; rather, the Company will generate revenue
      indirectly through the sale of prepaid cards in a non-wagering
      format.




In
      Canada, Mahjong Development Inc. (“MDI”) develops interactive gaming software
      under contract with its Turks and Caicos affiliate, Mahjong Systems Limited
      (“MSL”). MSL, in turn, licenses online gaming systems to various licensees.
      These licensees are generally licensed to operate online casinos in the country
      where their gaming equipment is physically located. A significant debate exists
      whether the laws of any country other than the country where the computer gaming
      servers are physically located have jurisdiction over the operations of MSL’s
      licensees.





MSL’s
      licensees hold a gaming license in the country of their operation. The licensees
      each have the responsibility to determine from which countries they will accept
      gaming transactions and ensure that their own gaming license is maintained.
      All
      of the gaming transactions of MSL’s licensees are accepted on servers in
      jurisdictions that license and regulate Internet gaming and are governed by
      the
      conditions of those countries and the respective gaming licenses.





We
      are
      presently in negotiations with Junnet regarding the details of their first
      card
      order and distribution thereof into their network of Internet cafés; we expect
      to have this finalized, signed and announced in the near future. The agreement
      will be between our local Chinese operating entity - 95Joy - and
      Junnet.





Historically,
      gaming activities have been subject to extensive statutory and regulatory
      control by government authorities, and have been very dependent and likely
      significantly affected by any changes in the political climate and economic
      and
      regulatory policies of the countries where gaming facilities are located. These
      changes may impact MSL’s and MDI’s operations in a materially adverse way.
      Various laws and regulations could have a direct and material effect on the
      business, and indirectly could have a material effect on the public demand
      for
      the *Mahjong
      Mania* gaming
      software.





The
      United States, until recently the largest Internet gaming market in the world,
      has passed legislation to ban certain aspects of Internet gaming. On September
      30, 2006, the United States Congress passed the Safe Port Act, which was
      subsequently signed into law by President Bush on October 13, 2006. This Act
      includes certain provisions known as the Unlawful Internet Gambling Enforcement
      Act of 2006. More specifically, this law makes unlawful the receipt by a
      gambling business of proceeds or monies in connection with unlawful Internet
      gambling. Although the Act does not clarify the definition of unlawful gambling,
      it does make clear that the United States government intends to stop the flow
      of
      funds from Americans to online gaming operators through criminal sanction.
      Furthermore, the Act asserts that, under US law, a wager must be permitted
      under
      the laws of both the customer’s place of residence and that of the Internet
      gaming operator. Despite the ambiguity contained in the Act, the board of
      directors of Dynasty Gaming Inc. has decided not to accept any real money gaming
      business from United States residents coming through our licensees. Our
      licensees will only be able to allow their non-American residents to play for
      real consideration on our gaming servers. American residents can, however,
      play
      for free. Given that the Company’s primary marketing focus is Asia and Asians
      living outside of Asia, we do not consider that the loss of a real-money
      American player base will have a material impact on our revenues, earnings
      and
      operational results going forward.


20


Most
      countries and jurisdictions within countries have laws or regulations
      restricting gaming activities. While MSL has been advised that its activities
      do
      not violate or are not subject to such laws and regulations, because there
      is
      very little clear statutory and case law authority, this conclusion is not
      free
      from doubt. MSL faces the risk of either civil or criminal proceedings brought
      by governmental or private litigants who disagree with MSL’s interpretation (and
      the interpretation of MSL’s legal counsel) of laws and regulations. Because
      there is little guiding authority, there is a risk that MSL could lose such
      lawsuits or actions and be subject to significant damages or civil or criminal
      penalties and fines. Such proceedings could also involve substantial litigation
      expense, diversion of the attention of key executives, injunctions or other
      prohibitions being invoked against MSL’s licensees or MSL’s affiliates. With
      this in mind, the Company no longer allows US residents to play for real money
      on its servers.





In
      management’s opinion, if current laws or any future laws in jurisdictions
      outside the United States become applicable to activities of MSL’s licensees or
      its affiliates that perform services for the licensees, such laws would have
      a
      material adverse effect on MSL’s business, revenues, operating results and
      financial condition. If it was determined that such law was applicable to the
      activities of MSL’s licensees and affiliates, the licensees would have to change
      the types of wagering provided. This would impact their current operations
      and
      there may be a delay in offering acceptable wagering products to such customers.
      There would be no assurance that the wagering products offered to such customers
      would be as profitable to MSL’s licensees or to its affiliates as the wagering
      products currently offered to such customers by the licensees.





In
      March
      2004, the World Trade Organization held in favor of Antigua and Barbuda and
      against the United States of America with regard to unlawful trade restrictions
      relating to Internet gaming. In 2006, Antigua and Barbuda again filed a
      complaint with the WTO concerning the United States' position effectively
      banning Internet gambling as passed via UIGEA. These nations argued the UIGEA violates
      WTO commercial services accords. In March 2007, the WTO ruled against the United
      States. However, at this time it
      is too
      early to determine what, if any, influence this may have on United States led
      legislation. Furthermore, some gaming observers say the ruling may have limited
      affect on the longstanding position of the U.S. government that Internet
      gambling is illegal and further question as to how Antigua and/or Barbuda can
      enforce the ruling against the U.S.





In
      addition, as electronic commerce further develops, it may generally be the
      subject of government regulation. As well, current laws, which pre-date or
      are
      incompatible with Internet electronic commerce, may be enforced in a manner
      that
      restricts the electronic commerce market. Any such developments could have
      a
      material adverse effect on the Company's business, revenues, operating results
      and financial condition.





Other
      jurisdictions, including more specifically the United Kingdom, have taken the
      position that Internet gaming is legal and have adopted or are in the process
      of
      drafting legislation to regulate Internet gaming. In April 2005, the United
      Kingdom enacted legislation - The Gambling Act 2005 - to regulate online gaming
      for the first time in that jurisdiction. The British government is presently
      drafting the underlying rules and regulations to establish its regulatory
      framework. The first online license application are expected to be accepted
      in
      January 2007, with licenses granted and operational by September 2007.





Recent
      Developments





On
      February 28, 2007, we announced that our Mahjong Mania gaming software is
      expected soon to be utilized to power a new consumer-facing Mahjong site
      (mahjongclub.com) that will specifically target players across Asia.
      Mahjongclub.com will be owned and managed by Adriaan Brink, acknowledged as
      a
      pioneer in online gaming and formerly president of Mahjong Systems
      Limited.





On
      March
      30, 2007, we announced the execution of an agreement with AGORACOM Investor
      Relations ("AGORACOM") ( http://www.agoracom.com )
      to
      provide investor relations services our company. The objective of this agreement
      is two-fold. First, to create effective communication among our company, our
      shareholders and the investment community through AGORACOM’s internet based
      investor relations system. Effective on the date of this agreement, a customized
      and monitored Dynasty Gaming IR HUB ( http://www.agoracom.com/IR/DynastyGaming )
      will
      allow both our company and AGORACOM to communicate with all investors
      simultaneously, anytime and in real-time, while providing shareholders with
      equal access and complete transparency to all investor relations communications.
      The IR HUB will also provide one-click access to all critical Dynasty Gaming
      IR
      information, as well as, an executive audio address. In addition, the IR HUB
      provides investors with a monitored discussion forum for the purposes of
      constructive and high-quality discussion about the Company that is free of
      spam,
      bashing, hyping and profanity. Second, AGORACOM will be responsible for raising
      our company’s awareness amongst retail investors for the purposes of attracting
      new and prospective shareholders. As an exclusive small-cap content provider
      to
      Yahoo Finance Canada, AOL Finance Canada and every Blackberry device on the
      planet, AGORACOM will provide Tier-1 financial coverage of all of our meaningful
      press releases. Moreover, AGORACOM will be fully responsible for creating,
      implementing and executing an investor relations strategy, the consolidation
      of
      which will save management a considerable amount of time, effort and expense,
      allowing them to focus on core business operations, while significantly
      improving shareholder communications.





On
      April
      2, 2007, we announced the signing of a joint venture agreement with China’s
      NextMart Inc. for the creation of a new brand, in the form of a highly profiled
      e-commerce website, that will focus primarily on China’s approximately 200
      million young urban males and females aged 18 to 25. By creating the e-commerce
      website which is intended to focus on the universe of young urban adults in
      China which comprises the predominant majority of China’s total broadband
      subscribers, we hope to participate in the benefits associated with a tightly
      controlled website, the management of user data, and the marketing and promotion
      of our online Mahjong and other Asian games. This audience, often acknowledged
      as potentially the most powerful universe of consumers in the world, will
      provide enormous traction for our online Mahjong and other gaming
      products.”


21







On
      June
      6, 2007, we announced that we has signed a Letter of Intent (“LOI”) with Shanda
      Interactive Entertainment Ltd., (NASDAQ: “SNDA”) China’s leading interactive
      entertainment media company. The LOI will facilitate an exchange of information
      between the two companies, leading to the licensing of our MahjongMania software
      by Shanda. In addition, the LOI will allow for the exploration of ways Dynasty
      and Shanda might jointly pursue China’s online gaming market. Shanda is one of
      the largest game operators in China with online game revenues of U.S. $65.3
      million for the first quarter of 2007. The companies are currently negotiating
      entering into a formal definitive agreement.




**C.**  **Organizational
      Structure**





Following
      the divestiture of the three non-Mahjong subsidiaries on September 29, 2006,
      the
      Company has the following wholly-owned subsidiaries:





 ̈
            Mahjong
                Development Inc., a Quebec
                corporation;


 ̈
            Mahjong
                Systems Limited, a Turks and Caicos
                corporation;


 ̈
            Mahjong
                Systems (Cyprus) Limited, a Cyprus corporation;
                and


 ̈
            DNY
                (BVI) Limited, a British Virgin Islands
                corporation.




**D.****Property,
      plant and equipment**





Our
      corporate headquarters and registered office are located at 759 Square Victoria,
      Suite 300 Montreal, Quebec, Canada H2Y 2J7. We lease our head office space
      in
      Montreal, Quebec. The lease agreement expires November 30, 2007 and the minimum
      payment, excluding operating and real estate taxes, is $130,471 for 2007.





Certain
      information concerning our equipment is set forth below:





Equipment
            Location
            Cost
            Net
                Book ValueOffice
                furniture & equipment
            Montreal,
                Quebec
            $312,943
            $246,543Deferred
                development costs
            Montreal,
                Quebec
            $2,459,363
            $1,639,571Computer
                equipment
            Mohawk
                Territory of Kahnawake
            $253,862
            $218,632




**ITEM
      4A. UNRESOLVED STAFF COMMENTS**





None.





**ITEM
      5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**





The
      following information should be read in conjunction with our audited
      consolidated financial statements and related notes, which are prepared in
      accordance with Canadian generally accepted accounting principles ("CDN
      GAAP"), included elsewhere in this Annual Report. A reconciliation of
      amounts presented in accordance with United States generally accepted accounting
      principles ("US GAAP") is described in Note #19 to the audited consolidated
      financial statements for the years ended December 31, 2006 and December 31,
      2005. All amounts are expressed in Canadian dollars unless otherwise indicated.
       The summary of Significant Accounting Policies contained in Note #19
      to our consolidated financial statements should be read in conjunction with
      the
      consolidated financial statements and this discussion of results of operations
      and liquidity and capital resources.





This
      document contains certain forward-looking statements including, among others,
      anticipated trends in our financial condition and results of operations and
      our
      business strategy. These forward-looking statements are based largely on our
      current expectations and are subject to a number of risks and uncertainties.
      Actual results could differ materially from these forward-looking statements.
      Important factors to consider in evaluating such forward-looking statements
      include (i) changes in external competitive market factors or in our internal
      budgeting process which might impact trends in our results of operations; (ii)
      unanticipated working capital or other cash requirements; (iii) changes in
      our
      business strategy or an inability to execute our strategy due to unanticipated
      changes in the industries in which we operate; and (iv) various competitive
      factors that may prevent us from competing successfully in the
      marketplace.




22


**Divestiture
        of Non-Aligned Subsidiaries on September 30, 2006 & Impact on Presentation
        of Audited Consolidated Financial Statements**


On
      September 30, 2006, the Company signed a non-arm’s length agreement with CPC
      Canada Inc., whereby the latter acquired all of the issued and outstanding
      shares of our three Non-Aligned Subsidiaries: CPC, CHCI and MedEvents.
      Consequently, in accordance with generally accepted accounting principles,
      the
      audited consolidated financial statements for the years ended December 31,
      2006
      and 2005 are presented without the financial results of CPC, CHCI and MedEvents;
      this will also allow the reader to make a more informed comparison of the
      financial results for the years ended December 31, 2006 and 2005. The
      divestiture of these three previously owned subsidiaries does impact the
      presentation of our audited consolidated financial statements, and readers
      are
      advised to take this into consideration when consulting our previously filed
      consolidated financial statements and other filings.





**Revenue**





For
      the
      year ended December 31, 2006, Dynasty Gaming’s revenue decreased by 49.1% to
      $82,277, compared to revenue of $161,700 for the year ended December 31, 2005.
      In FY 2006 and FY 2005, Dynasty Gaming generated small amounts of revenue as
      a
      result of testing its *Mahjong
      Mania* software
      with its initial software licensees and from the licence fees from these initial
      clients; these revenues are associated with the Company’s aggregate cash-wager
      model. It is important to note that the Company has not yet launched its
      play-for-points model in the People’s Republic of China, and consequently there
      were no revenues in either FY 2006 or in FY 2005 associated with the Company’s
      China Strategy.





**Operating
      Expenses**





For
      the
      year ended December 31, 2006, operating expenses increased by 352.3% to
      $6,967,960, compared to operating expenses of $1,540,623 for the year ended
      December 31, 2005. In 2005, the Company (previously known as Events
      International Holding Corporation) changed its business focus to the
      development, marketing and licensing of its Internet-based *Mahjong
      Mania* software. This was formalized with the acquisition of Mahjong Systems Limited
      (“MSL”) and Mahjong Development Inc. (“MDI”) on September 21, 2005; for
      financial reporting purposes, the operating results of MSL and MDI were
      consolidated effective from June 10, 2005. MSL is based in the Turks and Caicos
      and licenses Internet gaming software developed by its affiliate MDI, a software
      development company based in Montreal, Quebec, Canada. The audited financial
      statements for FY 2005 do not include, therefore, full-year operational results
      for MSL and MDI, whereas the audited financial statements for FY 2006 do include
      full-year results for these two subsidiaries. In both FY 2006 and FY 2005,
      the
      principal components of operating expenses were direct costs, marketing and
      promotion expenses and administrative expenses. For the year ended December
      31,
      2006, the Company recognized stock-based compensation expense of $1,042,146,
      compared to stock-based compensation expense of $30,257 for the year ended
      December 31, 2005; this is a non-cash charge.





**Loss
      from Operations and Net Loss**





For
      the
      year ended December 31, 2006, the Company’s loss from operations increased by
      399.4% to $6,885,683, compared to a loss from operations of $1,378,923 for
      the
      year ended December 31, 2005. After accounting for other income and expenses
      and
      net income (loss) from discontinued operations, Dynasty Gaming’s net loss
      increased by 482.1% to $6,895,869 in FY 2006, compared to a net loss of
      $1,184,559 in FY 2005.





**Liquidity
      and Cash Position**





As
      at
      December 31, 2006, the cash position of Dynasty Gaming grew to $7,551,017,
      an
      increase of 31.2% over the cash position of $5,755,213 as at December 31,
      2005.





**Private
      Placements**





In
      November 2006, Dynasty Gaming concluded two non-brokered private placements.
      On
      November 17, 2006, the Company raised $5,000,000 through the issuance of
      10,000,000 units (“Units”) to investors at a price of $0.50 per Unit. Each Unit
      was comprised of one common share and one common share purchase warrant
      (“Warrant”). Each Warrant entitles the holder to purchase one common share of
      the Company at a price of $0.75 per share at any time for a period of two years.
      The Warrant also carries a redemption feature in favour of the
      Company.





On
      November 24, 2006, Dynasty Gaming raised an additional $1,000,000 through the
      issuance of 2,000,000 Units to investors on terms similar to those mentioned
      above. In these two private placements, the Company raised total gross proceeds
      of $6,000,000 through the issuance of 12,000,000 Units.





**ANNUAL
      FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2006, AS COMPARED TO THE
      YEAR
      ENDED DECEMBER 31, 2005**





**Revenue**





For
      the
      year ended December 31, 2006, the Company’s revenue decreased by 49.1% to
      $82,277, compared to revenue of $161,700 for the year ended December 31, 2005.
      As indicated above, in FY 2006 and FY 2005, Dynasty Gaming did not generate
      any
      revenue from its China Strategy or any meaningful revenue from its Aggregate
      Strategy.


23





**Operating
      Expenses**





Operating
      expenses include direct costs associated with software development and support,
      marketing and promotional expenses, administrative expenses, amortization (on
      property and equipment and assets under capital leases and on deferred
      development costs) and impairment of loan and goodwill. For the year ended
      December 31, 2006, operating expenses increased by 352.3% to $6,967,960,
      compared to operating expenses of $1,540,623 for the year ended December 31,
      2005.





For
      the
      year ended December 31, 2006, direct costs increased significantly to
      $1,505,545, compared to direct costs of $53,593 for the year ended December
      31,
      2005. Direct costs include those expenses and salaries directly related to
      the
      development and support of our Mahjong software. Marketing and promotion
      expenses increased by 425.8% to $1,217,613 in FY 2006, compared to marketing
      and
      promotion expenses of $231,567 in FY 2005. Marketing and promotion expenses
      include those expenses related to the marketing of our software, as well as
      costs associated with investor relations. For the year ended December 31, 2006,
      administrative expenses increased by 236.5% to $3,065,346, compared to
      administrative expenses of $911,006 for the year ended December 31, 2005.
      Administrative expenses include management salaries, consultants and stock-based
      compensation expense, which is a non-cash charge. In FY 2006, the Company
      recognized stock-based compensation expense of $1,042,146, compared to
      stock-based compensation expense of $30,257 in FY 2005. In FY 2006, amortization
      of deferred development costs was $819,792; no such expense was incurred in
      FY
      2005. As a result of the acquisition of MDI in September 2005, the Company
      is
      amortizing costs associated with the development of its Mahjong software over
      a
      three-year period. For further information in this regard, readers are advised
      to consult Note 4 of the audited consolidated financial statements for the
      year
      ended December 31, 2006. Amortization on property and equipment increased by
      249.1% to $56,234 for the year ended December 31, 2006, compared to $16,109
      for
      the year ended December 31, 2005. This reflects the increased investment in
      capital assets associated with the development of our Mahjong technology. For
      the year ended December 31, 2006, Dynasty Gaming recorded an impairment of
      a
      loan to CHCI, its former subsidiary, of $303,430; no such impairment of a loan
      was recorded for the year ended December 31, 2005. For further information
      in
      this regard, readers are advised to consult Note 6 of the audited consolidated
      financial statements for the year ended December 31, 2006. For the year ended
      December 31, 2005, the Company recorded impairment of goodwill of $328,348;
      no
      such impairment of goodwill was recorded for the year ended December 31, 2006.
      During the third quarter of 2005, the Company performed the goodwill impairment
      test and determined that goodwill associated with its self-sustaining foreign
      subsidiary at the time, CPC Econometrics, Inc., was impaired. CPC had not signed
      new contracts and consequently the revenue stream could be reduced, whereupon
      an
      impairment loss of $328,348 was recorded. As mentioned previously, CPC was
      sold
      with an effective date of September 30, 2006.





**Loss
      from Operations**





For
      the
      year ended December 31, 2006, the Company’s loss from operations increased by
      399.4% to $6,885,683, compared to a loss from operations of $1,378,923 for
      the
      year ended December 31, 2005.





**Other
      Income and Expenses**





Other
      income and expenses include interest income, interest expense, foreign exchange
      gains and gain on settlement of advance payable. For the year ended December
      31,
      2006, the Company’s other income increased significantly to $151,725, compared
      to other income of $7,749 for the year ended December 31, 2005. In FY 2006,
      Dynasty Gaming generated other interest income of $131,516, compared to
      incurring other interest expense of $1,518 in FY 2005. For the year ended
      December 31, 2006, the Company’s foreign exchange gain decreased by 82.7% to
      $1,604, compared to a foreign exchange gain of $9,267 for the year ended
      December 31, 2005. In FY 2006, Dynasty Gaming recognized a gain on settlement
      of
      advance payable of $18,605; no such gain on settlement of advance payable was
      recognized in FY 2005.





**Net
      Loss from Continuing Operations**





For
      the
      year ended December 31, 2006, the Company’s net loss from continuing operations
      increased by 391.1% to $6,733,958, compared to a net loss from continuing
      operations of $1,371,174 for the year ended December 31, 2005.





**Net
      Income (Loss) from Discontinued Operations**





Net
      income (loss) from discontinued operations includes the net after-tax earnings
      of the Non-Aligned Subsidiaries from January 1 to September 30, 2006 and full
      year 2005, as well as any gain on the sale of discontinued operations. For
      further information in this regard, readers of this MD&A are advised to
      consult Note 3 (Discontinued Operations and Assets Held for Sale) of the audited
      consolidated financial statements for the years ended December 31, 2006 and
      2005.





For
      the
      year ended December 31, 2006, the net loss from discontinued operations was
      $161,911, compared to net income from discontinued operations of $186,615 for
      the year ended December 31, 2005. In FY 2006, the after-tax net loss of the
      Non-Aligned Subsidiaries was $186,626, compared to after-tax net income from
      the
      Non-Aligned Subsidiaries of $186,615 in FY 2005. In FY 2006, Dynasty Gaming
      recorded a gain on sale of discontinued operations of $24,715; there was no
      such
      gain on sale of discontinued operations in FY 2005. The gain on sale of
      discontinued operations was recognized in relation to the divestiture of the
      Non-Aligned Subsidiaries.





24


**Net
      Loss**




For
      the
      year ended December 31, 2006, Dynasty Gaming’s net loss increased by 482.1% to
      $6,895,869, compared to a net loss of $1,184,559 for the year ended December
      31,
      2005.





In
      FY
      2006, Dynasty Gaming posted a net loss per common share (basic and fully
      diluted) of $0.09, compared to a net loss per share of $0.03 in FY
      2005.








**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      at
      December 31, 2006, Dynasty Gaming was liquid and debt-free.





**Cash
      Position**





As
      at
      December 31, 2006, the cash position of Dynasty Gaming grew to $7,551,017,
      an
      increase of 31.2% over the cash position of $5,755,213 as at December 31,
      2005.





**Operating
      Activities**





In
      FY
      2006, Dynasty Gaming was still in the development phase and had not begun full
      commercial operations, and consequently, cash was used from operating
      activities. For the year ended December 31, 2006, cash used from operating
      activities increased by 193.0% to $4,905,415, compared to cash used from
      operating activities of $1,673,994 for the year ended December 31, 2005. In
      both
      years, the primary component of the cash used from operating activities was
      the
      net loss from continuing operations. In FY 2006, the Company also recorded
      two
      non-cash charges that totalled $1,861,938. More specifically, these included
      amortization of deferred development costs ($819,792) and stock-based
      compensation expense ($1,042,146).





**Investing
      Activities**





For
      the
      year ended December 31, 2006, cash used from investing activities increased
      by
      62.8% to $923,786, compared to cash used from investing activities of $567,292
      for the year ended December 31, 2005. In FY 2006, cash used for acquisition
      of
      property and equipment increased significantly to $394,355, compared to cash
      used for acquisition of property and equipment of $29,631 for FY
      2005.





**Financing
      Activities**





For
      the
      year ended December 31, 2006, cash flow from financing activities decreased
      by
      14.5% to $6,692,492, compared to cash flow from financing activities of
      $7,823,468 for the year ended December 31, 2005. In both years, the primary
      component of the cash flow from financing activities was the issuance of common
      shares, through private placements and the exercising of options and warrants.
      More information in this regard is presented under “Capitalization”
below.





**Working
      Capital**





Working
      capital is defined as current assets less current liabilities. For the year
      ended December 31, 2006, the working capital of Dynasty Gaming increased by
      28.4% to $7,513,613, compared to working capital of $5,853,636 for the year
      ended December 31, 2005.





**Capitalization**





As
      at
      December 31, 2006, Dynasty Gaming had 91,526,893 common shares issued and
      outstanding, together with 18,875,000 warrants and broker warrants and 7,887,888
      options. The total number of shares issued and outstanding on a fully diluted
      basis at the end of FY 2006 was 118,289,781. If all warrants, broker warrants
      and options were to be exercised, Dynasty Gaming would receive more than $17.7
      million in additional cash. As at December 31, 2006, the Company had no
      debt.





In
      November 2006, Dynasty Gaming concluded two non-brokered private placements.
      On
      November 17, 2006, the Company raised $5,000,000 through the issuance of
      10,000,000 units (“Units”) to investors at a price of $0.50 per Unit. Each Unit
      was comprised of one common share and one common share purchase warrant
      (“Warrant”). Each Warrant entitles the holder to purchase one common share of
      the Company at a price of $0.75 per share at any time for a period of two years.
      The Warrant also carries a redemption feature in favour of the
      Company.





On
      November 24, 2006, Dynasty Gaming raised an additional $1,000,000 through the
      issuance of 2,000,000 Units to investors on terms similar to those mentioned
      above. In these two private placements, the Company raised total gross proceeds
      of $6,000,000 through the issuance of 12,000,000 Units.


25


**SUMMARY
      OF QUARTERLY RESULTS**


**Comparative
      Quarterly Consolidated Operating Results**





The
      following table outlines selected unaudited financial information of the Company
      on a consolidated basis for the last eight quarters.




**2005**
            
            **2006**Q1
            
            Q2
            
            Q3
            
            Q4
            
            Q1
            
            Q2
            
            Q3
            
            Q4$
            
            $
            
            $
            
            $
            
            $
            
            $
            
            $
            
            $**Revenues**
            
            
            **-**
            
            
            **161,700**
            
            
            **8
                158**
            
            
            **(8
                158**
            **)**
            
            **15,539**
            
            
            **30,759**
            
            
            **17,792**
            
            
            **18,187**Net
                (loss) earnings from continuing operations
            
            
            (104,821
            )
            
            (33,736
            )
            
            (829,025
            )
            
            (403,592
            )
            
            (1,268,954
            )
            
            (1,269,376
            )
            
            (1,581,627
            )
            
            (2,614,001
            )Discontinued
                operations
            
            
            38,851
            
            
            (68,893
            )
            
            274,728
            
            
            (58,071
            )
            
            (105,907
            )
            
            63,660
            
            
            (144,379
            )
            
            -Gain
                on sale of discontinued operations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            24,715
            
            
            -**Net
                (loss) earnings**
            
            
            **(65,970**
            **)**
            
            **(102,629**
            **)**
            
            **(554,297**
            **)**
            
            **(461,663**
            **)**
            
            **(1,374,861**
            **)**
            
            **(1,205,716**
            **)**
            
            **(1,701,291**
            **)**
            
            **(2,614,001**
            **)****Net
                (loss) earnings per share**Basic
            
            
            (0.002
            )
            
            (0.002
            )
            
            (0.012
            )
            
            (0.008
            )
            
            (0.018
            )
            
            (0.016
            )
            
            (0.022
            )
            
            (0.031
            )Fully
                diluted
            
            
            (0.002
            )
            
            (0.002
            )
            
            (0.012
            )
            
            (0.008
            )
            
            (0.018
            )
            
            (0.016
            )
            
            (0.022
            )
            
            (0.031
            )




**QUARTERLY
      RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006, AS COMPARED TO THE THREE
      MONTHS ENDED DECEMBER 31, 2005**





**Revenue**





For
      the
      three months ended December 31, 2006, the Company’s revenue was $18,187,
      compared to a reclassification of revenue of $8,158 for the three months ended
      December 31, 2005. In the fourth quarter of 2005, the amount, which had
      previously been booked as revenue, was reclassified as deferred revenue, as
      the
      launch of the Company’s Mahjong software had not yet taken place at that time.
      As previously indicated, as of the end of FY 2006 and FY 2005, Dynasty Gaming
      had not begun its full commercial launch.





**Operating
      Expenses**





For
      the
      three months ended December 31, 2006, operating expenses increased by 582.1%
      to
      $2,682,352, compared to operating expenses of $393,273 for the three months
      ended December 31, 2005.





In
      the
      fourth quarter of FY 2006, direct costs increased significantly to $347,656,
      compared to direct costs of $19,615 in the fourth quarter of FY 2005. For the
      three months ended December 31, 2006, marketing and promotion expenses increased
      by 130.0% to $386,971, compared to marketing and promotion expenses of $168,270
      for the three months ended December 31, 2005. In the fourth quarter of FY 2006,
      administrative expenses increased by 609.4% to $1,416,123, compared to
      administrative expenses of $199,630 in the fourth quarter of FY 2005. In the
      fourth quarter of FY 2006, the Company recorded stock-based compensation expense
      of $715,990, compared to stock-based compensation expense of $14,148 in the
      fourth quarter of FY 2005; this is included in administrative expenses. In
      the
      fourth quarter of FY 2006, amortization of deferred development costs was
      $204,948; no such expense was incurred in the fourth quarter of FY 2005. For
      the
      three months ended December 31, 2006, amortization on property and equipment
      increased by 303.3% to $23,224, compared to $5,758 for the three months ended
      December 31, 2005. For the three months ended December 31, 2006, Dynasty Gaming
      recorded an impairment of a loan to CHCI, its former subsidiary, of $303,430;
      no
      such impairment of a loan was recorded for the three months ended December
      31,
      2005.





**Loss
      from Operations**





For
      the
      three months ended December 31, 2006, the Company’s loss from operations
      increased by 563.7% to $2,664,165, compared to a loss from operations of
      $401,431 for the three months ended December 31, 2005.





**Other
      Income and Expenses**





For
      the
      three months ended December 31, 2006, the Company generated other income of
      $50,164, compared to incurring other expenses of $2,161 for the three months
      ended December 31, 2005. In the fourth quarter of FY 2006, Dynasty Gaming’s
      other interest income increased significantly to $26,578, compared to other
      interest income of $1,991 in the fourth quarter of FY 2005. For the three months
      ended December 31, 2006, the Company recognized a foreign exchange gain of
      $4,981, compared to incurring a foreign exchange loss of $4,152 for the three
      months ended December 31, 2005. In the fourth quarter of FY 2006, Dynasty Gaming
      recognized a gain on settlement of advance payable of $18,605; no such gain
      on
      settlement of advance payable was recognized in the fourth quarter of FY
      2005.







26







**Net
      Loss from Continuing Operations**





For
      the
      three months ended December 31, 2006, the Company’s net loss from continuing
      operations increased by 547.7% to $2,614,001, compared to a net loss from
      continuing operations of $403,592 for the three months ended December 31,
      2005.





**Net
      Income (Loss) from Discontinued Operations**





For
      the
      three months ended December 31, 2006, the Company did not incur any net income
      from discontinued operations; for the three months ended December 31, 2005,
      the
      Company incurred a net loss from discontinued operations of
      $58,071.





**Net
      Loss**





For
      the
      three months ended December 31, 2006, Dynasty Gaming’s net loss increased by
      466.2% to $2,614,001, compared to a net loss of $461,663 for the three months
      ended December 31, 2005.





In
      the
      fourth quarter of FY 2006, Dynasty Gaming posted a net loss per common share
      (basic and fully diluted) of $0.031, compared to a net loss per share of $0.008
      in the fourth quarter of FY 2005.





**Cash
      Flow Information**





**Operating
      Activities**





For
      the
      three months ended December 31, 2006, cash used from operating activities
      increased by 325.3% to $1,478,638, compared to cash used from operating
      activities of $347,692 for the three months ended December 31,
      2005.





**Investing
      Activities**





For
      the
      three months ended December 31, 2006, cash flow from investing activities was
      $145,515, compared to cash used from investing activities of $334,911 for the
      three months ended December 31, 2005.




**Financing
      Activities**





For
      the
      three months ended December 31, 2006, cash flow from financing activities
      increased by 11.3% to $6,528,932, compared to cash flow from financing
      activities of $5,867,048 for the three months ended December 31, 2005. In the
      fourth quarters of both years, the Company concluded private placements, which
      were the primary component of the cash flow from financing
      activities.







27


**ITEM
      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**





**A.**  **Directors
      and senior management**





The
      following table sets forth certain information concerning our directors and
      senior management as of December 31, 2006. All of our directors are residents
      of
      Canada, with the exception of Kiyoshi Eguchi, who is a resident of Japan and
      Joseph Lau who is a resident of Hong Kong:




**Name**
            **Age**
            **Position**Albert
                Barbusci
            49
            Director,
                President, and Chief Executive OfficerMark
                Billings
            37
            Chief
                Financial Officer and Corporate SecretaryKiyoshi
                Eguchi
            66
            DirectorJoseph
                Lau
            52
            DirectorAdriaan
                Brink (2)
            43
            President
                of Mahjong Systems Ltd.David
                Wolk (3)
            61
            Director,
                President and Secretary of Mahjong Development Inc.(1)




(1)
      During the fiscal year ended December 31, 2006, Ian Sherrington resigned as
      the
      President and Director of Mahjong Development Inc. Moreover, Linda Lemieux
      resigned as Director, President and Secretary of Mahjong Development Inc.,
      and
      Tony Barbusci resigned as Vice President of Finance and Corporate Secretary.
      Subsequently, Mark Billings was appointed as Corporate Secretary, Joseph Lau
      was
      appointed as Director and David Wolk was appointed as President and Secretary
      of
      Mahjong Development Inc.


(2)
      Mr.
      Brink resigned as the President of Mahjong Systems Ltd. on March 31, 2007.


(3)
      David
      Wolk resigned as a director of the Company on January 1, 2007, and Robert Nihon
      II was appointed to the board of directors of the Company, effective as of
      the
      same date.




Set
      forth
      below is a biographical description of our directors and senior management
      based
      on information supplied by each of them.





***Albert
      Barbusci***





Albert
      Barbusci has been the Company’s President and CEO since December 2004. He has
      also served as a Director since May 2002. Mr. Barbusci is a successful
      entrepreneur who has transformed vision and opportunity into several successful
      enterprises over the last 20 years. His first business, Cadence Communications,
      launched in Montreal in 1980, was an award-winning advertising and marketing
      agency that laid the foundation for the creation of Dentsu Cadence Canada Inc.,
      a partnership with Japan’s Dentsu Inc., the world’s largest stand-alone agency
      with billings over $14 billion annually.





In
      1994,
      he became a partner of the Atlanta Consulting Group, a successful U.S. business,
      consulting to Fortune 1000 companies and in 1998, he partnered with Grey
      Healthcare Group, one of the largest Pharmaceutical Marketing and Advertising
      agencies in the world for the purpose of establishing Phase V Communications
      in
      Canada. Continuing his focus on the healthcare sector, he established Biotonix
      Inc. in partnership with the Desjardins Group in 2000. Biotonix is the first
      Internet-based Health company (iHealth) to successfully utilize sophisticated
      knowledge systems and Web-based applications to deliver non-invasive production
      solutions for lower back pain, cumulative trauma disorders, Osteoporosis and
      fitness/wellness.





***Mark
      Billings***





Mr.
      Billings has served as the Company’s Chief Financial Officer since March 2006
      and as Corporate Secretary since October 2006. Prior to joining Dynasty, Mr.
      Billings held several executive positions, both in Canada and abroad. In March
      2000, Mr. Billings accepted the position of Chief Financial Officer at G.P.
      Group Ltd., located in St. John’s, Antigua, and Barbuda. As CFO, Mr. Billings
      led the financial operations of this Internet gaming operator, which ran over
      50
      live sites at the time. Mr. Billings instituted financial controls, led annual
      audits, invested surplus cash, negotiated acquisitions for the company and
      prepared the company to list on the London Stock Exchange.





In
      February 2003, Mr. Billings initiated his own consulting group, Marengo
      Management Inc. (3581799 Canada Inc.) located in Montreal, Quebec, Canada.
      As
      President of his own consulting firm, Mr. Billings raised venture capital funds
      for a European Internet company and a Canadian environmental
      company.





Immediately
      prior to joining Dynasty, in 2004 Mr. Billings took the position of Vice
      President of Investment Banking at Desjardins Securities Inc., located in
      Montreal, Quebec, Canada. While at Desjardins, Mr. Billings led several
      investment banking mandates in the small-cap and micro-cap space in Canada
      and
      took several companies public on the TSX Venture Exchange.





28
 ***David
      Wolk***


Mr.
      Wolk
      has served as President and Secretary of Mahjong Development Inc. since October
      6, 2006. Mr. Wolk is currently the principal of his own financial communications
      and investor relations consultancy, David Wolk & Company, which he began in
      May 2002. Prior to starting his own business, Mr. Wolk served as the Managing
      Director of a financial communications consultancy, Opis Communications Inc.
      Mr.
      Wolk has also served as Vice President of National Public Relations, Inc.,
      a
      corporate communications advising firm, and was the Senior Vice President of
      Hill & Knowlton Canada, a corporate and financial communications
      consultancy.





***Kiyoshi
      Eguchi***





Mr.
      Eguchi has served as a director of the Company since November 2005. Mr. Eguchi
      previously served as Chief Executive Officer for Hong Kong and New York offices
      of Japanese advertising giant, Dentsu Inc. Mr. Eguchi continues to privately
      consult businesses and is a resident of Tokyo, Japan.




**Joseph
      Lau**





Mr.
      Lau,
      Managing Director of Hong Kong-based Guardian Partners Limited, has worked
      for
      nearly 20 years in Canada within the investment banking sector prior to his
      transfer to Hong Kong. Mr. Lau now directs the strategic investment unit of
      SavillsGuardian, a part of the Savills Group PLC.




***Adriaan
      Brink***





Adriaan
      Brink served as President and Director of Mahjong Systems Ltd., our wholly-owned
      subsidiary, from September 19, 2005 to March 31, 2007. Since January 2003,
      Mr.
      Brink has also served as Chief Executive Officer of Genesis Consulting Anstalt,
      a consulting firm located in Liechtenstein. Prior to holding these positions,
      Mr. Brink was Chief Executive Officer of Zabadoo AG from March 2001 through
      December 2002., a company that produced Lottery Software. From January 1996
      until February 2001, Mr. Brink served as Chief Executive Officer of
      International Lottery in Liechtenstein Foundation, a company that focused
      primarily in Charity Lottery.




***Robert
      Nihon II***





Mr.
      Nihon
      has served as a director of the Company since January 1, 2007, the date that
      Mr.
      David Wolk resigned from the board. He is presently Managing Director of the
      Bahamas-based Nihon Global Partners, which is a private family office that
      manages the capital of the Robert A. Nihon Family and a concentrated select
      group of individuals and institutional investors in the areas of asset
      management, real estate, private equity, venture capital and infrastructure.
      In
      his role with Nihon Global Partners, Mr. Nihon is focused on analyzing
      opportunities in asset management, infrastructure and private equity. His
      expertise has been in technology and Internet-related enterprises, as well
      as
      sports and athletic-related investments, specifically components product
      development and marketing.





**B.**  **Compensation**





The
      Company is required, under applicable securities legislation in Canada, to
      disclose to its shareholders details of compensation paid to its executive
      officers.  The following fairly reflects all material information regarding
      compensation paid to the Company’s executive officers and directors which has
      been disclosed to the Company’s shareholders under applicable Canadian
      law.





*Cash
      and Non-Cash Compensation - Executive Officers and Directors*




The
      Company currently has five executive officers and directors: Albert Barbusci,
      Robert Nihon II, Joseph Lau, Kiyoshi Eguchi and Mark Billings. The following
      table sets forth all annual and long term compensation that the Company has
      paid
      or that has accrued on behalf of Company’s chief executive officer, named
      executive officers and directors for the fiscal year ended December 31, 2006


29





**Summary
      Compensation Table**




Name
                & Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards($)
            
            Option
                Awards ($) *
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Change
                in Pension Value and Non-Qualified Deferred Compensation Earnings
                ($)
            
            All
                Other Compensation ($)
            
            Total
                ($)**Albert
                Barbusci,**President,
                Chief Executive Officer and Director
            
            
            2006
            
            225,000(1
            )
            
            --
            
            
            --
            
            
            19,800
            
            
            --
            
            
            --
            
            
            4,000
                (6
            )
            
            248,800**Mark
                Billings**
              CFO
                and
              Corporate
                Secretary
            
            
            2006
            
            
            92,308
            
            
            --
            
            
            --
            
            
            152,000
            
            
            --
            
            
            --
            
            
            --
            
            
            244,308**Kiyoshi
                Eguchi,**
              Director
                (6)
            
            
            2006
            
            
            --
            
            
            --
            
            
            --
            
            
            19,800
            
            
            --
            
            
            --
            
            
            3,000
            
            
            22,800**Robert
                Nihon II**(8)
              Director
            
            
            2006
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --**Joseph
                Lau**(3)(6)
              Director
            
            
            
            
            
            --
            
            
            --
            
            
            --
            
            
            18,900
            
            
            
            
            
            
            
            
            
            
            
            18,900**Adriaan
                Brink**(4)
            
            
            2006
            
            
            --
            
            
            --
            
            
            --
            
            
            23,889
            
            
            --
            
            
            --
            
            
            131,669
            
            
            155,558**Anthony
                Barbusci**(7)
            
            
            2006
            
            
            117,740
            
            
            --
            
            
            --
            
            
            19,800
            
            
            --
            
            
            --
            
            
            83,655
            
            
            221,195**Linda
                Lemieux**(2)
                (6)
            
            
            2006
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            83,000
            
            
            83,000**David
                Wolk**(6)(8)
            
            
            2006
            
            
            --
            
            
            --
            
            
            --
            
            
            19,800
            
            
            --
            
            
            --
            
            
            37,150
            
            
            56,950**Ian
                Sherrington**(5)
            
            
            2006
            
            
            60,000
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            60,000
            
            
            120,000




(1)
      Albert Barbusci received compensation of $225,000 pursuant to a Consulting
      Agreement between the Company and Cadence Communications Inc., a consulting
      company, of which Mr. Barbusci is the President.


(2)
      Linda
      Lemieux served as Director and Secretary of Mahjong Development Inc. (MDI);
      in
      September 2006 she resigned as Secretary of MDI and on November 1, 2006 she
      resigned as Director of Dynasty Gaming Inc. Ms. Lemieux was employed by MDI
      as a
      consultant, she received total fees of $80,000. Ms. Lemieux’s fees were paid to
      her personal operating company, Vision 2011, rather then to Ms. Lemieux
      directly.


(3)
      Joseph Lau was appointed Director of the Company on 19 November 2006 following
      the resignation of Linda Lemieux.


(4)
      Adriaan Brink was a former President and Director of Mahjong Systems Limited.
      Adriaan Brink received total fees of $131,669. Mr. Brink’s fees were paid to his
      personal operating company, Genesis Consulting, rather then to Mr. Brink
      directly. Mr. Brink resigned as Director on March 31, 2007.


(5)
      Ian
      Sherrington, President and Director of Mahjong Development Inc., was placed
      on
      salary as of November 1, 2005.and consultant fees were paid to Sherrington
      Systems, which is Mr. Sherrington’s personal operating company. On July 11,
      2006, Ian Sherrington resigned as the President and Director of Mahjong
      Development Inc.


(6)
      The
      Company’s Directors currently receive compensation of $1,000 per attendance at
      the Company’s Director’s Meetings.


(7)
      On
      July 11, 2006, Anthony Barbusci resigned as Vice President of Finance and
      Corporate Secretary and on December 31, 2006 Anthony Barbusci resigned as
      employee of the Company, he received $83,655 as a retiring
      allowance.


(8)
       Mr. Wolk’s fees of $33,150 were paid for services rendered as a
      communications consultant. Effective January 1, 2007, Mr. Wolk resigned from
      the
      board of directors of the Company and Robert Nihon II was appointed to the
      board
      of directors of the Company.


*The
      Company has also granted stock options to certain officers and directors during
      the fiscal year ended December 31, 2006 as described in
      Item 6E.*





***Pension
      and Retirement Plan Disclosure***





The
      Company does not provide retirement benefits for directors and executive
      officers.


30





***Employment
      Agreements***





Except
      for as disclosed below, there are no employment contracts, consulting
      agreements, or “change of control agreements” in place between the Corporation
      and any of its Named Executive Officers.





**Albert
      Barbusci** .
      Albert
      Barbusci, the Company’s Chief Executive Officer, is a party to an employment
      agreement with the Company. The employment agreement does not provide for any
      payment of salary or bonus, the circumstances under which the agreement may
      be
      terminated, nor does the agreement contain a non-competition provision. The
      employment agreement does provide for the issuance of 500,000 stock options
      to
      be issued upon the execution of a definitive agreement for an Asia-based joint
      venture with the Ho family (or its nominee), and 500,000 options to be issued
      upon the launch by the Company or its affiliates of Chinese prepaid Mahjong
      cards or Mahjong being introduced in the Chinese province owned lotteries.
      The
      agreement also entitles Mr. Barbusci to full participation in the Company’s
      group health and dental insurance plan and in any other benefit plan available
      to senior officers of the Company. Under the agreement Mr. Barbusci is also
      entitled to reimbursement for all reasonable and necessary business and travel
      expenses incurred by him.





Cadence
      Communications Inc. (“Cadence”), a consulting company of which Mr. Barbusci is
      President and sole owner, is also a party to a consulting agreement with the
      Company. Cadence is a holding company holding shares of subsidiaries that are
      primarily engaged in the business of developing, marketing and licensing
      internet-based gaming software. Per the terms of the consulting agreement,
      Cadence is to provide management services, expert advice and know-how with
      respect to (i) the management, administration and supervision of the Company’s
      business, (ii) financing, (iii) marketing and business promotion, and (iv)
      strategic planning. The consulting agreement, which provides for a 5-year term
      beginning March 16, 2006, unless terminated beforehand, provides for an annual
      fee of $225,000 to be paid by the Company to Cadence, along with a base fee
      equal to 2% of the Company’s pre-tax profits. The Company may terminate the
      consulting agreement in the event of a breach by Cadence of the confidentiality
      or non-competition provisions referred to in the consulting agreement, or if
      Cadence continuously fails to substantially perform its duties. The
      non-competition provision applies for the duration of the agreement and for
      a
      period of one year thereafter. Cadence may terminate the consulting agreement
      in
      the event of a material breach by the Company, a change in control of the
      Company, or a removal or non-reappointment of Cadence’s President from any
      executive position or from the Board of Directors of the Company. In the event
      of termination of the consulting agreement by the Company, the Company shall
      pay
      Cadence any accrued but unpaid base fees and performance fees for the period
      up
      to the date of termination, any accrued but unpaid expenses, as well as any
      other benefits to which Cadence is entitled.




**Mark
      Billings** .
      Mark
      Billings, the Company’s Chief Financial Officer, is a party to a 3-year
      employment agreement with the company, due to terminate on March 6, 2009, unless
      terminated beforehand, as described more fully below. The employment agreement
      provides, among other things, for payment of the executive’s salary of $120,000
      annually. In addition, the agreement provides for the issuance of (i) 500,000
      stock options to be issued upon execution of the employment agreement, (ii)
      200,000 stock options to be issued upon the Company having achieved $2,000,000
      of cumulative gross revenues from its Mahjong Mania and any other current or
      future gaming software, (iii) 200,000 options to be issued upon the launch
      of
      the first World Series of Mahjong tournament (or similar tournament) which
      the
      Company will be organizing, and (iv) 200,000 stock options to be issued upon
      the
      successful launch of the Mahjong Club web site (or similar site owned and
      operated by the Company). The employment agreement also provides for certain
      benefits, including an annual bonus equal to 2% of pre-tax profits subject
      to a
      maximum payment of no more than 50% of the Employee’s Base Salary, four weeks
      paid vacation each year, and full participation in the Company’s group health
      and dental insurance each year. Mr. Billings is also entitled to reimbursement
      for all reasonable and necessary business and travel expenses incurred by him
      in
      connection with the performance of his employment duties. The employment
      agreement permits Mr. Billings to act as an advisor, officer or director of
      other entities, provided that such activities do not conflict or compete with
      the Company or do not adversely affect the performance of Mr. Billings’ duties
      under the employment agreement. The non-competition provision applies for the
      duration of the agreement and for a period of one year thereafter. The Company
      may terminate the employment agreement upon the executive’s death or disability,
      or upon just cause, including breach of the non-competition provisions,
      mentioned above, in which case the Company shall pay to the executive or his
      beneficiary any accrued but unpaid base salary, bonus and vacation for the
      period up to the date of death or disability and any benefits to which the
      executive is entitled, other than options that have not vested in the event
      of
      termination for just cause. Mr. Billings may terminate the employment agreement
      with or without good reason, as defined in the employment agreement, at any
      time
      upon thirty days’ written notice to the Company.




***Directors***





The
      Company has no arrangements, standard or otherwise, pursuant to which directors
      are compensated by the Company for their services in their capacity as
      directors, or for committee participation, or involvement in special assignments
      during the most recently completed financial year or subsequently up to and
      including the date of this annual report, except that directors are compensated
      for their actual expenses incurred in the conduct of their duties as directors
      and certain directors may be compensated for services rendered as consultants
      or
      experts. To date, our directors are compensated $1,000 per attendance at our
      directors meetings.





31


**C.****Board
      Practices**




The
      term
      of office of each director is until the next annual meeting of stockholders
      and
      until a successor is elected and qualified or until the director’s death,
      resignation or removal from office. Executive officers hold office until their
      successors are chosen and qualified, subject to earlier removal by the board
      of
      directors.





The
      general duty of the Board of Directors of the Company is to oversee the
      management of the business and affairs of the Company. In particular, the Board
      of Directors is responsible for the following matters: ****





(a)
            
            adopting
                a strategic planning process for the Company which establishes the
                Company’s long-term goals and strategies, and monitoring the success of
                the Company’s management in achieving those goals and implementing the
                strategy;





(b)
            
            identifying
                the principal risks with respect to all aspects of the Company’s business,
                ensuring that there are systems in place to effectively monitor and
                manage
                such risks with a view to the long-term viability of the Company,
                and
                achieving a proper balance between the risks incurred and the potential
                return to the Company’s members;





(c)
            
            engaging
                in succession planning, including appointing, training and monitoring
                senior management (which includes ensuring that objectives are in
                place
                against which management’s performance can be measured), establishing and
                maintaining programs to train and develop management, providing for
                the
                orderly succession of management, and assessing the performance and
                contribution of the Chief Executive Officer of the Company against
                mutually established objectives;
                and





(d)
            
            ensuring
                that the Company has a policy in place to enable it to communicate
                effectively with its shareholders, other stakeholders and the general
                public, effectively interpreting the operations of the Company to
                shareholders, accommodating feedback from shareholders, and ensuring
                that
                there are effective controls and information systems in place for
                the
                Board of Directors to discharge its responsibilities, such as an
                audit
                system which can inform the Board of Directors about the integrity
                of the
                data and the compliance of the financial information with appropriate
                accounting principles.





*Committees
      of the Board of Directors*




The
      Company maintains an Audit Committee, which is comprised of Albert Barbusci,
      Joseph Lau, and Kiyoshi Eguchi. The Audit Committee oversees the accounting
      and
      financial reporting processes of the Company and all audits and external reviews
      of the financial statements of the Company on behalf of the Board, and has
      general responsibility for oversight of internal controls, accounting and
      auditing activities of the Company. As of the filing of this Annual Report,
      Mr.
      Joseph Lau serves as the Chair of the Audit Committee.





The
      Committee reviews, on a continuous basis, any reports prepared by the Company’s
      external auditors relating to the Company’s accounting policies and procedures,
      as well as internal control procedures and systems. The Committee is also
      responsible for examining all financial information, including annual financial
      statements, prepared for securities commissions and similar regulatory bodies
      prior to filing or delivery of the same. The Audit Committee also oversees
      the
      annual audit process, the Company’s internal accounting controls, any complaints
      and concerns regarding accounting, internal controls or auditing matters and
      the
      resolution of issues identified by the Company’s external auditors. The Audit
      Committee recommends to the Board the firm of independent auditors to be
      nominated for appointment by the shareholders and the compensation of the
      auditors. The Audit Committee meets on an as needed basis.





Other
      then the Audit Committee, the Board of Directors has not appointed any other
      committees.





**D.**  **Employees**





As
      of
      December 31, 2006, the Company and its wholly-subsidiaries had 23 full-time
      employees and 4 consultants under contract, all of whom worked out of the
      Company’s head office. The employees’ positions included managerial and support
      staff positions. All employees were engaged either directly as employees,
      through a management company or as consultants.




**E.**  **Share
      Ownership**




The
      following table sets forth the share ownership of those persons listed in Items
      6A and 6B above who are currently our executive officers and/or directors and
      includes the details of all options or warrants to purchase shares of the
      Company held by such persons as of May 31, 2007:




**Name**
              **Number
                  of**
                **Common**
                **Shares
                  Held**
              **Number
                  of**
                **Options
                  or**
                **Warrants**
                **Outstanding****1**
              **Beneficial**
                **Ownership****2**
              **Percentage**
                **Of
                  Class****7**Albert
                  Barbusci
              13,473,000
                  (3)
              90,000
                  (3)
              13,628,000
              14.58%Mark
                  Billings
              49,000
                  (4)
              700,000
              449,000
              *
 Kiyoshi
                  Eguchi
              Nil
                  (5)
              90,000
              60,000
              *Joseph
                  Lau
              Nil
                  (6)
              90,000
              30,000
              *Robert
                  Nihon
              Nil
              0
              0
              *Total:
              13,522,000
              970,000
              14,167,000
              15.24%
  32
  *
        indicates less than 1%.
 (1)
                  For information regarding the class, amount, exercise prices, and
                  expiry
                  date of the options, please see below.(2)
                  Beneficial ownership is determined in accordance with the rules
                  of the
                  Securities and Exchange Commission and generally includes voting
                  or
                  investment power with respect to securities. Unissued common shares
                  subject to options, warrants or other convertible securities currently
                  exercisable or convertible, or exercisable or convertible within
                  60 days
                  of May 31, 2007, are deemed outstanding for the purpose of computing
                  the
                  beneficial ownership of common shares of the person holding such
                  convertible security but are not deemed outstanding for computing
                  the
                  beneficial ownership of common shares of any other
                  person.(3)
                  Held by Mr. Barbusci, personally and through Cadence Holdings,
                  a
                  corporation of which Mr. Barbusci is President and greater than
                  10%
                  shareholder, as well as 95,000 shares held by Mr. Barbusci’s wife and
                  minor children and 60,000 of vested stock options.(4)
                  Mark Billings, Chief Financial Officer, was hired on March 20,
                  2006. Mr.
                  Billing owns 49,000 shares of DNY common stock, as well as options
                  to
                  purchase 500,000 shares of DNY common stock at a strike price of
                  $0.50 per share, which expire on March 5, 2011, of which 333,333
                  have
                  vested or will vest within 60 days of May 31, 2007, and options
                  to
                  purchase 200,000,shares of DNY common stock at a strike price of
                  $0.54 per
                  share, which expire on November 1, 2011, of which 66,667 have vested
                  or
                  will vest within 60 days of May 31, 2007.(5)
                  Kiyoshi Eguchi, Director, has options to purchase 90,000 shares
                  of DNY
                  common stock at a strike price of $0.50 per share, which expire
                  on March
                  5, 2011, of which 60,000 have vested or will vest within 60 days
                  of May
                  31, 2007,(6)
                  Joseph Lau, Director, has options to purchase 90,000 shares of
                  DNY common
                  stock at a strike price of $0.54 per share, which expire on November
                  1,
                  2011, of which 30,000 have vested or will vest within 60 days of
                  May 31,
                  2007,
 ( 7)
        Based
        on 92,347,574 shares outstanding as of May 31, 2007.







*Stock
      Option Plan*




The
      Company maintains a Stock Option Plan for eligible individuals: directors,
      officers, employees and consultants. On February 24, 2006 the aggregate number
      of shares reserved for issuance was increased to 7,500,000 from the previous
      aggregate of 5,500,000. On October 6, 2006 a new plan was approved by the board
      to replace the old plan. Under the new plan the maximum aggregate number of
      shares reserved for issuance shall not exceed 10% of the then issued and
      outstanding shares of the Company.




Under
      the
      old plan, options were periodically granted to purchase common shares at an
      exercise price which is equal to the price quoted on the exchange on the date
      on
      which the grant of the option is approved by the board, less the maximum
      discount permitted under the Exchange’s policies applicable to options.
      Generally, these options vest in six equal installments over a period of 18
      months, with the first installment vesting immediately and the remaining options
      vesting upon 6 months, 9 months, 12 months, 15 months, and 18 months after
      the
      date of grant. The options terminate 5 years after the grant.





Under
      the
      new plan, the option price, the expiration date of each option, the vesting
      period and other terms and conditions relating to each option shall be
      determined by the Board at the time of granting. The options are exercisable
      up
      to a maximum of 5 years after the grant.





As
      of
      December 31, 2006, we had 7,887,888 incentive stock options issued and
      outstanding.





The
      following table sets out certain information relating to common stock options
      not exercised by our senior management and directors as at December 31,
      2006:





**Name**
            **Title
                of Class**
            **Securities
                Acquired on Exercise**
              **(#)**
            **Exercise
                Price (Cdn $)**
            **Unexercised
                Options at May 31, 2006**
              **(#)**
            **Expiry
                Date**Albert
                Barbusci
            Common
            Nil
            $0.50
            90,000
            March
                5, 2011David
                Wolk (6)
            Common
            Nil
              125,000
              Nil
            $1.00
              $0.15
              $0.50
            25,000
              nil
              90,000
            August
                5, 2007
              March
                1, 2010
              March
                5, 2011Linda
                Lemieux (5)
            Common
            125,000
              Nil
            $0.15
              $0.50
            nil
              90,000
            March
                1, 2010
              March
                5, 2011






33






Kiyoshi
                Eguchi
            Common
            Nil
            $0.50
            90,000
            March
                5, 2011Anthony
                Barbusci (4)
            Common
            Nil
              50,000
              Nil
            $0.75
              $0.15
              $0.50
            100,000
              75,000
              90,000
            March
                25, 2007
              March
                1, 2010
              March
                5, 2011Adriaan
                Brink (1)
            Common
            Nil
              Nil
            $0.44
              $0.54
            333,333
              333,333
            September
                21, 2010Ian
                Sherrington (2)
            ommon
            111,111
            $0.44
            222,222
            September
                21, 2010Mark
                Billings (3)
            Common
            Nil
            $0.50
            500,000
            March
                5, 2011Robert Nihon II (6)
            --
            --
            --
            --
            --




(1)
      Adriaan Brink holds the common stock options through his personal operating
      company, Genesis Consulting Anstalt. Mr. Brink resigned as President of Mahjong
      Systems Limited as of March 31, 2007.


(2)
      Ian
      Sherrington resigned as the President and Director of Mahjong Development Inc.
      as of March 31, 2007


(3)
      Mark
      Billings, Chief Financial Officer, was hired on March 20, 2006. Mr. Billings’
current compensation structure includes an annual salary of $120,000. Mr.
      Billings also owns 49,000 shares of DNY common stock.


(4)
      Anthony Barbusci resigned as Vice President of Finance and Corporate Secretary
      as of July 11, 2006 and as of January 1, 2007 he is no longer an employee of
      the
      Company.


(5)
      Linda
      Lemieux resigned as Secretary of Mahjong Development Inc. as of September 2006
      and on November 1, 2006 she resigned as Director of the Company.


(6)
      Effective January 1, 2007, Mr. Wolk resigned from the board of directors of
      the
      Company and Robert Nihon II was appointed to the board of directors of the
      Company.





*Broker’s
      Warrants*




On
      December 28, 2005, the Company issued two Broker’s Warrant Certificates. The
      first, naming AM Capital, LLC as the Holder, provided for the issuance of
      750,000 non-transferable broker warrants, each warrant entitling the holder
      to
      purchase one common share of the Company at a price of CDN$0.50 per share at
      any
      time up to December 28, 2007. The warrants were issued pursuant to applicable
      prospectus and registration exemptions and subject to a four month hold period,
      which expired on April 29, 2006. The second Broker’s Warrant Certificate named
      RG Securities, LLC, and provided for the issuance of 600,000 non-transferable
      broker warrants under similar terms.





**ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**





**A.**  **Major
      shareholders**





To
      the
      best of Dynasty’s knowledge, no person, corporation or other entity is a
      beneficial owner of more than 5% of the common shares of Dynasty, except for
      those listed below:





**Title
                of Class**
            **Identity
                of Person or Group**
            **Number
                of Shares Beneficially Owned****(1)**
            **Percent
                of Class****(2)**Common
                Shares
            Albert
                Barbusci
            13,628,000
                (3)
            14.8%Common
                Shares
            Richard Groome
            7,876,500 (4)
            8.5%





(1)
            Beneficial
                ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. Unissued common shares subject to options,
                warrants
                or other convertible securities currently exercisable or convertible,
                or
                exercisable or convertible within 60 days, are deemed outstanding
                for the
                purpose of computing the beneficial ownership of common shares of
                the
                person holding such convertible security but are not deemed outstanding
                for computing the beneficial ownership of common shares of any other
                person.(2)
            Based
                on 92,347,574 common shares issued and outstanding at May 31, 2007.






34






(3)
            Mr.
                Barbusci’s beneficial ownership includes 13,473,000 shares held by Mr.
                Barbusci, personally and through Cadence Holdings, a corporation
                of which
                Mr. Barbusci is President and greater than 10% shareholder, as well
                as
                95,000 shares held by Mr. Barbusci’s wife and minor children and 60,000 of
                vested stock options.(4)
            Mr.
                Groome’s beneficial ownership includes 5,876,500 common shares and
                warrants underlying 2,221,500 common shares, as well as 2,000,000
                common
                shares and 500,000 warrants under his investment control or
                direction.


There
      are
      currently no voting rights arrangements among the Company’s shareholders and
      directors, nor do any major shareholders have different voting
      rights.





As
      at May
      31, 2007, there were 42 registered shareholders in the United States that held
      common shares totaling 17,610,100 or 19.1% percent of the common shares
      outstanding; these registered shareholders were brokerage firms and thus these
      shares were held in “street name”.





To
      the
      extent known to us, we are not directly or indirectly owned or controlled by
      any
      Foreign Government, or by any other natural or legal persons, severally or
      jointly.




**B.**  **Related
      Party Transactions**




Except
      where described elsewhere in this Annual Report, we have not, during the three
      most recently completed financial years and the subsequent period up to the
      date
      of this Annual Report, entered into transactions or loans with any (a)
      enterprises that are directly or indirectly controlled by or under common
      control with us; (b) our associates; (c) individuals directly or indirectly
      owning voting right which give them significant influence over us or close
      members of their respective families, (d) our directors, senior management
      or
      close members of their respective families or (e) enterprises in which a
      substantial interest in the voting power is held or significantly influenced
      by
      any of the foregoing individuals (a “Related Party”), except as indicated
      below.





Transactions
      with related parties are in the normal course of operations. The following
      provides information on transactions with those related parties with whom the
      Company either received revenue or paid expenses. Companies are either owned
      or
      controlled by shareholders, directors or officers of the Company or its
      subsidiaries.





As
      at
      December 31, 2006, the Company has $3,272 accounts payable to related
      parties.





Direct
      costs were charged by:





Vision
      2011, a company controlled by Linda Lemieux, a former director of the Company,
      charged direct costs in the amount of $80,000. There is no written agreement
      or
      contract between Vision 2011 and the Company or any of its subsidiaries. Up
      until September 8, 2006, Ms. Lemieux provided management consulting services
      to
      the Company’s subsidiary, Mahjong Development Inc. and billed for these services
      through her personal services company, Vision 2011. Ms. Lemieux oversaw the
      operation and managed the software development team. Ms. Lemieux received
      payments of $10,000 per month.





Lisnacullen
      Farms, a company controlled by Christine Sheehy, wife of Barry Sheehy, the
      president of CPC Econometrics, our former subsidiary which was subsequently
      disposed off, charged direct costs of $66,764. There is no written agreement
      or
      contract between Lisnacullen Farms and the Company or any of its subsidiaries.
      Lisnacullen Farms provides management, corporate, administrative and advisory
      services to CPC Econometrics.




Genesis
      Consulting, a company controlled by Adriaan Brink, former President of our
      MSL
      subsidiary, charged direct costs of $11,669 to MSL.




Administrative
      costs were charged by:





Cadence
      Communications Inc., a company controlled by Albert Barbusci, our President
      and
      CEO, charged administrative costs in the amount of $225,000. Mr. Barbusci’s
      travel, entertainment and most other business-related expenses are paid by
      his
      personal company, Cadence Communications Inc. and are subsequently billed to
      the
      Company for reimbursement. Dynasty Gaming Inc. and Cadence Communications Inc.
      entered into an agreement on January 1, 2006. The services to be rendered by
      Cadence Communications, as represented by Albert Barbusci, include the
      management, administration and supervision of the Company’s business; financing;
      marketing and business promotion; and strategic planning. This agreement has
      a
      term of five (5) years, thus terminating on December 31, 2010. It can thereafter
      be renewed upon the mutual consent of the parties on such terms and conditions
      as mutually agreed. The parties agree to commence discussions regarding renewal
      one (1) year prior to the end of the five-year term.





David
      Wolk, a director of the Company, provides various communications services,
      including drafting press releases and business plans. There is no written
      agreement or contract between Mr. Wolk and the Company or any of its
      subsidiaries. His fees for the year amounted to $33,150 and were billed to
      the
      Company. Subsequent to the filing of the Company Registration Statement on
      Form
      20-F, Amendment NO. 4, effective as of January 1, 2007, Mr. Wolk resigned as
      a
      director of the Company.


35




Genesis
      Consulting, a company controlled by Adriaan Brink, the President of our MSL
      subsidiary, charged administrative costs of $120,000 to MSL. Genesis Consulting
      and Mahjong Systems Limited, a wholly-owned subsidiary of the Company, entered
      into an agreement on June 10, 2005. In accordance with the agreement. Mr. Brink,
      through his company Genesis Consulting, provides management, marketing, business
      development and sales services to the Company and its Mahjong subsidiaries.
      Subsequent to the filing of the Company Registration Statement on Form 20-F,
      Amendment NO. 4, effective as of March 31, 2007, Mr. Brink resigned as President
      of our MSL subsidiary.




Director
      fees were paid as follows: $4,000 to Albert Barbusci; $4,000 to David Wolk;
      $3,000 to Linda Lemieux and $3,000 to Kiyoshi Eguchi.





The
      above
      transactions are in the normal course of operations and are measured at the
      exchange amount, which is the amount of consideration established and agreed
      to
      by the related parties. The Company believes that all these transactions were
      entered into on terms as favorable as could have been obtained from unrelated
      third parties because, based upon its experience in the industry, DNY believes
      it would have had to pay independent third parties more for comparable assets
      or
      services.





Other
      than the above transactions, DNY has not entered into any material transactions
      with any director, executive officer, and nominee for director, beneficial
      owner
      of five percent or more of DNY common stock, or family members of such persons.
      Also, other than the above transactions, DNY has not had any transactions with
      any promoter.





***C.***
            ***Interests
                of experts and
                counsel***




Not
      Applicable.




**ITEM
      8. FINANCIAL INFORMATION**





**A.**  **Consolidated
      Statements and Other Financial Information.**





The
      Company’s consolidated financial statements are stated in Canadian Dollars
      (CDN$) and are prepared in accordance with Canadian Generally Accepted
      Accounting Principles (GAAP), the application of which, in the case of the
      Company, conforms in all material respects for the periods presented with United
      States GAAP, except as discussed in footnotes to the financial
      statements.




*Audited
      Financial Statements*




Our
      consolidated financial statements for the fiscal periods 2006/2005/2004 periods
      ended December 31 st as
      required under Item #17 are included immediately following the text of this
      Annual Report. The audit reports of the Company are included herein immediately
      preceding the financial statements.





*Legal/Arbitration
      Proceedings*




The
      Directors and the management of the Company do not know of any material, active
      or pending, legal proceedings against them; nor is the Company involved as
      a
      plaintiff in any material proceeding or pending litigation.




Policy
      on dividend distributions:





Dynasty
      has not paid any dividends on its outstanding common shares since its
      incorporation and does not anticipate that it will do so in the foreseeable
      future. The payment of dividends in the future, if any, is within the discretion
      of the Board of Directors of Dynasty and will depend upon our earnings, our
      capital requirements and financial condition and other relevant factors. We
      do
      not anticipate declaring or paying any dividends in the foreseeable
      future.





***B.***
            ***Significant
                Changes***




None.





**ITEM
      9. THE OFFER AND LISTING**





**A.**  **Offer
      and Listing Details**




Our
      common shares trade on the TSX Venture Exchange under the symbol “DNY” and on
      the OTCBB under the symbol “DNYFF.” The TSX Venture Exchange (“TSX”) is
      monitored by the Ontario Securities Commission. Our common shares began trading
      on the (i) TSX Venture Exchange under the symbol “DNY” on December 9, 2005, and
      (ii) on the OTCBB under the symbol “DNYFF” on February 16, 2007. Before we were
      listed as “DNY” and prior to our name change, our common shares were traded on
      the TSX Venture Exchange under the name Events International Holding Corporation
      and under the symbol “EIH.” As of May 31, 2006, the stock price on the TSX
      Venture Exchange was CDN$0.85.


36







The
      high
      and low closing trading prices of our common shares as reported on the TSX
      and
      the OTCBB for the five most recent full financial years are listed in the
      following chart.




**TSX
      (in CDN$):**


**PERIOD**
            
            **HIGH**
              **(Cdn.$)**
            
            **LOW**
              **(Cdn.$)****2006**
            
            1.45
            
            0.35**2005***
            
            0.66
            
            0.15**2004**
            
            0.40
            
            0.03**2003**
            
            0.65
            
            0.17**2002***
            
            1.48
            
            0.45





*The
      Company’s common shares began trading on the TSX, under the name Events
      International Holding Corporation (“EIH”), on April 25, 2002. The Company
      changed its name to Dynasty Gaming Inc. (“DNY”) on December 5, 2005, and began
      trading on the TSX Venture Exchange under that symbol on December 9,
      2005.





**OTCBB:**





The
      Company’s common shares did not trade on the OTCBB during any of the five most
      recent full financial years.





The
      high
      and low market prices of our common shares as reported on the TSX and the OTCBB
      for each full financial quarter over the two most recent full financial years
      and the subsequent period are as set forth below:





**TSX
      (in CDN$):**




**High**
            
            **Low**March
                31, 2007(1)
            
            
            0.93
            
            
            0.68December
                31, 2006
            
            
            1.01
            
            
            0.34September
                30, 2006
            
            
            0.9
            
            
            0.48June
                30, 2006
            
            
            1.31
            
            
            0.79March
                31, 2006
            
            
            1.33
            
            
            0.39December
                31, 2005
            
            
            1.11
            
            
            0.35September
                30, 2005
            
            
            0.93
            
            
            0.47June
                30, 2005
            
            
            1.45
            
            
            0.73March
                31, 2005
            
            
            1.35
            
            
            0.39





**OTCBB
      (in U.S.$):**




**High**
            
            **Low**March
                31, 2007**
            
            
            0.778
            
            
            0.595January
                1, 2005 - December 31, 2006*
            
            
            N/a
            
            
            N/aJanuary
                1, 2005 - December 31, 2005*
            
            
            N/a
            
            
            N/a





*
      The
      Company’s common shares did not trade on the OTCBB during respective financial
      years.


**
      For
      the respective period, the Company’s common shares commenced trading on February
      16, 2007.





37


For
      the
      most recent six months, the high and low market prices of our common shares
      are
      as set forth below:





**TSX
      (in CDN$):**




PERIOD
            
            HIGH
              (Cdn.$)
            
            LOW
              (Cdn.$)May 31,2007
            
            0.76
            
            0.33April 30, 2007
            
            0.78
            
            0.56March 31, 2007
            
            0.86
            
            0.66February 28, 2007
            
            0.90
            
            0.78January 31, 2007
            
            0.95
            
            0.66December 31, 2006
            
            1.10
            
            0.66




**OTCBB:**




**High**
            
            **Low**May 31,2007
            
            
            0.630
            
            
            0.350April 30, 2007
            
            
            0.670
            
            
            0.492March 31, 2007
            
            
            0.728
            
            
            0.595February 28, 2007**
            
            
            0.737
            
            
            0.682January 31, 2007*
            
            
            N/a
            
            
            N/aDecember 31, 2006*
            
            
            N/a
            
            
            N/a




*
      The
      Company’s common shares did not trade on the OTCBB during respective financial
      years.


**
      For
      the respective period, the Company’s common shares commenced trading on February
      16, 2007.





We
      are
      listing our common shares, with no par value, pursuant to Section 12(g) of
      the
      Exchange Act of 1934. Our shares of common stock are in registered form when
      issued. All of the shares outstanding are “restricted shares” within the meaning
      of Rule 144 of the Securities Act of 1933 and may be publicly sold only if
      registered under the Securities Act or sold in accordance with an applicable
      exemption from registration, such as Rule 144.




As
      of May
      31, 2007, there were 92,347,574 of our common shares issued and outstanding;
      and
      there were approximately 1,159 registered holders of our common stock.





**B.**  **Plan
      of Distribution**





Not
      Applicable.





**C.**  **Markets**





Our
      Common Shares are quoted in Canada on the TSX Venture Exchange, under the
      trading symbol “DNY” and in the U.S. on the OTCBB under the trading symbol
“OTCBB.OB.”





**D.**  **Selling
      Shareholders**





Not
      Applicable.





**E.**  **Dilution**





Not
      Applicable.





**F.**  **Expenses
      of the Issue**





Not
      Applicable.





**ITEM
      10. ADDITIONAL INFORMATION**





**A.**
            **Share
                Capital**





Not
      applicable.





**B.**  **Memorandum
      and Articles of association**





The description of certain terms and provisions of our Articles of
      Incorporation and By-laws is incorporated by reference to our Registration
      Statement filed on Form 20-F, Amendment No. 5 filed with the SEC on January
      12,
      2007.


38





**C.**  **Material
      Contracts**





During
      the fiscal years ended December 31, 2006 and 2005, and as of May 31, 2006,
      the
      Company has entered into the material contracts listed below:





1.
            On
                May 19, 2004, the Company signed a software agreement with International
                Gaming and Entertainment Limited. Under the Agreement, Dynasty Gaming
                will
                earn licensing fees and an ongoing share of rake revenue from each
                game
                played on Intertop’s gaming site.





2.
            On
                March 27, 2005, the Company signed a software agreement with Apex
                Holdings. Under the Agreement, Dynasty Gaming will earn licensing
                fees and
                an ongoing share of rake revenue from each game played on Apex Holdings’
                gaming site.





3.
            On
                August 3, 2005, the Company signed a software agreement with UK-based
                online sports book operator, Betex (Group) plc. Under the combined
                licensing and profit sharing deal, Betex will use Mahjong Mania in
                its
                suite of online games.





4.
            On
                August 3, 2005, the Company, through its Mahjong Systems Ltd. subsidiary,
                signed a software agreement with Action Poker Gaming Inc (“Action Poker”).
                Under the Agreement, Dynasty Gaming will earn licensing fees and
                an
                ongoing share of rake revenue from each game played on the Action
                Poker’s
                gaming site.





5.
            On
                October 11, 2005, the Company entered into an agreement with Ho Casinos
                to
                provide its Mahjong Mania software for its exclusive Mahjong site,
                www.
                drho888.com. Dynasty Gaming will earn licensing fees and an ongoing
                share
                of rake revenue from each game played on the Ho Casinos gaming
                site.





6.
            On
                October 20, 2005, the Company, through its Mahjong Systems Ltd.
                subsidiary, entered into a contract with Ho Casinos. The contract
                covers
                the payment by Ho Casinos of license fees and share of revenue proceeds
                for the use of the Company’s*Mahjong
                Mania*gaming software on Ho Casinos’ Homahjong.com
                website.





7.
            On
                October 24, 2005, the Company signed a partnership agreement with
                Orbis
                Technology Ltd., which owns OpenBet Casinos, which is one of the
                most
                comprehensive platforms available for operators, and supports all
                major
                gambling products. Under the Agreement, the Company will earn licensing
                fees and share of revenue from each gaming network on which the*Mahjong
                Mania*software is installed.





8.
            On
                October 28, 2005, the Company, through its Mahjong Systems Ltd.
                subsidiary, entered into a contract with Absolute Entertainment SA.
                The
                contract covers the payment by Absolute Entertainment SA of license
                fees
                and share of revenue proceeds for the use of the Company’s*Mahjong
                Mania*gaming software.





9.
            On
                January 25, 2006, the Company integrated its*Mahjong
                Mania*software live on Ladbrokes.com, a leading online casino operator.
                This
                installation provides Mahjong Systems Ltd., a wholly-owned subsidiary
                of
                the Company, with a licensing fee and an ongoing share of rake revenue
                from each game played on the Ladbrokes gaming
                site.





10.
            On
                March 8, 2006, the Company, through its Mahjong Systems Ltd. subsidiary,
                entered into a contract with Golden Palace Ltd. The contract covers
                the
                installation and payment of royalties for the Company’s*Mahjong
                Mania*gaming software.





11.
            On
                March 28, 2006, the Company, through its Mahjong Systems Ltd. subsidiary,
                entered into a contract with Interactive Gaming Holdings Plc. The
                contract
                covers the payment by Interactive Gaming Holdings Plc of license
                fees and
                share of revenue proceeds for the use of the Company’s*Mahjong
                Mania*gaming software.





12.
            On
                April 24, 2006, the Company, through its Mahjong Systems Ltd. subsidiary,
                signed a partner agreement with Finsoft Limited covering the distribution
                of Dynasty’s*Mahjong
                Mania*software. Under the Agreement, the Company will earn licensing fees
                and
                revenue from each gaming network on which Finsoft installs Mahjong
                Mania
                software. (This agreement has since expired and has not been
                renewed.)




13.
            On
                August 24, 2006, the Company, through its Mahjong Systems (Cyprus)
                Limited
                subsidiary, entered into a contract with Microgaming Software Systems
                Limited whereby MSL (Cyprus) granted Microgaming an exclusive license
                to
                use and sub-license the use of the Mahjong System.


14.
            On
                March 30, 2007, the Company entered into an investor relations services
                agreement with AGORACOM Investor Relations (“AGORACOM”). Pursuant to the
                terms of this Agreement, AGORACOM will (i) create effective communication
                between the Company, its shareholders and the investment community
                through
                AGORACOM’s internet based investor relations system, and (ii) create a
                monitored Dynasty Gaming IR HUB (http://www.agoracom.com/IR/DynastyGaming)
                that will allow both the Company and AGORACOM to communicate with
                all
                investors simultaneously, anytime and in real-time, while providing
                shareholders with equal access and complete transparency to all investor
                relations communications. Furthermore, AGORACOM agreed to provide
                services
                to the Company for the purpose of raising the Company awareness amongst
                retail investors for the purposes of attracting new and prospective
                shareholders.






39





15.
            On
                March 21, 2007, the Company entered into a joint venture agreement
                with
                China’s NextMart Inc. (formerly Sun New Media Inc.) for the creation of
                a
                new brand/internet portal, in the form of a highly profiled e-commerce
                website, that will focus primarily on China’s approximately 200 million
                young urban males and females aged 18 to
                25.





16.
            On
                May 25, 2007, the Company entered into a Letter of Intent (“LOI”) with
                Shanda Interactive Entertainment Ltd., (NASDAQ: “SNDA”) China’s leading
                interactive entertainment media company. The LOI will facilitate
                an
                exchange of information between the two companies, leading to the
                licensing of our MahjongMania software by Shanda. In addition, the
                LOI
                will allow for the exploration of ways Dynasty and Shanda might jointly
                pursue China’s online gaming market. The companies are currently
                negotiation entering into a formal definitive
                agreement.





17.
            On
                February 7, 2007, the Company, through its Mahjong Systems (Cyprus)
                Limited subsidiary, entered into a contract with MT Ventures Inc.,
                a
                subsidiary of Las Vegas from Home.com Entertainment Inc. whereby
                both
                companies cross-licensed each other’s online gaming
                software.18.
            On
                March 28, 2007, the Company, through its Mahjong Systems (Cyprus)
                Limited
                subsidiary, entered into a contract with Evolution Gaming Inc. whereby
                the
                latter agreed to license the Company’s Mahjong Mania
                software.





In
      connection with the material contracts listed above in #1-13, the Company has
      previously filed a Confidentiality Request with, and obtained confidentially
      treatment from, the SEC. Accordingly, certain confidential information has
      been
      redacted from the above-listed material contracts, copies of which are included
      as exhibits to the Company’s Registration Statement filed on Form 20-F on
      January 12, 2007.





**D.**  **Exchange
      controls**




**Canadian
      Tax Considerations**




The
      following is a general summary of the principal Canadian federal income tax
      considerations generally applicable to an investor who acquires Common Shares
      and who, for the purposes of the *Income
      Tax Act* (Canada), as amended (the “Tax Act”) and any applicable income tax treaty or
      convention, at all relevant times (i) is not a resident or deemed to be a
      resident in Canada; (ii) deals at arm’s length and is not affiliated with
      Dynasty; (iii) is not a foreign affiliate of a taxpayer resident in Canada;
      (iv) holds Common Shares as capital property; and (v) does not use or
      hold and is not deemed to use or hold such Common Shares in the course of
      carrying on a business in Canada (such an investor referred to herein as a
      “non-Canadian investor”). In general, a non-Canadian investor will be considered
      to hold Common Shares as capital property unless the investor is a trader or
      dealer in securities or otherwise holds them in the course of carrying on a
      business of buying or selling securities or has acquired them in a transaction
      considered to be an adventure in the nature of trade. This summary does not
      apply to non-Canadian investors (or other investors) who are insurers or who
      are
“financial institutions” within the meaning of the “mark-to-market” rules
      contained in the Tax Act.




This
      summary is based on the current provisions of the Tax Act and the regulations
      thereunder (the “Regulations”), all specific proposals to amend the Tax Act and
      the Regulations publicly announced by the Minister of Finance (Canada) prior
      to
      the date hereof and on Dynasty’s understanding of the current published
      administrative practices of the Canada Revenue Agency (the “CRA”). This summary
      does not take into account or anticipate any change in law, whether by
      legislative, governmental or judicial action or changes in the administrative
      practices or assessing policies of the CRA.





**This
      summary is of a general nature only and is not intended to be, and should not
      be
      construed to be, legal or tax advice to any investor and no representation
      with
      respect to the tax consequences to any particular investor is made. This summary
      does not address any aspect of any provincial, state or local tax laws or the
      laws of any jurisdiction other than Canada. Accordingly, investors should
      consult with their own tax advisors for advice with respect to the income tax
      consequences to them having regard to their own particular
      circumstances.**




A
      non-Canadian investor will be subject to a 25% withholding tax under the Tax
      Act
      on the gross amount paid or credited or deemed to be paid or credited as, on
      account or in lieu of payment of, or in satisfaction of dividends to him on
      a
      Common Share. The rate of withholding tax may be reduced under the provisions
      of
      a relevant international tax treaty to which Canada is a party. For example,
      pursuant to the *Canada-United
      States Income Tax Convention* (1980),
      as amended (the “Treaty”), the rate of withholding tax on dividends paid or
      credited or deemed to be paid or credited on a Common Share beneficially owned
      by a resident of the United States for the purposes of the Treaty will generally
      be reduced to 15%. However, where such beneficial owner is a company resident
      in
      the United States which owns at least 10% of the voting stock of Dynasty, the
      rate of such withholding is reduced to 5%.





The
      Common Shares constitute “taxable Canadian property” under the Tax Act. A
      disposition or deemed disposition of a Common Share by a non-Canadian investor
      will give rise to a capital gain (or capital loss). Any capital gain realized
      as
      a result of such disposition or deemed
      disposition will be subject to Canadian tax. However, under the Treaty, such
      gains will generally be exempt from Canadian tax where the non-Canadian investor
      disposing of such Common Shares is a resident of the United States for the
      purposes of the Treaty.


40





**U.S.
      Tax Considerations**




**Material
      United States Federal Income Tax Consequences**




The
      following is a general discussion of material United States federal income
      tax
      consequences, under current law, generally applicable to a U.S. Holder (as
      defined below) of our common shares. This discussion does not address all
      potentially relevant federal income tax matters and it does not address
      consequences peculiar to persons subject to special provisions of federal income
      tax law, such as those described below as excluded from the definition of a
      U.S.
      Holder. In addition, this discussion does not cover any state, local or foreign
      tax consequences. See “Certain *Canadian
      Tax Considerations* ”
      above.





The
      following discussion is based upon the *Internal
      Revenue Code of 1986* , as
      amended to the date hereof (the “Code”), existing and proposed Treasury
      Regulations, published Internal Revenue Service (“IRS”) rulings, published
      administrative positions of the IRS and court decisions that are currently
      applicable, any or all of which could be materially and adversely changed,
      possibly on a retroactive basis, at any time. This discussion does not consider
      the potential effects, both adverse and beneficial, of any recently proposed
      legislation which, if enacted, could be applied, possibly on a retroactive
      basis, at any time.




**This
      discussion is of a general nature only and is not exhaustive of all US federal
      income tax implications, and it is not intended to be, nor should it be
      construed to be, legal or tax advice to any particular holder or prospective
      holder of Dynasty’s common shares and no opinion or representation with respect
      to the United States federal income tax consequences to any such holder or
      prospective holders is made. Accordingly, holders and prospective holders of
      Dynasty’s common shares should consult their own tax advisors about the federal,
      state, local, and foreign tax consequences of purchasing, owning and disposing
      of Dynasty’s common shares.**


**U.S.
      Holders**




As
      used
      herein, a “U.S. Holder” means a holder of Dynasty’s common shares who is a U.S.
      citizen or individual income tax resident of the United States under U.S.
      domestic law and the Convention, a corporation created or organized in or under
      the laws of the United States or of any political subdivision thereof, an estate
      the income of which is includable in gross income for U.S. federal income tax
      purposes regardless of its source or a trust if a U.S. court is able to exercise
      primary supervision over the trust’s administration and one or more U.S. persons
      have authority to control all substantial decisions of such trust. This summary
      does not address the tax consequences to, and a U.S. Holder does not include,
      persons subject to special provisions of federal income tax law, including
      but
      not limited to tax-exempt organizations, qualified retirement plans, individual
      retirement accounts and other tax-deferred accounts, financial institutions,
      insurance companies, real estate investment trusts, regulated investment
      companies, broker-dealers, non-resident alien individuals, persons or entities
      that have a “functional currency” other than the U.S. dollar, shareholders who
      hold common stock as part of a “straddle”, hedging or a conversion transaction
      and shareholders who acquired their stock through the exercise of employee
      stock
      options or otherwise as compensation for service. This discussion is limited
      to
      U.S. Holders who hold the common shares as capital assets and who hold the
      common shares directly (e.g., not through an intermediate entity such as a
      corporation, partnership, LLC or trust). This discussion does not address the
      consequences to a person or entity holding an interest in a U.S. Holder or
      the
      consequence to a person of the ownership, exercise or disposition of any
      warrants, options or other rights to acquire common shares.




**Distributions
      on Common Shares**




U.S.
      Holders receiving dividend distributions with respect to Dynasty’s common shares
      are required to include in gross income for United States federal income tax
      purposes the gross amount of such distributions (including any Canadian tax
      withheld)   equal to the U.S. dollar value of each dividend on the date of
      receipt (based on the exchange rate on such date) to the extent that Dynasty
      has
      current or accumulated earnings and profits, without reduction for any Canadian
      income tax withheld from such distributions. It should be noted that as used
      in
      this discussion of U.S. Federal Income Tax Consequences, the term “earnings and
      profits” refers to Dynasty’s earnings and profits as determined under the Code
      and the term “dividend” refers to corporate distributions taxable as dividends
      for U.S. federal income tax purposes. Such Canadian tax withheld may be
      credited, subject to certain limitations, against the U.S. Holder’s United
      States federal income tax liability or, alternatively, may be deducted in
      computing the U.S. Holder’s United States federal taxable income by those who
      itemize deductions. (See more detailed discussion at “Foreign *Tax
      Credit* ”
below.)
      To the extent that distributions exceed current or accumulated earnings and
      profits of Dynasty, they will be treated first as a return of capital up to
      the
      U.S. Holder’s adjusted basis in the common shares and thereafter as gain from
      the sale or exchange of the common shares. Preferential tax rates for long-term
      capital gains are applicable to a U.S. Holder which is an individual, estate
      or
      trust. There are currently no preferential tax rates for long-term capital
      gains
      for a U.S. Holder which is a corporation. Dividends paid on our common shares
      generally will not be eligible for the dividends received deduction provided
      to
      corporations receiving dividends from certain United States
      corporations.




In
      the
      case of foreign currency received as a dividend that is not converted by the
      recipient into U.S. dollars on the date of the receipt, a U.S. Holder will
      have
      a tax basis in the foreign currency equal to its U.S. dollar value on the date
      of receipt. Generally, any gain or loss recognized upon a subsequent sale or
      other disposition of the foreign currency, including an exchange for U.S.
      dollars, will be ordinary income or loss. Under Treasury Regulations, dividends
      paid on our common shares, if any, generally will not be subject to backup
      withholding tax (at a 28%
      rate)
      if the paying agent is furnished with a duly completed and signed Form W-9
      or certain other circumstances apply. Any amounts withheld under the U.S. backup
      withholding tax rules will be allowed as a refund or a credit against the U.S.
      Holder’s US federal income tax liability, provided the required information is
      furnished to the IRS.


41


**Foreign
      Tax Credit**




A
      U.S.
      Holder who pays (or has withheld from distributions) Canadian income tax with
      respect to the ownership of our common shares may be entitled, at the option
      of
      the U.S. Holder, to either a deduction or a tax credit for such foreign tax
      paid
      or withheld. Generally, it will be more advantageous to claim a credit because
      a
      credit reduces United States federal income taxes on a dollar-for-dollar basis,
      while a deduction merely reduces the taxpayer’s income subject to tax. This
      election is made on a year-by-year basis and generally applies to all foreign
      taxes paid by (or withheld from) the U.S. Holder during that year.




The
      operation of the foreign tax credit for any particular U.S. Holder will be
      dependent on his or its particular situation. There are significant and complex
      limitations which apply to the credit, among which is the general limitation
      that the credit cannot exceed the proportionate share of the U.S. Holder’s
      United States income tax liability that the U.S. Holder’s foreign source income
      bears to his, her or its worldwide taxable income. In the determination of
      the
      application of this limitation, the various items of income and deduction must
      be classified into foreign and domestic sources. Complex rules govern this
      classification process. In addition, this limitation is calculated separately
      with respect to specific classes of income such as “passive income,” “high
      withholding tax interest,” “financial services income,” “shipping income,” and
      certain other classifications of income. Dividends distributed by us will
      generally constitute “passive income” or, in the case of certain U.S. Holders,
“financial services income” for these purposes.




**Disposition
      of Common Shares**




A
      U.S.
      Holder will recognize gain or loss upon the sale or other disposition of common
      shares equal to the difference, if any, between (i) the amount of cash and
      the fair market value of any property received, and (ii) the shareholder’s
      tax basis in our common shares. Preferential tax rates apply to long-term
      capital gains of U.S. Holders who are individuals, estates or trusts. At
      present, there are no preferential tax rates applicable to U.S. Holders which
      are corporations. This gain or loss generally will be capital gain or loss
      if
      the common shares are a capital asset in the hands of the U.S. Holder, which
      will be a long-term capital gain or loss if the common shares of Dynasty are
      held for more than one year. Deductions for net capital losses may be carried
      over to be used in later tax years until such net capital loss is thereby
      exhausted. For U.S. Holders which are corporations (other than corporations
      subject to Subchapter S of the Code), an unused net capital loss may be carried
      back three years from the loss year and carried forward five years from the
      loss
      year to be offset against capital gains until such net capital loss is thereby
      exhausted.




**Other
      Considerations**




In
      the
      following circumstances, the above sections of this discussion may not describe
      the United States federal income tax consequences resulting from the holding
      and
      disposition of common shares.




As
      used
      herein “U.S. Person” means a citizen or income tax resident of the United States
      as determined under U.S. domestic law.




Foreign
      Personal Holding Company




If
      at any
      time during a taxable year more than 50 percent of the total combined
      voting power or the total value of Dynasty’s outstanding shares is owned,
      directly or indirectly (including through attribution), by five or fewer U.S.
      Persons who are individuals and 60 percent or more of Dynasty’s gross
      income for such year was derived from certain passive sources (e.g., dividends,
      interest, rents, royalties, etc.), Dynasty is a “foreign personal holding
      company” (“FPHC”). (The 60 percent test is reduced to 50 percent after
      the first tax year that the entity is a FPHC.) In that event, US Holders would
      be required to include in gross income for such year their allocable portions
      of
      Dynasty’s undistributed income.




Foreign
      Investment Corporation




If
      50 percent or more of the combined voting power or total value of all
      classes of the Corporation’s stock is held, directly or indirectly (including
      through attribution), by U.S. Persons, the Corporation is found to be engaged
      primarily in the business of investing, reinvesting, or trading in securities,
      commodities, or any interest therein, and certain other conditions are met,
      it
      is possible that the Corporation may be treated as a “foreign investment
      company” as defined in Section 1246 of the Code. This characterization
      causes all or part of any gain realized by a US Holder selling or exchanging
      common shares to be treated as ordinary income rather than capital
      gain.





Passive
      Foreign Investment Company




As
      a
      foreign corporation with U.S. Holders, Dynasty could potentially be treated
      as a
      passive foreign investment company (“PFIC”), as defined in Section 1297 of
      the Code, depending upon the percentage of Dynasty’s income which is passive, or
      the percentage of Dynasty’s assets which are producing passive income.
      Generally, U.S. Holders of PFICs are taxed upon receipt of “excess
      distributions” which include (i) gains recognized on the sale or deemed
      disposition of PFIC stock, and (ii) distributions made by the PFIC to the
      extent that the total distributions
      received for the tax year exceeds 125% of the average actual distributions
      received in the preceding three years. An excess distribution is allocated
      ratably to each day in the shareholder’s holding period for the stock. Amounts
      allocated to the current year and the pre-PFIC holding period (if any) is
      included in gross income as ordinary income. Amounts allocated to the PFIC
      period (other than the current year) are subject to tax at the highest U.S.
      income tax rate plus an interest charge to reflect the benefit of tax
      deferral.


42




However,
      if the U.S. Holder makes a timely election to treat a PFIC as a qualified
      electing fund (“QEF”) with respect to such shareholder’s interest therein, the
      above-described rules generally would not apply. Instead, the electing U.S.
      Holder would include annually in gross income his, her or its pro rata share
      of
      the PFIC’s ordinary earnings and net capital gain, regardless of whether such
      income or gain was actually distributed. A U.S. Holder making a QEF election
      can, however, under certain circumstances elect to defer the payment of United
      States federal income tax on such income inclusions subject to an interest
      charge on the amount of deferred taxes. In addition, subject to certain
      limitations, U.S. Holders owning (actually or constructively) marketable stock
      in a PFIC will be permitted to elect to mark that stock to market annually,
      rather than be subject to the excess distribution regime described above.
      Amounts included in or deducted from income under this alternative (and actual
      gains and losses realized upon disposition, subject to certain limitations)
      will
      be treated as ordinary gains or losses.




Controlled
      Foreign Corporation




If
      more
      than 50 percent of the voting power of all classes of stock or the total
      value of the stock of the Corporation is owned, directly or indirectly
      (including through attribution), by U.S. Persons, each of whom own
      10 percent or more of the total combined voting power of all classes of
      stock of the Corporation (“United States Shareholder”), the Corporation is a
“controlled foreign corporation” under the Code. This classification has many
      complex consequences, one of which is the inclusion of certain income of a
      CFC
      in the U.S. Shareholders’ income on a current basis, regardless of
      distributions. Such U.S. Shareholders are generally treated as having received
      a
      current distribution out of the CFC’s Subpart F income (generally, passive
      income and certain income generated by transactions between related parties)
      and
      are also subject to current U.S. tax on their pro rata shares of the CFC’s
      earnings invested in U.S. property. In certain circumstances, a foreign tax
      credit may apply to reduce the U.S. tax on these amounts. In addition, under
      Section 1248 of the Code, gain from the sale or exchange of stock by a
      holder of common shares who is or was a United States Shareholder at any time
      during the five year period ending with the sale or exchange may be treated
      as
      ordinary dividend income to the extent of earnings and profits of the
      Corporation attributable to the stock sold or exchanged. If a foreign
      corporation is both a PFIC and a CFC, the foreign corporation generally will
      not
      be treated as a PFIC with respect to United States shareholders of the
      CFC.





**F.
      Dividends and paying agents**




Not
      applicable.




**G.
      Statement by experts**




Not
      applicable.




**H.**  **Documents
      on display**




Documents
      concerning us that are referred to in this document may be inspected at our
      principal executive offices at 759 Square Victoria, Suite 300, Montreal, Quebec,
      Canada H2Y-2J7.





In
      addition, we will file annual reports and other information with the Securities
      and Exchange Commission. We will file annual reports on Form 20-F and
      submit other information under cover of Form 6-K. As a foreign private
      issuer, we are exempt from the proxy requirements of Section 14 of the
      Exchange Act and our officers, directors and principal shareholders will be
      exempt from the insider short-swing disclosure and profit recovery rules of
      Section 16 of the Exchange Act. Annual reports and other information
      we file with the Commission may be inspected at the public reference facilities
      maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington,
      D.C. 20549, and at its regional offices located at 233 Broadway, New York,
      New
      York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois
      60661, and copies of all or any part thereof may be obtained from such offices
      upon payment of the prescribed fees. You may call the Commission at
      1-800-SEC-0330 for further information on the operation of the public reference
      rooms and you can request copies of the documents upon payment of a duplicating
      fee, by writing to the Commission. In addition, the Commission maintains a
      web site that contains reports and other information regarding registrants
      (including us) that file electronically with the Commission which can be
      assessed at http://www.sec.gov.





**I.****Subsidiary
      Information**




Not
      required.









43


ENFORCEABILITY OF CIVIL
      LIABILITIES




We
      are a
      public company incorporated under the laws of Quebec, Canada on August 11,
      1994. A majority of our directors and executive officers are residents of
      countries other than the United States. Furthermore, all or a substantial
      portion of their assets and our assets are located outside the United
      States. As a result, it may not be possible for you to:




•
            
            effect
                service of process within the United States upon any of our directors
                and
                executive officers or on us;





•
            
            enforce
                in U.S. courts judgments obtained against any of our directors and
                executive officers or us in the U.S. courts in any action, including
                actions under the civil liability provisions of U.S. securities
                laws;




•
            
            enforce
                in U.S. courts judgments obtained against any of our directors and
                senior
                management or us in courts of jurisdictions outside the United States
                in
                any action, including actions under the civil liability provisions
                of U.S.
                securities laws; or




•
            
            to
                bring an original action in a Canadian court to enforce liabilities
                against any of our directors and executive officers or us based upon
                U.S.
                securities laws.




You
      may
      also have difficulties enforcing in courts outside the United States judgments
      obtained in the U.S. courts against any of our directors and executive officers
      or us, including actions under the civil liability provisions of the US
      securities laws.





**ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK**





The
      Company anticipates its primary market risk, if any, will be related to
      fluctuations in exchange rates.  Exchange rate risk may arise if the
      Company is required to use different currencies for various aspects of its
      operations.  Although the principal currency used in the export market is
      the U.S. dollar, the local expenses of the Company (e.g., rent, telephone,
      payroll, etc.) are likely to be paid in Canadian Dollars. The Company intends
      to
      monitor its exchange rate risk and take necessary actions to reduce its
      exposure, though the Company is not currently exploring hedging opportunities.





We
      do not
      use derivative financial instruments.





**ITEM
      12.**  **DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES**





Not
      applicable.


**PART
      II**





**ITEM
      13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**





Not
      applicable





**ITEM
      14.**  **MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS**





Not
      applicable





**ITEM
      15.     CONTROLS AND PROCEDURES**





**(a)
      Evaluation of Disclosure Controls and Procedures**




An
      evaluation was performed under the supervision and with the participation of
      our
      management, including our Chief Executive Officer and Chief Financial Officer,
      regarding the effectiveness of the design and operation of our disclosure
      controls and procedures as of the end of the December 31, 2006. Based on
      that evaluation, our management, including our Chief Executive Officer and
      Chief
      Financial Officer, have concluded that our disclosure controls and procedures
      as
      of December 31, 2006 were effective and that information required to be
      disclosed by us in reports that we file or submit under the Exchange Act is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms.




**(b)
      Management’s annual report on internal control over financial
      reporting**




As
      required by section 404 of the Sarbanes-Oxley Act of 2002, our management is
      responsible for establishing and maintaining adequate “internal control over
      financial reporting” (as defined in Rule 13(a)-15(f) under the Securities
      Exchange Act of 1934, as amended). Our system of internal control over financial
      reporting is designed to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in conformity with generally accepted accounting principles in Canada
      (“Canadian Standards”), as well as a reconciliation of our operating losses and
      shareholders’ equity as reported in the consolidated financial statements under
      Canadian Standards to operating losses and shareholders’ equity in accordance
      with generally accepted accounting principles in the United
      States.


44




Any
      internal control system, no matter how well designed, has inherent limitations,
      including the possibility of human error and the circumvention or overriding
      of
      the controls and procedures, which may not prevent or detect misstatements.
      Also, changes in conditions and business practices in subsequent periods may
      subject our determination of effectiveness to the risk that certain controls
      may
      become inadequate.




**(c)
      Attestation report of the register public accounting firms**




Not
      applicable.




**(d)
      Changes in Internal Controls over Financial Reporting**




There
      were no changes in our internal control over financial reporting (as defined
      in
      Rule 13a-15(f) of the Exchange Act) that occurred during the year ended
      December 31, 2006 that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial reporting. It should
      be noted that while our management believes that our disclosure controls and
      procedures provide a reasonable level of assurance; our management does not
      expect that our disclosure controls and procedures or internal financial
      controls will prevent all errors or fraud. A control system, no matter how
      well
      conceived or operated, can provide only reasonable, not absolute, assurance
      that
      the objectives of the control system are met.





**ITEM
      16.**  **[RESERVED]**





**ITEM
      16A.**  **AUDIT
      COMMITTEE FINANCIAL EXPERT.**





As
      a
      Quebec corporation with operations principally outside of the United States,
      Dynasty is considered a “foreign private issuer” for the purposes of filings
      with the Securities and Exchange Commission (“SEC”) and with any stock exchange
      in the United States. Under applicable SEC regulations, an issuer must disclose
      if it has an “audit committee financial expert” on its audit committee if it is
      required to have such an expert by the listing rules applicable to it. Dynasty
      is presently listed on the OTCBB and accordingly is not presently subject to
      the
      audit committee financial expert requirement.





**ITEM
      16B.**  **CODE
      OF ETHICS.**





Dynasty
      has adopted a Code of Conduct that applies to its Chief Executive Officer and
      all of its directors, officers and employees, or persons performing similar
      functions. A copy of Dynasty’s Code of Conduct is available at its corporate
      office in Montreal, Quebec, Canada. Any future changes to the Code of Conduct
      will be posted on the Company’s website or filed as an exhibit to a report filed
      with the SEC within five business days of the change being effective.





**ITEM
      16C.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





The
      following table represents aggregate fees billed to the Company for fiscal
      years
      ended December 31, 2005 and 2005 by Horwath Appel, the Company’s principal
      accounting firm.





**Accountant
                Fees and Services**
            
            **2006**
            
            **2005**Audit
                Fees
            
            $
            65,000
            
            $
            55,000Audit
                Related Fees
            
            $
            25,000
            
            $
            47,000Tax
                Fees
            
            $
            5,000
            
            $
            5,500All
                Other Fees
            
            $
            nil
            
            
            nil$
            95,000
            
            $
            107,500





*Audit
      Fees.* The
      audit fees for the years ended December 31, 2006 and 2005, respectively,
      were paid for professional services rendered for the audits of our consolidated
      financial statements, quarterly reviews, consents, and assistance with review
      of
      documents filed with the SEC.





*Tax
      Fees.* Tax fees
      for the years ended December 31, 2006 and 2005, respectively, were paid for
      services related to tax compliance, including the preparation of tax returns
      and
      tax planning and tax advice.





*Other
      Fees.* For the
      year ended December 31, 2006, other fees represent allowable services
      performed by the external auditor relating to the scoping of Canadian Securities
      Administrators National Instrument 52-109. The Company did not incur any other
      fees for the years ended December 31, 2006 and 2005.




The
      Audit
      Committee of our Board of Directors chooses and engages our independent auditors
      to audit our financial statements. In 2006, our Board of Directors also adopted
      a policy requiring management to obtain the audit committee’s approval before
      engaging our independent
      auditors to provide any other audit or permitted non-audit services to us.
      This
      policy, which is designed to assure that such engagements do not impair the
      independence of our auditors, requires the audit committee to pre-approve audit
      and non-audit services that may be performed by our
      auditors.


45





**ITEM
      16D.**  **EXEMPTIONS
      FORM THE LISTING STANDARDS FOR AUDIT COMMITTEES.**





Not
      applicable.





**ITEM
      16E.**  **PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
      PURCHASERS.**





Not
      applicable.





**PART
      III**




**ITEM
      17. FINANCIAL STATEMENTS**





Our
      audited Financial Statements are included as the “F” pages attached to this
      report.





All
      financial statement in this Annual Report, unless otherwise stated, are
      presented in accordance with Canadian GAAP. Such financial statements have
      been
      reconciled to United States GAAP.





**ITEM
      18. FINANCIAL STATEMENTS**





The
      Company has elected to provide financial statements pursuant to ITEM
      17.




**ITEM
      19. EXHIBITS**





**Exhibit
      No.** **** **Description**





1.1
            Certificate
                of Incorporation of 3059219 Canada Inc. dated August 11, 1994.
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on July 28,
                2006)





1.2
            Certificate
                of Amendment, dated June 8, 1995. (Incorporated by reference to the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                July 28, 2006)





1.3
            Certificate
                of Amendment, dated March 19, 1996. (Incorporated by reference to
                the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                July 28, 2006)





1.4
            Certificate
                of Amendment, dated October 15, 2001. (Incorporated by reference
                to the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                July 28, 2006)





1.5
            Certificate
                of Amendment, dated December 5, 2005. (Incorporated by reference
                to the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                July 28, 2006)





1.6
            By-laws
                of Dynasty Gaming Inc. (Incorporated by reference to the Company’s Form
                20-F/A filed with the Securities and Exchange Commission on July
                28,
                2006)





2.1
            Form
                of common stock certificate. (Incorporated by reference to the Company’s
                Form 20-F/A filed with the Securities and Exchange Commission on
                July 28,
                2006)4.
                1
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                International Gaming and Entertainment Limited dated as of May 19,
                2004.
                ** (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)





4.2
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Apex
                Holdings dated as of March 27, 2005. ** (Incorporated by reference
                to the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                September 20, 2006)





4.3
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Betex
                (Group), Plc. dated as of August 3, 2005. ** (Incorporated by reference
                to
                the Company’s Form 20-F/A filed with the Securities and Exchange
                Commission on September 20, 2006)






46





4.4
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Action
                Poker Gaming, Inc. dated as of August 3, 2005. ** (Incorporated by
                reference to the Company’s Form 20-F/A filed with the Securities and
                Exchange Commission on September 20,
                2006)





4.5
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                HO
                Casinos.com dated as of October 20, 2005. ** (Incorporated by reference
                to
                the Company’s Form 20-F/A filed with the Securities and Exchange
                Commission on September 20, 2006)





4.6
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                DRHO
                Casinos.com dated as of October 20, 2005. ** (Incorporated by reference
                to
                the Company’s Form 20-F/A filed with the Securities and Exchange
                Commission on September 20, 2006)





4.7
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Orbis
                Technology, Inc. dated as of October 5, 2005. ** (Incorporated by
                reference to the Company’s Form 20-F/A filed with the Securities and
                Exchange Commission on September 20,
                2006)





4.8
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Absolute
                Entertainment SA, dated as of October 29, 2005. ** (Incorporated
                by
                reference to the Company’s Form 20-F/A filed with the Securities and
                Exchange Commission on September 20,
                2006)





4.9
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Ladbrokes.com dated as of May 24, 2006. ** (Incorporated by reference
                to
                the Company’s Form 20-F/A filed with the Securities and Exchange
                Commission on September 20, 2006)





4.10
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Golden
                Palace Ltd. dated as of March 15, 2006. ** (Incorporated by reference
                to
                the Company’s Form 20-F/A filed with the Securities and Exchange
                Commission on September 20, 2006)





4.11
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Interactive Gaming Holdings Plc. dated as of March 28, 2006. **
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)





4.12
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Finsoft
                Limited dated as of April 24, 2006. ** (Incorporated by reference
                to the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                September 20, 2006)





4.
                13
            Lease,
                dated October 15, 1997 for space located at Canadian Steamship Building,
                759 Square Victoria, Suite 300, Montreal, Quebec, Canada H2Y 2J7.
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on July 28,
                2006)





4.14+
            Employment
                Agreement dated March 6, 2006, between Mark Billings and Dynasty
                Gaming
                Inc. (Incorporated by reference to the Company’s Form 20-F/A filed with
                the Securities and Exchange Commission on July 28,
                2006)





4.15+
            Employment
                Agreement dated March 16, 2006, between Albert Barbusci and Dynasty
                Gaming
                Inc. (Incorporated by reference to the Company’s Form 20-F/A filed with
                the Securities and Exchange Commission on July 28,
                2006)




4.16+
            Consulting
                Agreement dated January 1, 2006, between Cadence Communications Inc.
                and
                Dynasty Gaming Inc. (Incorporated by reference to the Company’s Form
                20-F/A filed with the Securities and Exchange Commission on July
                28,
                2006)





4.17+
            Employment
                Agreement dated June 30, 2005 between 9143-3250 Quebec Inc. and Ian
                Sherrington. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on July 28,
                2006)





4.18+
            Consulting
                Agreement dated June 30, 2005 between 9143-3250 Quebec Inc. and Ian
                Sherrington. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on July 28,
                2006)





4.19+
            Management
                Agreement dated June 10, 2005 between Genesis Consulting Anstalt,
                Adriaan
                Brink, and Mahjong Systems Limited. (Incorporated by reference to
                the
                Company’s Form 20-F/A filed with the Securities and Exchange Commission on
                July 28, 2006)






47




4.20+
            Memorandum
                of Agreement dated June 24, 2006 between Mahjong Development Inc.
                and Ian
                Sherrington. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on July 28,
                2006)





4.21+
            Termination
                of Consulting Agreement dated June 30, 2006 between Mahjong Development
                Inc. and Ian Sherrington. (Incorporated by reference to the Company’s Form
                20-F/A filed with the Securities and Exchange Commission on July
                28,
                2006)




4.22+
            Termination
                Agreement dated September 12, 2006 between Dynasty Gaming Inc. and
                Anthony
                Barbusci. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on October 27,
                2006)





4.23+
            Consulting
                Agreement dated September 12, 2006 between Dynasty Gaming Inc. and
                Anthony
                Barbusci. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on October 27,
                2006)




4.24
            Stock
                Option Plan. (Incorporated by reference to the Company’s Form 20-F/A filed
                with the Securities and Exchange Commission on July 28,
                2006)4.25
            Agreement
                between Mahjong Systems Limited, a subsidiary of the Company, and
                Microgaming Software Systems Limited, dated as of August 24, 2006.**
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)4.26
            Clearing
                House Agreement between Mahjong Systems Limited, a subsidiary of
                the
                Company, and Ironbridge Limited, dated as of August 24, 2006.
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)4.27
            Surplus
                Security Escrow Agreement between Events International Holding Corporation
                and Equity Transfer Services Inc. and The Persons Whose Names Are
                Set Out
                In The First Column Of Schedule “A” Annexed Hereto, dated March 20, 2002.
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)4.28
            Escrow
                Agreement between Events International Holding Corporation and Sweibel
                Novek, LLP and Ian Sherrington and Adriaan Brink dated September
                2, 2005.
                (Incorporated by reference to the Company’s Form 20-F/A filed with the
                Securities and Exchange Commission on September 20,
                2006)




4.29
            Agreement
                for the purchase and sale of shares of the MedEvents, Cadence and
                CPC
                Econometrics subsidiaries, between Dynasty Gaming Inc. and CPC Canada
                Inc.
                dated September 30, 2006. (Incorporated by reference to the Company’s Form
                20-F/A filed with the Securities and Exchange Commission on October
                27,
                2006)





8.1
            List
                of wholly owned subsidiaries.
                *




12.1
              Certification
                  by Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Exchange Act. *12.2
              Certification
                  by Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Exchange Act. *13.1
              Certification
                  by Chief Executive Officer required by Rule
                  13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
                  of
                  Chapter 63 of Title 18 of the United States Code. *13.2
              Certification
                  by Chief Financial Officer required by Rule
                  13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
                  of
                  Chapter 63 of Title 18 of the United States Code.
                  *
 _________________________________


*
      Filed
      herewith.


**
      The
      confidential portions of this exhibit has been omitted and flied separately
      with
      the Securities and Exchange Commission.


+
      Signifies management contract or compensatory arrangement.




48


**SIGNATURES**




The
      Registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.





**DYNASTY
                GAMING INC.**By:
            Albert
                Barbusci
              
              Name:
                  Albert Barbusci
              Title:    
                Chief Executive OfficerDate:
                June 29, 2007




By:
            *Mark
                Billings*
              Name:
                  Mark Billings
              Title:   
                Chief Financial OfficerDate:
                June 29, 2007






49




**DYNASTY
                GAMING INC.**
              **DECEMBER
                31, 2006 AND 2005**
              
              **INDEX
                TO CONSOLIDATED FINANCIAL STATEMENTS****Page****DYNASTY
                GAMING INC.**-**Fiscal
                Years Ended December 31, 2006 and 2005 (Audited)**Auditors'
                Report
            F-1Consolidated
                Balance Sheets
            F-2Consolidated
                Statements of Operations and Deficit
            F-3Consolidated
                Statements of Shareholders' Equity
            F-4Consolidated
                Statements of Cash Flows
            F-5Notes
                to Consolidated Financial Statements
            F-6
                - F-24










50




**AUDITORS'
        REPORT**
  The
          Shareholders of:
 Dynasty
          Gaming Inc.
   We
          have
          audited the consolidated balance sheets of Dynasty Gaming Inc. as at December
          31, 2006 and 2005, and the consolidated statements of operations, shareholders'
          equity and cash flows for the three- year
          period ended December 31, 2006. The consolidated fmancial statements are
          the
          responsibility of the Company's management. Our responsibility is to express an opinion on these
          consolidated financial statements based on our audits.
  We
          conducted our audits in accordance with Canadian generally accepted auditing
          standards and with the standards of the Public Company Accounting Oversight Board (United States).
          Those standards require that
          we
          plan and perform an audit to obtain reasonable assurance whether the financial
          statements are free of
          material misstatement. An audit includes examining, on a test basis, evidence
          supporting the amounts and disclosures in the consolidated fmancial statements.
          An audit also includes assessing the accounting principles
          used and significant estimates made by management, as well as evaluating
          the
          overall financial statement presentation. We believe that our audit provides a reasonable
          basis
          for our opinion.
  In
          our
          opinion, these consolidated fmancial statements present fairly, in all
          material
          respects, the fmancial position
          of the Company as at December 31, 2006 and 2005 and the results of its
          operations and the changes in its cash flows for each of the years in the
          three-year period ended December 31, 2006 in accordance with Canadian generally
          accepted accounting principles.
  Montreal,
                    Quebec
                  February
                    19,2007
                /s/
                    Horwath Appel 

                    Horwath
                    AppelChartered
                    Accountants
 
  Comments
          by Auditors for U.S. Readers on Canada-
 U.S.
          Reporting Differences
  Canadian
          generally accepted accounting principles vary in certain significant respects
          from accounting principles generally accepted in the United States. Application
          of accounting principles generally accepted in the United States would
          have
          affected results of operations for each of the years in the three year
          period
          ended December 31, 2006 and shareholders' equity as at December 31, 2006,
          2005
          and 2004 to the extent summarized in note 19 to the financial
          statements.
  Montreal,
                    Quebec
                  February
                    19,2007
                /s/
                    Horwath Appel 

                    Horwath
                    AppelChartered
                    Accountants
  Membre
        independant de Horwath International avec
        bureaux affilies atravers
        le monde. An inclependent member firm of Horwath International with affiliated
        offices worldwide.
    F-1
 **DYNASTY
                  GAMING INC.**Consolidated
                  Balance SheetsAs
                  at December 31, 2006 and 2005(stated
                  in Canadian Dollars)
 
 **2006**
              
              2005$
              
              $**ASSETS****Current
                  assets****Cash**
              
              
              **7,551,017**
              
              
              5,755,213**Restricted
                  cash**
              
              
              **43,030**
              
              
              -**Restricted
                  deposit**
              
              
              **-**
              
              
              116,300**Accounts
                  receivable**
              
              
              **396,043**
              
              
              129,482**Prepaid
                  expenses**
              
              
              **159,586**
              
              
              46,021**Other
                  receivable (Note 3)**
              
              
              **150,000**
              
              
              -**Assets
                  held for sale (Note 3)**
              
              
              **-**
              
              
              2,255,006**8,299,676**
              
              
              8,302,022**Deferred
                  development costs (Note 6)**
              
              
              **1,639,571**
              
              
              2,736,451**Property
                  and equipment (Note 7)**
              
              
              **465,175**
              
              
              127,054**Assets
                  held for sale (Note 3)**
              
              
              **-**
              
              
              121,007**10,404,422**
              
              
              11,286,534**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  Liabilities****Accounts
                  payable and accrued liabilities**
              
              
              **737,155**
              
              
              750,088**Deferred
                  revenue**
              
              
              **48,908**
              
              
              48,908**Current
                  portion of obligations under capital leases**
              
              
              **-**
              
              
              5,003**Liabilities
                  related to assets held for sale (Note 3)**
              
              
              **-**
              
              
              1,644,387**786,063**
              
              
              2,448,386**Liabilities
                  related to assets held for sale (Notes 3)**
              
              
              **-**
              
              
              63,561**786,063**
              
              
              2,511,947**Shareholders'
                  equity**
              
              
              **9,618,359**
              
              
              8,774,587**10,404,422**
              
              
              11,286,534
  **Commitments
        and Canadian and United States accounting policies differences (Notes 16
        and
        19)**
  **On
        behalf of the board:**
 
 **"Albert
        Barbusci"** ** **,_Director**
 
 **"Joseph
        Lau" ,_Director**
    *The
        accompanying notes are an integral part of these Consolidated Financial
        statements*
 
  F-2
  
 **DYNASTY
                  GAMING INC.**Consolidated
                  Statements of Shareholders’ EquityYears
                  ended December 31, 2006, 2005 and 2004(stated
                  in Canadian Dollars)
 
 **Capital
                  Stock**
              
              **Capital
                  Stock**
              
              **Contributed
                  Surplus**
              
              **Other
                  Capital**
              
              **Cumulative
                  Currency Translation Adjustment**
              
              **Deficit**
              
              **Total
                  Shareholders’ equity****(note
                  11)**
              
              **(note
                  11)**
              
              **(Note
                  5)**
              
              **(note
                  12)**
              
              **(note
                  3)****#**
              
              $
              
              $
              
              $
              
              $
              
              $
              
              $Balance
                  -December
                  31, 2003
              
              
              38,600,836
              
              
              3,831,116
              
              
              
              
              
              
              
              
              (70,766
              )
              
              (647,648
              )
              
              3,112,702Repurchase
                  of shares
              
              
              (2,413,054
              )
              
              (241,306
              )
              
              120,653
              
              
              
              
              
              
              
              
              
              
              
              (120,653
              )Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (65,158
              )
              
              
              
              
              (65,158
              )Net
                  loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,204,904
              )
              
              (2,204,904
              )**Balance
                  -**
                **December
                  31, 2004**
              
              
              **36,187,782**
              
              
              **3,589,810**
              
              
              **120,653**
              
              
              
              
              
              **(135,924**
              **)**
              
              **(2,852,552**
              **)**
              
              **721,987**Shares
                  & warrants issued - Private Placements
              
              
              23,000,000
              
              
              5,344,447
              
              
              
              
              
              466,500
              
              
              
              
              
              
              
              
              5,810,947Shares
                  issued - Business Acquisition
              
              
              9,000,000
              
              
              1,350,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,350,000Shares
                  issued - Brokers' Rights & Warrants
              
              
              8,542,666
              
              
              2,097,680
              
              
              
              
              
              (16,280
              )
              
              
              
              
              
              
              
              2,081,400Shares
                  issued - Stock Option Plan
              
              
              123,667
              
              
              23,497
              
              
              
              
              
              (4,947
              )
              
              
              
              
              
              
              
              18,550Stock-based
                  costs (Note 13)
              
              
              
              
              
              
              
              
              
              
              
              30,257
              
              
              
              
              
              
              
              
              30,257Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (53,995
              )
              
              
              
              
              (53,995
              )Net
                  loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,184,559
              )
              
              (1,184,559
              )**Balance
                  -**
                **December
                  31, 2005**
              
              
              **76,854,115**
              
              
              **12,405,434**
              
              
              **120,653**
              
              
              **475,530**
              
              
              **(189,919**
              **)**
              
              **(4,037,111**
              **)**
              
              **8,774,587**Shares
                  & warrants issued - Private Placements
              
              
              12,000,000
              
              
              4,008,156
              
              
              
              
              
              1,560,000
              
              
              
              
              
              
              
              
              5,568,156Shares
                  issued - Brokers' Warrants
              
              
              2,232,334
              
              
              1,132,570
              
              
              
              
              
              (106,470
              )
              
              
              
              
              
              
              
              1,026,100Shares
                  issued - Stock Option Plan
              
              
              440,444
              
              
              129,195
              
              
              
              
              
              (25,956
              )
              
              
              
              
              
              
              
              103,239Stock-based
                  costs (Note 13)
              
              
              
              
              
              
              
              
              
              
              
              1,042,146
              
              
              
              
              
              
              
              
              1,042,146Foreign
                  currency translation (Note 3)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              189,919
              
              
              (189,919
              )
              
              -Net
                  loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,895,869
              )
              
              (6,895,869
              )**Balance
                  -****December
                  31, 2006**
              
              
              **91,526,893**
              
              
              **17,675,355**
              
              
              **120,653**
              
              
              **2,945,250**
              
              
              **-**
              
              
              **(11,122,899**
              **)**
              
              **9,618,359**
  
 *The
        accompanying notes are an integral part of these Consolidated Financial
        statements*
  F-3
  
 **DYNASTY
                  GAMING INC.**Consolidated
                  Statements of OperationsYears
                  ended December 31, 2006, 2005 and 2004(stated
                  in Canadian Dollars)
 
 **2006**
              
              2005
              
              2004$
              
              $
              
              $**Revenues**
              
              
              **82,277**
              
              
              161,700
              
              
              26,053**Operating
                  expenses****Direct
                  costs**
              
              
              **1,505,545**
              
              
              53,593
              
              
              -**Marketing
                  and promotion**
              
              
              **1,217,613**
              
              
              231,567
              
              
              16,988**Administrative**
              
              
              **3,065,346**
              
              
              911,006
              
              
              415,805**Amortization
                  - deferred development costs**
              
              
              **819,792**
              
              
              -
              
              
              -**Amortization
                  - property and equipment**
              
              
              **56,234**
              
              
              16,109
              
              
              -**Impairment
                  - tangible assets (Note 8)**
              
              
              **303,430**
              
              
              -
              
              
              67,958**Impairment
                  - goodwill (Note 9)**
              
              
              **-**
              
              
              328,348
              
              
              -**6,967,960**
              
              
              1,540,623
              
              
              500,751**Loss
                  from operations**
              
              
              **(6,885,683**
              **)**
              
              (1,378,923
              )
              
              (474,698
              )**Other****Interest
                  income (expense)**
              
              
              **131,516**
              
              
              (1,518
              )
              
              15,281**Foreign
                  exchange gain**
              
              
              **1,604**
              
              
              9,267
              
              
              24,979**Gain
                  on settlement of advance payable**
              
              
              **18,605**
              
              
              -
              
              
              -**151,725**
              
              
              7,749
              
              
              40,260**Net
                  loss from continuing operations**
              
              
              **(6,733,958**
              **)**
              
              (1,371,174
              )
              
              (434,438
              )**(Loss)
                  income from discontinued operations (Notes 3 and
                  5)**
              
              
              **(186,626**
              **)**
              
              186,615
              
              
              (2,784,136
              )**Gain
                  on sale of discontinued operations (Notes 3 and
                  5)**
              
              
              **24,715**
              
              
              -
              
              
              1,013,670**Net
                  (loss) income from discontinued operations**
              
              
              **(161,911**
              **)**
              
              186,615
              
              
              (1,770,466
              )**Net
                  loss**
              
              
              **(6,895,869**
              **)**
              
              (1,184,559
              )
              
              (2,204,904
              )**Net
                  loss per share****Basic
                  and diluted****From
                  continuing operations**
              
              
              **(0.09**
              **)**
              
              (0.03
              )
              
              (0.01
              )**From
                  discontinued operations**
              
              
              **0.00**
              
              
              0.00
              
              
              (0.05
              )**(0.09**
              **)**
              
              (0.03
              )
              
              (0.06
              )**Weighted
                  average number of common shares****Basic**
              
              
              **78,876,348**
              
              
              46,165,603
              
              
              38,534,906**Diluted**
              
              
              **78,876,348**
              
              
              46,165,603
              
              
              38,534,906
 
 
 *The
        accompanying notes are an integral part of these Consolidated Financial
        statements*
  F-4
 
 **DYNASTY
                  GAMING INC.**Consolidated
                  Statements of Cash FlowsYears
                  ended December 31, 2006, 2005 and 2004(stated
                  in Canadian Dollars)**2****006**
              
              2005
              
              2004$
              
              $
              
              $**Operating
                  activities****Net
                  loss from continuing operations**
              
              
              **(6,733,958**
              **)**
              
              (1,371,174
              )
              
              (434,438
              )**Stock
                  based compensation (Note 13)**
              
              
              **1,042,146**
              
              
              30,257
              
              
              -**Amortization
                  of deferred development costs**
              
              
              **819,792**
              
              
              -
              
              
              -**Amortization
                  of property and equipment**
              
              
              **56,234**
              
              
              16,109
              
              
              -**Impairment
                  - tangible assets**
              
              
              **303,430**
              
              
              -
              
              
              67,958**Impairment
                  - goodwill**
              
              
              **-**
              
              
              328,348
              
              
              -**(4,512,356**
              **)**
              
              (996,460
              )
              
              (366,480
              )**Change
                  in non-cash working capital:****Accounts
                  receivable**
              
              
              **(266,561**
              **)**
              
              318
              
              
              140,600**Prepaid
                  expenses**
              
              
              **(113,565**
              **)**
              
              13,095
              
              
              15,956**Accounts
                  payable and accrued liabilities**
              
              
              **(12,933**
              **)**
              
              (739,855
              )
              
              404,704**Deferred
                  revenue**
              
              
              **-**
              
              
              48,908
              
              
              -**(393,059**
              **)**
              
              (677,534
              )
              
              561,260**(4,905,415**
              **)**
              
              (1,673,994
              )
              
              194,780**Investing
                  activities****Increase
                  in restricted cash**
              
              
              **(43,030**
              **)**
              
              -
              
              
              -**Decrease
                  in restricted deposit**
              
              
              **116,300**
              
              
              3,900
              
              
              629,800**Net
                  cash transferred on sale of business (Notes 3 and
                  5)**
              
              
              **(879,789**
              **)**
              
              -
              
              
              (151,425
              )**Cash
                  acquired on acquisition**
              
              
              **-**
              
              
              6,863
              
              
              -**Loan
                  receivable**
              
              
              **-**
              
              
              30,200
              
              
              (30,200
              )**Loan
                  receivable - shareholder**
              
              
              **-**
              
              
              -
              
              
              346,588**Increase
                  in development costs - gaming software**
              
              
              **-**
              
              
              (578,624
              )
              
              -**Tax
                  credits received for development costs**
              
              
              **277,088**
              
              
              -
              
              
              -**Acquisition
                  of property and equipment**
              
              
              **(394,355**
              **)**
              
              (29,631
              )
              
              -**(923,786**
              **)**
              
              (567,292
              )
              
              794,763**Financing
                  activities****Repayment
                  of obligations under capital leases**
              
              
              **(5,003**
              **)**
              
              (27,429
              )
              
              -**Decrease
                  in loan payable director**
              
              
              **-**
              
              
              (60,000
              )
              
              -**Issuance
                  of common shares net of costs**
              
              
              **6,697,495**
              
              
              7,910,897
              
              
              -**6,692,492**
              
              
              7,823,468
              
              
              -**Change
                  in cash and cash equivalents from continuing
                  operations**
              
              
              **863,291**
              
              
              5,582,182
              
              
              989,543**Change
                  in cash and cash equivalents from discontinued operations (Notes
                  3 and
                  5)**
              
              
              **634,460**
              
              
              152,039
              
              
              (2,391,828
              )**Net
                  change in cash and cash equivalents**
              
              
              **1,497,751**
              
              
              5,734,221
              
              
              (1,402,285
              )**Cash
                  and cash equivalents , beginning of year**
              
              
              **6,053,266**
              
              
              319,045
              
              
              1,721,330**Cash
                  and cash equivalents , end of year**
              
              
              **7,551,017**
              
              
              6,053,266
              
              
              319,045**Cash
                  and cash equivalents related to:****Continuing
                  operations**
              
              
              **7,551,017**
              
              
              5,755,213
              
              
              303,187**Discontinued
                  operations**
              
              
              **-**
              
              
              298,053
              
              
              15,858
  **Supplemental
        cash flow information (Note 14)**
   *The
        accompanying notes are an integral part of these Consolidated Financial
        statements*
 
  F-5
 **DYNASTY
        GAMING INC.**
 Notes
        to
        Consolidated Financial Statements
 
 Years
        ended December 31, 2006, 2005 and 2004
 (stated
        in Canadian Dollars)
  
 
 **1.**
              **Statutes
                  of Incorporation and Nature of
                  Activities**
  Dynasty
        Gaming Inc. (“the Company”) is continued under the Canada Business Corporations
        Act. Through its wholly-owned subsidiaries, the Company is engaged in the
        development, marketing and licensing of proprietary online gaming software.
        The
        Company is committed to devoting its management and financial resources to
        the
        on-line gaming business; therefore, it has sold its MedEvents Inc. (“MED”),
        Cadence Healthcare Communications Inc. (“CHCI”) and CPC Econometrics Inc (“CPC”)
        subsidiaries (Note 3).
  **2.**
              **Significant Accounting
                Policies**
  **a)**
              **Basis
                  of presentation**
  The
        consolidated financial statements are prepared by management using accounting
        principles generally accepted in Canada and are reported in Canadian dollars
        unless otherwise stated.
  **b)**
              **Principles
                  of consolidation**
  The
        consolidated financial statements of the Company include the accounts of
        Dynasty
        Gaming Inc. and its wholly-owned Canadian subsidiary, Mahjong Development
        Inc.,
        and its wholly-owned Turks and Caicos Island subsidiary, Mahjong Systems
        Limited. During the year, two new foreign wholly-owned subsidiaries were
        incorporated: Mahjong Systems (Cyprus) Limited, incorporated in Cyprus, and
        DNY
        (BVI) Limited, incorporated in the British Virgin Islands. Since the operations
        for both companies commenced in 2007, there is no activity to report in the
        accompanying financial statements.
  All
        significant inter-company transactions and balances have been eliminated
        upon
        consolidation.
  Acquisitions
        are recorded as purchases and the operations of the companies acquired during
        the period are included in the statements of operations from the dates of
        acquisition.
  **c)**
              **Cash
                  and cash equivalents**
  Cash
        and
        cash equivalents include short-term investments with maturities of 90 days
        or
        less when acquired.
   **d)**
              **Deferred
                  development costs**
  Development
        costs of the Internet-based gaming software *MahjongMania* are
        recorded at cost. The Company performs periodic impairment reviews to ensure
        that unamortized deferred development costs remain recoverable from the
        projected future net cash flows that they are expected to generate.
 
 
 **e)**
              **Property
                  and equipment**
  Property
        and equipment are recorded at cost, less accumulated amortization. Amortization
        is provided at rates designed to amortize the costs of the assets over their
        estimated useful lives on the declining balance method as follows:
  1) computer hardware and software
              30%2) furniture and fixtures
              20%
  
 **f)**
              **Government
                  assistance**
  Government
        assistance is comprised of investment tax credits and scientific research
        and
        experimental development tax credits. These credits are recognized when there
        is
        reasonable assurance of their recovery using the cost reduction method.
        Investment tax credits are subject to the customary approvals by the pertinent
        tax authorities. Adjustments required, if any, are reflected in the year
        when
        such assessments are received.
  F-6
 
 **DYNASTY
          GAMING INC.**
 Notes
          to
          Consolidated Financial Statements
 
 Years
          ended December 31, 2006, 2005 and 2004
 (stated
          in Canadian Dollars)
 **2.**  **Significant
        Accounting Policies - cont’d**
  **g)**
              **Foreign
                  currency translation**
  The
        consolidated financial statements are presented in Canadian dollars. The
        operations of CPC Econometrics Inc., the Company’s wholly-owned foreign
        subsidiary sold effective September 30, 2006, were considered self-sustaining.
        The operations of the Company’s wholly-owned foreign subsidiary, Mahjong Systems
        Limited, are considered to be fully integrated with those of its
        parent.
  (i)
              Self-sustaining
                  foreign operations
 
 All
        assets and liabilities are translated at the exchange rates in effect at
        year
        end. Revenues and expenses are translated at the average exchange rate for
        the
        period. The resulting net gains or losses are included as a cumulative
        translation adjustment in the consolidated statement of shareholders’
equity.
  (ii)  Accounts
        in foreign currencies
 
 Accounts
        in foreign currencies are translated using the temporal method. Under this
        method monetary balance sheet items are translated at the exchange rates
        in
        effect at year end and non-monetary items are translated at the historical
        exchange rates. Revenues and expenses (other than amortization, which is
        translated at the same exchange rates as the related assets) are translated
        at
        exchange rates in effect on the transaction dates or at the average exchange
        rates of the period. Translation gains or losses are included in the
        consolidated statement of operations.
 
 
 **h)**
              **Income
                  taxes**
  The
        Company uses the asset and liability method of accounting for income taxes.
        Under this method, the future income tax liabilities are determined based
        on
“temporary differences” (differences between the accounting basis and the tax
        basis of the assets and liabilities), and are measured using the currently
        enacted, or substantively enacted, tax rates and laws expected to apply when
        these differences reverse. A valuation allowance is recorded against any
        future
        income tax asset if it is more likely than not that the asset will not be
        realized. Income tax expense or benefit is the sum of the Company’s provision
        for the current income taxes and the difference between the opening and ending
        balances of future income tax assets and liabilities.
  **i)**
              **Revenue
                  recognition**
  The
        Company recognizes revenues resulting from the sale of software usage licenses
        and royalties. Revenues resulting from the sale of software usage licenses
        are
        recognized on a straight-line basis over the term of the software agreements.
        Revenues from royalties, the percentage share of the on-line game stakes
        as
        stipulated in the licensing contracts, are recognized at the end of the Internet
        game.
  For
        its
        discontinued operations, the Company recognized revenues from consulting
        contracts on a percentage of completion basis, as specific critical events
        occurred. Contracts for advertising and communication services were generally
        for periods of three to six months and revenues were recognized upon the
        acceptance by the clients of specific deliverables.
  **j)**
              **Per
                  share amounts**
  Basic
        earnings or loss per share are determined using the weighted average number
        of
        common shares outstanding during the year.
  F-7
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
  Diluted
        earnings or loss per share is calculated by dividing net results available
        to
        common shareholders by the weighted average number of shares used in the
        basic
        per share calculation plus the number of common shares that would be issued
        assuming exercise or conversion of all dilutive potential common shares
        outstanding during the year, using the treasury stock method.
  **2.**  **Significant
        Accounting Policies - cont’d**
  **k)**
              **Guarantees**
  In
        the
        normal course of business, the Company enters into numerous agreements that
        may
        contain features that meet the AcG-14 definition of a guarantee. AcG-14 defines
        a guarantee to be a contract (including an indemnity) that contingently requires
        the Company to make payments to a third party based on (i) changes in an
        underlying that is related to an asset, a liability or an equity of the
        guaranteed party or (ii) failure of another party to perform under an obligation
        agreement. The Company has not provided any such guarantees to third
        parties.
 
  **l)**
              **Use
                  of estimates**
  The
        preparation of consolidated financial statements in conformity with Canadian
        generally accepted accounting principles requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the consolidated
        financial statements and the reported amounts of revenues and expenses during
        the reporting period. Areas of significant estimate include the recoverability
        of deferred software costs, amortization periods for property and equipment,
        provision for doubtful accounts, the realization of future tax assets, and
        stock-based compensation costs. Actual results could differ from management’s
        best estimates and underlying assumptions as additional information becomes
        available in the future.
  **m)**
              **Stock-based
                  compensation and other stock-based
                  payments**
  The
        Company has a stock-based compensation plan which is described in note 13.
        The
        Company accounts for all stock-based payments and awards under the fair value
        base method. All stock compensation to non-employees are expensed to earnings.
        Stock options awards to employees are measured based on the fair value of
        the
        options at the grant date and a compensation expense is recognized over the
        vesting period of the options, with a corresponding increase to other
        capital.  When the stock options are exercised, capital stock is credited
        by the sum of the consideration paid, together with the related portion
        previously recorded to other capital. **** For
        awards granted before January 1, 2004, the Company did not recognize any
        compensation cost.
 
 In
        July
        2006, the Company adopted EIC Abstract 162, Stock-Based Compensation for
        Employees Eligible to Retire Before the Vesting Date (“EIC-162”), retroactively
        to January 1, 2006. The abstract clarifies the proper accounting for stock-based
        awards granted to employees who either are eligible for retirement at the
        grant
        date or will be eligible before the end of the vesting period and continue
        vesting after, or vest upon, retirement. In such cases, the compensation
        expense
        associated with the stock-based award will be recognized over the period
        from
        the grant date to the date the employee becomes eligible to retire. EIC-162
        did
        not have an impact on the Company’s financial statements.
  **n)**  **Goodwill**
  The
        Company is required to evaluate goodwill annually or whenever events or changes
        in circumstances indicate that the carrying amount may not be recoverable.
        Impairment is tested at the reporting unit level by comparing the reporting
        unit’s carrying amount to its fair value. The fair values of the reporting units
        are estimated using a combination of a market approach and discounted cash
        flows. To the extent a reporting unit’s carrying amount exceeds its fair value,
        an impairment of goodwill exists. Impairment is measured by comparing the
        fair
        value of goodwill, determined in a manner similar to a purchase price
        allocation, to its carrying amount.
  **o)**  **Comparative
        figures**
  Certain
        comparative figures have been reclassified to conform with the current year
        financial statement presentation.
  F-8
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 **3.**
              **Discontinued
                  Operations and Assets Held for
                  Sale**
   The
        Company discontinued all activities outside of its main business focus and
        sold
        100% of the issued and outstanding shares of 3 subsidiaries: MedEvents Inc.
        (“MED”), Cadence Healthcare Communications Inc. (“CHCI”) and CPC Econometrics
        Inc. (“CPC”). The sale was a non-arm’s length transaction and was ratified by
        the Board of Directors with effective date of September 30, 2006 at which
        date
        the acquirer took control. The agreement closed on December 15, 2006 at the
        sale
        price of $300,000: $150,000 paid in cash and $150,000 receivable in three
        equal
        instalments respectively on the 120 th day,
        240 th day and
        365 th day
        following the closing date.
   The
        effect of the sale on the Company’s cash position was a negative amount of
        $879,789, representing $150,000 received from proceeds and $1,029,789 of
        cash
        disposed.
  The
        effect of the sale on the Company’s equity is as follows:
  Proceeds
                    from sale
                
                $
                300,000Less
                    : book value of subsidiaries as of September 30, 2006
                
                
                (275,285
                )Gain
                    on sale
                
                $
                24,715
 The
        cumulative currency translation adjustment as of December 31, 2005, which
        arose
        from the translation to Canadian dollars of the assets and liabilities of
        CPC
        Econometrics Inc., the Company’s foreign self-sustaining US operations, has been
        written off to the Company’s opening deficit. The effect of this write off to
        the deficit at the beginning of period was a negative amount of
        $189,919.
 
 The
        results of the operations, cash flows and financial position of MED, CHCI
        and
        CPC have been segregated in the accompanying consolidated financial
        statements.
 
 The
        discontinued operations presented in the accompanying consolidated statements
        of
        operations are as follows:
 
 **2006**
              
              2005
              
              2004**273-day
                  period**
              
              365-day
                  period
              
              365-day
                  period$
              
              $
              
              $Revenues
              
              
              1,710,323
              
              
              7,794,457
              
              
              6,212,739Operating
                  expensesDirect
                  costs
              
              
              1,526,896
              
              
              5,241,175
              
              
              4,315,070Selling
              
              
              114,100
              
              
              320,267
              
              
              133,169Administrative
              
              
              199,666
              
              
              1,786,179
              
              
              1,502,643Amortization
              
              
              28,675
              
              
              37,251
              
              
              1,316,510Impairment
                  of assets (Note 8)
              
              
              -
              
              
              -
              
              
              234,9651,869,337
              
              
              7,384,872
              
              
              7,502,357(Loss)
                  income from operations
              
              
              (159,014
              )
              
              409,585
              
              
              (1,289,618
              )OtherOther
                  income (expense)
              
              
              14,428
              
              
              21,757
              
              
              (14,406
              )Gain
                  on settlement of debt
              
              
              -
              
              
              -
              
              
              1,065,803Gain
                  (loss) on sale of equipment
              
              
              4,893
              
              
              -
              
              
              (4,651
              )19,321
              
              
              21,757
              
              
              1,046,746(Loss)
                  income before income taxes
              
              
              (139,693
              )
              
              431,342
              
              
              (242,872
              )Income
                  taxes
              
              
              -
              
              
              244,727
              
              
              211,010(Loss)
                  incomefrom discontinued operations
              
              
              (139,693
              )
              
              186,615
              
              
              (453,882
              )Translation
                  adjustment loss
              
              
              (46,933
              )
              
              -
              
              
              -Net
                  (loss) income from discontinued operations
              
              
              (186,626
              )
              
              186,615
              
              
              (453,882
              )
  
 F-9
 **DYNASTY
        GAMING INC.**
 Notes
        to
        Consolidated Financial Statements
 
 Years
        ended December 31, 2006, 2005 and 2004
 (stated
        in Canadian Dollars)
  
 
 **3.**
              **Discontinued
                  Operations and Assets Held for Sale -
                  cont’d**
  The
        cash
        flows from discontinued operations presented in the accompanying consolidated
        statements of cash flows are as follows:
 **2006**
              
              2005
              
              2004**273-day
                  period**
              
              365-day
                  period
              
              365-day
                  period$
              
              $
              
              $Operating
                  activities
              
              
              1,070,810
              
              
              139,358
              
              
              (625,030
              )Investing
                  activities
              
              
              5,258
              
              
              104,636
              
              
              (7,757
              )Financing
                  activities
              
              
              (420,572
              )
              
              (74,378
              )
              
              184,846Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (21,036
              )
              
              (17,577
              )
              
              246Cash
                  flows from discontinued operations
              
              
              634,460
              
              
              152,039
              
              
              (447,695
              )
 
 Supplementary
        cash flow information for discontinued operations:
 **2006**
              
              2005
              
              2004$
              
              $
              
              $Income
                  taxes paid
              
              
              -
              
              
              121,160
              
              
              129,230Interest
                  paid
              
              
              9,465
              
              
              13,829
              
              
              19,025Non-cash
                  investing and financing activitiesCancellation
                  of debt
              
              
              -
              
              
              -
              
              
              278,200Write-down
                  of intangible asset on cancellation of debt
              
              
              -
              
              
              -
              
              
              (278,200
              )
 
 The
        assets held for sale and the related liabilities were as follows as at December
        31, 2005:
  $Current
                  assetsCash
              
              
              298,053Accounts
                  receivable
              
              
              1,629,089Work-in-process
              
              
              30,866Prepaid
                  expenses and deposits
              
              
              296,9982,255,006Long
                  term assetsProperty
                  and equipment
              
              
              79,228Asset
                  under capital leases
              
              
              41,779121,0072,376,013Current
                  liabilitiesBank
                  indebtedness
              
              
              85,337Accounts
                  payable and accrued liabilities
              
              
              844,317Income
                  taxes payable
              
              
              13,491Deferred
                  revenue
              
              
              189,721Current
                  portion of obligation under capital leases
              
              
              13,959Current
                  portion of long term debt
              
              
              249,400Future
                  tax liabilities
              
              
              248,162
 F-10
  **DYNASTY
          GAMING INC.**
 Notes
          to
          Consolidated Financial Statements
 
 Years
          ended December 31, 2006, 2005 and 2004
 (stated
          in Canadian Dollars)
   1,644,387Long
                  term liabilitiesObligation
                  under capital leases
              
              
              27,161Long
                  term debt
              
              
              36,40063,5611,707,948
 
 **4.**  **Business
        Acquisition**
 
 On
        May
        13, 2005, the Company announced the acquisition of 100% of the issued and
        outstanding shares of Mahjong Systems Limited and Mahjong Development Inc.
        in
        exchange for 9,000,000 shares of the Company’s common stock.
 On
        June
        10, 2005, control of these entities was transferred to the Company and the
        Company began managing, operating and funding the acquired companies at this
        date.    The 9,000,000 common shares were issued on September 21,
        2005 after completion of normal shareholder procedural matters.  The
        measurement date of the transaction was determined to be the May 13, 2005
        announcement date and the Company valued the shares issued at $0.15 per share
        (which is consistent with the share issuance price under a private placement
        that occurred approximately two weeks before the measurement date, see note
        11).  The acquisition was accounted for by the purchase method of
        accounting and the results of operations of the acquired companies have been
        included in the results of operations of the Company from the June 10, 2005
        acquisition date.
  Details
        of the net assets acquired, at estimated fair value, are as
        follows:
 
 Mahjong
                  Development Inc.
              
              Mahjong
                  Systems Limited$
              
              $Current
                  assets
              
              
              41,358
              
              
              42,280Long
                  term assets
              
              
              46,249
              
              
              41,857Development
                  costs - gaming software
              
              
              2,150,821
              
              
              -2,238,428
              
              
              84,137Current
                  liabilities
              
              
              903,458
              
              
              69,107Fair
                  value of net assets acquired
              
              
              1,334,970
              
              
              15,030Total
                  consideration - issuance of capital stock
              
              
              $
                  1,350,000
   On
        December 31, 2006, 5,400,000 of the shares issued in consideration were held
        in
        escrow and may only be released for trading based on a pre-determined schedule
        and conditions. The schedule calls for the release of 1,350,000 shares at
        six
        months intervals over a period of 36 months after the date of
        acquisition.
  **5.**  **Discontinued
        Operations**
  Effective
        September 30, 2004 the Company discontinued its convention management operations
        and sold 100% of the issued and outstanding shares of Events International
        Meeting Planners (EIMP). The sale was ratified on December 22, 2004 at the
        annual shareholders meeting. EIMP was sold for $120,753: $100 of which was
        paid
        in cash and $120,653 of which was paid through cancellation of 2,413,054
        common
        shares held in escrow. The net effect of the disposition on the Company’s cash
        position was a negative amount of $151,425; representing $100 received in
        cash
        and $151,525 of cash disposed.
 
 F-11
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
  The
        effect of the sale on the Company’s equity is as follows:
  Book
                  value of EIMP as of September 30, 2004
              
              $
              (892,917
              )Proceeds
                  from sale
              
              
              120,753Gain
                  on sale
              
              $
              1,013,671Contributed
                  surplus - shares cancelled as part of sale:Shares
                  at $0.10 cost (2,413,054 shares)
              
              $
              241,306Shares
                  at $0.05 market value (2,413,054 shares)
              
              
              120,653$
              120,653
  **5.**
              **Discontinued
                  Operations - cont’d**
 
 The
        results of operations and cash flows of EIMP have been segregated in the
        accompanying consolidated financial statements. The results of discontinued
        operations presented in the accompanying consolidated statements of operations
        were as follows:
 
 2004
                (273-day
                  period)
                $Revenues
              
              
              3,203,298Operating
                  expensesDirect
                  costs
              
              
              2,992,316Selling
              
              
              143,755Administrative
              
              
              666,861Amortization
              
              
              72,6793,875,611Loss
                  from operations
              
              
              (672,313
              )OtherOther
                  expenses
              
              
              110,025Impairment
                  of goodwill
              
              
              1,547,9161,657,941Net
                  loss from discontinued operations
              
              
              (2,330,254
              )
 
 The
        cash
        flows from discontinued operations presented in the accompanying consolidated
        statements of cash flows are as follows:
  2004
                (273-day
                  period)
                $Operating
                  activities
              
              
              (1,816,101
              )Investing
                  activities
              
              
              (9,808
              )Financing
                  activities
              
              
              (118,224
              )Cash
                  flows from discontinued operations
              
              
              (1,944,133
              )
 
  Supplementary
        cash flow information for discontinued operations:
  Interest
                  paid
              
              
              34,276
 
  **6.**
              **Deferred
                  Development Costs**
  Development
        costs of the Internet-based gaming software *MahjongMania* are
        recorded at cost and amortized on a straight-line basis over the three years
        estimated useful life. The Company has performed an impairment review to
        ensure
        that unamortized deferred development costs remain recoverable from the
        projected future net cash flows that they are expected to generate.
  F-12
 **DYNASTY
          GAMING INC.**
 Notes
          to
          Consolidated Financial Statements
 
 Years
          ended December 31, 2006, 2005 and 2004
 (stated
          in Canadian Dollars)
   **2006**
              
              2005Cost
              
              Accumulated
                  Amortization
              
              Net
                  Book Value
              
              Net
                  Book Value$
              
              $
              
              $
              
              $2,459,363
              
              
              819,792
              
              
              1,639,571
              
              
              2,736,451
 
 Research
        and development tax credits in the amount of $277,088 (2005 - nil) were included
        as a reduction to the deferred development costs; the amounts are based on
        claims received.
  **7.**  **Property
        and Equipment**
  
 **2006**
              
              2005**Cost**
              
              **Accumulated
                  Amortization**
              
              **Net
                  Book Value**
              
              Cost
              
              Accumulated
                  Amortization
              
              Net
                  Book Value$
              
              
              $
              
              
              $
              
              
              $
              
              
              $
              
              
              $Computer
                  hardware and software
              
              
              556,491
              
              
              98,431
              
              
              458,060
              
              
              165,950
              
              
              43,820
              
              
              122,130Furniture
                  and fixtures
              
              
              10,314
              
              
              3,199
              
              
              7,115
              
              
              6,500
              
              
              1,576
              
              
              4,924566,805
              
              
              101,630
              
              
              465,175
              
              
              172,450
              
              
              45,396
              
              
              127,054
   **8.**  **Impairment
        - Tangible Assets**
  The
        loan
        receivable, in the amount of $303,430, bears interest at 6% receivable annually
        and matures December 31, 2008. The Company deems this loan to be fully impaired
        and has recorded an impairment loss of $303,430 for the year 2006.
  The
        Company had a net loan receivable from shareholder of $414,546. On December
        23,
        2004 the loan was repaid for an amount of $389,000 ($346,588 plus $42,412
        in
        interest) and the Company recorded an impairment loss of $67,958 for the
        year
        2004.
  A
        subsidiary, which was sold effective September 30, 2006, recorded an impairment
        loss of $234,965 in 2004.
  **9.**  **Impairment
        - Goodwill**
  In
        2005,
        the Company recorded an impairment loss of $328,348 for the goodwill associated
        with the CPC Econometric Inc. subsidiary sold in 2006.
  A
        subsidiary, which was sold effective September 30, 2004, recorded an impairment
        loss of $1,547,916 in 2004.
   F-13
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
  **10.**  **Income
        Taxes**
   **2006**
              
              2005
              
              2004$
              
              $
              
              $Loss
                  from continuing operations before income taxes:Canadian
              
              
              (5,847,118
              )
              
              (1,178,195
              )
              
              (434,438
              )Foreign
              
              
              (886,840
              )
              
              (192,979
              )
              
              -(6,733,958
              )
              
              (1,371,174
              )
              
              (434,438
              )Combined
                  federal and provincial statutory rates
              
              
              27.80
              %
              
              26.64
              %
              
              31.02
              %Computed
                  income tax recovery at statutory rates
              
              
              (1,872,248
              )
              
              (365,240
              )
              
              (134,763
              )Increase
                  (decrease) resulting from:Impairments
              
              
              48,579
              
              
              101,787
              
              
              10,540Gains
                  on investments
              
              
              (2,979
              )
              
              -
              
              
              -Non-deductibleexpenses
              
              
              416,653
              
              
              15,838
              
              
              1,298Non-recognition
                  of future tax assets
              
              
              213,942
              
              
              3,199
              
              
              10,540Non-recognition
                  of tax benefits related to non-capital losses
              
              
              1,196,053
              
              
              244,416
              
              
              112,385Income
                  tax expense
              
              
              -
              
              
              -
              
              
              -
  
  Future
                  tax assets are comprised of the following:
              
              **2006**
              
              2005
              
              2004$
              
              $
              
              $Operating
                  losses carried forward
              
              
              1,930,810
              
              
              796,013
              
              
              417,304Capital
                  losses carried forward
              
              
              429,692
              
              
              315,405
              
              
              315,405Timing
                  differences due to capital, intangible and other assets
              
              
              (170,956
              )
              
              33,394
              
              
              84,814Investment
                  income tax credits
              
              
              102,736
              
              
              102,736
              
              
              -Less:
                  valuation allowance
              
              
              (2,292,282
              )
              
              (1,247,548
              )
              
              (817,523
              )-
              
              
              -
              
              
              -
 
  As
        at
        December 31, 2006, the Company has taxable capital losses carry-forward of
        approximately $1,351,250 which are available to be applied against future
        taxable capital gains and non-capital losses carry-forward of approximately
        $6,038,400, **** which
        are
        available to be applied against future taxable income.
  The
        non-capital losses expire as follows:
   Year
                  of Expiry
              
              Amount2026
              
              
              3,735,0002015
              
              
              1,630,0002014
              
              
              360,000
 
 
  F-14
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
 
 2010
              
              
              54,0002009
              
              
              194,0002008
              
              
              64,0002007
              
              
              1,400
 
 The
        potential tax benefits relating to these losses have not been recognized
        in the
        financial statements.
 
 **11.**  **Capital
        Stock**
  a)  Authorized
  The
        Company is authorized to issue an unlimited number of common
        shares.
  b)  Escrowed
        shares
  As
        at
        December 31, 2006, 11,498,334 common shares are subject to escrow conditions
        and
        may only be released for trading based on a pre-determined schedule and
        conditions extending over a period of two years.
 
 c)  Cancelled
        common shares held in escrow
 
 On
        December 22, 2004 as part of the sale of Events International Meeting Planners
        the buyer surrendered 2,413,054 common shares of the Company which were held
        in
        escrow. These shares were subsequently cancelled (see Note 5).
 
 d)  Private
        Placement
  In
        November 2006, the Company completed two private placement agreements with
        third-party investors and issued 12,000,000 common shares at a price of $0.50
        per share for gross proceeds of $6,000,000. In connection with the private
        placements, 12,000,000 warrants were granted, each warrant entitling the
        holder
        to acquire one additional common share at a price of $0.75 for a period of
        two
        years. The out-of-pocket issuance costs related to these placements were
        $431,844.
 
 The
        Company has estimated the fair value of the warrants to be $0.13 per warrant for a total
        cost of $1,560,000; this cost has been credited to other capital. The total
        issuance cost of $1,991,844 (out-of-pocket costs of $431,844 plus warrant
        costs
        of $1,560,000) has been charged against the $6,000,000 capital stock for
        a net
        issuance amount of $4,008,156.
  The
        Company estimated
        fair value using the Black-Scholes model with the following
        assumptions: ****
  Risk-free interest rate
              5.55%Expected
                life
              1
                  yearExpected volatility in the market
                price
                of the shares
              79%Expected dividend yield
              nil
  e)  Private
        Placement
  On
        April
        29, 2005, the Company completed a private placement agreement with third-party
        investors and issued 8,000,000 common shares at a price of $0.15 per share
        for
        gross proceeds of $1,200,000. In connection with the private placement,
        8,000,000 Series “A” Warrants were granted, each warrant entitling the holder to
        acquire one additional common share at a price of $0.25 for a period of one
        year. Also 800,000 broker rights, entitling the holder to acquire one common
        share at a price of $0.15 each for a period of one year, were issued. The
        out-of-pocket issuance costs were $157,506.
  F-15
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
  The
        Company has allocated the $0.15 **** per
        share private placement value completely to the shares. The fair value of
        the
        warrants attached to these shares, due to the short life of the warrants
        (one
        year) and the fact that the warrants are exercisable at a 40% premium (at
        $0.25
        per warrant) above the issue price of the private placement is deemed to
        be nil.
        The Company has estimated the fair value of the broker rights at $0.03 per
        right
        for a total cost of $24,000; this has been credited to other capital. The
        total
        issuance cost of $181,506 (out-of-pocket costs of $157,506 and broker rights
        costs of $24,000) has been charged against the $1,200,000 capital stock for
        a
        net issuance amount of $1,018,494.
  The
        Company estimated fair value using the Black-Scholes model with the following
        assumptions: ****
 
 Risk-free interest rate
              4.05%Expected life
              1
                  yearExpected volatility in the market price of the shares
              50%Expected dividend yield
              nil
  **11.**  **Capital
        Stock - cont’d**
  f)  Business
        acquisition
  On
        September 21, 2005 the Company issued 9,000,000 common shares for the purchase
        of 100% of the issued and outstanding shares of Mahjong Systems Limited and
        Mahjong Development Inc. The fair value of the shares on issuance was $0.15
        per
        share for a total value $1,350,000.
 
 g)  Private
        Placement
  On
        December 28, 2005, the Company completed a placement agreement with third-party
        investors and issued 15,000,000 units (the “Units”) of the Company at a price of
        $0.35 per unit for gross proceeds of $5,250,000. Each Unit sold consists
        of one
        common share and one-half of one share purchase warrant, each full warrant
        entitling a holder to acquire an additional common share at a price of $0.50
        per
        share for a period of two years. Also 1,350,000 broker warrants, entitling
        the
        holder to acquire one common share at a price of $0.50 each for a period
        of two
        years, were issued. The out-of-pocket issuance costs were $481,547.
 
 The
        Company has estimated the fair value of the warrants at $0.05 per warrant
        for a
        total cost of $442,500; this cost has been credited to other capital. The
        total
        issuance cost of $924,047 (out-of-pocket costs of $481,547 and other costs
        of
        $442,500) has been charged against the $5,250,000 capital stock for a net
        issuance amount of $ 4,325,953.
  The
        Company estimated fair value using the Black-Scholes model with the following
        assumptions: ****
 
 Risk-free interest rate
              5.37%Expected life
              1
                  yearExpected volatility in the market price of the shares
              44%Expected dividend yield
              nil
 
  h)
              Warrants,
                  rights and options exercised during the year by
                  quarter
  Number
              
              Average
                  Exercise Price
              
              Proceeds*****#
              
              $
              
              $First
                  QuarterRights
              
              
              186,667
              
              
              0.15
              
              
              33,600Options
              
              
              16,000
              
              
              0.15
              
              
              3,040Second
                  QuarterWarrants
              
              
              75,000
              
              
              0.50
              
              
              41,250Rights
              
              
              70,667
              
              
              0.15
              
              
              12,720
   F-16
 **DYNASTY
          GAMING INC.**
 Notes
          to
          Consolidated Financial Statements
 
 Years
          ended December 31, 2006, 2005 and 2004
 (stated
          in Canadian Dollars)
    Options
              
              
              261,777
              
              
              0.29
              
              
              92,748Third
                  QuarterOptions
              
              
              96,167
              
              
              0.15
              
              
              18,272Fourth
                  QuarterWarrants
              
              
              1,900,000
              
              
              0.50
              
              
              1,045,000Options
              
              
              66,500
              
              
              0.18
              
              
              15,1352,672,778
              
              
              
              
              
              1,261,765
 
 *
        “Proceeds” is comprised of net cash proceeds plus the related stock-based
        compensation costs, brokers’ rights and warrants costs which were originally
        credited to other capital.
 
  **11.**  **Capital
        Stock - cont’d**
  
 Issued
        common shares:
 
 **2006**
              
              2005**Number
                  of shares**
              
              **Book
                  Value**
              
              Number
                  of shares
              
              Book
                  Value**#**
              
              $
              
              #
              
              $Common
                  shares, beginning of year
              
              
              76,854,115
              
              
              12,405,434
              
              
              36,187,782
              
              
              3,589,810Issuance-
                  private placements
              
              
              12,000,000
              
              
              4,008,156
              
              
              23,000,000
              
              
              5,344,447Issuance-
                  business acquisition
              
              
              -
              
              
              -
              
              
              9,000,000
              
              
              1,350,000Issuance-
                  warrants, rights and options exercised
              
              
              2,672,778
              
              
              1,261,765
              
              
              8,666,333
              
              
              2,121,177Common
                  shares, end of year
              
              
              91,526,893
              
              
              17,675,355
              
              
              76,854,115
              
              
              12,405,434
 
 **12.**  **Other
        Capital**
  Other
        capital consists of the following:
  **2006**
              
              **2005**$
              
              $Warrants
                  and brokers’ rights costs
              
              
              1,903,750
              
              
              450,220Stock-based
                  compensation costs
              
              
              1,041,500
              
              
              25,3102,945,250
              
              
              475,530
  **13.**  **Stock
        - Based Compensation Plan**
  The
        Company maintains a Stock Option Plan for eligible individuals: directors,
        officers, employees and consultants. On February 24, 2006, the aggregate
        number
        of shares reserved for issuance was increased to 7,500,000 from the previous
        aggregate of 5,500,000. On October 6, 2006 a new plan was approved by the
        board
        to replace the old plan. Under the new plan the maximum aggregate number
        of
        shares reserved for issuance shall not exceed 10% of the then issued and
        outstanding shares of the Company.
  Under
        the
        old plan, options were periodically granted to purchase common shares at
        an
        exercise price which was equal to the price quoted on the exchange on the
        date
        on which the grant of the option was approved by the board, less the maximum
        discount permitted under the Exchange’s policies applicable to options.
        Generally, these options
  F-17
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
   vested
        in
        six equal instalments over a period of 18 months, with the first instalment
        vesting immediately and the remaining options vesting 6 months, 9 months,
        12
        months, 15 months, and 18 months after the date of grant. The options terminated
        5 years after the grant.
  Under
        the
        new plan, the option price, the expiration date of each option, the vesting
        period and other terms and conditions relating to each option shall be
        determined by the Board at the time of granting. The options are exercisable
        up
        to a maximum of 5 years after the grant.
 
 **13.**  **Stock
        - Based Compensation Plan - (cont’d)**
   The
        summarized information on options as at December 31, 2006 is as
        follows:
  
 Options
                  Outstanding
              
              Options
                  ExercisableExercise
                  Price
              Number
                  Outstanding
              Weighted
                  average remaining life (years)
              Weighted
                  average exercise price
              
              Number
                  Exercisable
              Weighted
                  average exercise price$
              #
              #
              $
              
              #
              $$0.15
                  - $0.50
              693,555
              3.63
              0.40
              
              572,111
              0.39$0.50
                  - $1.00
              5,044,333
              4.27
              0.57
              
              1,733,556
              0.56$1.00
                  - $1.11
              2,150,000
              4.52
              1.02
              
              566,667
              1.037,887,888
              4.29
              0.68
              
              2,872,334
              0.62
  
 
 The
        fair
        value compensation expense recorded for the year ended December 31, 2006,
        with
        respect to the stock options granted, was $1,042,146 (2005 - $30,257; 2004
        -
        nil). The weighted average fair value of options granted during 2006 was
        estimated at $0.33 per option using the Black-Scholes model on the date of
        grant. The following weighted-average assumptions were used:
  Risk-free interest rate
              5.57%Expected life
              1.35
                  yearsExpected volatility in the market
                price
                of the shares
              81%Expected
                dividend yield
              nil
 
 F-18
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
  The
        number of options has varied as follows for the years ended December
        31:
  
 **2006**
              
              2005**Number
                  of options**
              
              **Weighted
                  average exercise price**
              
              Number
                  of options
              
              Weighted
                  average exercise price#
              
              $
              
              #
              
              $Outstanding
                  at beginning of year
              
              
              2,605,749
              
              
              0.44
              
              
              200,000
              
              
              0.73Forfeited
              
              
              (26,750
              )
              
              1.05
              
              
              (107,750
              )
              
              0.47Granted
              
              
              5,749,333
              
              
              0.77
              
              
              2,637,166
              
              
              0.41Exercised
              
              
              (440,444
              )
              
              0.23
              
              
              (123,667
              )
              
              0.15Outstanding
                  at end of year
              
              
              7,887,888
              
              
              0.68
              
              
              2,605,749
              
              
              0.44Options
                  exercisable at end of year
              
              
              2,872,334
              
              
              0.62
              
              
              561,361
              
              
              0.38
  **14.**  **Supplemental
        Cash Flow Information**
  **2006**
              
              2005
              
              2004$
              
              $
              
              $Interest
                  paid
              
              
              8,913
              
              
              7,522
              
              
              1,313Non-
                  cash investing and financing activities:Proceeds
                  from sale of subsidiaries
              
              
              150,000
              
              
              -
              
              
              -Other
                  receivable
              
              
              (150,000
              )
              
              -
              
              
              -Increase
                  in development costs due to amortization
              
              
              -
              
              
              7,006
              
              
              -Acquisition
                  of assets through capital leases
              
              
              -
              
              
              32,432
              
              
              -Capital
                  lease obligation
              
              
              -
              
              
              (32,432
              )
              
              -Cost
                  of warrants & brokers’ rights
              
              
              1,560,000
              
              
              466,500
              
              
              -Other
                  capital
              
              
              (1,560,000
              )
              
              (466,500
              )
              
              -Issuance
                  of stock for acquisition of subsidiaries
              
              
              -
              
              
              1,343,137
              
              
              -Stock
                  received as part of proceeds of sale of discontinued
                  operations
              
              
              -
              
              
              -
              
              
              241,306Cancellation
                  of stock received
              
              
              -
              
              
              -
              
              
              (241,306
              )Increase
                  in common stock due to reduction in other capital pursuant to stock
                  warrants, rights and options issued
              
              
              132,426
              
              
              21,227
              
              
              -Cancellation
                  of debt
              
              
              -
              
              
              -
              
              
              278,200Write-down
                  of intangible asset on cancellation of debt
              
              
              -
              
              
              -
              
              
              (278,200
              )
 
  **15.**  **Financial
        Instruments**
  a)
           Credit risk
  It
        is
        management’s opinion that the Company is not exposed to significant credit risk.
  b) Fair
        value disclosure
  Fair
        value estimates are made as of a specific point in time, using available
        information about the financial instruments. These estimates are subjective
        in
        nature and often cannot be determined with precision. The Company has estimated
        that the carrying value of its short-term financial assets and liabilities
        approximates their fair values at the balance sheet date because of the
        short-term maturity of these instruments.
  c)
 
        Foreign currency risk
   F-19
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
  A
        substantial portion of the Company’s revenue is earned in foreign currencies and
        is exposed to currency fluctuations. The Company, as much as possible, uses
        the
        revenue stream in foreign currency as a natural hedge to cover costs denominated
        in that currency. The following shows, in Canadian dollars, the assets and
        liabilities in other currencies:
 
 **2006**
              2005**Original**
              **Converted**
              
              Original
              Converted**Currency**
              **$**
              **$**
              Currency
              $
              $Current
                  assets
              US
              602,942
              698,368
              US
              125,024
              145,404Current
                  assets
              GBP
              2,725
              6,219
              GBP
              -
              -Current
                  liabilities
              US
              165,025
              192,328
              US
              249,953
              290,696
   **16.**  **Commitments**
  Lease
        of
        premises
 
 The
        Company entered into an agreement to lease premises. This agreement expires
        November 30, 2007 and the minimum payment, excluding operating and real estate
        taxes, is $130,471 for 2007.
  Stock
        options
 
 The
        Company has a commitment to grant a total of 300,000 stock options in 2007
        to a
        consultant at an exercise price to be determined.
  **17.**  **Related
        Party Transactions**
  Transactions
        with companies controlled by shareholders and directors are as
        follows:
 
  **2006**
              
              
              2005
              
              
              2004$
              
              
              $
              
              
              $Revenues
                  earned from
              
              
              -
              
              
              -
              
              
              28,016Direct
                  costs paid to
              
              
              158,433
              
              
              517,389
              
              
              847,597Marketing
                  and promotion costs paid to
              
              
              -
              
              
              -
              
              
              35,570Administrative
                  costs paid to
              
              
              392,150
              
              
              257,850
              
              
              145,300
  The
        above
        transactions are in the normal course of operations and are measured at the
        exchange amount, which is the amount of consideration established and agreed
        to
        by the related parties. As at December 31, 2006, the Company has $3,272 accounts
        payable to related parties (December 31, 2005 - $21,337; December 31, 2004
        -
        nil).
  **18.**  **Segmented
        Information**
  The
        Company operates under one operating and reporting segment as management
        has
        determined that the nature of its operations and the way management runs
        the
        business meets the aggregation criteria specified by Canadian accounting
        standards.
  F-20
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 
  The
        Company’s revenues originate from the following geographical areas of
        operation.
  **2006**
              
              **Canada**
              
              **UK
                  and Europe**
              
              **Total**$
              
              
              $
              
              
              **$**License
                  and royalty fees
              
              
              -
              
              
              82,277
              
              
              82,277
 
 
 **2005**
              
              **Canada**
              
              **UK
                  and Europe**
              
              **Total**$
              
              
              $
              
              
              **$**Management
                  fees
              
              
              95,700
              
              
              66,000
              
              
              161,700
  There
        were no revenues generated in 2004
  **19.**
              **Canadian
                  and United States Accounting Policies
                  Differences**
  The
        consolidated financial statements of the Company have been prepared in
        accordance with generally accepted accounting principles in Canada (Canadian
        GAAP). The significant differences between Canadian GAAP and generally accepted
        accounting principles in the United States (U.S. GAAP), and their effect
        on the
        consolidated financial statements, are described below:
 
 *Consolidated
        statement of operations:*
 
 In
        December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
        No.
        123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which is a revision
        of
        SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123R supersedes
        Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
        Issued
        to Employees" and amends SFAS No. 95, "Statement of Cash Flows".
 
 Effective
        January 1, 2004, for U.S. GAAP purposes, the Company adopted SFAS 123R, using
        the modified retroprospective application method. SFAS 123R requires the
        recognition of the cost of employee services received in exchange for an
        award
        of equity instruments in the financial statements and is measured based on
        the
        grant date fair value of the award. SFAS 123R also requires the stock
 option compensation expense to be recognized over the period during which
        an employee is required to provide service in exchange for the award (the
        vesting period). Prior to adopting SFAS 123R, the Company accounted for
        stock-based compensation plans under APB No. 25. Under APB 25, generally
        no
        compensation expense is recorded when the terms of the award are fixed and
        the
        exercise price of the employee stock option equals or exceeds the fair value
        of
        the underlying stock on the date of grant.
 
 Under
        the
        modified retroprospective application method, SFAS No. 123R applies to new
        awards and to prior years’ awards to give effect to the fair value-based method
        of accounting for awards granted, modified, or settled in cash on a basis
        consistent with the proforma disclosures required for those periods by statement
        123. Under Canadian GAAP, for awards granted before January 1, 2004, the
        Company
        did not recognize any compensation cost at the time of grant or as the requisite
        service was rendered. Therefore, the following table reconciles December
        31,
        2004 loss as reported in the accompanying consolidated financial statements
        to
        December 31, 2004 loss that would have been reported had the consolidated
        financial statements been prepared in accordance with U.S. GAAP (there would
        be
        no impact to discontinued operations):
  F-21
 
  **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 $Loss
                  from continuing operations:in
                  accordance with Canadian GAAP
              
              
              (434,438
              )Stock
                  based compensation costs
              
              
              (15,083
              )in
                  accordance with U.S. GAAP
              
              
              (449,521
              )Net
                  loss:in
                  accordance with Canadian GAAP
              
              
              (2,204,904
              )Stock
                  based compensation costs
              
              
              (15,083
              )in
                  accordance with U.S. GAAP
              
              
              (2,219,987
              )
  Basic
        and
        diluted net loss per share in accordance with U.S. GAAP would have remained
        unchanged from the amounts reported in accordance with Canadian
        GAAP.
 
 The
        cumulative effect on deficit is $35,608 representing $15,083 in 2004, $14,650
        in
        2003 and $5,875 in 2002.
 
 $Deficit,
                  as at December 31, 2006, in accordance with Canadian GAAP
              
              
              (11,122,899
              )Cumulative
                  stock based compensation costs
              
              
              (35,608
              )Deficit,
                  as at December 31, 2006, in accordance with U.S. GAAP
              
              
              (11,158,507
              )
   **19.**
              **Canadian
                  and United States Accounting Policies Differences -
                  cont’d**
  *Accumulated
        other comprehensive loss* :
 
 The
        application of U.S. GAAP requires the disclosure of comprehensive loss in
        a
        separate financial statement, which includes net income as well as revenues,
        charges, gains and losses recorded directly to equity.
  Year
                  ended December 31**2006**
              
              2005
              
              2004$
              
              $
              
              $Net
                  loss in accordance with U.S. GAAP
              
              
              (6,895,869
              )
              
              (1,184,559
              )
              
              (2,219,987
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              (53,995
              )
              
              (65,158
              )Accumulated
                  other comprehensive loss
              
              
              (6,895,869
              )
              
              (1,238,554
              )
              
              (2,285,145
              )
  *Estimated
        Value of Warrants* :
 
 As
        described in Note 11 to the consolidated financial statements, the Company
        allocated the proceeds of the 2006 private placements between capital stock
        and
        warrants based on the estimated fair value of the warrants using the
        Black-Scholes model. For Canadian GAAP, the Company used an estimated life
        of
        the warrants in the model. For U.S. GAAP reporting purposes, the Company
        used
        the contractual term of the warrants in the model. This results in different
        amounts being allocated to the warrants under U.S. GAAP, with no impact to
        operating results or cash flows. According to U.S. GAAP capital stock is
        decreased by $960,000 with a corresponding increase to other capital of
        $960,000.
 
 In
        2005,
        the difference between Canadian GAAP and U.S. GAAP evaluation of warrants
        resulted in a decrease to capital stock of $265,500 with a corresponding
        increase to other capital of $265,500. In 2006, as a result of the exercise
        of
        some of these warrants, capital stock is increased by $59,250 with a
        corresponding decrease to other capital of $59,250.
 
 The
        impact of these allocations and the allocations of stock based compensation
        costs and foreign currency translation adjustment (as noted in the previous
        paragraphs) on shareholders’ equity is as follows:
  F-22
 **DYNASTY
            GAMING INC.**
 Notes
            to
            Consolidated Financial Statements
 
 Years
            ended December 31, 2006, 2005 and 2004
 (stated
            in Canadian Dollars)
 **2006**
              
              
              2005Canadian
                  GAAP
              
              
              U.S.
                  GAAP
              
              
              Canadian
                  GAAP
              
              
              U.S.
                  GAAP$
              
              
              $
              
              
              $
              
              
              $Capital
                  stock
              
              
              17,675,355
              
              
              16,512,505
              
              
              12,405,434
              
              
              12,139,934Contributed
                  surplus
              
              
              120,653
              
              
              120,653
              
              
              120,653
              
              
              120,653Other
                  capital
              
              
              2,945,250
              
              
              4,143,708
              
              
              475,530
              
              
              776,638Cumulative
                  translation adjustment
              
              
              -
              
              
              -
              
              
              (189,919
              )
              
              -Deficit
              
              
              (11,122,899
              )
              
              (11,158,507
              )
              
              (4,037,111
              )
              
              (4,262,638
              )Total
                  shareholders’ equity
              
              
              9,618,359
              
              
              9,618,359
              
              
              8,774,587
              
              
              8,774,587
  *Consolidated
        Statements of Cash Flows* :
  SFAS
        No.
        95, “Statement of Cash Flows”, requires that the consolidated statements of cash
        flows include a reconciliation of net loss to cash used in operating activities
        of continuing operations, as well as cash flow information related to
        discontinued operations.  Following are the consolidated statements of cash
        flows prepared in accordance with U.S. GAAP:
 
 *Consolidated
        Statements of Cash Flows -cont’d* :
  **2006**
              
              2005
              
              2004$
              
              $
              
              $**Cash
                  flows from operating activities****Net
                  loss from continuing operations**
              
              
              **(6,895,869**
              **)**
              
              (1,184,559
              )
              
              (2,204,904
              )**Stock
                  based compensation (Note 13)**
              
              
              **1,042,146**
              
              
              30,257
              
              
              -**Amortization
                  of deferred development costs**
              
              
              **819,792**
              
              
              -
              
              
              -**Amortization
                  of property and equipment , assets under capital leases and deferred
                  lease
                  benefits**
              
              
              **84,909**
              
              
              53,360
              
              
              119,046**Amortization
                  of intangible assets**
              
              
              **-**
              
              
              -
              
              
              1,266,717**Impairment
                  - loans**
              
              
              **303,430**
              
              
              -
              
              
              67,958**Impairment
                  - goodwill**
              
              
              **-**
              
              
              328,348
              
              
              1,782,881**Gain
                  on sale of discontinued operations (Notes 3 and
                  5)**
              
              
              **(24,715**
              **)**
              
              -
              
              
              (1,013,670
              )**Gain
                  on settlement of debt**
              
              
              **-**
              
              
              -
              
              
              (1,049,580
              )**(Gain)
                  loss on sale of property and equipment**
              
              
              **(4,893**
              **)**
              
              -
              
              
              4,651**Future
                  income tax liability**
              
              
              **-**
              
              
              148,050
              
              
              88,989**(4,675,200**
              **)**
              
              (624,544
              )
              
              (937,912
              )**Change
                  in non-cash working capital:****Accounts
                  receivable**
              
              
              **905,751**
              
              
              181,226
              
              
              (2,283,613
              )**Prepaid
                  expenses and work in progress**
              
              
              **(3,580**
              **)**
              
              (227,807
              )
              
              (414,504
              )**Accounts
                  payable and accrued liabilities**
              
              
              **(212,164**
              **)**
              
              (809,365
              )
              
              1,187,747**Deferred
                  revenue**
              
              
              **103,655**
              
              
              (54,146
              )
              
              201,931**793,662**
              
              
              (910,092
              )
              
              (1,308,439
              )**(3,881,538**
              **)**
              
              (1,534,636
              )
              
              (2,246,351
              )**Cash
                  flows from investing activities****Restricted
                  cash**
              
              
              **(43,030**
              **)**
              
              -
              
              
              -**Restricted
                  deposit**
              
              
              **(155,418**
              **)**
              
              3,900
              
              
              629,800**Net
                  cash transferred on sale of business (Notes 3 and
                  5)**
              
              
              **(879,789**
              **)**
              
              -
              
              
              (151,425
              )**Cash
                  acquired on acquisition**
              
              
              **-**
              
              
              6,863
              
              
              -**Loan
                  receivable**
              
              
              **-**
              
              
              30,200
              
              
              (30,200
              )**Loan
                  receivable - shareholder**
              
              
              **-**
              
              
              104,636
              
              
              338,329**Increase
                  in development costs - gaming software**
              
              
              **-**
              
              
              (578,624
              )
              
              -**Tax
                  credits received for development costs**
              
              
              **277,088**
              
              
              -
              
              
              -**Acquisition
                  of property and equipment**
              
              
              **(408,747**
              **)**
              
              (29,631
              )
              
              (64,741
              )**Proceeds
                  on sale of property and equipment**
              
              
              **19,650**
              
              
              -
              
              
              55,435**(1,190,246**
              **)**
              
              (466,656
              )
              
              777,198**Cash
                  flows from financing activities****Bank
                  indebtedness**
              
              
              **(85,337**
              **)**
              
              (37,340
              )
              
              125,928**Repayment
                  of obligations under capital lease**
              
              
              **(15,320**
              **)**
              
              (39,867
              )
              
              (29,306
              )**Decrease
                  in loan from shareholder**
              
              
              **-**
              
              
              (60,000
              )
              
              -**Repayment
                  of long term debt**
              
              
              **(53,200**
              **)**
              
              (24,600
              )
              
              (30,000
              )**Issuance
                  of common shares net of costs**
              
              
              **6,697,495**
              
              
              7,910,897**6,543,638**
              
              
              7,749,090
              
              
              66,622**Effect
                  of exchange rates fluctuations on cash and cash
                  equivalents**
              
              
              **25,897**
              
              
              (17,577
              )
              
              246
    F-23
 **DYNASTY
          GAMING INC.**
 Notes
          to
          Consolidated Financial Statements
 
 Years
          ended December 31, 2006, 2005 and 2004
 (stated
          in Canadian Dollars)
    **19.**
              **Canadian
                  and United States Accounting Policies Differences -
                  cont’d**
  *Consolidated
        Statements of Cash Flows -cont’d* :
  **Net
                  change in cash and cash equivalents**
              
              
              **1,497,751**
              
              
              5,734,221
              
              
              (1,402,285
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              **6,053,266**
              
              
              319,045
              
              
              1,721,330**Cash
                  and cash equivalents, end of period**
              
              
              **7,551,017**
              
              
              6,053,266
              
              
              319,045**Cash
                  and cash equivalents related to:****Continuing
                  operations**
              
              
              **7,551,017**
              
              
              5,755,213
              
              
              303,187**Discontinued
                  operations**
              
              
              **-**
              
              
              298,053
              
              
              15,858
 
  *New
        Accounting Pronouncements* :
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement”. This
        statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles, and expands disclosures about
        fair
        value measurements. This statement applies under other accounting pronouncements
        that require or permit fair value measurements. SFAS No. 157 is effective
        for
        fiscal years beginning after November 15, 2007. The Company is currently
        assessing the impact of the adoption of SFAS No. 157 will have on its
        consolidated financial statements.
  In
        July
        2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes, an interpretation of FASB Statement 109" ("FIN 48"). FIN 48
        requires that a position taken or expected to be taken in a tax return be
        recognized in the financial statements when it is more likely than not (i.e.
        a
        likelihood of more than fifty percent) that the position would be sustained
        upon
        examination by tax authorities. A recognized tax position is then measured
        at
        the largest amount of benefit that is greater than fifty percent likely of
        being
        realized upon ultimate settlement. Upon adoption, the cumulative effect of
        applying the recognition and measurement provisions of FIN 48, if any, shall
        be
        reflected as an adjustment to the opening balance of retained earnings. The
        effective date of this interpretation is for fiscal years beginning after
        December 15, 2006. The Company is currently in the process of evaluating
        the
        impact of this interpretation on its consolidated financial statements.