U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

         For the fiscal year ended December 31, 2004

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

         For the transition period from _________________ to _________________.

                         Commission File Number 0-29800

                                 VirtGame Corp.
        (Exact name of small business issuer as specified in its charter)

        Delaware                                        33-0716247
 (State of incorporation)                     (IRS Employer Identification No.)

                            5900 Pasteur Ct., Suite A
                           Carlsbad, California 92008
                    (Address of principal executive offices)

                                 (760)-438-1247
                           (Issuer's telephone number)

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

   Title of each class                                 Name of each exchange
   to be so registered                                  on which registered

          None                                                 N/A

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

                         Common Stock, $.00001 par value
                                (Title of class)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
|X| No [ ]

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

         The issuer's revenues for the fiscal year ended December 31, 2004 were
$413,800.

         There were 35,132,507 shares of the issuer's common stock outstanding
as of March 25, 2005, and the aggregate market value of the common stock held by
non-affiliates on that date was approximately $9,134,452.

Documents Incorporated By Reference:   None.

Transitional Small Business Disclosure Format (check one):  Yes |_|   No |X|

<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                                                           Page
ITEM 1.    Description of Business..........................................1
ITEM 2.    Description of Property.........................................13
ITEM 3.    Legal Proceedings...............................................13
ITEM 4.    Submission of Matters to a Vote of Security Holders.............13

                                     PART II
ITEM 5.    Market for Common Equity, Related Stockholder Matters and
           Small Business Issuer Purchases of Equity Securities............14
ITEM 6.    Management's Discussion and Analysis of Financial
           Condition or Plan  of Operation.................................15
ITEM 7.    Financial Statements............................................16
ITEM 8.    Changes In and Disagreements With Accountants on
           Accounting and Financial Disclosure.............................16
ITEM 8A.   Controls and Procedures.........................................16
ITEM 8B.   Other Information...............................................16

                                    PART III
ITEM 9.    Directors, and Executive Officers; Compliance
           With Section 16(a) of  the Exchange Act.........................17
ITEM 10.   Executive Compensation..........................................18
ITEM 11.   Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters......................21
ITEM 12.   Certain Relationships and Related Transactions..................22
ITEM 13.   Exhibits........................................................23
ITEM 14.   Principal Accountant Fees and Services..........................23

<PAGE>

                                     Part 1

ITEM 1.  Description of Business

General

      VirtGame is a provider of open architecture gaming software to the
regulated gaming and lottery industries. We offer to licensed casinos and sports
wagering and lottery operations a comprehensive suite of software products that
provide:

o     distribution of server-based casino games, sports wagering and lotteries
      through various distribution channels, including local area networks
      within a casino (such as over-the-counter, stand-alone kiosks and in-room
      wagering) and wider area networks such as online closed-loop Intranets or
      the Internet;

o     open architecture supporting multiple operating system platforms and
      databases that require no special or proprietary hardware; and

o     customer management solutions, including managerial and financial reports
      and client data mining.

      Our business model is based on a strategy of developing a suite of next
generation software products for the traditional land-based or
"brick-and-mortar" gaming and lottery companies, including a turnkey solution
that will enable the operator to offer casino games, sports wagering and
lotteries online. We derive revenue through licensing and software development
fees, maintenance fees and transactional fees, and, wherever legally
permissible, participation in gaming revenue.

PGIC Merger

      On February 19, 2005, we entered into an Agreement and Plan of Merger and
Reorganization ("Agreement") dated as of February 19, 2005 with Mikohn Gaming
Corporation, a Nevada corporation d/b/a Progressive Gaming International
Corporation ("Progressive Gaming"), pursuant to which we will be acquired by
Progressive Gaming in a stock merger transaction. Pursuant to the Agreement,
Progressive Gaming will issue up to 2,000,000 shares of its common stock in
exchange for all of our outstanding shares of common stock and preferred stock
and all of our outstanding options and warrants, subject to a downward
adjustment to the 2,000,000 share figure for amounts owed by us to Progressive
Gaming as of the closing of the transaction and the amount by which our adjusted
working capital is less than $100,000.

      Concurrent with the execution of the Agreement, we entered into a credit
facility agreement with Progressive Gaming pursuant to which Progressive Gaming
has agreed to lend us up to $2,500,000, subject to certain restrictions on the
use of funds provided. At the close of the merger transaction, the 2,000,000
shares to be issued by Progressive Gaming in exchange for our equity securities
will be reduced by a number equal to

      (A) the sum of:

            (x) all amounts owed by us to Progressive Gaming under the credit
      facility as of the closing of the transaction, minus all fees and
      expenses, not to exceed $425,000 in the aggregate, owed by us to our legal
      and financial advisors in connection with the merger transaction, and
      minus further the value of all New Company Revenue (as defined below)
      immediately prior to the close, plus

            (y) any indebtedness on our part (other than the credit facility)
      outstanding immediately prior to the closing of the transaction that was
      not reflected on our Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 2004, plus

            (z) the amount, if any, by which our working capital immediately
      prior to the close is less than $100,000 (provided, however, that for
      purposes of this subsection (z), working capital shall be determined
      without giving effect to any cash and cash equivalents held by us and any
      amounts owed by us to Progressive Gaming under the credit facility);

                                       1

<PAGE>

         Divided by

      (B) 11.971, which represents the average last sale price for Progressive
Gaming's common stock over the ten (10) trading days up to and including the
execution date of the Agreement.

      As used in the Agreement and above, the term "New Company Revenue" means
the aggregate net cash payments that each of (i) Progressive Gaming's Chief
Executive Officer or Chief Financial Officer, (ii) Progressive Gaming's
independent registered public accounting firm and (iii) our Chief Executive
Officer or Chief Financial Officer reasonably agree would be collected by us
during the one year period immediately following the closing of the merger
transaction pursuant to certain written agreements contemplating a license of
our products that are entered into by us after the date of the Agreement and
prior to the closing of the merger.

      We presently have approximately 63.6 million shares of common stock
outstanding on a fully diluted basis, which assumes the exercise of all
outstanding options and warrants and conversion of all outstanding shares of
preferred stock.

      The merger transaction is subject to regulatory review and approval. The
transaction also is subject to several conditions, including VirtGame
stockholder approval. The merger transaction is expected to close in the second
quarter of 2005.

      The advances under the credit facility will bear interest at the rate of
seven percent per annum. All principal and interest under the note shall be due
and payable on the 90th day following any termination of the Agreement. Our
obligations under the note are secured by a first priority lien on all our
assets pursuant to a Security Agreement between us and Progressive Gaming dated
February 19, 2005.

      Progressive Gaming, intends to file with the Securities and Exchange
Commission a registration statement on Form S-4 that will include a prospectus
of Progressive Gaming, a proxy statement of VirtGame, and other relevant
documents in connection with the proposed transaction. Investors and security
holders are advised to read the prospectus/proxy statement regarding the
proposed merger if and when it becomes available, because it will contain
important information. Investors and security holders may obtain a free copy of
the prospectus/proxy statement, if and when available, and other documents filed
by Progressive Gaming and VirtGame at the Securities and Exchange Commission's
web site at www.sec.gov. The prospectus/proxy statement and such other documents
may be obtained, when available, from VirtGame by directing such request to
VirtGame Corp., 5900 Pasteur Ct, Suite 110, Carlsbad, CA, 92008, Attention:
Investor Relations. The prospectus/proxy statement and such other documents may
also be obtained, when available, from Progressive Gaming by directing such
request to Progressive Gaming International Corporation, 920 Pilot Road, Las
Vegas, Nevada, 89119, Attention: Investor Relations. A description of any
interests that VirtGame's or Progressive Gaming 's directors and executive
officers have in the proposed merger will be available in the prospectus/proxy
statement.

Regulatory Environment

      As a software development company, we do not operate Internet casinos,
sportsbooks or lotteries. Instead we have developed software products that are
currently in use by licensed and regulated casinos, sportsbooks and lotteries.
While we intend to derive income directly from gaming activities, we intend to
do so pursuant to arrangements with licensed casino, sportsbook and lottery
operators in full compliance with applicable federal and state law. However, as
a participant in the gaming industry, the regulatory environment in this
industry directly affects us particularly as it relates to online casino gaming,
sports wagering and lotteries.

      The U.S. Federal Interstate Wire Act provides language that, among other
things, makes it a crime to use interstate or international telephone lines to
transmit information assisting in the placing of wagers, unless the wagering is
authorized in the jurisdiction from which and into which the transmission is
made. Federal and state prosecutors and courts have consistently applied the
Wire Act to Internet-based gaming. Consequently, both land-based and online
gaming in the U.S. is prohibited unless authorized by the state from which and
into which the transmission is made. In summary, the regulation of gaming in the
U.S. is left to the states.

                                       2

<PAGE>

      In furtherance of our commitment to the promotion of regulated online
gaming, we applied for and received manufacturer and distributor gaming licenses
in the State of Nevada on October 24, 2002, which were limited for 18 months and
expired in April 2004. On April 22, 2004, we received from the Nevada Gaming
Commission an unrestricted gaming license without time imitations as a
manufacturer and distributor in the state.

Products and Services

      We offer to regulated casinos and lotteries a suite of integrated software
products and services designed to provide:

      o     distribution of server-based casino games, sports wagering and
            lotteries through various distribution channels, including
            over-the-counter, stand-alone kiosks and online via closed-loop
            Intranets or the Internet;

      o     open architecture supporting multiple operating system platforms and
            databases that require no special proprietary hardware;

      o     customer management solutions, including managerial and financial
            reports and client data mining; and

      o     a secure environment that complies with gaming regulations,
            including jurisdictional screening, age verification and identity
            authentication.

      VirtGameSP(TM) Server Suite

      Our software products are based on the VirtGameSP(TM), a proprietary
server platform from which all other members of the software suite operate. The
VirtGameSP(TM) is a highly scalable and customizable software system designed to
function as an integration hub, and can run on any secure network with most
modern operating systems, including Windows NT, Unix, Linux, Oracle and SQL.

      The VirtGameSP(TM) can be customized to accommodate the operator and has
been found to comply with the requirements of a licensed casino.

      The VirtGameSP(TM) server suite includes the following products:

      o     The VirtGame Media/Web Server. This product acts as the engine
            through which front-end access is gained. Graphical user interfaces
            are customized for each branded entity and engage the system through
            the VirtGame Game Server to the VirtGame Community Server Platform.

      o     The VirtGame Game Server. This product provides game play and game
            odds to the front end graphical user interfaces.

      o     The VirtGame Community Server. This product stores all data,
            controls all game logic and security functionality and interfaces
            with the operator's credit card processor, as well as provides an
            extensive database management system that collects and manages all
            gaming customer information and marketing history.

      o     The VirtGame Administrative Server. This product allows the
            independent operator to manage his casino from anywhere in the world
            with instant, exclusive and secure Internet access to his players'
            information, such as account balances, deposits and withdrawals.
            This server provides international gaming companies the capability
            to have centralized global risk management for minimizing sports
            wagering book-making risks.

      The VirtGame Product Suite

      The VirtGameSP(TM) acts as the foundation for the rest of the gaming
software products offered by us in much the same way that Microsoft's Windows
acts as a platform for the group of products in the Microsoft Office product

                                       3

<PAGE>

group. Thus, as Windows creates optimal value as a myriad of applications are
utilized by it, the VirtGameSP(TM) is the enabling agent for the entire product
group offered by us and the integration interface to existing systems.

      Set forth below is a description of our casino, sports wagering and
lottery products. All of the products can be deployed in-casino, either
over-the-counter or at a stand-alone kiosk, or remotely over the Internet.

      o     PrimeLine(TM) Sports Book. PrimeLine(TM) Sports Book offers the
            opportunity to bet on a variety of sporting events played in the
            United States, Central and South America, Europe and Asia. The
            sports wagering service is conducted by way of proprietary software
            internally developed by us. The service is one of only two sports
            book systems approved as an over-the-counter sports book in Nevada
            and is the only one which is both web and kiosk enabled.

      o     STB (Short Term Betting. STB allows bettors to place wagers in real
            time on varied and constantly updated betting options that run
            throughout an entire sporting event. The technology was designed
            around a unique odds making methodology based on extensive, live
            betting experience that allows us to offer a truly compelling user
            experience.

      o     PrimeLine(TM) Race Book. PrimeLine(TM) Race Book offers a
            pari-mutuel sports wagering service that allows the client to wager
            on domestic and foreign horse races. The PrimeLine(TM) Race Book can
            be deployed over-the-counter, at a stand-alone kiosk or over the
            Internet.

      o     VirtCasino(TM). Our VirtCasino(TM) software module is the enabling
            technology to all of the current casino table games, such as
            Blackjack, Baccarat, Craps, Roulette, Poker, PaiGow Poker, Let It
            Ride, Keno and Slot Games. The front end of the module presents
            integration options to a variety of customizable graphic user
            interfaces, offering the opportunity for branding, images, sounds,
            layout, customized games, content and ease of development. The games
            have been designed to evoke the sights and sounds similar to a Las
            Vegas style casino. Computer graphics present the "lobby" of the
            virtual casino, consisting of several menu items which the customer
            can choose to enter. The customers use the Windows format of
            commands to carry out gaming activities. The software module offers
            audio features, including the sound of shuffling cards, video poker
            machine pay-outs and general casino background sounds.

Contracts and Strategic Relationships

      Las Vegas Dissemination Company. We have entered into an Exclusive
Distributorship Agreement dated July 1, 2002 with Las Vegas Dissemination
Company, a provider of pari-mutuel race hub services and equipment throughout
Nevada. Pursuant to the agreement, LVDC is the exclusive distributor of our
PrimeLine(TM) Race Book and PrimeLine(TM) Sports Book throughout Nevada. LVDC
also assists us in the sales process, provides support for POS terminals and
assists in the deployment of new PrimeLine systems in Nevada. To date, LVDC has
arranged for our issuance of licenses for our PrimeLine(TM) Race Book and
PrimeLine(TM) Sports Book to six casinos and other gaming locations, including,
among other locations, Casino Fandango, Excalibur Hotel and Casino, Casino
MonteLago and Club Cal Neva Hotel Casino.

      United Coin. In April 2003, we entered into a Business Development
Agreement with United Coin Machine Co., the largest sports route operator in
Nevada and the United States, pursuant to which United Coin has agreed to
distribute, install and maintain our SBX wagering stations in the Nevada market.
To date, United Coin has installed and maintains 24 SBX wagering stations
throughout Nevada. In February 2004, we commenced beta testing our SBX product
at Bally's Las Vegas Casino. Bally's hosted the field trial of the SBX system
which resulted in approval of the SBX product by the Nevada Gaming Commission in
August 2004

      STB Holdings. Pursuant to an Exclusive Licensing Agreement dated September
17, 2004, as amended between us and STB Holdings, we have acquired from STB an
exclusive license to STB's proprietary software product that allows patrons to
wager on a variety of short-term or incremental events taking place throughout
an entire sporting event. Pursuant to the agreement, we have obtained the
exclusive right to offer the software product as part of our PrimeLine(TM) Race
Book and PrimeLine(TM) Sports Book and SBX products.

                                       4

<PAGE>

Competition

      We believe that certain casino game manufactures, including International
Gaming Technology ("IGT"), Inc, Alliance Gaming Corp. and others are in the
process of developing software products competitive with our suite of server
based software gaming products. Both companies have reported that they are
actively pursuing these gaming solutions and view server based technology as the
future for slot machine gaming. We believe one or more companies are in advanced
laboratory testing of technology and products that would put them in direct
competition with VirtGame's products. Timing of the product release is difficult
to gauge, however, both IGT and Alliance Gaming Corp have longer operating
histories in the gaming market, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than us.
Such competitors also develop and control content in the form of proprietary
software casino games, of which we have none, and have greater distribution
networks. These competitors are also to undertake more extensive marketing
campaigns for their gaming software products and services, adopt more aggressive
pricing policies and make more attractive offers to potential employees,
distribution partners, casino operators and third party content providers. In
addition, these competitors have established collaborative relationships with
casinos and distributors of casino gaming products.

      In addition, there are competitors that share markets with specific
software modules included in our software suite. PrimeLine(TM) Sports Book and
PrimeLine(TM) Race Book, as stand-alone products, compete directly with the
over-the-counter system offered by American Wagering and Scientific Games.

      In addition to competition based on comparable services and products, our
competitive position is also defined by the limited number of customers for our
products and services. The number of potential customers in Nevada and other
gaming jurisdictions is small, especially with the trend of large casino
mergers. Once merged, the casinos tend to consolidate their race and sports
books under a single, larger system, thereby decreasing the opportunities for
full software license sales. As noted above, certain competitors of ours may
have advantages over us by way of their existing relationships and deeper
distribution with casino operators.

      For the reasons described above, there can be no assurance that we will be
able to compete successfully against our current or future competitors or that
competition will not have a material adverse effect on our business, results of
operations and financial condition.

Marketing

      Our customers are the U.S. and foreign operators of licensed casinos,
sports books and lotteries. We market our products to these customers through
our participation in industry conferences and tradeshows and through direct
marketing efforts. We also rely on our product distributors, United Coin and Las
Vegas Dissemination Company, and other third parties, for marketing support. We
have also engaged the services of Multimedia Enterprises to assist us in the
marketing and sales of PrimeLine systems and SBX product. We believe that our
products and services are well known by most operators of casinos and lotteries
in the U.S. and to many casinos and lottery operators worldwide.

      An important element of our business strategy is to promote changes in
federal and state laws that allow for greater application of our software
products by the regulated casino, sports book and lottery industries. To this
end, we endeavor to educate state and federal legislators and state agencies
that regulate the U.S. gaming and lottery industries of our ability to offer
gaming, sports book and lottery products over a secure system that guarantees
jurisdictional screening. We also believe that gaming regulators are an
important source of licensing opportunities and in the past gaming regulators
have promoted our software solutions within their jurisdictions.

Research and Development

      We spent approximately $550,600 in research and development in 2004, and
approximately $458,000 in 2003, all of which were expensed.

                                       5

<PAGE>

Intellectual Property

      We regard our technology as propriety and attempt to protect it by relying
on trademark, service mark, copyright and trade secret laws and restrictions on
disclosure and transferring title and other methods. We generally enter into
confidentiality or license agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our proprietary information
without authorization or to develop similar technology independently.

      On July 1, 2004, we filed two provisional patent applications for "Method
for Secure Generation of a Random Number in a Gaming System" and "Secure
Server-Based Gaming Platform" with the United States Patent and Trademark
Office. The first patent application covers a secure methodology for a random
number generator (RNG) and involves generating a RNG sequence using a RNG
algorithm and RNG seed within a secure gaming system. The second patent
application provides a secure server-based gaming platform that ensures the
integrity of a client-based gaming system with real-time auditing of game play,
real-time monitoring of system integrity and a remote event system that provides
real-time notification of all events originating on a client platform to a game
server. On November 12, 2004, three additional provisional patent applications
were filed to protect novel aspects of a method for a pari-mutuel sportsbook, a
method for a video lottery and a method for lottery based on sports events.

      In January 2003 and November 2004, we received two patents from the U.S.
Patent and Trademark Office covering a process that verifies the geographic
location of players in an online gaming environment. An application is also
pending in the European Patent Office covering the same process. We intend to
pursue the registration of our trademarks in the United States and
internationally, and have registered in the United States several trademarks,
including the trademark "VirtGame." Effective patent, trademark, service mark,
copyright and trade secret protection may not be available in every country in
which our services are distributed or made available through the Internet, and
policing unauthorized use of our proprietary information will be difficult.

Gaming Regulation

      General

      The manufacture, sale and distribution of networked gaming software are
subject to federal, state, tribal and local regulations in the United States and
foreign jurisdictions. While the regulatory requirements vary from jurisdiction
to jurisdiction, the majority of these jurisdictions require licenses,
registrations, permits, findings of suitability, documentation of qualification
including evidence of financial stability and/or other required approvals for
companies who manufacture and distribute networked gaming software, as well as
the individual suitability or licensing of officers, directors, major
stockholders and key employees. Laws of the various gaming regulatory agencies
generally serve to protect the public and ensure that gaming related activity is
conducted honestly, competitively, and free of corruption.

      Various gaming regulatory agencies have issued licenses allowing us to
manufacture and/or distribute our systems. We and our key personnel have
obtained or applied for all government licenses, permits, registrations,
findings of suitability and approvals necessary allowing for the manufacture,
sale and distribution of our gaming software applications in the jurisdictions
where we do business. We have never been denied a gaming related license, nor
have our licenses been suspended or revoked.

      Nevada Regulation

      The manufacture, sale and distribution of gaming application software in
Nevada or for use outside Nevada is subject to the Nevada Gaming Control Act and
the regulations of the Nevada Gaming Commission (Commission), the Nevada State
Gaming Control Board (GCB), and the local laws, regulations and ordinances of
various county and municipal regulatory authorities (collectively referred to as
the Nevada gaming authorities). These laws, regulations and ordinances primarily
concern the responsibility, financial stability and character of gaming device
and/or gaming software manufacturers, distributors and operators, as well as
persons financially interested or involved in gaming operations. The laws,
regulations and supervisory procedures of the Nevada gaming authorities seek to
(i) prevent unsavory or unsuitable persons from having a direct or indirect

                                       6

<PAGE>

involvement with gaming at any time or in any capacity, (ii) establish and
maintain responsible accounting practices and procedures, (iii) maintain
effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable record keeping and requiring the
filing of periodic reports with the Nevada gaming authorities, (iv) prevent
cheating and fraudulent practices, and (v) provide a source of state and local
revenues through taxation and licensing fees. Changes in these laws,
regulations, procedures, and judicial or regulatory interpretations could have
an adverse effect on our operations.

      Our Nevada gaming licenses require the periodic payment of fees and taxes
and are not transferable. Each type of gaming software application we sell in
Nevada must first be approved by the Commission and may require subsequent
modification. We must also report substantially all loans, leases, sales of
securities and similar financing transactions to the GCB and the Commission,
and/or have them approved by the Commission. We believe we have obtained all
required licenses and/or approvals necessary to carry on our business in Nevada.

      We are registered with the Commission as a publicly traded corporation and
are required periodically to submit detailed financial and operating reports to
the Commission and to furnish any other information that the Commission may
require.

      Our officers, directors and key employees who are actively engaged in the
administration or supervision of gaming and/or directly involved in our gaming
activities may be required to file applications with the Nevada gaming
authorities and may be required to be licensed or found suitable by them.

      The Nevada gaming authorities may investigate any individual who has a
material relationship or involvement with us in order to determine whether such
individual is suitable or should be licensed as a business associate of a gaming
licensee. The Nevada gaming authorities may deny an application for licensure or
finding of suitability for any cause deemed reasonable. A finding of suitability
is comparable to licensing and both require submission of detailed personal and
financial information followed by a thorough background investigation. The
applicant for licensing or a finding of suitability must pay all costs of the
investigation. We must report changes in licensed positions to the Nevada gaming
authorities. The Nevada gaming authorities may disapprove any change in position
by one of our officers, directors or key employees, or require us to suspend or
dismiss officers, directors or other key employees and sever all relationships
with such persons, including those who refuse to file appropriate applications
or whom the Nevada gaming authorities find unsuitable to act in such capacities.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.

      We are required to submit detailed financial and operating reports to the
Commission. If it were determined that any Nevada gaming laws were violated by
us, our gaming licenses could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition we, and any persons involved, may be subject to substantial fines for
each separate violation of the Nevada gaming laws at the discretion of the
Commission. The Commission also has the power to appoint a supervisor to operate
our gaming software production and management properties and, under certain
circumstances, earnings generated during the supervisor's appointment could be
forfeited to the State of Nevada. The limitation, conditioning or suspension of
our gaming licenses or the appointment of a supervisor could (and revocation of
our gaming licenses would) materially and adversely affect our gaming
operations.

      The Commission may require any beneficial holder of our voting securities,
regardless of the number of shares owned, to file an application, be
investigated, and be found suitable, in which case the applicant would be
required to pay all of the costs and fees of the GCB investigation. If the
beneficial holder of voting securities who must be found suitable is a
corporation, partnership, or trust, it must submit detailed business and
financial information including a list of beneficial owners. Any person who
acquires more than 5% of our voting securities must report this to the
Commission. Any person who becomes a beneficial owner of more than 10% of our
voting securities must apply for a finding of suitability within 30 days after
the chairman of the GCB mails the written notice requiring this filing.

      Under certain circumstances, an Institutional Investor, as this term is
defined in the Commission regulations, which acquires more than 10%, but not
more than 15%, of our voting securities may apply to the Commission for a waiver
of these finding of suitability requirements, provided the institutional
investor holds the voting securities for investment purposes only. An
institutional investor will not be deemed to hold voting securities for

                                       7

<PAGE>

investment purposes unless the voting securities were acquired and are held in
the ordinary course of its business and not for the purpose of causing, directly
or indirectly (i) the election of a majority of our board of directors, (ii) any
change in our corporate charter, bylaws, management, policies or operations, or
(iii) any other action which the Commission finds to be inconsistent with
holding our voting securities for investment purposes only. The Commission
considers voting on all matters voted on by stockholders and the making of
financial and other informational inquiries of the type normally made by
securities analysts, and such other activities as the Commission may determine,
to be consistent with holding voting securities for investment purposes only. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership, limited partnership, limited liability company or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of the GCB
investigation.

      Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Commission or the
chairman of the GCB may be found unsuitable. The same restrictions apply to a
record owner who fails to identify the beneficial owner, if requested to do so.
Any stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of our voting securities beyond that period of time as may
be prescribed by the Commission may be guilty of a criminal offense. We are
subject to disciplinary action, and possible loss of our approvals, if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or any of our licensed gaming subsidiaries, we (i)
pay that person any dividend or interest upon our voting securities, (ii) allow
that person to exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) give remuneration in any form to
that person, for services rendered or otherwise, or (iv) fail to pursue all
lawful efforts to require the unsuitable person to relinquish his voting
securities for cash at fair market value. Additionally, the Clark County
authorities have taken the position that they have the authority to approve all
persons owning or controlling the stock of any corporation controlling a gaming
licensee.

      The Commission may, in its discretion, require the holder of any of our
debt securities to file an application, be investigated and be found suitable to
own any of our debt securities. If the Commission determines that a person is
unsuitable to own any of these securities, then pursuant to the Nevada gaming
laws, we can be sanctioned, including the loss of our approvals, if without
prior Commission approval, we: (i) pay to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognize any voting right by the
unsuitable person in connection with these securities; (iii) pay the unsuitable
person remuneration in any form; or (iv) make any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation, or
similar transaction.

      We are required to maintain a current stock ledger in Nevada that may be
examined by the Nevada gaming authorities at any time. If any of our securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada gaming
authorities. A failure to make this disclosure may be grounds for finding the
record holder unsuitable. We are also required to render maximum assistance in
determining the identity of the beneficial owner. The Commission has the power
at any time to require our stock certificates to bear a legend indicating that
the securities are subject to the Nevada gaming laws and the regulations of the
Commission. To date, the Commission has not imposed this requirement on us.

      We may not make a public offering of our securities without the prior
approval of the Commission if the securities or their proceeds are intended to
be used to construct, acquire or finance gaming facilities in Nevada, or retire
or extend obligations incurred for such purposes.

      Changes in control of VirtGame through merger, consolidation, acquisition
of assets or stock, management or consulting agreements or any act or conduct by
a person whereby he obtains control, may not occur without the prior
investigation of the GCB and approval of the Commission. Entities seeking to
acquire control of us must satisfy the GCB and the Commission in a variety of
stringent standards prior to assuming control. Our proposed merger acquisition
by Progressive Gaming is subject to the prior investigation of the GCB and
approval of the Commission. The Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.

                                       8

<PAGE>

      The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect Nevada gaming licensees, and publicly-traded
corporations that are affiliated with those operations, may be injurious to
stable and productive corporate gaming. The Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further Nevada's policy
to (i) assure the financial stability of corporate gaming operators and their
affiliates; (ii) preserve the beneficial aspects of conducting business in the
corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain circumstances,
required from the Commission before we can make exceptional repurchases of
voting securities above their current market price and before a corporate
acquisition opposed by management can be consummated. Nevada's gaming laws and
regulations also require prior approval by the Commission if we were to adopt a
plan of recapitalization proposed by our board of directors in opposition to a
tender offer made directly to our stockholders for the purpose of acquiring
control of us.

      License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
cities and counties where we conduct operations. Depending on the particular fee
or tax involved, these fees and taxes are payable monthly, quarterly or
annually. Annual fees are payable to the State of Nevada to renew our Nevada
gaming licenses.

      Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively
referred to as licensees), and who proposes to participate in the conduct of
gaming operations outside of Nevada is required to deposit with the GCB, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the GCB of the licensee's participation in foreign
gaming. This revolving fund is subject to increase or decrease at the discretion
of the Commission. As a licensee, we are required to comply with certain
reporting requirements imposed by the Nevada gaming laws. We are also subject to
disciplinary action by the Commission if we knowingly violate any laws of the
foreign jurisdiction pertaining to our foreign gaming operation, fail to conduct
our foreign gaming operations in accordance with the standards of honesty and
integrity required of Nevada gaming operations engage in any activity or enter
into any association that is unsuitable because it poses an unreasonable threat
to the control of gaming in Nevada, reflects or tends to reflect discredit or
disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the
gaming policies of Nevada, engage in any activity or enter into any association
that interferes with the ability of the State of Nevada to collect gaming taxes
and fees, or employ, contract with or associate with any person in the foreign
gaming operation who has been denied a license or a finding of suitability in
Nevada on the ground of personal unsuitability, or who has been found guilty of
cheating at gambling.

Employees

      As of the date of this report, we employed 12 full-time employees, and two
full-time consultants, six of whom are involved in administration and eight are
involved in software development and engineering.

ITEM  1A. Cautionary Statement Regarding Future Results, Forward-Looking
Information and Certain Important Factors

      We make written and oral statements from time to time regarding our
business and prospects, such as projections of future performance, statements of
management's plans and objectives, forecasts of market trends, and other matters
that are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Statements containing the words or phrases "will likely result," "are expected
"will continue," "is anticipated," "estimates," "projects," "believes,"
"expects," "anticipates," "intends," "target," "goal," "plans," "objective,"
"should" or similar expressions identify forward-looking statements, which may
appear in documents, reports, filings with the Securities and Exchange
Commission, news releases, written or oral presentations made by officers or
other representatives made by us to analysts, stockholders, investors, news
organizations and others, and discussions with management and other
representatives of us. For such statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.

                                       9

<PAGE>

      Our future results, including results related to forward-looking
statements, involve a number of risks and uncertainties. No assurance can be
given that the results reflected in any forward-looking statements will be
achieved. Any forward-looking statement made by or on behalf of us speaks only
as of the date on which such statement is made. Our forward-looking statements
are based upon assumptions that are sometimes based upon estimates, data,
communications and other information from suppliers, government agencies and
other sources that may be subject to revision. Except as required by law, we do
not undertake any obligation to update or keep current either (i) any
forward-looking statement to reflect events or circumstances arising after the
date of such statement, or (ii) the important factors that could cause our
future results to differ materially from historical results or trends, results
anticipated or planned by us, or which are reflected from time to time in any
forward-looking statement which may be made by or on behalf of us.

      In addition to other matters identified or described by us from time to
time in filings with the SEC, there are several important factors that could
cause our future results to differ materially from historical results or trends,
results anticipated or planned by us, or results that are reflected from time to
time in any forward-looking statement that may be made by or on behalf of us.
Some of these important factors, but not necessarily all important factors,
include the following:

      We have a history of losses, expect to incur additional losses and may
never achieve profitability. We commenced revenue producing operations in
September 1997. During our fiscal year ended December 31, 2004, we generated
only $413,800 of revenue and realized a net loss $2,623,099. From our inception
of revenue producing operations in September 1997 through December 31, 2004, we
incurred an accumulated deficit of $26,016,577. We have yet to generate profits
from operations and consequently we are unable to predict with any certainty
whether our operations will become a commercially viable business. In order for
us to become profitable, we will need to generate and sustain a significant
amount of revenue while maintaining reasonable cost and expense levels.

      We will require additional capital in order to carry out our plan of
operations, but we do not have adequate commitments to obtain such capital and
we can not assure you that we will be able to obtain adequate capital as and
when required. As of December 31, 2004, we had a working capital deficit of
$472,812 and total cash and cash equivalents of $76,064. Our working capital
deficit has increased since year end due to continuing losses from operations.
In connection with its agreement to acquire us, Progressive Gaming has agreed
lend us up to $2.5 million, subject to certain restrictions on the use of funds
provided. We believe that the Progressive Gaming credit facility will be
sufficient to fund our operations and transactional expenses through the close
of the merger acquisition. However, in the event that the merger with
Progressive Gaming does not occur, we will need significant additional working
capital in order to fund our continued gaming software development during fiscal
2005 and, if necessary, to finance future losses from operations as we endeavor
to build revenue and reach a profitable level of operations. If we give no
effect to our proposed acquisition by Progressive Gaming, including the $2.5
million credit facility, we estimate that we would need approximately $5 million
of additional capital over the next 12 months in order to fund continued
development and expected operating losses. In the event the merger with
Progressive Gaming does not occur, we will endeavor to raise additional required
funds through various financing sources by issuing additional shares of our
securities. However, there can be no guarantees that such funds will be
available on commercially reasonable terms, if at all. Should we be unable to
raise the required funds, our ability to continue as a going concern will be
materially adversely affected.

      There can be no assurance that we will complete our proposed acquisition
by Progressive Gaming and, in the event we are unable to do so, we may be
required to pay certain fees and expenses to Progressive Gaming. Pursuant to our
merger agreement with Progressive Gaming, Progressive Gaming's obligation to
consummate the proposed merger is subject to a number of conditions, including,
without limitation, the absence of any material adverse change in our business,
assets or prospects; the accuracy and completeness of our representations and
warranties included in the merger agreement; our satisfaction of certain
covenants on our part; the approval of the transaction by the Nevada Gaming
Commission and our common and preferred stockholders; the absence of claims for
dissenters rights by our shareholders holding , as a group, not more than 3% of
our common shares; and the closing of the merger by no later than August 1,
2005, which can be extended for up to 90 days under certain circumstances. Some
of the conditions, including certain covenants, stockholder and Nevada Gaming
Commission approval and absence of dissenters rights, are outside of our
control. There can be no assurance that the merger with Progressive Gaming will
take place.

                                       10

<PAGE>

      If the merger with Progressive Gaming does not occur, we may be required
to pay certain fees and expenses to Progressive Gaming. If the merger agreement
is terminated by Progressive Gaming in the context of what is referred to in the
merger agreement as a "triggering event", which includes a number of scenarios
but all of which, for all practical purposes, relate to our board of directors'
decision to no longer pursue or support the proposed acquisition by Progressive
Gaming, we may be required to pay Progressive Gaming $500,000 plus their out of
pocket expenses incurred in the merger transaction. If the merger agreement
fails to close or is terminated by either Progressive Gaming or us under certain
other circumstances, we may be required to pay Progressive Gaming up to
$500,000. In the event the merger agreement is terminated for any reason, we
will be required to repay Progressive Gaming all amounts borrowed and
outstanding under the $2.5 million credit facility within 90 days of the
termination of the merger agreement. In the event that the merger agreement is
terminated, it is unlikely that we will have sufficient funds with which to pay
any fees or expenses owed to Progressive Gaming. This would be in addition to
our need to find an alternative source of capital to fund our continued
operations, as described in the risk factor above.

      We do not have a significant operating history and, as a result, there is
a limited amount of information about us on which to make an investment
decision. Throughout our early history, our primary business focus was the
operation of casino-style gaming operations over the Internet. In 2000, we
decided to wind up our Internet casino operations and focus on developing and
licensing software products for the regulated casino, sports wagering and
lottery industries. As of the date of this report, we have completed the
development of a suite of software products that offer the regulated gaming and
lottery industries a complete turnkey solution for conducting server-based
casino, sports wagering and lottery operations over-the-counter, at stand-alone
kiosks and remotely via both closed-loop Intranet and the Internet. We have
entered into a few contracts for the provision of turnkey solutions to
land-based casinos and lottery operators. However, we have not derived a
significant amount of revenue from these activities and these activities remain
a relatively new pursuit for us. Accordingly, there is little operating history
upon which to judge our current operations.

      If our gaming products are not accepted in the competitive market for
networked gaming software, we may be unable to compete in the gaming software
market. Our success as a gaming software supplier is dependent upon numerous
factors, including our ability to design, manufacture, market and service
networked gaming software that achieves player and casino acceptance while
maintaining product quality and acceptable margins. If our software fails to be
accepted by the gaming market and we are otherwise unable to develop gaming
software that offers technological advantages, we will be unable to generate the
revenues necessary to compete effectively. Consequently, the results of our
operations could suffer.

      An adverse change affecting the gaming industry, such as a change in
gaming regulations or a decrease in the rate of growth and popularity of casino
or Internet gaming, will negatively impact our profitability and our potential
for growth. Our ability to grow our business and operate profitably is
substantially dependent upon the expansion of the gaming and Internet gaming
industry and factors that are beyond our control. These factors include, among
others:

      o     the pace of development;

      o     changes in gaming regulation; and

      o     the continued popularity of casino gaming as a leisure activity.

      An adverse change in any of these political, legal and other factors may
negatively impact our results of operations.

      Our failure to obtain or retain required gaming licenses could prevent us
from expanding our market and prohibit us from generating revenue in certain
jurisdictions. In the United States, the manufacture and distribution of
networked gaming software is subject to numerous federal, state, provincial,
tribal, international and local regulations. In particular, we are currently
subject to extensive regulation in Nevada. These regulations are constantly
changing and evolving, and may curtail gaming in various jurisdictions in the
future, which would decrease the number of jurisdictions from which we can
generate revenues.

                                       11

<PAGE>

      Together with our key personnel, we undergo extensive investigation before
each jurisdictional license is issued. Our networked gaming software is
subjected to independent testing and evaluation prior to approval from each
jurisdiction in which we do business. Generally, regulatory authorities have
broad discretion when granting, renewing or revoking these game approvals and
licenses. Our failure to obtain or retain a required license or approval in one
jurisdiction could negatively impact our ability to obtain or retain required
licenses and approvals in other jurisdictions. The failure to obtain or retain a
required license or approval in any jurisdiction would decrease the geographic
areas where we may operate and generate revenues, decrease our share in the
gaming marketplace and put us at a disadvantage compared with our competitors.
Consequently, the market price of our common stock may suffer.

      Regulatory authorities may require stockholders to submit to background
investigations and respond to questions from regulatory authorities, and may
deny a license or revoke our licenses based upon their findings. These licensing
procedures and background investigation may inhibit potential investors from
becoming significant stockholders.

      The future revenue growth of our gaming business depends on our ability to
improve the effectiveness and breadth of our sales organizations. We will need
to improve the effectiveness and breadth of our sales operations nationally and
internationally in order to increase market awareness and sales of our gaming
products. Our gaming products require sophisticated sales efforts targeted at
selected people within the gaming industry. Competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. In addition, we will need to effectively train
and educate our sales force if we are to be successful in selling into the
gaming market.

      A significant part of our future plan of operations is to offer to the
regulated gaming industry a software solution that will enable it to provide
server-based casino games, sports wagering and lotteries over the Internet and
closed-loop Intranets, however this is not an established industry and no one to
date has successfully conducted online gaming on a large scale. While the gaming
and lottery industries are well-established and have recently experienced
significant growth and profitability, online and interactive gaming applications
are relatively recent developments and remain an unproven segment of the
industry. To our knowledge, no business has conducted regulated gaming or
lottery operations on an ongoing and large scale basis over either the Internet
or a closed-loop Intranet. The incipient nature of this industry segment and the
number of well-capitalized companies likely to seek entry into the market
present a number of special risks both to us and to our current and potential
future customers, including

      o     the risk that a competitor will be able to implement standards of
            operations that will, in effect, become the industry standard, thus
            inhibiting market acceptance of competing operations;

      o     the possibility that gaming technology will experience a rapid
            succession of material developments resulting in a technology "leap
            frog" effect that outdates existing technologies and standards every
            few years; and

      o     laws and regulations may be imposed in jurisdictions in which we or
            our customers operate which prohibit or regulate such services in a
            manner which negatively affects profitability.

      In addition to the fact that online gaming is an incipient industry, at
the present time it is for the most part prohibited in all 50 states. Federal
and state prosecutors and courts have consistently applied the U.S. Wire Act and
similar state laws to Internet-based gaming. Consequently, both land-based and
online gaming in the U.S. is prohibited unless authorized by the state from
which and into which the transmission is made. We believe that states that
permit land-based gaming have been reluctant to sponsor or license online gaming
within their jurisdictions out of concern that they will not be able to prevent
inappropriate persons from participating. We believe that we offer a viable
solution to the dilemma facing U.S. regulators and legislators, and we have
received approval from the Nevada Gaming Control Board to offer on behalf of a
chain of Las Vegas casinos an online closed-loop wagering system. However, there
is, to our knowledge, no pending legislation that would legalize Internet-based
gaming or lotteries to any significant degree.

                                       12

<PAGE>

      We may not be able to protect our proprietary rights and we may incur
significant costs in attempting to do so. Our success and ability to compete are
dependent to a significant degree on our proprietary technology. We rely on a
combination of copyright, trade secret and trademark laws, as well as
confidentiality and licensing agreements to protect our proprietary rights.
However, it may be possible for a third party to copy or otherwise obtain and
use our software or other proprietary information without authorization or to
develop similar software independently. In addition, litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material adverse
affect on our business, financial condition or operating results.

      The market for our stock is limited. Our common stock is traded on the OTC
Bulletin Board under the symbol "VGTI.OB". On March 25, 2005, the last reported
sale price of our common stock on the OTC Bulletin Board was $0.26 per share.
However, we consider our common stock to be "thinly traded" and any last
reported sale prices may not be a true market-based valuation of the common
stock. There can be no assurance that an active market for our common stock will
develop. In addition, the stock market in general, and internet and technology
companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of such companies.

      Our common stock is considered to be a "penny stock" and, as such, the
market for our common stock may be further limited by certain SEC rules
applicable to penny stocks. As long as the price of our common stock remains
below $5.00 per share or we have a net tangible assets of $2,000,000 or less,
our common shares are likely to be subject to certain "penny stock" rules
promulgated by the SEC. Those rules impose certain sales practice requirements
on brokers who sell penny stock to persons other than established customers and
accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000). For transactions covered
by the penny stock rules, the broker must make a special suitability
determination for the purchaser and receive the purchaser's written consent to
the transaction prior to the sale. Furthermore, the penny stock rules generally
require, among other things, that brokers engaged in secondary trading of penny
stocks provide customers with written disclosure documents, monthly statements
of the market value of penny stocks, disclosure of the bid and asked prices and
disclosure of the compensation to the brokerage firm and disclosure of the sales
person working for the brokerage firm. These rules and regulations adversely
affect the ability of brokers to sell our common shares and limit the liquidity
of our securities.

ITEM 2.  Description of Properties

      Effective as April 1, 2005, our offices are located in Carlsbad,
California and consist of approximately 3,580 square feet of leased premises.
Prior to that date, we had leased office space in San Diego, California pursuant
to a lease that expired on March 31, 2005. In expectation of consummating its
acquisition of our company, Progressive Gaming has leased space in Carlsbad,
California for our use and our facilities are located in those leased premises
effective as April 1, 2005. In the event the proposed merger does not occur, we
intend to relocate to newly leased premises. If required to obtain our own
leased premises, we believe there is an adequate supply of suitable facilities
in the San Diego-Carlsbad area at reasonable rates.

ITEM 3.  Legal Proceedings

      There are no pending legal proceedings to which we or our properties are
subject, and we have no knowledge of any legal proceedings against us
contemplated by any government authority.

ITEM 4.  Submission of Matters to a Vote of Security Holders

      No matters were submitted during the fourth quarter of 2004 to a vote of
security holders through the solicitation of proxies or otherwise.

                                       13

<PAGE>

                                     PART II

ITEM 5.  Market for Common Equity and Related Stockholder Matters

Market Information

      Our common stock trades on the OTC Bulletin Board under the symbol
"VGTI.OB." The following table shows the high and low bid information of our
common stock for the periods indicated as reported by the OTC Bulletin Board.
These prices do not include retail markup, markdown or commission and may not
represent actual transactions.

                                                         High            Low
    2003:
    First quarter..............................   $      .48      $      .25
    Second quarter.............................          .53             .28
    Third quarter..............................          .85             .50
    Fourth quarter.............................          .82             .61

    2004:
    First quarter..............................   $      .72      $      .43
    Second quarter.............................          .55             .39
    Third quarter.............................           .55             .29
    Fourth quarter.............................          .69             .39

      We consider our common stock to be thinly traded and, accordingly,
reported sale prices may not be a true market-based valuation of our common
stock.

Stockholders

      As of March 25, 2005, there were approximately 149 record holders.

Dividends

      We have not paid any cash dividends on our common stock since our
inception and do not contemplate paying dividends on our common stock in the
foreseeable future. It is anticipated that earnings, if any, will be retained
for the operation of our business. Although to we do not plan to pay dividends
on our common stock, to the extent that we do so in the future, the holders of
our Series A convertible preferred stock and Series B convertible preferred
stock will be entitled to participate in such dividends on a pro rata basis. In
that case, the dividends payable to the preferred stockholders would be
determined as if the preferred stock had been converted to common stock on the
record date for determining the stockholders entitled to receive the dividends.
During the year ended December 31, 2004, the Company made a $51,150 Series A
preferred stock dividend and declared an additional $51,150 dividend payable as
at December 31, 2004.

Securities Authorized for Issuance Under Equity Compensation Plans

      Item 11 of this report includes information about the securities
underlying outstanding options and securities remaining available for issuance
under our equity compensation plans as of December 31, 2004.

Recent Sales of Unregistered Securities

      During the fiscal year ended December 31, 2004, we sold unregistered
shares of our securities in the following transactions:

      o     During 2004, we issued an aggregate of 61,585 shares of our common
            stock to consulting firms in consideration of financial relations
            services. The common shares were issued pursuant to Section 4(2) of
            the Securities Act of 1933 ("Act"). There was no underwriter
            involved in this issuance.

                                       14

<PAGE>

      o     During 2004, we issued an aggregate of 545,217 shares of our common
            stock in connection with the exercise of outstanding common stock
            purchase warrants held by three warrant holders. The common shares
            were issued pursuant to Section 4(2) of Act. There was no
            underwriter involved in this issuance.

ITEM 6.  Management's Discussion and Analysis of Financial Condition or Plan of
Operations

General

      During 2002 and 2003, we received a total of $6,263,780 of funds from the
private placement sale of our equity securities and the exercise of outstanding
options. Of this amount, approximately $3,700,000 was raised in the last six
months of 2003, including net proceeds of $1,374,585 received in December 2003
from the sale of units consisting of Series B preferred stock and warrants to
purchase common stock, and net proceeds of $ 2,304,215 received in July 2003
from the sale of units consisting of Series A preferred stock and warrants to
purchase common stock. We did not raise any equity capital during 2004 other
than $7,625 from the exercise of outstanding options and warrants.

      The funds acquired from these private placements were applied towards our
plan of operation as a software provider to the gaming and lottery industries
and our pursuit of a gaming manufacturer and distributor license in Nevada. We
will continue to focus on the development of gaming software applications and
licensing opportunities for regulated casinos and sports wagering and lottery
operations. Over the last six months, we have responded to several requests for
gaming proposals in the U.S. Our plan of operations is to provide software
application services and license our software products to distributors of
restricted on-line content, including casinos, sports wagering systems and state
and national lotteries. Our goal is to be the leading back-end application
software provider to the licensed and land-based gaming industry.

Results of Operations

      Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

      Our gross profit decreased from $357,760 to $253,370 for the year ended
December 31, 2004 compared to the prior year as a result of lower PrimeLine
installations in 2004.

      Expenses from operations increased by 66% for the year ended December 31,
2004 to $2,883,340 compared to $1,741,845 in the prior year. The increase was
due to higher salary costs associated with the hiring of the new management team
in August, as well as an increase in the research and development area with the
hiring of some additional programming staff. These activities significantly
increased salary expenses for the year. Also contributing to the increase in
operating expenses were higher research and development expenses including
testing, lab related and consulting costs. Other operating expenses increased as
a result of higher legal and consulting fees primarily attributable to patent
work, severance negotiations related to Mr. Merati's departure, fund raising, as
well as the opening of an office in Las Vegas during the year.

      Interest income increased to $15,920 for the year ended December 31, 2004
compared to $6,079 for the prior year due to higher cash balances, on average,
during 2004. Interest expense decreased to $0 for the year ended December 31,
2004 compared to $14,812 for the prior year, due to the note forgiveness in
prior year and the borrowing under the credit facility occurring late in the
year.

      Net loss for the year ending December 31, 2004 increased to $2,623,099 or
$0.08 per share, on 33,472,827 weighted average shares outstanding, compared
with a loss in 2003 of $1,233,443, or $0.04 per share, on 29,852,088 weighted
average shares outstanding.

      Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

      Our gross profit increased from $314,856 to $601,100 for the year ended
December 31, 2003 compared to the prior year. Operating expenses from operations
decreased by 44% for the year ended December 31, 2003 to $1,741,845 compared to

                                       15

<PAGE>

$3,096,469 in the prior year. The reduction can be attributed to lower salaries
and payroll expenses declining by approximately $200,000 due to a streamlining
in management staff. Research and development costs remained relatively
unchanged, Other operating expenses declined by approximately $900,000 due to
lower licensing, legal, and advertising fees.

      Interest income increased to $6,079 for the year ended December 31, 2003
compared to $516 for the prior year due to higher cash positions during 2003.
Interest expense decreased to $14,812 for the year ended December 31, 2003
compared to $52,683 for the prior year, due to lower notes payable during the
2003 year.

      Net loss for the year ending December 31, 2003 decreased 54% to $1,233,443
or $0.04 per share, on 29,852,088 weighted average shares outstanding, compared
with a loss in 2002 of $2,707,186, or $0.11 per share, on 24,091,248 weighted
average shares outstanding.

Liquidity and Capital Resources

      We had a working capital deficit of $472,812 at December 31, 2004, a
decrease of $2,969,875 in working capital compared to working capital of
$2,497,063 as of December 31, 2003.

      In connection with its agreement to acquire us, Progressive Gaming has
agreed lend us up to $2.5 million, subject to certain restrictions on the use of
funds provided. We believe that the Progressive Gaming credit facility will be
sufficient to fund our operations and transactional expenses through the close
of the merger acquisition. . However, in the event that the merger with
Progressive Gaming does not occur, we will need significant additional working
capital in order to fund our continued gaming software development during fiscal
2005 and, if necessary, to finance future losses from operations as we endeavor
to build revenue and reach a profitable level of operations. If we give no
effect to our proposed acquisition by Progressive Gaming, including the $2.5
million credit facility, we estimate that we would need approximately $5 million
of additional capital over the next 12 months in order to fund continued
development and expected operating losses. In the event the merger with
Progressive Gaming does not occur, we will endeavor to raise additional required
funds through various financing sources by issuing additional shares of our
securities. However, there can be no guarantees that such funds will be
available on commercially reasonable terms, if at all. Should we be unable to
raise the required funds, our ability to continue as a going concern will be
materially adversely affected.

Off Balance Sheet Arrangements

      We do not have any off-balance sheet financing arrangements or
liabilities.

Recent Accounting Standards

      FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities," was issued in January 2003, and a revised interpretation of FIN 46
(FIN 46-R) was issued in December 2003. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The provisions of FIN 46 were effective immediately
for all arrangements entered into after January 31, 2003, and application of FIN
46 was required through the end of the Company's first annual period beginning
after December 15, 2004. The Company does not believe it has investments in
variable interest entities and, as a result, the adoption of FIN 46-R will not
impact its financial statements.

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in
APB Opinion No. 29, Accounting for Nonmonetary Transactions, which is based on
the principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged, with certain exceptions. SFAS No. 153
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not believe the adoption
of SFAS No. 153 will impact its financial statements.

                                       16

<PAGE>

      In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment,"
("SFAS No. 123R") a revision to SFAS 123, "Accounting for Stock-Based
Compensation." This statement supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123R establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. Examples include stock options and awards of restricted
stock in which an employer receives employee services in exchange for equity
securities of the company or liabilities that are based on the fair value of the
company's equity securities. SFAS No. 123R requires that the cost of share-based
payment transactions be recorded as an expense at their fair value determined by
applying a fair value measurement method at the date of the grant, with limited
exceptions. Costs will be recognized over the period in which the goods or
services are received. The provisions of SFAS No. 123R are effective as of the
first interim reporting period beginning after December 15, 2005. The Company
currently believes that SFAS No. 123R does not have impact on its results of the
current year's operations and financial statements.

                                       17

<PAGE>

ITEM 7.  Financial Statements

                          INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm......................F-1
Consolidated Balance Sheets at December 31, 2004 and 2003....................F-2
Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003...................................................F-3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2004 and 2003............................................F-4 -  F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003 ...........................................F-6 -  F-7
Notes to Consolidated Financial Statements............................F-8 - F-20

                                       18

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FRIM

To the Board of Directors and Shareholders
VirtGame Corp.
San Diego, California

We have audited the consolidated balance sheets of VirtGame Corp. and Subsidiary
(the  "Company")  as of December 31, 2004 and 2003 and the related  consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
VirtGame  Corp.  and  Subsidiary  as of  December  31,  2004 and  2003,  and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in Note 9  to
the  financial  statements,  the  Company  has  suffered  recurring  losses from
operations since inception,  has limited  operating  revenue and limited capital
resources.  These conditions raise substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described in Notes 9 and 10. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

San Diego, California                               PKF
March 11, 2005                                      Certified Public Accountants
                                                    A Professional Corporation

                                       F-1

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                ASSETS

                                                                2004               2003
                                                             ------------       ------------

<S>                                                          <C>                <C>
Current assets:
        Cash and cash equivalents                            $     76,064       $  2,629,219
        Accounts receivable, net of allowances                    162,400            161,808
        Prepaid expenses and other current assets                  33,176             47,227
                                                             ------------       ------------
        Total current assets                                      271,640          2,838,254
                                                             ------------       ------------

Noncurrent assets:
        Deposits                                                    7,274              6,379
        Property and equipment, net                               190,953             57,650
        Capitalized software, net                               1,200,430            923,326
                                                             ------------       ------------
        Total noncurrent assets                                 1,398,657            987,355
                                                             ------------       ------------

        Total assets                                         $  1,670,297       $  3,825,609
                                                             ============       ============

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Accounts payable                                     $    177,254       $    168,468
        Accrued expenses                                          317,198            172,723
        Notes payable                                             250,000                 --
                                                             ------------       ------------
        Total current liabilities                                 744,452            341,191
                                                             ------------       ------------

Shareholders' equity:
Preferred stock, $.0001 par value, 10,000,000
        shares authorized, Series A, 1,992
        and 3,000 shares issued and
           outstanding in 2004 and 2003, respectively;                  1                  1
        Series B , 1,705 shares issued and outstanding                 --                 --
Common  stock, $.00001 par value; 100,000,000
        shares authorized; 34,088,145 and
        30,130,044 shares issued and
        outstanding in 2004 and 2003, respectively;
        700,739 and 1,087,055 issuable
        in 2004 and 2003, respectively                                348                312
Additional paid-in capital                                     27,126,513         26,841,283
Deferred compensation                                             (44,190)                --
Receivable from exercise of options                              (140,250)           (66,000)
Accumulated deficit                                           (26,016,577)       (23,291,178)
                                                             ------------       ------------
Total shareholders' equity                                        925,845          3,484,418
                                                             ------------       ------------

Total liabilities and shareholders' equity                   $  1,670,297       $  3,825,609
                                                             ============       ============
</TABLE>

                                      F-2

<PAGE>

                         VIRTGAME CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                    2004               2003
                                                                ------------       ------------
<S>                                                                <C>                  <C>
Revenue                                                              413,800            601,100

Cost of sales                                                       (160,430)          (243,340)
                                                                ------------       ------------

        Gross profit                                                 253,370            357,760
                                                                ------------       ------------

Operating expenses:
        Salaries and payroll expenses                                678,451            325,149
        Research and development                                     550,628            458,013
        Variable award stock-based compensation                      120,950            123,000
        Other operating expenses                                   1,533,311            835,683
                                                                ------------       ------------
        Total expenses from operations                             2,883,340          1,741,845
                                                                ------------       ------------
              Loss from operations before financial income
                 (expense) and income taxes                       (2,629,970)        (1,384,085)
                                                                ------------       ------------

Financial income (expense):
        Interest income                                               15,920              6,079
        Other income                                                      23            162,718
        Interest expense                                                  --            (14,812)
                                                                ------------       ------------
        Net financial income                                          15,943            153,985
                                                                ------------       ------------
              Loss from operations before income taxes            (2,614,027)        (1,230,100)

Income taxes                                                          (9,072)            (3,343)
                                                                ------------       ------------
        Net loss                                                $ (2,623,099)      $ (1,233,443)
                                                                ============       ============

Basic net loss per share                                        $      (0.08)      $      (0.04)
                                                                ============       ============

Shares used to compute basic net loss per share                   33,472,827         29,852,088
                                                                ------------       ------------
</TABLE>

                                      F-3

<PAGE>

                         VIRTGAME CORP. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                      Series A and B
                                                      Preferred Stock            Common Stock             Additional
                                                   ----------------------------------------------------    Paid-In
                                                   Shares      Amount         Shares         Amount        Capital
                                                   ------   ------------     ----------   ------------   ------------
<S>                                                 <C>     <C>              <C>                   <C>     <C>
Balance forwarded
      December 31, 2002                                --   $         --     28,314,993            283     19,901,674
Exercise of options by consultants
      for services rendered net of
      issuance costs                                   --             --      1,060,000             11        273,989
Issuance of common stock to
      consultants for services rendered
      net of issuance costs                            --             --      1,026,316             10        309,612
Issuance of common stock, cash
      received during April 2003                       --             --        657,895              6        249,994
Issuance of common stock, cash
      received during December 2002                    --             --        157,895              2             --
Issuance of serries A preferred stock,
      cash received during July 2003
      net of issuance costs                         3,000              1             --             --      2,304,214
Proceeds from series B preferred stock
      issuable, cash received during
      December 2003, net of issuance costs          1,705             --             --             --      1,374,585
Beneficial conversion feature of preferred
      offering                                         --             --             --             --      2,304,215
Compensation adjustment for variable
      stock options                                    --             --             --             --        123,000
Net loss for the year ended
      December 31, 2003                                --             --             --             --             --
                                                    -----   ------------     ----------   ------------   ------------
Balance, December 31, 2003                          4,705   $          1     31,217,099   $        312   $ 26,841,283
                                                    =====   ============     ==========   ============   ============

<CAPTION>

                                                    Receivable
                                                   from Exercise   Accumulated
                                                    of Options       Deficit         Total
                                                   ------------    ------------    ------------
<S>                                                     <C>         <C>            <C>
Balance forwarded
      December 31, 2002                                 (66,500)    (19,753,520)   $     81,937
Exercise of options by consultants
      for services rendered net of
      issuance costs                                         --              --         274,000
Issuance of common stock to
      consultants for services rendered
      net of issuance costs                                 500              --         310,122
Issuance of common stock, cash
      received during April 2003                             --              --         250,000
Issuance of common stock, cash
      received during December 2002                          --              --               2
Issuance of serries A preferred stock,
      cash received during July 2003
      net of issuance costs                                  --              --       2,304,215
Proceeds from series B preferred stock
      issuable, cash received during
      December 2003, net of issuance costs                   --              --       1,374,585
Beneficial conversion feature of preferred
      offering                                               --      (2,304,215)             --
Compensation adjustment for variable
      stock options                                          --              --         123,000
Net loss for the year ended
      December 31, 2003                                      --      (1,233,443)     (1,233,443)
                                                   ------------    ------------    ------------
Balance, December 31, 2003                         $    (66,000)   $(23,291,178)   $  3,484,418
                                                   ============    ============    ============
</TABLE>

                                      F-4

<PAGE>

                         VIRTGAME CORP. AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
                For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                         Series A and B
                                                         Preferred Stock             Common Stock             Additional
                                                       --------------------------------------------------      Paid-In
                                                       Shares      Amount          Shares         Amount       Capital
                                                       -----    ------------     ----------   ------------   ------------
<S>                                                   <C>      <C>              <C>          <C>            <C>
Balance forwarded
      December 31, 2003                                4,705    $          1     31,217,099   $        312   $ 26,841,283
Issuance of common stock to
      consultants for services rendered
      during March 2004                                   --              --         25,000             --          9,500
Exercise of options by consultants
      for services rendered during April 2004             --              --        800,000              8         87,992
Exercise of warrants, cash received
      during April 2004                                   --              --         10,500             --          2,625
Issuance of options to consultants
      for services rendered during
      August 2004                                         --              --             --             --         44,190
Exercise of options by employee, cash
      received during October 2004                        --              --         20,000             --          5,000
Issuance of common stock to
      consultants for services rendered
      during December 2004                                --              --         36,585              1         14,999
Payments received on prior receivables
      from exercise of options                            --              --             --             --             --
Conversion of Series A preferred stcok
      into common stock                               (1,008)             --      2,644,983             27            (27)
Exercise of options by consultants
      for netted value of shares                          --              --         34,717             --             --
Stock based compensation expense                          --              --             --             --        274,701
Dividends on Series B preferred stock                     --              --             --             --             --
Compensation adjustment for variable
      stock options                                       --              --             --             --       (153,750)
Net loss for the year ended
      December 31, 2004                                   --              --             --             --             --
                                                       -----    ------------     ----------   ------------   ------------
Balance, December 31, 2004                             3,697    $          1     34,788,884   $        348   $ 27,126,513
                                                       =====    ============     ==========   ============   ============

<CAPTION>

                                                                        Receivable
                                                         Deferred      from Exercise   Accumulated
                                                       Compensation     of Options       Deficit          Total
                                                       ------------    ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>             <C>
Balance forwarded
      December 31, 2003                                $         --    $    (66,000)   $(23,291,178)   $  3,484,418
Issuance of common stock to
      consultants for services rendered
      during March 2004                                          --              --              --           9,500
Exercise of options by consultants
      for services rendered during April 2004                    --         (88,000)             --              --
Exercise of warrants, cash received
      during April 2004                                          --              --              --           2,625
Issuance of options to consultants
      for services rendered during
      August 2004                                           (44,190)             --              --              --
Exercise of options by employee, cash
      received during October 2004                               --              --              --           5,000
Issuance of common stock to
      consultants for services rendered
      during December 2004                                       --              --              --          15,000
Payments received on prior receivables
      from exercise of options                                   --          13,750              --          13,750
Conversion of Series A preferred stcok
      into common stock                                          --              --              --              --
Exercise of options by consultants
      for netted value of shares                                 --              --              --              --
Stock based compensation expense                                 --              --              --         274,701
Dividends on Series B preferred stock                            --              --        (102,300)       (102,300)
Compensation adjustment for variable
      stock options                                              --              --                        (153,750)
Net loss for the year ended
      December 31, 2004                                          --              --      (2,623,099)     (2,623,099)
                                                       ------------    ------------    ------------    ------------
Balance, December 31, 2004                             $    (44,190)   $   (140,250)   $(26,016,577)   $    925,845
                                                       ============    ============    ============    ============
</TABLE>

                                      F-5

<PAGE>

                         VIRTGAME CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                2004           2003
                                                             -----------    -----------
<S>                                                          <C>            <C>
Cash flows from operating activities:
     Net loss                                                $(2,623,099)   $(1,233,443)
     Adjustments to reconcile net loss to net cash flows
        used in operating activities:
           Bad debt expense                                       10,000             --
           Stock based compensation expense                      120,951        123,000
           Gain on forgiveness of debt                                --       (162,716)
           Depreciation and amortization                         479,371        332,113
           Issuance of common stock, options and warrants
              for consulting fees and compensation                24,500        310,122
           Changes in operating assets and liabilities:
              (Increase) decrease in:
                 Accounts receivable                             (10,592)       (53,816)
                 Prepaid expenses and other current assets        14,051        (39,918)
                 Deposits                                           (895)         3,420
              Increase (decrease) in:
                 Accounts payable and accrued expenses           102,111       (268,613)
                                                             -----------    -----------
     Net cash flows used in operating activities              (1,883,602)      (989,851)
                                                             -----------    -----------

Cash flows from investing activities:
     Purchase of property and equipment                         (157,076)       (44,853)
     Capitalization of software development costs               (732,702)      (576,567)
                                                             -----------    -----------
     Net cash flows used in investing activities                (889,778)      (621,420)
                                                             -----------    -----------

Cash flows from financing activities:
     Net proceeds from the issuance of common stock                7,625        524,000
     Net proceeds from the issuance of preferred stock                --      3,678,800
     Preferred dividends paid                                    (51,150)            --
     Receipt of option exercise receivable                        13,750        125,000
     Borrowings on notes payable                                 250,000             --
     Payments on notes payable                                        --       (145,000)
     Principal payments under capital lease                           --         (2,653)
                                                             -----------    -----------
     Net cash flows provided by financing activities             220,225      4,180,147
                                                             -----------    -----------

Net (decrease) increase in cash and cash equivalents          (2,553,155)     2,568,876
Cash and cash equivalents at beginning of year                 2,629,219         60,343
                                                             -----------    -----------

Cash and cash equivalents at end of year                     $    76,064    $ 2,629,219
                                                             ===========    ===========
</TABLE>

                                      F-6

<PAGE>

                         VIRTGAME CORP. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                                 2004        2003
                                                                                --------   ----------
<S>                                                                             <C>        <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

     Cash paid during the period for:

        Interest                                                                $     --   $    8,088
                                                                                ========   ==========
        Income taxes                                                            $  9,072   $    3,343
                                                                                ========   ==========

     Supplemental disclosures of non-cash investing and financing activities:

        Receivable from exercise of options                                     $ 88,000   $       --
                                                                                ========   ==========
        Retirement of debt and accounts payable for stock issued                $     --   $    1,348
                                                                                ========   ==========
        Beneficial conversion feature of preferred offering                     $     --   $2,304,215
                                                                                ========   ==========
        Deferred compensation issued to consultants                             $ 44,190   $       --
                                                                                ========   ==========
        Unpaid dividends                                                        $ 51,150   $       --
                                                                                ========   ==========
</TABLE>

                                      F-7

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 1 - ORGANIZATION AND BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     Organization and Business

     VirtGame Corp. (the  "Company,") was  incorporated in the State of Delaware
     on October 24, 1995,  under the name MBA Licensing  Corp. On June 20, 1996,
     the  Board of  Directors  approved  the  change  of the  Company's  name to
     Internet Gaming Technologies,  Inc., on January 22, 1997, to Virtual Gaming
     Technologies,  Inc.,  and on September 9, 1999,  to  Virtgame.com  Corp. On
     February 2002, the Company changed its name to Virtgame Corp.

     VirtGame Corp. is a provider of open  architecture  gaming  software to the
     regulated gaming and lottery industries and offers licensed casinos, sports
     wagering and lottery operations a comprehensive suite of software products.
     VirtGame  Corp's  solution  is  based  on an open  architecture  supporting
     multiple  operating system platforms and databases that requires no special
     or proprietary  hardware and provides  distribution of server-based  casino
     games, sports wagering and lotteries through various distribution channels,
     including  local networks with a casino,  such as  over-the-counter,  stand
     alone kiosks and in-room  wagering,  and wide area  networks such as online
     closed loop Intranets or the Internet.

     On December 21,  1999,  the Company  entered into a securities  acquisition
     agreement and plan of  reorganization  (the "PrimeLine  Acquisition")  with
     PrimeLine   Gaming   Technologies,   Inc.   ("PrimeLine").   The  PrimeLine
     Acquisition  resulted  in the  Company  acquiring  100% of the  outstanding
     capital stock of PrimeLine in return for the issuance of 447,208  shares of
     its common stock.  The PrimeLine  Acquisition  has been  accounted for as a
     purchase at historical cost.

     Principles of Consolidation

     The  accompanying  financial  statements  consolidate the accounts of the
     Company and its wholly-owned  subsidiary,  PrimeLine Gaming Technologies,
     Inc., a California  Corporation.  All significant  inter-company accounts
     and transactions have been eliminated in consolidation.

     Financial Instruments

     The carrying amounts reported in the consolidated  balance sheets for cash,
     accounts receivable,  prepaid expenses and other current assets,  deposits,
     accounts  payable,  and accrued expenses  approximate fair value due to the
     immediate short-term maturity of these financial instruments.

     The fair value of the Company's  capital lease obligation and notes payable
     approximate  the carrying  amount based on the current rates offered to the
     Company for debt of the same remaining  maturities with similar  collateral
     requirements.

     Property and Equipment

     Property and equipment is recorded at cost.  Depreciation  is calculated on
     the  straight-line  basis over the estimated  useful life of five years, or
     related lease life, if shorter.

     Cash and Cash Equivalents

     The  Company  considers  all  cash  accounts,  which  are  not  subject  to
     withdrawal restrictions or penalties, and certificates of deposit and money
     market funds purchased with an original maturity of three months or less to
     be cash equivalents.

     The Company maintains its cash accounts at financial  institutions  located
     in California. Accounts at the financial institutions located in California
     are  insured by the  Federal  Deposit  Insurance  Corporation  (FDIC) up to
     $100,000.  The Company has not  experienced any losses in such accounts and
     management   believes  it  places  its  cash  on  deposit  with   financial
     institutions which are financially stable.

                                     F-8

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE  1  -  ORGANIZATION  AND  BUSINESS  AND  SIGNIFICANT   ACCOUNTING  POLICIES
(Continued)

     Revenue Recognition

     In December 2003, the SEC staff issued Staff Accounting  Bulletin (SAB) No.
     104,  "Revenue   Recognition,"  which  summarized  the  SEC  staff's  views
     regarding   the   recognition   and   reporting   of  revenues  in  certain
     transactions.  The  implementation  of SAB No.  104  does not  require  the
     Company to change the method by which it recognizes revenues.  Revenues are
     recognized  principally  as services  are  provided to  customers.  Amounts
     billed in advance are recorded as current or long-term  deferred revenue on
     the balance  sheet,  with  current  deferred  revenue  reflecting  services
     expected to be provided  within the next  twelve  months.  During the years
     ended  December  31,  2004 and 2003 the  Company  recorded  $0 in  deferred
     revenues.

     The Company recognizes  software license fee revenue in accordance with the
     provisions  of  Statement  of  Position  (SOP)  97-2,   "Software   Revenue
     Recognition," as amended by SOP 98-9, "Software Revenue  Recognition,  With
     Respect to Certain Transactions."  Software license fees represent revenues
     related to licenses  for  software  delivered  to  customers  for  in-house
     applications.  Revenues from single-element software license agreements are
     recognized   upon  shipment  of  the   software.   Revenues  from  software
     arrangements  involving  multiple  elements are allocated to the individual
     elements  based on their  relative fair values.  If services are considered
     essential to the functionality of the software products,  both the software
     product revenue and service revenue are recognized  using the percentage of
     completion   method  in  accordance   with  the  provisions  of  SOP  81-1,
     "Accounting  for Performance of  Construction  Type and Certain  Production
     Type  Contracts.  Contract  revenues  are  recognized  based on labor hours
     incurred to date compared to total  estimated labor hours for the contract.
     Contract costs include all direct labor, direct material and indirect costs
     related to contract performance.  Selling, general and administrative costs
     are charged to expense as  incurred.  Provisions  for  estimated  losses on
     uncompleted  contracts  are  recorded  in the period in which  such  losses
     become  probable  based on the current  contract  estimates.  Hosting  fees
     represent revenues from  post-contract  customer support services where the
     Company's  software  is  resident  on a company  server and are  recognized
     ratably over the hosting  period.  Event fees are  recognized as the events
     take place.

      Other Income

      During  the  year  ended  December  31,  2003,   the  Company   recognized
      approximately $162,718 of income through the forgiveness of a note payable
      and the  forgiveness  of interest upon the  recognition  of the Statute of
      Limitations  with  regards  to a  licensing  agreement.  Other  income for
      2004 was approximately $23.

      Accounts Receivable and Allowances for Uncollectible Accounts

      Accounts  receivable are stated at the historical  carrying  amount net of
      write-offs  and  allowances  for  uncollectible   accounts.   The  Company
      establishes  an allowance for  uncollectible  accounts based on historical
      experience and any specific  customer  collection  issues that the Company
      has identified.  Uncollectible  accounts receivable are written off when a
      settlement  is  reached  for an amount  that is less than the  outstanding
      balance  or when the  Company  has  determined  that  balance  will not be
      collected.

     Stock Based Compensation

     In December 2002, the Financial  Accounting  Standards  Board (FASB) issued
     Statement  of  Financial  Accounting  Standards  No.  148  "Accounting  for
     Stock-Based  Compensation  Transition  and  Disclosure an Amendment of FASB
     Statement No. 123" (SFAS 148).  SFAS 148 amends SFAS 123,  "Accounting  for
     Stock-Based  Compensation"  (SFAS 123), to provide  alternative  methods of
     transition for an entity that  voluntarily  changes to the fair value based
     method of accounting for stock-based employee compensation.  It also amends
     the disclosure provisions of SFAS 123 to require prominent disclosure about
     the  effects  on  reported  net  income of an  entity's  accounting  policy
     decisions with

                                      F-9

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE  1  -  ORGANIZATION  AND  BUSINESS  AND  SIGNIFICANT   ACCOUNTING  POLICIES
(Continued)

     respect to stock-based employee compensation.  Finally, SFAS 148 amends APB
     Opinion No. 28, Interim Financial  Reporting,  to require  disclosure about
     those effects in interim financial  information.  At December 31, 2004, and
     2003, the Company has stock-based  employee  compensation  plans, which are
     described more fully in Note 7. The Company  accounts for those plans under
     the  recognition  and  measurement   principles  of  APB  Opinion  No.  25,
     "Accounting  for Stock  Issued to  Employees"  (APB No.  25),  and  related
     Interpretations.  No stock-based employee compensation cost is reflected in
     net income,  as all options granted under those plans had an exercise price
     equal to the market  value of the  underlying  common  stock on the date of
     grant. However, certain options had been repriced resulting in compensation
     adjustments,  which have been reflected in net income.  The following table
     illustrates  the effect on net income and earnings per share if the Company
     had  applied  the  fair  value  recognition  provisions  of  SFAS  123,  to
     stock-based employee compensation.

     Under SFAS 148,  the fair  value of each  option  granted  during the years
     ended  December  31, 2004 and 2003 was  estimated on the  measurement  date
     utilizing  the then  current fair value of the  underlying  shares less the
     exercise price  discounted over the average expected life of the options of
     zero to five years,  with an average  risk-free  interest  rate of 3.50% to
     5.00%, price volatility of 60% to 140% and no dividends.

     Had  compensation  cost for all awards  been  determined  based on the fair
     value  method as  prescribed  by SFAS 123,  reported  net loss and loss per
     common share would have been as follows:

<TABLE>
<CAPTION>
                                                      December 31,   December 31,
                                                        2004            2003
                                                     ------------    ------------
<S>                                                  <C>             <C>
Net loss:
        As reported                                  $ (2,623,099)   $ (1,233,443)
        Add: Stock based employee compensation
              included in reported net income, net
              of related tax effects                      120,951         123,000
        Deduct: Stock based employee compensation
              expense determined under fair value
              method, net of related tax effects         (215,741)       (123,000)
                                                     ------------    ------------
        Proforma                                     $ (2,717,889)   $ (1,233,443)
                                                     ============    ============

Basic net loss per share:
        As reported                                  $      (0.08)   $      (0.04)
                                                     ============    ============
        Proforma                                     $      (0.08)   $      (0.04)
                                                     ============    ============
</TABLE>

    Advertising Costs

    The  Company  charges  the  cost of  advertising  to  expense  as  incurred.
    Advertising  costs for the years  ended  December  31,  2004 and 2003,  were
    approximately $34,000 and $2,700, respectively.

                                      F-10

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE  1  -  ORGANIZATION  AND  BUSINESS  AND  SIGNIFICANT   ACCOUNTING  POLICIES
(Continued)

     Capitalized Software

     Effective  January 1, 1999, the Company adopted  Statement of Position 98-1
     ("SOP 98-1"),  "Accounting for the Costs of Computer Software  Developed or
     Obtained for Internal Use." Among other provisions,  SOP 98-1 requires that
     entities  capitalize  certain  internal-use  software  costs  once  certain
     criteria are met. Under SOP 98-1, overhead,  general and administrative and
     training costs are not capitalized.  In addition, certain computer software
     costs are capitalized in accordance  with SFAS No. 86,  "Accounting for the
     Costs of Computer Software to Be Sold,  Leased or Otherwise  Marketed," and
     are  reported at the lower of  unamortized  cost or net  realizable  value.
     Capitalized software  amortization expense for the years ended December 31,
     2004 and 2003 was approximately $456,000 and $310,000,  respectively. Costs
     capitalized   for  the  years  ended   December  31,  2004  and  2003  were
     approximately $733,000 and $577,000, respectively.

     Concentrations of Major Customers

     Sales to three  and four  customers  represented  81% and 100% of  revenues
     during the years  ended  December  31, 2004 and 2003,  respectively.  These
     customers  represented 94% and 100% of accounts  receivable at December 31,
     2004 and 2003, respectively.

     Income Taxes

     The Company accounts for income taxes using the asset and liability method.
     Under the asset and liability method,  deferred income taxes are recognized
     for the tax  consequences of "temporary  differences"  by applying  enacted
     statutory tax rates  applicable to future years to differences  between the
     financial  statement  carrying amounts and the tax bases of existing assets
     and liabilities.  Deferred tax assets are reduced by a valuation  allowance
     when,  in the opinion of  management,  it is more likely than not that some
     portion or all of the deferred tax assets will not be realized.

     Net Loss Per Share

     Basic net loss per share excludes  dilution and is computed by dividing net
     loss by the weighted average number of common shares outstanding during the
     reported  periods.  Diluted  net  loss per  share  reflects  the  potential
     dilution that could occur if stock options and other  commitments  to issue
     common stock were  exercised.  During the years ended December 31, 2004 and
     2003,  options and warrants to purchase  20,705,977 and  16,566,971  common
     shares,  respectively,  were  anti-dilutive and have been excluded from the
     weighted average share computation.

     Other Comprehensive Income

     For the years ended  December  31, 2004 and 2003,  the Company had no items
     that were required to be  recognized  as components of other  comprehensive
     income.

     Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and disclosure of contingent  assets and
     liabilities  at the  date of the  financial  statements  and  the  reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those estimates.

                                      F-11

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE  1  -  ORGANIZATION  AND  BUSINESS  AND  SIGNIFICANT   ACCOUNTING  POLICIES
(Continued)

     Disclosure about segments

     The Company has determined that it operates in one segment.

     Recent Accounting Standards

     FASB  Interpretation  No. 46 (FIN 46),  "Consolidation of Variable Interest
     Entities," was issued in January 2003, and a revised  interpretation of FIN
     46 (FIN 46-R) was issued in December 2003. FIN 46 requires certain variable
     interest  entities to be  consolidated  by the primary  beneficiary  of the
     entity  if  the   equity   investors   in  the   entity  do  not  have  the
     characteristics  of  a  controlling  financial  interest  or  do  not  have
     sufficient equity at risk for the entity to finance its activities  without
     additional   subordinated   financial  support  from  other  parties.   The
     provisions  of FIN 46  were  effective  immediately  for  all  arrangements
     entered into after January 31, 2003, and application of FIN 46 was required
     through  the end of the  Company's  first  annual  period  beginning  after
     December  15,  2004.  The Company  does not believe it has  investments  in
     variable interest entities and, as a result,  the adoption of FIN 46-R will
     not impact its financial statements.

     In December  2004,  the FASB issued SFAS No. 153,  Exchanges of Nonmonetary
     Assets an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance
     in APB Opinion No. 29,  Accounting for Nonmonetary  Transactions,  which is
     based on the  principle  that  exchanges of  nonmonetary  assets  should be
     measured  based on the fair value of the  assets  exchanged,  with  certain
     exceptions.  SFAS No. 153 amends APB Opinion 29 to eliminate  the exception
     for nonmonetary exchanges of similar productive assets and replaces it with
     a general  exception for exchanges of  nonmonetary  assets that do not have
     commercial  substance.  A nonmonetary  exchange has commercial substance if
     the future cash flows of the entity are expected to change significantly as
     a result of the exchange.  The provisions of SFAS No. 153 are effective for
     nonmonetary  asset  exchanges  occurring in fiscal periods  beginning after
     June 15,  2005.  The Company  does not believe the adoption of SFAS No. 153
     will impact its financial statements.

     In  December  2004,  the FASB issued SFAS  123(R),  "Share-Based  Payment,"
     ("SFAS  No.  123R") a revision  to SFAS 123,  "Accounting  for  Stock-Based
     Compensation."  This statement  supersedes APB Opinion No. 25,  "Accounting
     for Stock Issued to Employees." SFAS No. 123R establishes standards for the
     accounting  for  transactions  in  which an  entity  exchanges  its  equity
     instruments  for goods or  services.  Examples  include  stock  options and
     awards of restricted stock in which an employer  receives employee services
     in exchange for equity  securities of the company or  liabilities  that are
     based on the fair value of the company's equity  securities.  SFAS No. 123R
     requires that the cost of share-based  payment  transactions be recorded as
     an  expense  at their  fair  value  determined  by  applying  a fair  value
     measurement method at the date of the grant, with limited exceptions. Costs
     will be  recognized  over the  period in which the  goods or  services  are
     received.  The  provisions  of SFAS No. 123R are  effective as of the first
     interim  reporting  period  beginning  after December 15, 2005. The Company
     currently  believes  that SFAS No. 123R does not have impact on its results
     of the current year's operations and financial statements.

     Reclassifications

     Certain  prior  year  balances  have been  reclassified  to  conform to the
     current year presentation.

                                      F-12

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 2 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31:

                                   2004         2003
                                 ---------    ---------

Computer hardware                $ 282,565    $ 127,818
Office furniture and equipment      34,993       32,663
                                 ---------    ---------
                                   317,558      160,481
Less: accumulated depreciation    (126,605)    (102,831)
                                 ---------    ---------
                                 $ 190,953    $  57,650
                                 =========    =========

NOTE 3 - CAPITALIZED SOFTWARE

                                    2004           2003
                                 -----------    -----------

Computer software                $ 2,703,330    $ 1,970,638
Less: accumulated amortization    (1,502,900)    (1,047,312)
                                 -----------    -----------
                                 $ 1,200,430    $   923,326
                                 ===========    ===========

NOTE 4 - ACCRUED EXPENSES

                      2004       2003
                    --------   --------

Accrued payroll     $ 50,518   $ 49,909
Accrued dividends     51,150         --
Accrued severance     90,000         --
Accrued other        125,530    122,814
                    --------   --------
                    $317,198   $172,723
                    ========   ========

NOTE 5 - NOTES PAYABLE

     During the year ended  December  31,  2004,  the  Company  entered  into an
     agreement  with  Progressive  Gaming  International   Corporation  ("PGIC")
     pursuant to a  development  agreement  (see Note 10) whereby PGIC agreed to
     lend the Company up to $500,000, subject to certain restrictions on the use
     of funds. As at December 31, 2004 the Company had utilized  $250,000 of the
     available development agreement.

                                      F-13

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 6 - COMMITMENTS AND CONTINGENCIES

     Operating Leases

     During 2002 the Company  signed a lease for its office  facilities  under a
     non-cancelable  operating lease through February 2005. In January 2004, the
     Company opened a Las Vegas, Nevada office and entered into a month-to-month
     basis lease. The leases call for monthly  payments of approximately  $6,000
     per month.

     Rental expense for office  facilities for the years ended December 31, 2004
     and 2003 totaled approximately $65,100 and $35,000, respectively.

     Capital Lease

     During the years ended  December  31, 2004 and 2003,  the Company  recorded
     amortization  expense on leased  equipment of  approximately  $0 and $2,300
     respectively.

     Employment Agreements

     The Company has entered into two year  employment  agreements  with various
     officers and employees during the year. Terms of the agreement  provide for
     a negotiated  annual salary and bonuses and stock options  provided certain
     financial  milestones are met. During the year ended December 31, 2004, the
     Company  signed  employment  agreements  authorizing  options  to  purchase
     1,700,000  shares of the  Company's  common stock for $0.38 per share.  The
     options vest ratably over five years from the date of grant. These options,
     along with other options and warrants issued during fiscal 2004 are subject
     to approval by the Series A  shareholders,  and as such the Company has not
     issued these options nor are these options  included in the option schedule
     in Note 7. In addition of these options,  an additional  1,300,000  options
     are issuable to these  employees and directors  upon a change of control or
     merger.

     Licensing Agreement

     On September 17, 2004, the Company entered into a licensing  agreement with
     a third  party  whereby it would be granted  exclusive  licenses to certain
     proprietary  information.  The Company has stipulated  certain  performance
     goals in order  for the  exclusivity  and  license  agreement  to remain in
     effect over the next three years.  In addition to certain fees paid to this
     party,  the Company was to issue 750,000 shares of restricted  stock at the
     onset of this agreement. The Company has not made any sales subject to this
     agreement  nor has it  issued  the  shares  as of  December  31,  2004.  In
     addition,  the  Company  was to issue an  additional  250,000  options to a
     consultant as finder fees pertaining to this agreement.  These options have
     not been issued as of December 31, 2004.

NOTE 7 - SHAREHOLDERS' EQUITY

     Stock, Options and Warrants Issued for Services

     During the year ended  December  31,  2003,  the Company  issued  2,665,000
     warrants in  conjunction  with financing  arrangements  entered into during
     2002 and 2003. All of the warrants are  immediately  exercisable and expire
     within five years from the date of issuance.  The  warrants  were issued at
     exercise prices that exceed the stock's market value at the time of grant.

     During the year ended  December  31,  2003,  the Company  issued  3,186,316
     options to acquire the  Company's  common stock to various  consultants,  a
     former employee and investment bankers as

                                      F-14

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 7 - SHAREHOLDERS' EQUITY (Continued)

     compensation  for services  performed.  These options were fully vested and
     were  exercised.  Proceeds from the exercise of these  options  amounted to
     $584,122.

     During the year ended  December  31,  2004,  the Company  issued  2,291,449
     warrants in  conjunction  with financing  arrangements  entered into during
     2003 and 2004. All of the warrants are  immediately  exercisable and expire
     within five years from the date of issuance.  The  warrants  were issued at
     exercise prices that were at or exceed the stock's market value at the time
     of grant.

     During the year ended December 31, 2004, the Company issued 930,000 options
     to acquire the Company's common stock to various consultants,  employee and
     investment  bankers as compensation for services  performed.  These options
     vest at various intervals.

     During the year ended  December 31, 2004,  the Company issued 36,585 shares
     of the  Company's  common stock to a vendor as partial  payment of services
     rendered.

     During  the year  ended  December  31,  2004,  the  Company  issued  25,000
     restricted  shares of the  Company's  common  stock to a vendor as  partial
     payment of services rendered. The Company recognized $9,500 in compensation
     in relation to these services.

     Stock Issued for Cash and Receivables

     During the year ended  December 31, 2003, the Company issued 657,895 shares
     of its  common  stock in  exchange  for  $250,000  in a  private  placement
     agreement. There were no issuance costs associated with this transaction.

     During the year ended  December 31, 2003,  the Company  issued 120 units of
     Series A convertible  preferred stock (each unit consisting of 25 shares of
     Series A convertible preferred stock and warrants to purchase 35,000 shares
     of common stock)  pursuant to a private  placement  completed in July 2003.
     Cash proceeds from the private placement, net of issuance costs amounted to
     approximately  $2,304,000.  Because the conversion  price ($0.38 per share)
     was below the  trading  price  ($0.78 per  share) on the day the  financing
     closed and  because  the shares were  immediately  convertible  the Company
     fully  amortized  the  beneficial  conversion  element  upon closing of the
     private placement. As a result the Company recorded a beneficial conversion
     of approximately $2,304,000.

     During December 2003, the Company completed a private placement that raised
     approximately $1,375,000,  net of issuance costs. The private placement was
     Units,  each  consisting  of 100 shares of Series B  convertible  preferred
     stock and  warrants  to  purchase  35,714  shares of  common  stock.  As of
     December 31, 2003 the preferred shares were not issued.

     During  April 2004,  two  consultants  exercised  800,000  options  with an
     exercise  price of $0.11 per share and became  indebted  to the Company for
     $88,000.

     During the year ended  December 31, 2004,  a  consultant  exercised  10,500
     warrants  with an  exercise  price of $0.25  per  share  for cash  totaling
     $2,625.

     During the year ended  December  31,  2004,  an  employee  exercised  stock
     options to purchase 20,000 shares of the Company's common stock for $5,000.

                                      F-15

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 7 - SHAREHOLDERS' EQUITY (Continued)

     Stock Issued Through Exercise of Options

     During the year ended  December  31,  2004,  the Company  converted  68,800
     warrants  originally  issued  in prior  years  into  34,717  shares  of the
     Company's  common  stock.  The number of shares  issued was the  difference
     between the  exercise  price per warrant and the market value of the shares
     on the date the  transaction  was requested.  The warrant  holders were not
     required to make any payments through this exchange.

     Stock Issued Through Conversion of Series A Preferred Stock

     During the year ended December 31, 2004,  certain  holders of the Company's
     series A  convertible  preferred  stock  elected to convert their shares of
     series A stock into  shares of the  Company's  common  stock.  The  Company
     converted 1,008 shares of series A preferred stock into 2,644,983 shares of
     common  stock.  The  conversion  rate used was  approximately  2,630 common
     shares for each series A preferred  share.  Future  conversions of series A
     preferred  stock may be adjusted  based on  anti-dilution  rights and other
     provisions per the security agreement.

     Deferred Compensation

     In August 2004, the Company issued 200,000 options to two consultants  with
     exercise  prices of $0.38 per share and vest August 2005. A deferred  stock
     based compensation expense of $44,170 recorded by the Company.

     Compensation Adjustment For Variable Option Awards

     During the year ended December 31, 2002,  the Company  reduced the exercise
     price of 615,000 options to purchase common stock, previously issued to the
     then CEO.  Under  APB No. 25 the  intrinsic  value of the  option  has been
     changed which has triggered  variable  accounting  for these  options.  The
     provisions  of APB No. 25 require the Company to  reevaluate  the amount of
     compensation at the end of each quarter or reporting period.  For the years
     ended December 31, 2004 and 2003 the difference  between the exercise price
     and the fair market value of the  Company's  common stock has  decreased by
     $0.25  per  share  in  2004  and  increased  by  $0.  per  share  in  2003.
     Accordingly,   the  Company  has   recorded   gain  and  loss  on  deferred
     compensation for the years ended December 31, 2004 and 2003 of $153,750 and
     $(123,000),   respectively,  in  the  accompanying  consolidated  financial
     statements. (See Note 1)

     Stock Options

     In 1997,  the Company  adopted a stock option plan (the "Plan") under which
     options to purchase up to 500,000  shares of common stock may be granted to
     officers,  employees or directors of the Company,  as well as  consultants,
     independent  contractors  or other service  providers of the Company.  Both
     "incentive"  and  "nonqualified"  options  may be  granted  under the Plan.
     Incentive  options  may be granted at an  exercise  price equal to the fair
     market value of the shares at the date of grant while nonqualified  options
     may be granted at an exercise  price  determined by the Board of Directors.
     Individual  option  agreements will contain such additional terms as may be
     determined  by the Board of  Directors  at the time of the grant.  The Plan
     provides  for  grants of options  with a term of up to 10 years.  Incentive
     options must be granted with exercise prices equal to the fair market value
     on the date of grant,  except  that  incentive  options  granted to persons
     owning stock possessing more than 10% of the total combined voting power of
     all classes of stock of the Company may not be granted at less than 110% of
     the fair market value on the date of grant. The Company amended the Plan to
     increase the number of options to purchase 5,000,000 shares of common stock
     in 2000 and in 2001 increased the number of options to purchase  10,000,000
     shares of common stock.

                                      F-16

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 7 - SHAREHOLDERS' EQUITY (Continued)

     Stock Options (Continued)

     The Company has elected to account for nonqualified grants and grants under
     its Plan  following  APB No. 25,  SFAS 148,  which  amended  SFAS 123,  and
     related interpretations.  Accordingly,  compensation costs of approximately
     $275,000  and $0 have been  recognized  for  options  for the  years  ended
     December 31, 2004 and 2003, respectively.

     A summary of the activity of the stock options are as follows:

<TABLE>
<CAPTION>
                                                                    2004                        2003
                                                                  Weighted                    Weighted
                                                                  Average                     Average
                                                                  Exercise                    Exercise
                                                   Shares          Price        Shares         Price
                                                  ----------       -----      ----------       -----
<S>                                                <C>             <C>         <C>             <C>
Outstanding at beginning of year                   7,703,600       $0.32       7,424,600       $0.27
     Granted                                         930,000        0.68       2,800,000        0.45
     Cancelled                                      (145,000)       0.25        (500,000)       0.65
     Exercised                                      (820,000)       0.11      (1,700,000)       0.22
     Expired                                         (50,000)       0.25        (321,000)       0.55
                                                  ----------       -----      ----------       -----
Outstanding at end of year                         7,618,600       $0.35       7,703,600       $0.32
                                                  ==========       =====      ==========       =====

Exercisable at end of year                         6,918,600       $0.38       6,603,600       $0.32
                                                  ==========       =====      ==========       =====

Weighted-average fair value of options
     granted during the year                                       $0.68                       $0.45
                                                                   =====                       =====

Weighted-average remaining contractual
     life of options outstanding at end of year                     2.8 years                  2.7 years
                                                                   ==========                  =========
</TABLE>

     Not included in the above schedule of outstanding options are approximately
     3,000,000  options  potentially  issuable to employees and directors  which
     have not been authorized or for which  agreements have not been issued (see
     Note 6).

     The  following  table  summarizes   information  about  the  stock  options
     outstanding as of December 31, 2004:

<TABLE>
<CAPTION>
                                             Weighted-            Weighted-average                              Weighted-
     Range of            Number of            average          remaining contractual                             average
     exercise             options           exercisable            life of shares             Number of        exercisable
       price            outstanding            price            outstanding (years)          exercisable          price
--------------------  -----------------   ----------------  -----------------------------  ----------------  ----------------
<S>                          <C>                   <C>                  <C>                      <C>                  <C>
        $ 0.11-0.25          4,488,600             $ 0.24               1.9                      4,488,600            $ 0.24
          0.32-0.75          3,130,000               0.64               3.6                      2,430,000              0.64
--------------------  -----------------   ----------------  -----------------------------  ----------------  ----------------
        $ 0.11-1.00          7,618,600             $ 0.35               2.8                      6,918,600            $ 0.38
====================  =================   ================  =============================  ================  ================
</TABLE>

                                      F-17

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 7 - SHAREHOLDERS' EQUITY (Continued)

     Warrants

     The  following  table  summarizes  information  about  the  stock  purchase
     warrants outstanding as of December 31, 2004:

<TABLE>
<CAPTION>
                                             Weighted-            Weighted-average
     Range of            Number of            average          remaining contractual
     exercise             warrants          exercisable            life of shares
       price            outstanding            price            outstanding (years)
--------------------  -----------------   ----------------  -----------------------------
<S>     <C>                 <C>                    <C>                  <C>
        $ 0.22-0.38          7,284,878             $ 0.36               3.1
          0.40-0.75          2,802,499               0.59               3.9
--------------------  -----------------   ----------------  -----------------------------
        $ 0.22-5.00         10,087,377             $ 0.42               3.3
====================  =================   ================  =============================
</TABLE>

Restricted Stock

    The Company  periodically  issues shares of restricted stock for services or
    as compensation for services received.  As of December 31, 2004, the Company
    has issued  7,788,637  shares of  restricted  stock which is included in the
    number of shares outstanding.

NOTE 8 - INCOME TAXES

     Deferred  income  taxes  reflect  the  net  tax  effects  of the  temporary
     differences  between the  carrying  amounts of assets and  liabilities  for
     financial  reporting and the amounts used for income tax purposes.  The tax
     effect of temporary  differences  consisted of the following as of December
     31:

                                              2004           2003
                                           -----------    -----------

Deferred tax assets:
        Net operating loss carryforwards   $ 7,283,000    $ 6,394,000
        Compensation items                     931,000        909,000
        Other                                   44,000             --
                                           -----------    -----------
              Gross deferred tax assets      8,258,000      7,303,000
Deferred tax liabilities:
        Depreciation                       $  (130,000)      (206,000)
                                           -----------    -----------
                                             8,128,000      7,097,000
              Less valuation allowance      (8,128,000)    (7,097,000)
                                           -----------    -----------
Net deferred tax assets                    $        --    $        --
                                           ===========    ===========

     Realization  of deferred tax assets is  dependant  upon  sufficient  future
     taxable income during the period that deductible temporary  differences and
     carryforwards are expected to be available to reduce taxable income. As the
     achievement of required  future  taxable  income is uncertain,  the Company
     recorded a  valuation  allowance.  The  valuation  allowance  increased  by
     $1,031,000 and $492,000 from 2003 and 2002, respectively.

                                      F-18

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 8 - INCOME TAXES (Continued)

     As of December 31, 2004, the Company has net operating  loss  carryforwards
     for both federal and state income tax purposes.  Federal net operating loss
     carryforwards totaling approximately $17,898,000 expire through 2024. State
     net operating loss carryforwards totaling approximately  $17,866,000 expire
     through 2014.

     A reconciliation of the effective tax rates with the federal statutory rate
     is as follows as of December 31:

                                           2004           2003
                                       -----------    -----------

Income tax benefit at statutory rate   $   909,700    $   435,000
Change in valuation allowance           (1,031,000)      (492,000)
Non-deductible expenses                    (21,000)       (10,000)
State income taxes, net                    148,100         72,000
Other                                      (14,872)        (8,343)
                                       -----------    -----------
                                       $    (9,072)   $    (3,343)
                                       ===========    ===========

     Pursuant to Internal Revenue Code Section 382, the Company's use of its net
     operating  loss  carryforwards  may be  limited  as a result of  cumulative
     changes in ownership of more than 50% over a three year period.

     The  Company  has unused  California  state tax  credits  of  approximately
     $37,000 that begin to expire 2013.

NOTE 9 - MANAGEMENT'S PLANS FOR FUTURE OPERATIONS AND FINANCING

     The  accompanying  consolidated  financial  statements  have been  prepared
     assuming that the Company will continue as a going  concern.  However,  the
     Company  has   experienced   cumulative   losses  since  its  inception  of
     approximately $26,017,000,  inclusive of noncash charges for capital stock,
     dividends,  options and warrants  issuance-related activity at December 31,
     2004. At present,  the Company's  working  capital may not be sufficient to
     meet the Company's  objectives as  structured.  Although  these  conditions
     indicate  that the Company  may be unable to  continue as a going  concern,
     management did anticipate that considerable losses would be incurred before
     the Company became  self-sustaining.  The consolidated financial statements
     do not include any  adjustments  that might result from the outcome of this
     uncertainty.

     Based on  current  contract  negotiations  as noted in Note 10,  management
     believes the Company will generate  sufficient revenues and cash flows from
     software  licensing  agreements and the available  funding under its credit
     facility with PGIC, to meet its current  obligations during the year ending
     December 31, 2005. To the extent such revenues are not realized, management
     believes  it has the  ability  to raise  additional  capital  to cover  its
     current  obligations until sufficient  software licensing revenues and cash
     flows can be achieved by the Company.

     The Company  believes  that the PGIC credit  facility  (see Note 5) will be
     sufficient  to  fund  its  operations  through  the  close  of  the  merger
     acquisition (see Note 10). However,  in the event that the merger with PGIC
     does not  occur,  the  Company  will need  significant  additional  working
     capital in order to fund the continued  gaming software  development in the
     future.

                                      F-19

<PAGE>

                          VIRTGAME CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2004 and 2003

NOTE 10 - SUBSEQUENT EVENTS

     On February 19,  2005,  the Company  entered into an Agreement  and Plan of
     Merger and Reorganization  ("Agreement") with Mikohn Gaming Corporation,  a
     Nevada  corporation  d/b/a  Progressive  Gaming  International  Corporation
     ("PGIC"). Pursuant to the Agreement, PGIC will issue up to 2,000,000 shares
     of its common stock in exchange for all of the Company's outstanding shares
     of common stock and preferred stock and all of the outstanding  options and
     warrants,  subject to a downward  adjustment to the 2,000,000  share figure
     for  amounts  owed  by  the  Company  to  PGIC  as of  the  closing  of the
     transaction  and the amount by which our adjusted  working  capital is less
     than $100,000.

     Concurrent with the execution of the Agreement,  the Company entered into a
     credit  facility  agreement  with PGIC pursuant to which PGIC has agreed to
     lend the Company up to $2,500,000,  subject to certain  restrictions on the
     use of funds provided.  This amount  incorporates the borrowings made under
     the Company's development agreement.

     As part of its  development  agreement  with PGIC (as noted in Note 5), the
     Company  borrowed  an  additional  $250,000  in January  2005,  to fund its
     operations.

                                      F-20

<PAGE>

ITEM 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

      None.

ITEM 8A.  Controls and Procedures

      Our disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission and that such information is accumulated and communicated to
our management, as appropriate, to allow timely decisions regarding required
disclosure. Our chief executive officer and chief financial officer have
reviewed the effectiveness of our disclosure controls and procedures and have
concluded that the disclosure controls and procedures are effective as of the
end of the period covered by this report. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the last day they were evaluated.

      It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. As a small organization with 12 full time
employees, the effectiveness of our controls heavily depends on the direct
involvement of our chief executive officer and chief financial officer.

ITEM 8B.  Other Information

      Not applicable.

                                    PART III

ITEM 9.  Directors and Executive Officers of the Registrant; Compliance with
Section 16(a) of the Exchange Act.

Set forth below are our directors and officers:

Name                      Age                       Position
-----------------------   ---   ------------------------------------------------
General Paul A. Harvey    67    Chairman of the Board
Mark R. Newburg           50    President, Chief Executive Officer, and Director
Arnaldo F. Galassi        47    Chief Financial Officer
Glenn E. Wichinsky        52    General Counsel and Director
Vincent Divito            45    Director

      Mr. Newburg has served as our president and chief executive officer and as
a member of our board of directors since August 2004. From March 2003 to
November 2004, Mr. Newburg served as chief operating officer to Left Right
Marketing Technologies, an internet retailing start-up in Las Vegas. From April
2002 to March 2003, Mr. Newburg was president and chief executive officer of
C2Consulting Inc., a firm specializing in areas such as strategic planning,
change management, organizational integration, international, and organizational
alignment. From July 2001 to March 2002, Mr. Newburg served as president of
Aristocrat Technologies Inc, an Australia based designer, builder and marketer
of proprietary software and hardware to the gaming industries in 55 countries.
Previously, Mr. Newburg had a 20 year career at NCR, a $5.9 billion provider of
store automation, self-service, payment, and data-warehousing solution. In his
last assignment from June 1999 to June 2001, as vice president, Asia Pacific
sales.

                                       19

<PAGE>

      Mr. Galassi was appointed as our chief financial officer in November 2004,
replacing Bruce Merati, who had also served in that capacity. Previously, from
March 2004 to November 2004, Mr. Galassi served as chief financial officer to
Left Right Marketing Technologies, an internet retailing start-up in Las Vegas.
Prior to that, Mr. Galassi was a finance consultant with C2Consulting from
November 2003 to March 2004. Mr. Galassi was NCR's director of corporate finance
from July 2002 to December 2003 after spending the previous five years as
treasury director, Asia Pacific for NCR.

      Mr. Wichinsky has served as our general counsel since September 1, 2003.
He has served on our board of directors since July 2003. Mr. Wichinsky has been
actively engaged in the Nevada gaming industry. Since June, 1979, he has been
director, secretary and co-owner of Westronics, Inc., a licensed manufacturer,
distributor and operator of gaming equipment in the State of Nevada. In
December, 2002, Mr. Wichinsky was licensed as a co-owner and operator of the
Regency Casino located in Laughlin, Nevada. From September 1985 to June 2003, he
was a general partner/nonrestricted gaming licensee of the Mardi Gras Casino in
Las Vegas

      General Harvey was appointed as a director of VirtGame in November 2003.
Since April 2000 General Harvey has been president and owner of PDH Associates,
Inc.,a consulting company that concentrates in the Resort, Hotel and Casino
industry and specializes in assisting individuals in obtaining findings of
suitability and licensing in the gaming industry. Since 2002 he has also been
president of Karhouse, Inc, an automobile storage company specializing in
providing storage for Department of Defense personnel while they are on
temporary duty or permanent assignment status at state side and overseas
locations. He is currently on the board of directors of the National Center for
Responsible Gaming and serves as an outside director on the board of directors
of Riviera Hotel and Casino. General Harvey was Executive Director of the
Mississippi Gaming Commission from 1993 through 1998. He spent 32 years on
active duty in the United States Air Force where he held numerous command
positions throughout the United States, Europe, Africa and the Middle East.

      Mr. Divito was appointed as a director of VirtGame in August 2004. Mr.
Divito has served as vice president, chief financial officer and treasurer of
Lonza, Inc, a global specialties chemical business headquartered in Allendale,
New Jersey, since September 2000. Mr. DiVito has served as a member of the board
of directors of the Riviera Holdings Corp., since 2002. Previously, Mr. DiVito
was the vice president and chief financial officer of Algroup Wheaton, a global
pharmaceutical and cosmetics packaging company, from January 1999 to September
2000. Mr. DiVito holds an MBA in Finance from Adelphi University. He is a
Certified Public Accountant, a Certified Management Accountant and a member of
the National Association of Corporate Directors.

      As a condition of our manufacturers and distributors license from the
Nevada Gaming Commission, each of our directors, executive officers and
controlling stockholders must be licensed by the Nevada Gaming Commission. The
individual licensing process is lengthy and expensive. Mr. Wichinsky has
received individual licenses from the Nevada Gaming Commission and Messrs
Newburg, Harvey, Divito and Galassi, have an application on file with the
Commission. The Nevada Gaming Commission will allow us to appoint executive
officers and directors in advance of their approval provided that such person
immediately commences the licensing approval process.

Audit Committee Financial Expert

      We do not have an audit committee. The Board has determined, however, that
Mr. Divito meets the criteria of an "audit committee financial expert" as that
term is defined in the SEC rules. The SEC rules provide that audit committee
financial experts do not have any additional duties, obligations or liabilities
and are not considered experts for purposes of the Securities Act of 1933.

Code of Ethics

      We have adopted a code of ethics that applies to the principal executive
officer and principal financial and accounting officer. We will provide to any

                                       20

<PAGE>

person without charge, upon request, a copy of our code of ethics. Requests may
be directed to our principal executive offices at 5900 Pasteur Ct., Suite 110,
Carlsbad, CA 92008.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors and those persons who beneficially own more than 10%
of our outstanding shares of common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% beneficial owners are also
required by rules promulgated by the SEC to furnish us with copies of all
Section 16(a) forms they file.

      Based solely upon a review of the copies of such forms furnished to us, we
believe that during 2004 all Section 16(a) filing requirements applicable to our
officers, directors and greater than 10% beneficial owners were complied with.

ITEM 10.   Executive Compensation.

      The following table sets forth the compensation paid by us to our chief
executive officer and to all other executive officers for services rendered
during the fiscal years ended December 31, 2004, 2003 and 2002. In reviewing the
table, please note that:

      o     Bruce Merati served as our chief executive officer and chief
            financial officer throughout 2002 and 2003 and resigned from those
            positions in the fourth quarter of 2004. However under his severance
            agreement he continued to receive salary throughout 2004.

      o     Mark Newburg has served as our president and chief executive officer
            since August 2004.

      o     Arnaldo Galassi has served as chief financial officer since November
            2004

<TABLE>
<CAPTION>

                                           Annual Compensation             Long Term Compensation
                       ---------------------------------------------------------------------------------
                                                                    Restricted  Common Shares  All Other
                                                                       Stock     Underlying     Compen
Name and Position      Year       Salary       Bonus        Other    Awards ($)   Options      -sation
--------------------------------------------------------------------------------------------------------
<S>                    <C>      <C>          <C>          <C>            <C>     <C>              <C>
Bruce Merati,          2004     $134,134     $ 30,000     $ 6,000        --                       --
CEO and CFO            2003      156,644                   35,728        --        700,000        --
                       2002      108,333      14,2501      34,471                  600,000        --

Mark Newburg,          2004     $ 59,212           --     $ 2,500        --      1,750,000        --
CEO and President      2003           --           --          --        --                       --
                       2002           --           --          --        --             --        --

Arnaldo Galassi,       2004     $ 32,731           --     $ 1,250        --        350,000        --
CFO                    2003           --           --          --        --             --        --
                       2002                        --          --        --             --        --
                                                                                                  --
Glenn Wichinsky        2004     $130,972           --     $ 6,000        --        250,000        --
General Counsel        2003       32,769           --         500        --        150,000        --
                       2002           --           --                    --             --        --
</TABLE>

Employment Agreements

      Bruce Merati. In October 2003, we entered into a two-year employment
agreement Mr. Merati to serve as our chief executive officer and chief financial
officer. The agreement provided for a base annual salary of $200,000, of which
$35,000 was deferred until we had two consecutive cash flow positive quarters.
The agreement also provided for bonuses of five percent of net profit generated
by new products for which we receive regulatory approval, up to a maximum of

                                       21

<PAGE>

$250,000 per year, plus a car allowance of $500 per month. The employment
agreement also provided for our grant of an option to purchase 700,000 common
shares, at an exercise price of $0.62 per share, exercisable for 5 years,
becoming fully exercisable on July 1, 2005. The agreement was to expire on July
1, 2005, but in December 2004 we entered into a Confidential Severance and
Release Agreement with Mr. Merati pursuant to which Mr. Merati resigned from all
positions with our company. In return, we agreed to continue to pay his salary
through July 1, 2005 and pay his 2004 bonus in the amount of $30,000 in six
equal payments commencing January 15, 2005. We also agreed to amend Mr. Merati's
option agreement to allow him to exercise his options on a net issuance basis,
otherwise his option agreements remained unchanged. On February 23, 2005, Mr.
Merati elected to exercise options to purchase 2,215,000 shares of common stock
at $0.25 per share on a net issuance basis and received a net amount of 600,569
shares of common stock. Mr. Merati also held options to purchase 700,000 shares
of common stock at $0.70 per share. Those options expired unexercised.

      Mark R. Newburg. In August 2004, we entered into a two-year employment
agreement with Mark Newburg to serve as our chief executive officer and
president. The agreement provides for annual salary of $175,000, plus a bonus of
75% if certain performance milestones are achieved. Pursuant to the agreement,
we granted Mr. Newburg options to purchase 1,750,000 shares of our common stock
at an exercise price of $0.38 per share over a five year period, of which
1,000,000 options are exercisable only upon the sale of the company. The options
to purchase 750,000 common shares vest and first become exercisable in August
2005, however the vesting condition will accelerate upon a sale of the company.
All options held by Mr. Newburg terminate on the 90th day following the
termination of his employment by the company. We also pay Mr. Newburg a car
allowance of $500 per month. In the event that Mr. Newburg's employment is
terminated without cause following a change in control of the company, we are
obligated to pay Mr. Newburg a lump sum payment equal to one year's annual
salary.

      Arnaldo F. Galassi. In August 2004, we entered into a two-year employment
agreement with Arnaldo Galassi to serve as our vice president and chief
financial officer. The agreement provides for annual salary of $100,000, plus a
bonus of 40% if certain performance milestones are achieved. Pursuant to the
agreement, we granted Mr. Galassi options to purchase 350,000 shares of our
common stock at an exercise price of $0.38 per share over a five year period, of
which 100,000 options are exercisable only upon the sale of the company. The
options to purchase 150,000 common shares vest and first become exercisable in
August 2005, however the vesting condition will accelerate upon a sale of the
company. All options held by Mr. Galassi terminate on the 90th day following the
termination of his employment by the company. We also pay Mr. Galassi a car
allowance of $250 per month. In the event that Mr. Galassi's employment is
terminated without cause, we are obligated to pay Mr. Galassi a lump sum payment
equal to Mr. Galassi's annual salary for the remainder of the two year term,
plus a proportionate amount of any unpaid bonus deemed earned in the year of
termination and a reasonable amount of outplacement assistance not to exceed 15%
of Mr. Galassi's annual salary.

      Glenn E. Wichinsky. In September 2004, we entered into a two-year
employment agreement with Glenn Wichinsky to serve as our general counsel. The
agreement provides for annual salary of $138,000, plus a bonus of $20,000 if
certain milestones are achieved. Pursuant to the agreement, we granted Mr.
Wichinsky an option to purchase 250,000 shares of our common stock annually at
an exercise price of $0.41 per share. The option becomes fully vested in
September 2005 and has a term of five years however the vesting condition will
accelerate upon a sale of the company. All options held by Mr. Wichinsky
terminate on the 90th day following the termination of his employment by the
company. We also pay Mr. Wichinsky a car allowance of $500 per month. In the
event that Mr. Wichinsky's employment is terminated without cause, we are
obligated to continue to pay Mr. Wichinsky his annual salary for a period of one
year from the date of termination or the expiration of the agreement, which
occurs first.

                                       22

<PAGE>

Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                                                        Individual Grants
                            ----------------------------------------------------------------------
                              Number of Securities       % of Total Options        Exercise or
                               Underlying Options     Granted to Employees in       Base Price        Expiration
          Name                    Granted (#)               Fiscal Year               ($/Sh)             Date
--------------------------  ------------------------- -------------------------  -----------------  ---------------
<S>                                <C>                          <C>                   <C>              <C>
Mark R. Newburg                    1,750,000                    58%                   $0.38            08/11/10
Arnaldo F. Galassi                  350,000                     12%                   $0.38            08/15/10
Glenn E. Wichinsky                  250,000                      8%                   $0.41            09/01/10

</TABLE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
                                                                                                     Value of
                                                                         Number of Securities       Unexercised
                                                                              Underlying           in-the-Money
                                                                          Unexercised Options       Options at
                                                                          at Fiscal Year-End      Fiscal Year-End
                             Shares Acquired                                 Exercisable/          Exercisable/
          Name                 on Exercise          Value Received           Unexercisable       Unexercisable (1)
--------------------------  ------------------    --------------------   ----------------------  ------------------

<S>                                 <C>                    <C>             <C>                     <C>
Bruce Merati                        0                      0               2,215,000/700,000       $332,250/$0
Mark Newburg                        0                      0                  0/1,750,000          $0/$35,000
Arnaldo Galassi                     0                      0                  0/350,000            $0/$7,000
Glenn E. Wichinsky                  0                      0                  0/400,000            $0/$0

(1)......Calculated based upon a last reported sale price of $0.40 per share on December 31, 2004.
</TABLE>

Compensation of Directors.

      All of our directors receive reimbursement for out-of-pocket expenses for
attending board of directors meetings and outside directors receive an annual
director fee in the amount of $30,000. In August 2004, our outside directors,
General Paul Harvey and Vincent DiVito, were each granted options to purchase up
to 150,000 shares of our common stock at a purchase price of $0.38 per share, of
which 50,000 options are exercisable only upon a change in control of the
company. The options expire on August 6, 2010 or the 90th day following the
termination of their status as a director, whichever occurs first. In November
2003, we granted General Harvey options to purchase up to 100,000 shares of our
common stock at a purchase price of $.62 per share. Those options expire on
November 7, 2008 or the 90th day following the termination of his status as a
director, whichever occurs first.

Limitation of Liability of Directors and Indemnification of Directors and
Officers

      The Delaware General Corporation Law provides that corporations may
include a provision in their certificate of incorporation relieving directors of
monetary liability for breach of their fiduciary duty as directors, provided
that such provision shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of a dividend or unlawful stock purchase or redemption, or (iv) for any
transaction from which the director derived an improper personal benefit. Our
certificate of incorporation provides that directors are not liable to us or our
stockholders for monetary damages for breach of their fiduciary duty as
directors to the fullest extent permitted by Delaware law. In addition to the
foregoing, our bylaws provide that we may indemnify directors, officers,
employees or agents to the fullest extent permitted by law and we have agreed to
provide such indemnification to each of our directors.

      The above provisions in our certificate of incorporation and bylaws and in
the written indemnity agreements may have the effect of reducing the likelihood
of derivative litigation against directors and may discourage or deter

                                       23

<PAGE>

stockholders or management from bringing a lawsuit against directors for breach
of their fiduciary duty, even though such an action, if successful, might
otherwise have benefited us and our stockholders. However, we believe that the
foregoing provisions are necessary to attract and retain qualified persons as
directors.

      Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.

ITEM 11.   Security Ownership of Certain Beneficial Owners and Management And
Related Stockholder Matters.

      The following table sets forth certain information regarding the
beneficial ownership of our common stock as of March 24, 2005 by:

      o     each person who is known by us to be the beneficial owner of more
            than five percent (5%) of our

      o     each of our directors, executive officers and nominees to become
            directors; and

      o     all directors and executive officers as a group.

      The percentage amounts for each reported party assume total outstanding
common shares of 42,811,639. This is based on 35,132,507 common shares issued
and outstanding as of March 24, 2005, plus 5,243,421 shares of common stock
issuable upon conversion of our outstanding Series A preferred stock and
2,435,711 shares of common stock issuable upon conversion of our outstanding
Series B preferred stock. The percentage amounts also give effect to the
issuance of common shares underlying presently exercisable options and warrants
held by the reported party.
<TABLE>
<CAPTION>

       Name and Address                                         Number of Shares                Percentage Owned
------------------------------------------------------    ---------------------------    -----------------------------
<S>                                                       <C>                           <C>
Mark Newburg                                                         -0-                              --
6969 Corte Santa Fe, Suite A
San Diego, CA  92121
                                                                   150,000                            *
Glenn Wichinsky
6969 Corte Santa Fe, Suite A
San Diego, CA  92121

General Paul A. Harvey                                             100,000                            *
6969 Corte Santa Fe, Suite A
San Diego, CA  92121

Vincent Divito                                                       -0-                              --
6969 Corte Santa Fe, Suite A
San Diego, CA  92121

Arnaldo F. Galassi                                                   -0-                              --
6969 Corte Santa Fe, Suite A
San Diego, CA  92121

ICM Asset Management, Inc.                                        2,889,150                         6.75%
601 West Main Avenue, Suite 600
Spokane, WA 99201

Veritas-Scalable Investment Products Fund LLC                     5,368,598                         9.99%
500 W. Putnam Avenue
Greenwich, CT 06830

Deutsche Bank AG                                                  3,023,684                         7.06%
31 W. 52nd St., 16th Floor
New York, NY 10019

Directors and executive officers as a group                        250,000                            *%

* Represents less than 1%.
</TABLE>

                                       24

<PAGE>

In reviewing the above table, please keep in mind:

      o     The 150,000 shares beneficially owned by Mr. Wichinsky represent
            common shares underlying presently exercisable options.

      o     The 100,000 shares beneficially owned by Mr. Harvey represent common
            shares underlying presently exercisable options.

      o     The amounts shown for ICM Asset Management, Inc. include 2,156,250
            shares beneficially owned by Koyah Leverage Partners, L.P., 546,250
            shares beneficially owned by Koyah Partners, L.P. and 172,500 shares
            beneficially owned by Raven Partners, L.P. ICM Asset Management,
            Inc., Koyah Leverage Partners, L.P., Koyah Partners, L.P., Raven
            Partners, L.P. disclaim beneficial ownership in these securities
            except to the extent of the such entity's or person's pecuniary
            interest in these securities and disclaim membership in a group with
            any other entity or person within the meaning of Rule 13d-5(b)(1)
            under the Securities Exchange Act of 1934, as amended.

      o     Veritas-Scalable Investment Products Fund LLC is contractually
            restricted from beneficially owning more than 9.99% of the
            outstanding shares of our common stock. As a result,
            Veritas-Scalable Investment Products Fund LLC may not convert shares
            of our preferred stock into common stock or exercise warrants to
            purchase our common stock to the extent that, after giving effect
            such conversion or exercise, its ownership of our common stock would
            exceed this 9.99% limitation. In the absence of this contractual
            limitation, Veritas-Scalable Investment Products Fund LLC would
            beneficially own approximately 12.87% of our common stock, including
            common shares underlying preferred shares and warrants held by such
            shareholder.

Securities Authorized for Issuance Under Equity Compensation Plans

      The following provides information concerning compensation plans under
which equity securities of the Company are authorized for issuance.
<TABLE>
<CAPTION>

                                           (a)                         (b)                         (c)
                                                                                          Number of securities
                                  Number of securities           Weighed-average       remaining available for future
                                to be issued upon exercise     excercise price of         issuances under equity
                                     exercise of                   outstanding             compensation plans
                                   outstanding options,        options, warrants      (excluding securities reflected
          Plan Category            warrants and rights             and rights                  in column (a))
<S>                                     <C>                           <C>                        <C>

Equity compensation plans
approved by security holders               --                           --                           --

Equity compensation plans not
approved by security holders            9,418,600                     $0.37                      1,081,400

</TABLE>

Item 12.  Certain Relationships and Related Transactions.

      In October 2003, we entered into a two-year employment agreement Mr.
Merati to serve as our chief executive officer and chief financial officer,
Bruce Merati. The agreement provided for a base annual salary of $200,000, of
which $35,000 was deferred until we had two consecutive cash flow positive
quarters. The agreement also provided for bonuses of five percent of net profit
generated by new products for which we receive regulatory approval, up to a

                                       25

<PAGE>

maximum of $250,000 per year, plus a car allowance of $500 per month. The
employment agreement also provided for our grant of an option to purchase
700,000 common shares, at an exercise price of $0.62 per share, exercisable for
5 years, becoming fully exercisable on July 1, 2005 he agreement was to expire
on July 1, 2005, but in December 2004 we entered into a Confidential Severance
and Release Agreement with Mr. Merati pursuant to which Mr. Merati resigned from
all positions with our company. In return, we agreed to continue to pay his
salary through July 1, 2005 and pay his 2004 bonus in the amount of $30,000 in
six equal payments commencing January 15, 2005. We also agreed to amend Mr.
Merati's option agreement to allow him to exercise his options on a net issuance
basis, otherwise his option agreements remained unchanged. On February 23, 2005,
Mr. Merati elected to exercise options to purchase 2,215,000 shares of common
stock at $0.25 per share on a net issuance basis and received a net amount of
600,569 shares of common stock. Mr. Merati also held options to purchase 700,000
shares of common stock a $0.70 per shares expired unexercised.

                                       26

<PAGE>

Item 13.  Exhibits

Index To Exhibits
<TABLE>
<CAPTION>

<S>        <C>                                               <C>
Item No.   Description                                       Method of Filing
---------  ------------------------------------------------  -----------------------------------

3.1         Certificate of Incorporation, as amended on      Incorporated by reference to Exhibit 3.1 to the
            June 20, 1996 and January 21, 1997.              Registrant's Registration Statement on 10-SB dated
                                                             August 3, 1998.

3.2         Amended and Restated Bylaws.                     Incorporated by reference to Exhibit 3.2 to the
                                                             Registrant's Registration Statement on 10-SB dated
                                                             August 3, 1998.

3.3         Certificate of Amendment dated October 26,       Incorporated by reference to Exhibit 3.3 to the
            1998 to Certificate of Incorporation.            Registrant's Registration Statement on 10-SB/A dated
                                                             December 21, 1998.

3.4         Certificate of Amendment dated August 25, 1999   Incorporated by reference to Exhibit 3.6 to
            to Certificate of Incorporation.                 Registration Statement on Form SB-2 filed on September
                                                             26, 2003.

3.5         Certificate of Amendment dated January 28,       Incorporated by reference to an exhibit to the
            2002 to Certificate of Incorporation.            Registrant's Definitive Information Statement dated
                                                             January 28, 2002.

3.6         Certificate of Designations of Series A          Incorporated by reference to Exhibit 3.8 to
            Preferred Stock.                                 Registration Statement on Form SB-2 filed on September
                                                             26, 2003.

3.7         Certificate of Designations of Series B          Incorporated by reference to Exhibit 3.9 to
            Preferred Stock.                                 Pre-Effective Amendment No. 1 to Registration Statement
                                                             filed on January 12, 2004

10.1*       VirtGame Corp. 2002 Stock Option and Grant       Incorporated by reference to Exhibit 10.1 to the
            Plan.                                            Registrant's Registration Statement on Form S-8 dated
                                                             February 8, 2002.

10.2        Exclusive Distributorship Agreement dated July   Incorporated by reference to Exhibit 10.6 to
            1, 2002 between the Registrant and Las Vegas     Registration Statement on Form SB-2 filed on September
            Dissemination Company, Inc.                      26, 2003.

10.3        Business Development Agreement dated April       Filed herewith
            2003 between the Registrant and United Coin
            Machine Co.

10.4*       Employment Agreement between VirtGame Corp.      Incorporated by reference to Exhibit 10.1 to the
            and Bruce Merati dated October 6, 2003.          Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2003.

10.5*       Employment Agreement dated August 11, 2004       Incorporated by reference to Exhibit 10.1 to the
            between Registrant and Mark Newburg              Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004Filed herewith
</TABLE>

                                       27

<PAGE>

<TABLE>
<CAPTION>
<S>        <C>                                               <C>
10.6*       Employment Agreement dated August 15, 2004       Incorporated by reference to Exhibit 10.2 to the
            between Registrant and Arnaldo Galassi           Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004Filed herewith
10.7*       Employment Agreement between VirtGame Corp.      Incorporated by reference to Exhibit 10.3 to the
            and Glenn E. Wichinsky dated September 1, 2004.  Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004Filed herewith
10.11       Agreement and Plan of Merger and                 Incorporated by reference to Exhibit 99.2 to the
            Reorganization dated as of February 19, 2005     Registrant's Current Report on Form 8-K dated February
            between, among others, VirtGame Corp. and        22, 2005
            Mikohn Gaming Corporation, a Nevada
            corporation d/b/a Progressive Gaming
            International Corporation

10.12       Secured Promissory Note dated February 19,       Incorporated by reference to Exhibit 99.3 to the
            2005 made by VirtGame Corp. in favor of Mikohn   Registrant's Current Report on Form 8-K dated February
            Gaming Corporation, a Nevada corporation d/b/a   22, 2005
            Progressive Gaming International Corporation

10.13       Security Agreement between VirtGame Corp. and    Incorporated by reference to Exhibit 99.4 to the
            Mikohn Gaming Corporation, a Nevada              Registrant's Current Report on Form 8-K dated February
            corporation d/b/a Progressive Gaming             22, 2005
            International Corporation

21          List of Subsidiaries.                            Incorporated by reference to Exhibit 21.1 to
                                                             Registration Statement on Form SB-2 filed on September
                                                             26, 2003

23          Consent of PKF.                                  Filed herewith.

31.1        Certification of Chief Executive Officer         Filed herewith.
            pursuant to Section 302 of the Sarbanes-Oxley
            Act of 2002.

31.2        Certification of Chief Financial  Officer        Filed herewith.
            pursuant to Section 302 of the Sarbanes-Oxley
            Act of 2002.

32          Certification of Chief Executive Officer and     Filed herewith.
            Chief Financial Officer pursuant to 18 U.S.C.
            ss.1350, as adopted  pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002.

----------
* Indicates a management contract or compensatory plan or arrangement.
</TABLE>

                                       28

<PAGE>

Item 14.  Principal Accountant Fees and Services

      Our board of directors has selected PKF as independent accountants to
audit our books, records and accounts for the fiscal year 2005. PKF previously
audited our financial statements and during the two fiscal years ended December
31, 2004 and 2003.

Audit and Non-Audit Fees

      Aggregate fees for professional services rendered to the VirtGame by PKF
for the years ended December 31, 2004 and 2003 were as follows:

Services Provided                                       2004               2003
------------------------------------------            -------            -------
Audit Fees ...............................            $30,000            $27,430
Audit Related Fees .......................            $    --            $ 5,331
Tax Fees .................................            $    --            $ 4,000
All Other Fees ...........................            $ 2,354            $ 7,963
        Total ............................            $32,354            $44,724

      Audit Fees. The aggregate fees billed for the years ended December 31,
2004 and 2003 were for the audits of our financial statements and reviews of our
interim financial statements included in our annual and quarterly reports.

      Audit Related Fees. There were no fees billed for the years ended December
31, 2004 and 2003 for the audit or review of our financial statement that are
not reported under Audit Fees.

      Tax Fees. The aggregate fees billed for the years ended December 31, 2004
and 2003 were for professional services for tax compliance, tax advice and tax
planning.

      All Other Fees. The aggregate fees billed for the years ended December 31,
2004 and 2003 were for services other than the services described above. These
services include review of SEC filings.

Pre-Approval Policies and Procedures

      We have implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, our board of
directors pre-approves both the type of services to be provided by PKF and the
estimated fees related to these services.

                                       29

<PAGE>

                                   SIGNATURES

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

                                         VIRTGAME CORP.

Dated:  March 31, 2005                  By       /s/  Mark R. Newburg
                                                 -------------------------------
                                                  Mark R. Newburg,
                                                  Chief Executive Officer

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

         Signatures             Title                             Date
------------------------------- --------------------------------- --------------
     /s/  Mark R. Newburg       Chief Executive Officer,          March 31, 2005
------------------------------- President, and Director
Mark R. Newburgi                (principal executive officer)

     /s/ Arnaldo F. Galassi     Chief Financial Officer           March 31, 2005
------------------------------- (principal financial and
Arnaldo F. Galassi              accounting officer)

    /s/  Glenn E. Wichinsky     General Counsel, Secretary,       March 31, 2005
------------------------------- and Director
Glenn E. Wichinsky

    /s/  Paul A. Harvey         Director                          March 31, 2005
-------------------------------
Paul A. Harvey

    /s/  Vincent Divito         Director                          March 31, 2005
-------------------------------
Vincent Divito

                                       30

<PAGE>

                                 VIRTGAME CORP.
                         Exhibit Index to Annual Report
                                 on Form 10-KSB
                      For the Year Ended December 31, 2004

<TABLE>
<CAPTION>

Item No.    Description                                                          Method of Filing
--------    -----------                                                          ----------------
<C>         <C>                                              <C>

3.1         Certificate of Incorporation, as amended on      Incorporated by reference to Exhibit 3.1 to the
            June 20, 1996 and January 21, 1997.              Registrant's Registration Statement on 10-SB dated
                                                             August 3, 1998.

3.2         Amended and Restated Bylaws.                     Incorporated by reference to Exhibit 3.2 to the
                                                             Registrant's Registration Statement on 10-SB dated
                                                             August 3, 1998.

3.3         Certificate of Amendment dated October 26,        Incorporated by reference to Exhibit 3.3 to the
            1998 to Certificate of Incorporation.            Registrant's Registration Statement on 10-SB/A dated
                                                             December 21, 1998.

3.4         Certificate of Amendment dated August 25, 1999   Incorporated by reference to Exhibit 3.6 to
            to Certificate of Incorporation.                 Registration Statement on Form SB-2 filed on September
                                                             26, 2003.

3.5         Certificate of Amendment dated January 28,       Incorporated by reference to an exhibit to the
            2002 to Certificate of Incorporation.            Registrant's Definitive Information Statement dated
                                                             January 28, 2002.

3.6         Certificate of Designations of Series A          Incorporated by reference to Exhibit 3.8 to
            Preferred Stock.                                 Registration Statement on Form SB-2 filed on September
                                                             26, 2003.

3.7         Certificate of Designations of Series B          Incorporated by reference to Exhibit 3.9 to
            Preferred Stock.                                 Pre-Effective Amendment No. 1 to Registration Statement
                                                             filed on January 12, 2004

10.1*       VirtGame Corp. 2002 Stock Option and Grant       Incorporated by reference to Exhibit 10.1 to the
            Plan.                                            Registrant's Registration Statement on Form S-8 dated
                                                             February 8, 2002.

10.2        Exclusive Distributorship Agreement dated July   Incorporated by reference to Exhibit 10.6 to
            1, 2002 between the Registrant and Las Vegas     Registration Statement on Form SB-2 filed on September
            Dissemination Company, Inc.                      26, 2003.

10.3        Business Development Agreement dated April       Filed herewith
            2003 between the Registrant and United Coin
            Machine Co.

10.4*       Employment Agreement between VirtGame Corp.      Incorporated by reference to Exhibit 10.1 to the
            and Bruce Merati dated October 6, 2003.          Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2003.

10.5*       Employment Agreement dated August 11, 2004       Incorporated by reference to Exhibit 10.1 to the
            between Registrant and Mark Newburg              Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004
</TABLE>

                                      E-1

<PAGE>

<TABLE>
<CAPTION>
<C>         <C>                                              <C>
10.6*       Employment Agreement dated August 15, 2004       Incorporated by reference to Exhibit 10.2 to the
            between Registrant and Arnaldo Galassi           Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004

10.7*       Employment Agreement between VirtGame Corp.      Incorporated by reference to Exhibit 10.3 to the
            and Glenn E. Wichinsky dated September 1, 2004.  Registrant's Quarterly Report on Form 10-Q for the
                                                             quarter ended September 30, 2004

10.11       Agreement and Plan of Merger and                 Incorporated by reference to Exhibit 99.2 to the
            Reorganization dated as of February 19, 2005     Registrant's Current Report on Form 8-K dated February
            between, among others, VirtGame Corp. and        22, 2005
            Mikohn Gaming Corporation, a Nevada
            corporation d/b/a Progressive Gaming
            International Corporation

10.12       Secured Promissory Note dated February 19,       Incorporated by reference to Exhibit 99.3 to the
            2005 made by VirtGame Corp. in favor of Mikohn   Registrant's Current Report on Form 8-K dated February
            Gaming Corporation, a Nevada corporation d/b/a   22, 2005
            Progressive Gaming International Corporation

10.13       Security Agreement between VirtGame Corp. and    Incorporated by reference to Exhibit 99.4 to the
            Mikohn Gaming Corporation, a Nevada              Registrant's Current Report on Form 8-K dated February
            corporation d/b/a Progressive Gaming             22, 2005
            International Corporation

21          List of Subsidiaries.                            Incorporated by reference to Exhibit 21.1 to
                                                             Registration Statement on Form SB-2 filed on September
                                                             26, 2003

23          Consent of PKF.                                  Filed herewith.

31.1        Certification of Chief Executive Officer         Filed herewith.
            pursuant to Section 302 of the Sarbanes-Oxley
            Act of 2002.

31.2        Certification of Chief Financial Officer         Filed herewith.
            pursuant to Section 302 of the Sarbanes-Oxley
            Act of 2002.

32          Certification of Chief Executive Officer and     Filed herewith.
            Chief Financial Officer pursuant to 18 U.S.C.
            ss.1350, as adopted pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002.
</TABLE>

-------------------------
* Indicates a management contract or compensatory plan or arrangement.

                           E-3