**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-KSB**




**x** **Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934.**




**For
      the Fiscal Year Ended October 28, 2007**





**o** **Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934**




**for
      The Transition Period From __________To __________**




Commission
      file number: 333-96589





**ACES
      WIRED, INC.**




(Name
      of
      Small Business Issuer in Its Charter)




**Nevada**
            **88-0514502**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)




**12225
                Greenville Avenue, Suite 861**
              **Dallas,
                Texas 75243**
              (Address
                of principal executive offices including zip code)**(214)
                261-1963**
              (Registrant’s
                telephone number)




Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: None





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  o





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirement for the past 90 days. x Yes 
      o No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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. x




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


o Yes No  x




The
      issuer's revenue, net for its most recent fiscal year were:
      $20,936,744





There
      is
      currently no public market for the registrant's common stock, and there have
      been no sales of the registrant’s common stock during the preceding 60
      days.




The
      number of our common stock shares outstanding on January 15, 2008 was 7,921,077
      shares.




Transitional
      Small Business Disclosure Format (check one): Yes  o No x












**TABLE
      OF CONTENTS**





**Page****Part
                I**.Item
                1. Description of Business
            
            3Item
                1A. Risk Factors
            
            7Item
                2. Description of Property
            
            11Item
                3. Legal Proceedings
            
            12**Part
                II**.Item
                5. Market for Common Equity and Related Stockholder
                Matters
            
            13Item
                6. Management's Discussion and Analysis or Plan of
                Operation
            
            14Item
                7. Financial Statements
            
            35Item
                8. Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            35Item
                8A. Controls and Procedures
            
            35**Part
                III.**Item
                9. Directors and Executive Officers of the Registrant
            
            36Item
                10. Executive Compensation
            
            37Item
                11. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            41Item
                12 Certain Relationships and Related Transactions, and Director
                Independence
            
            42Item
                13 Exhibit List and Reports on Form 8-K
            
            43Item
                14 Principal Accountants Fees and Services
            
            44Signatures
            
            45Financial
                Statements
            
            F-1Exhibit
                Index




1




This
      Annual Report on Form 10-KSB is filed by Aces Wired, Inc. (Aces Wired).
      References in this Form 10-KSB to we, us, our and the Company refer to Aces
      Wired and its principal wholly-owned subsidiaries K&B Sales, Inc.
      (K&B) and Aces Wired, LLC (AWLLC).





**Note
      Concerning Forward-Looking Statements**





Certain
      of the statements contained in this annual report on Form 10-KSB should be
      considered “forward-looking statements” within the meaning of the Private
      Securities Litigation Reform Act of 1995. These forward-looking statements
      may
      be identified by words such as “may,” “might,” “will,” “expect,” “intend,”
“anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” and
“continue” and similar terms used in connection with statements regarding the
      Company’s outlook regarding its business model and prospects, business
      environment and competition, and the Company’s expected financial performance.
      These statements also include, but are not limited to, statements about the
      Company’s plans, objectives, expectations and intentions and other statements
      that are not historical facts, but are based upon management’s current beliefs
      and expectations and are subject to significant risks and uncertainties that
      could cause the Company’s actual results of operations and financial position to
      differ materially from these statements. These risks and uncertainties include,
      but are not limited to, those described under Item 1A, “Risk Factors”, in
      this annual report and the following:





·
            uncertainty
                raised by the adverse opinion issued by the Attorney General of Texas
                on
                March 6, 2007 and/or changes in laws or regulations affecting the
                Amusement-With-Prize (AWP) and bingo industries in Texas, which currently
                is the only geographic area in which we conduct business
                operations;





·
            competition
                within and outside of the AWP and bingo supply industries, such as
                pari-mutuel betting on horse and dog racing and state-sponsored lottery
                games;





·
            competition
                from casinos and similar class III establishments in nearby states
                such as
                Oklahoma and Louisiana;





·
            the
                entry into the Texas AWP market by competitors with significantly
                greater
                operational and/or financial resources than
                ours;





·
            our
                ability to respond to new competitive developments in AWP and bingo
                games
                and gaming technology, such as the introduction of class III and/or
                other
                forms of class II gaming in Texas;





·
            our
                dependence on a limited number of suppliers for AWP games and support
                services and certain bingo
                products;





·
            our
                ability to effectively finance and execute a successful business
                strategy;





·
            our
                ability to protect our intellectual property through patents, trademarks,
                copyrights and confidentiality
                agreements;





·
            our
                reliance on automated systems and the adverse impact due to any failure
                of
                these systems;




·
            our
                ability to attract and retain qualified
                employees;




·
            possible
                business combinations and other strategic partnerships, divestures,
                and
                other significant transactions that might involve additional uncertainties
                and financial risks; and





·
            other
                risks described from time to time in this and other periodic and
                current
                reports we file with the SEC.





All
      of
      the forward-looking statements in this annual report are qualified in their
      entirety by reference to the factors discussed below under Item 1A., “Risk
      Factors.” There may be other factors not identified above or in Item 1A. below
      of which we are not currently aware that may affect matters discussed in the
      forward-looking statements and may also cause actual results to differ
      materially from those discussed. We assume no obligation to publicly update
      any
      forward-looking statement to reflect actual results, changes in assumptions
      or
      changes in other factors affecting these estimates other than as required by
      law. Any forward-looking statements speak only as of the date of this
      Form 10-KSB.


2





**PART
      I**




**Item
      1. Description of Business.**





***Company
      Overview***





Aces
      Wired, Inc. (formerly OEF Corporate Solutions, Inc.) was incorporated in Nevada
      in December 2001. On October 4, 2006, we acquired 100% of the ownership
      interests in Goodtime Action Amusement Partners, L.P. (Goodtime) and Amusement
      Innovation Partners, LLC (AIP), the general partner of Goodtime, in exchange
      for
      7,623,580 shares of our common stock. Concurrent with our acquisition of
      Goodtime and AIP, we amended and restated our articles of incorporation and
      bylaws, whereby we, among other things, changed our name to Aces Wired,
      Inc.





Our
      original line of business was to provide EDGAR (electronic data gathering,
      analysis and retrieval) services to companies that file reports with the U.S.
      Securities and Exchange Commission (SEC). With our acquisition of Goodtime,
      we
      became a gaming and recreation company and the parent of K&B Sales, Inc.
      (K&B) and Aces Wired, LLC (AWLLC). K&B distributes games and related
      equipment, supplies and branded pull-tabs to charity bingo licensees throughout
      Texas and has been in operation for over 29 years. AWLLC, formed on June 11,
      2004, is a company targeting the Amusement-With-Prize (AWP) market in Texas
      where it utilizes its proprietary financial redemption/player card system (the
      Ace Advantage Card system). This system allows players to store their prize
      points from playing our AWP gaming machines for future redemptions for non-cash
      merchandise prizes from participating merchants.





As
      described in more detail below under Item 3, “Legal Proceedings,” and in Part
      II, Item 6, “Management’s Discussion and Analysis or Plan of Operations,” legal
      actions resulting from an adverse opinion issued by the Attorney General of
      Texas in March 2007 regarding the legality of AWP gaming machines that record
      a
      player’s winnings on a stored-value debit card resulted in the permanent or
      temporary closure of certain of our gaming amusement centers, one of which
      was
      reopened in June 2007.





As
      of
      October 28, 2007, were operating 230 AWP machines in four gaming amusement
      centers, compared to the 193 AWP machines we were operating in six gaming
      amusement centers as of October 29, 2006. Texas is currently the only state
      in
      which we have business operations and property.





***Strategy***





Our
      current business plan focuses on growing our AWP business by leveraging our
      expertise in that industry and the competitive advantage afforded us by the
      Ace
      Advantage Card redemption system to profitably bring AWP gaming to underserved
      markets in Texas and possibly in other states that do not currently allow class
      III gaming. Class III gaming includes all games that are not statutorily defined
      as either class I or class II gaming and includes games in which players compete
      for winnings against the house or a machine, such as black jack and slot
      machines. Class II gaming includes games in which players compete against one
      another for common prizes, such as bingo and pari-mutuel wagering. Class I
      gaming includes social games played solely for recreation and/or with prizes
      of
      minimal value, and traditional forms of Indian gaming engaged in by individuals
      as part of or in connection with tribal ceremonies or celebrations.





We
      currently operate centrally linked AWP machines in licensed bingo halls and
      in
      our own stand alone centers (called Ace Gaming Amusement Centers) where our
      AWP
      players enjoy a similar gaming experience and atmosphere that the class III
      player enjoys. We believe our AWP operations comply with local and state laws
      and regulations due to the minimal value and non-money character of the prize
      points awarded from successfully playing our AWP games. Our Ace Gaming Amusement
      Centers are generally located in areas in which there is little if any direct
      competition from other legitimate AWP operators and/or illegal “eight-liner”
establishments and that are conveniently accessible by our gaming patrons.
      We
      also focus on attracting and fostering repeat business by having high payout
      ratios and providing a pleasant atmosphere. More importantly, we believe we
      have
      a distinct competitive advantage in the existing AWP market in Texas with our
      Ace Advantage Card redemption system, which allows our gaming patrons to redeem
      the prize points they win for non-cash merchandise prizes at participating
      merchants.





Due
      in
      part to the to the legal uncertainties relating to AWP gaming in Texas, major
      Class II and Class III game developers are currently unwilling to develop game
      content for our AWP machines. We have noticed a decline in repeat business
      at
      certain of our gaming amusement centers, which we believe is due largely to
      the
      scarcity of quality games (that is, the games become stale and players lose
      interest). To address this problem, we are exploring the possibility of
      developing our own game content through the formation of a subsidiary or similar
      collaborative arrangement. If successful, we would market these games to AWP
      operators in other states as well as expand our own library of games.
      Additionally, these games could be converted into Class II and Class III games
      if such forms of electronic gaming are eventually legalized in Texas. While
      we
      have had preliminary discussions with certain parties regarding this matter,
      we
      have not made any firm commitments to date, financial or otherwise.





The
      adverse events resulting from an opinion issued by the Attorney General of
      Texas
      (the Attorney General) in March 2007, which is described in more detail below,
      caused us to suspend certain projects we initiated during fiscal year 2007
      to
      expand our AWP gaming business in Texas. However, based on a favorable federal
      court ruling in September 2007 on an arbitrator’s opinion regarding the legality
      of our AWP gaming system, we renewed the expansion of our AWP business in Texas
      beginning in the first quarter of fiscal year 2008. The court ruling,
      arbitration opinion and expansion plans are discussed in more detail below
      and
      in Part II, Item 6, “Management’s Discussion and Analysis or Plan of
      Operations.” Also, beginning in the first quarter of fiscal year 2008, we began
      a program to license our AWP gaming and Ace Advantage Card redemption systems
      to
      bingo hall operators in Texas, which we believe will serve as a complement
      to
      our own Ace Gaming Amusement Centers.




3





The
      bingo
      market in Texas is a mature market, and we do not perceive it to be one for
      significant growth opportunities in the future other than by the introduction
      of new bingo related products into the market and/or by capturing
      additional market share through business acquisitions. Additionally, due to
      increased pricing competition and the loss of certain customers during fiscal
      year 2007, we expect a significant decline in revenue and cash flow from our
      bingo operations in fiscal year 2008. We hope to recover some of this lost
      revenue with the introduction in March 2008 of a “video confirmation” style
      of pull-tab bingo, which the Texas Lottery Commission approved in June 2007.
      We
      believe that the introduction of this type of pull-tab bingo might stimulate
      demand such that the contribution from our sales of pull-tabs could increase
      by
      10% to 20% annually (or between $160,000 and $320,000 per year based on our
      current pull-tab sales and gross margins).




Due
      in
      part to the unsettled legal uncertainties regarding our AWP operations in Texas,
      we have and will continue to explore opportunities within and outside of Texas
      that are complementary to our core business plan. Such near-term opportunities
      include selling stored-value debit card and similar processing services to
      other
      entities, licensing our proprietary financial redemption/player card system
      to
      other operators and/or manufacturers of AWP and class II games in other states
      and acquiring and/or investing in other types of gaming and recreation related
      businesses.





***Markets***





The
      domestic gaming market is rapidly evolving as certain states such as
      Pennsylvania, Florida and New York are legalizing, implementing and regulating
      certain forms of class III gaming. Other states, such as Texas, Ohio and
      Alabama, have been more hesitant in adopting such advanced forms of legalized
      gaming. In these latter states, certain forms of amusement-with-prize games
      are
      permitted. In Texas, where we currently have our only AWP gaming operations,
      class III gaming is illegal. As a consequence, many Texas residents leave the
      state for gaming activities. According to the 2004 Harrah’s Survey, there are
      approximately 3.2 million gamblers in Texas who collectively make approximately
      12.5 million trips annually outside of the state for the purpose of gambling.
      We
      believe this situation creates a significant market opportunity for our AWP
      games in Texas. In a market study done for us in February 2006, Gaming Market
      Advisors, a market feasibility and assessment firm, estimates that the Texas
      market can support up to 63,000 AWP machines. We also believe that we will
      be
      well positioned if class II electronic bingo or class III games are legalized
      in
      Texas. Because our amusement games are server-based, we can easily and at
      minimal cost convert our games to electronic bingo games and/or video lottery
      terminals and other forms of machine-based class III games if either were deemed
      legal and subsequently prove profitable for us to operate. We have also
      identified other states where we believe we have opportunities to introduce
      our
      AWP gaming business such as Alabama, Ohio, Florida, California and
      Washington.




*Ace
      Gaming Amusement Centers*





To
      serve
      the market for legally compliant gaming alternatives in Texas, we have
      established gaming amusement centers featuring our AWP machines in various
      locations throughout the state. These centers are linked to a central server
      and
      utilize state of the art gaming innovations and business processes to provide
      in
      a legally compliant manner an entertainment experience and earning potential
      comparable to other types of high speed electronic games such as slot machines,
      video lottery games and class II electronic bingo games. The first Ace Gaming
      Amusement Center opened in November 2005, and by October 29, 2006 we were
      operating five Ace Gaming Amusement Centers and were a minor joint operator
      in
      another amusement center in El Paso, Texas. As of October 28, 2007, we were
      operating four Ace Gaming Amusement Centers in Texas after having closed certain
      gaming amusement centers during fiscal year 2007 resulting from legal actions
      questioning the legality of our AWP machines and for operational reasons.
      During December 2007, we opened two new amusement centers and we are currently
      preparing two additional amusement centers, which we expect to open by March
      2008. Additional information regarding such legal actions and the closed and
      new
      amusement centers is available below under Item 3, “Legal Proceedings,” and Part
      II, Item 6, “Management’s Discussion and Analysis or Plan of
      Operations.”




In
      selecting a favorable target location for each gaming amusement center, we
      look
      for the following criteria at each location:


·
              politically
                  friendly jurisdiction;
 
 ·
              demographic
                  fit;
 
 ·
              high
                  traffic and high visibility; and
 
 ·
              absence
                  of competing illegal cash-paying gaming
                  centers.




We
      have
      currently identified a number of other locations in Texas that meet our target
      criteria, including locations within the cities of Dallas, Houston, San Antonio,
      Austin, Ft. Worth and Corpus Christi.




4




*AWP
      Licensing Business*





Our
      subsidiary, K&B, is a licensed bingo supply distributor. Based on the
      feedback from K&B’s customers, we developed and implemented a new AWP
      program for these bingo hall operators. Under this program, we license the
      AWP
      machines, games and back-office systems (including the Ace Advantage Card
      redemption system), service the machines, train the bingo hall personnel and
      provide marketing support. The bingo halls actually operate the machines and
      perform the other day-to-day services that we provide to our gaming patrons
      at
      the Ace Gaming Amusement Centers. The machines located at the bingo hall can
      be
      played only with our Ace Advantage Card, which can be used at our gaming
      amusement centers as well as at the bingo halls.





Many
      of
      these bingo halls are small facilities that can support between 20 to 50
      machines, and we believe the potential market for this AWP model could be as
      much as 50 bingo halls. As of January 24, 2008, we had agreements to
      license a total of 135 machines to four bingo hall operators under this program.
      Our costs to operate this program are comprised of the cost of incremental
      machines, game content license fees and ancillary costs such as co-op marketing
      and servicing the machines. To the extent possible, we utilize our existing
      K&B sales and service staffs to market and support this new line of
      business. All of the AWP machines licensed under this program to date were
      or
      will be supplied from our existing inventory of available machines.




*Stored-Value
      Debit Card Processing*





Assured
      Stored Value, LP (ASV) is our wholly-owned subsidiary that operates and manages
      our Ace Advantage Card redemption system. ASV is certified by MasterCard
      Incorporated as a third party processor and can provide similar stored-value
      card processing services to financial institutions and other entities. Due
      to
      its excess processing capacity and the fact that we can sell these services
      at
      little or no incremental cost to us, in June 2007, we began to market ASV as
      a
      third party processor to other entities. However, to date, no meaningful revenue
      or costs have been generated or consumed by this business line nor we do expect
      significant growth during fiscal year 2008.





*K&B*





K&B,
      d.b.a. Goodtime Bingo and Goodtime Action Games, is a licensed distributor
      of
      electronic bingo games and supplies in Texas and has been in business since
      1978. However, the bingo market in Texas is a mature market, and we do not
      perceive it to be one for significant growth opportunities in the future other
      than by the introduction of new bingo related products and/or capturing
      additional market share through business acquisitions. Although K&B
      lost certain high-volume customers during fiscal year 2007, we expect
      K&B to retain a significant portion of the Texas bingo supply market for the
      foreseeable future and remain a reliable source of cash flow with which to
      sustain our company while we grow our AWP business and/or seek other
      complementary businesses, services or products. K&B also has the experience
      and infrastructure to conduct its business in other nearby states (bingo was
      recently legalized in Arkansas for example) provided it can obtain the required
      licenses; however, we have no immediate plans to pursue such ventures, nor
      are
      we seriously considering the acquisition of any of our competitors.




***Sales
      and Distribution***





We
      currently only conduct our AWP business in our Ace Gaming Amusement Centers,
      which are owned and operated by us and are located in Texas. These gaming
      amusement centers are comprised of stand-alone or shared space facilities in
      licensed bingo halls. We promote our Ace Gaming Amusement Centers in the
      locations in which we operate them through various advertising media such as
      television, radio, newspapers, direct-mailings and billboards. We also do
      promotions such as giving away free merchandise, food and beverage and provide
      allowances and entitlement programs that provide our AWP gaming patrons with
      free play.





As
      discussed previously, we have implemented a new program for our AWP operations
      by which we license the machines, gaming software, back-office systems and
      technical support (including access to our Ace Advantage Card redemption system)
      to bingo hall operators in Texas. Under this program, bingo hall personnel
      operate the machines at their facilities, and we will share in the net revenue
      generated by those machines.





K&B
      is a licensed supplier in Texas of electronic card-minding systems (a handheld
      electronic device or an in-place computer terminal that automatically keeps
      score of multiple bingo cards for a player), player club reward systems and
      custom designed “Goodtime” pull-tabs (an instant-winner paper ticket similar to
      a lottery scratch-off game). K&B employs a sales force of seven persons who
      personally call on our current and potential customers to fill their orders
      and
      to promote new bingo related products. K&B maintains four warehouse
      facilities located in Dallas, Houston, San Antonio and Lubbock, Texas from
      which
      it can timely and cost effectively supply products to its customers. Certain
      of
      K&B’s workforce also performs marketing and technical services for our AWP
      licensing business.





***Competition***





The
      operation of gaming amusement centers in Texas is fragmented. There are
      restaurants and entertainment centers that have amusement games, including
      Dave
& Buster’s, Chuck E. Cheese’s, Tilt and Main Event Entertainment. Prizes in
      the form of non-cash merchandise prizes are awarded on site at these venues
      in
      exchange for tickets or other representations of value from playing their AWP
      games. There are other amusement games played throughout Texas in bars,
      restaurants and stand alone centers that house several to several hundred
      machines, some of which award non-cash merchandise prizes, and some of which
      illegally payout cash prizes. We differentiate ourselves from these other
      amusement game operators in that the games at Ace Gaming Amusement Centers
      are
      linked to a central server and are played exclusively by using our Ace Advantage
      Card, with which players accumulate prize points that may be redeemed for
      non-cash merchandise prizes at participating merchants. Our AWP machines are
      linked to a central server, which allows us to effectively monitor the play
      of
      our gaming patrons and to remotely change the gaming content of our machines
      at
      little cost when player demand for a particular game begins to wane. The central
      server also allows us to track the redemptions of the stored prize points and
      provide audit trails of the related transactions. We are not aware of another
      AWP operator in Texas that is currently using this type of integrated gaming
      and
      redemption system.




5





Our
      AWP
      business also competes with other forms of gaming in Texas and nearby states
      such as casino style gambling, pari-mutuel betting on horse racing and dog
      racing, bingo and state-sponsored lottery games. We believe we can effectively
      and profitably compete with these other forms of gaming by providing our gaming
      patrons with convenient locations (approximately 80% of our gaming patrons
      live
      within 10 miles of our Ace Gaming Amusement Centers) and hours of operations
      and
      overall exceptional value for their entertainment dollar.





Casino
      style gambling, or class III gaming, is illegal in Texas. However, we believe
      that if class III gaming is eventually legalized in Texas, and we can obtain
      the
      required licenses, we can readily adapt our AWP gaming amusement centers, AWP
      machines and games to effectively compete in that market niche as
      well.





The
      sale
      of bingo supplies and services in Texas is limited to licensed distributors.
      Ordinarily, competition among K&B and other bingo distributors is based on
      customer service and relationships. However, the recent entry into the market
      of
      low-cost distributors has created downward pressure on K&B’s profit margins,
      the near-term effects of which are described in more detail below in Part II,
      Item 6, “Management’s Discussion and Analysis or Plan of Operations.” K&B’s
      operating results are also subject to the competitive pressures on the Texas
      bingo market generally. This competition comes from other gaming venues such
      as
      horse and dog racetracks, the profusion of state lottery games, casino style
      gambling in nearby states and possibly our own Ace Gaming Amusement
      Centers. However, the bingo halls that have licensed our AWP machines under
      the
      aforementioned program have on average experienced an increase in bingo
      play.




***Intellectual
      Property***





We
      have a
      patent pending covering three inventions for our Ace Advantage Card redemption
      system. In addition, we own 50% of a patent for a lottery-type ticket or system
      that has a winner indicator. This indicator allows a player to quickly determine
      whether or not the ticket is a winning ticket without having to “scratch-off”
the entire ticket. We also have trademarks covering K&B’s Goodtime Action
      business name and the Win-Now brand name currently being used on certain of
      our
      custom designed pull-tabs that have winner indicators.





***Government
      Regulations***





State
      law
      determines the legality of gambling in Texas, but the legality of AWP gaming
      in
      that state tends to be interpreted and enforced usually at the county level.
      As
      such, Texas does not have a defined regulatory agency charged with the
      development of regulations, interpretation and enforcement of laws, or the
      regulation of business practices related to AWP gaming. There are no game
      certification requirements, system integrity testing and certification, or
      other
      similar requirements conducted by a state sponsored laboratory or bureau, nor
      are there any specific AWP redemption or similar qualifying or condition
      precedent licenses or approvals necessary to conduct AWP gaming operations
      in
      Texas.





Each
      AWP
      system and the manner in which the AWP business enterprise is conducted must
      comply with state laws that define what an AWP or redemption game is and how
      it
      is to be played. Texas Penal Code Section 47.01(4) excludes from the definition
      of a gambling device any electronic, electromechanical or mechanical device
      that
      meets the following general criteria:


·
              the
                  device is designed, made and played solely for bona fide amusement
                  purposes;
 
 ·
              the
                  prizes awarded from playing the device are non-cash merchandise
                  prizes,
                  toys or novelties, or representations of value redeemable for those
                  items;
                  and
 
 ·
              the
                  maximum prize that can be awarded from a single play of the device
                  is the
                  lesser of the wholesale value of the prize or ten times the cost
                  of a
                  single play, in either case not exceeding $5 per
                  play.




In
      Texas,
      local police and/or district attorney offices have the authority to interpret
      what the applicable state law means and how it is to be enforced within their
      respective jurisdictions, as well as whether the game and underlying redemption
      system as utilized in the public domain are compliant with such laws. We
      endeavor to contact in advance and to work closely with the appropriate
      government officials where we operate our gaming amusement centers in an effort
      to ensure that the deployed AWP system will be considered jurisdictionally
      compliant in each respective location. However, local authorities are sometimes
      unresponsive or are unwilling to work with us, and we may be required to
      commence operations without any assurance that such authorities consider our
      AWP
      system to be compliant and that we will not be forced to temporarily or
      permanently close our AWP operations in those jurisdictions.





In
      September 2006, the district attorney’s office of Bexar County, Texas requested
      an opinion from the Attorney General to determine whether an amusement machine
      which records a player’s winnings onto a stored-value debit card is excluded
      from the definition of a “gambling device” pursuant to the Texas Penal Code. On
      March 6, 2007, the Attorney General issued Opinion No. GA-0527, which stated
      that because a stored-value card is a medium of exchange within the meaning
      of
      cash, gaming machines that reward play with a stored-value card are gambling
      devices and therefore are illegal in Texas. Under Texas law, an Attorney
      General’s opinion is not controlling on the state or binding on a court of law
      in that state. Ultimate determination of a law's applicability, meaning or
      constitutionality is determined by the Texas courts.




6





Based
      on
      Opinion No. GA-0527, certain local authorities in Texas initiated legal
      actions that resulted in the permanent closure of one of our gaming
      centers, the temporary closure of two other centers (one of which has since
      reopened) and the abandonment of a leasehold for an amusement center we were
      preparing to open. Also as a result of the Attorney General’s opinion, one of
      our vendors attempted to cancel its agreement with us to provide AWP game
      software and support services because we were allegedly using their games in
      an
      illegal manner. As is provided for in that agreement, we initiated arbitration
      and ultimately received a favorable opinion from the arbitrator, which opinion
      was subsequently affirmed by a federal court in September 2007. In his opinion,
      the arbitrator, a retired justice of the Texas Supreme Court, stated that the
      prize points awarded from playing our AWP games are similar to a hypothetical
      fact pattern the Texas Supreme Court addressed in *Hardy
      v. State of Texas* because
      the prize points are issued directly to the player by our AWP gaming machines.
      According to the arbitrator, the prize points, which are effectively the
      equivalent of “tickets” issued by other legitimate AWP operators in Texas and
      redeemable only for commodities or goods that do not constitute ready money,
      are
“representations of value” and not the actual prize. Therefore, the arbitrator
      concluded that our AWP gaming system complies with the Section 47.01(4)
      exclusion.





The
      operation of illegal gambling devices in Texas is a misdemeanor offense, which
      can result in, for each such offense, fines of up to $10,000 for a business
      and
      $4,000 for an individual, jail time of not more than one year and confiscation
      of the gambling devices. We believe that because of our open communications
      with
      local authorities and prompt and voluntary compliance with their wishes
      regarding the operation of our AWP business in their communities, we have not
      been prosecuted in Texas for violation of gambling laws nor has any of our
      personal property been seized by state or local officials. As of January 15,
      2008, we had incurred legal expenses of approximately $310,000 directly related
      to the events arising as a consequence of the Attorney General’s opinion. While
      we cannot reasonably estimate the total expenses we might incur before the
      question concerning the legality of our AWP operations in Texas is finally
      settled, such expenses could be significantly more than we have incurred to
      date, particularly if rulings by lower courts require us to litigate our
      position in the higher Texas courts.





Bingo
      was
      legalized in Texas in 1981 and can only be conducted by licensed charitable
      organizations. Additionally, distributors and manufacturers of bingo supplies
      and games, including K&B, must also be licensed in Texas to conduct business
      in that state. In Texas, the acquisition of a bingo distributor’s license
      is generally subject to the same rigors as those for acquiring a liquor license
      in that state, and suspensions and/or revocations of such licenses, although
      rare, are possible.





***Employees***





As
      of
      January 15, 2008, we had 139 employees, 84 of whom were full time employees
      and
      55 were part-time employees. Four of our employees are executive officers of
      the
      Company, 101 of our employees and 30 of our employees, respectively, work in
      our
      AWP gaming and bingo supply distribution businesses, and the rest of our
      employees perform accounting and other corporate administrative functions.
      None
      of our employees are subject to collective bargaining agreements. We believe
      we
      have a good relationship with our employees.





***Other
      Information***





Our
      corporate offices are located at 12225 Greenville Avenue, Suite 861, Dallas,
      Texas 75243, and our telephone number is (214) 261-1963 (or (866) 548-1805).
      Other information about us can be found at our website http://www.aceswired.com .





We
      file
      our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current
      reports on Form 8-K and other filings, and any amendments and exhibits thereto,
      with the SEC. You may read and copy (for a fee) any document that we file with
      the SEC at its Public Reference Room located at 100 F Street NE, Room 1580,
      Washington, D.C. 20549-0102. Information about the operation of the Public
      Reference Room can be obtained by telephoning the SEC at 1-800-SEC-0330. Our
      filings with the SEC are also available to you free of charge at http://www.sec.gov . You
      may also request free copies of our filings with the SEC by writing to or
      telephoning us at our corporate offices in Dallas.





**Item
      1A. Risk Factors.**




You
      should carefully consider the risks and uncertainties described below and the
      other pertinent information included in this annual report. If any of the
      following risks actually occurs, our business, operating results and financial
      condition could be materially and adversely affected and the value of our common
      stock could decline.





***Regulatory
      Risks***





*The
      regulatory environment in which we operate our AWP business lacks clarity,
      which
      could impair our ability to operate AWP machines in some jurisdictions in
      Texas.*




The
      AWP
      industry is not a state regulated industry in Texas, and as such it lacks the
      clarity that typically stems from the existence of a codified body of laws
      and
      regulations. Moreover, gaming related laws and regulations tend to be enforced
      at the county or city level instead of by a central state-sponsored regulatory
      authority, which decreases the visibility and predictability of the
      interpretation and enforcement of such laws and regulations. The lack of clarity
      or guidance can lead to legal interpretive differences and errors, changes
      in
      the manner in which the laws or controlling court cases are articulated and
      interpreted by law enforcement personnel, and disagreements about the legality
      of our operations and games in various jurisdictions. In turn, these matters
      can
      lead to delays in game deployment, removal of games from locations, withdrawal
      of business operations in various counties, as well as the possibility that
      gaming equipment may be seized pending resolution of the appropriate court
      case,
      and the possible arrest of our personnel. On March 6, 2007, the Attorney General
      issued an opinion which stated that AWP machines that record a player’s winnings
      on a stored-value debit card are illegal in Texas. While such opinion is not
      controlling on the state or binding on a court of law in that state, its
      issuance resulted in legal actions against us in certain counties in Texas
      in
      which we conduct our AWP gaming operations, caused us to temporarily close
      three
      of our gaming amusement centers and abandon one center we were preparing to
      open. We are presently contesting such legal actions at the county level and,
      if
      we suffer unfavorable rulings in the lower courts, we intend to take our case
      to
      the appellate courts in Texas. However, there are no assurances we will
      ultimately prevail in court and not be forced to permanently close those and
      possibly other of our gaming amusement centers in Texas.




7





*As
      we
      grow we might be subject to greater regulatory scrutiny causing changes in
      regulatory approvals or interpretations that may adversely affect our AWP
      operations.*





As
      the
      number of our gaming amusement centers (called Ace Gaming Amusement Centers)
      increases, more people will become aware of us and we may encounter political
      resistance from groups that are against gaming who may in turn pressure their
      various local and county regulators to forbid the operation of our AWP
      operations in their jurisdictions. It is also possible that after we have
      received either a favorable guidance letter or meeting from a county or city
      authority and have commenced AWP operations in a given jurisdiction, such
      authority may negatively change its position regarding our AWP operations.
      Additionally, the person originally rendering such positive advice may be
      subsequently replaced by another person so empowered who determines our AWP
      activities and/or games do not comply with interpretations of the law or recent
      court case holdings. Adverse changes could cause us to limit our business
      activities in the respective jurisdictions, to remove our operations and devices
      entirely, or to challenge the advising authority in a court of law. There is
      no
      assurance that we would prevail if we are so challenged.





*Changes
      in laws regarding gaming generally or AWP gaming specifically may inhibit our
      ability to do business.*





In
      the
      event that Texas (or any other state in which we might conduct our AWP business
      in the future) changes the laws under which redemption and/or AWP activity
      is
      conducted, such as outlawing the games entirely or further limiting play and
      prize restrictions, this could have a negative impact on the placement of games
      and the future conduct of our AWP operations in that state. Also, a state may
      legalize other forms of gaming, such as video lottery terminals and/or slot
      machines and other forms of class III gaming. We expect that any changes in
      the
      gaming laws in the states where we operate, including liberalization of such
      laws, could have a negative impact on our AWP operations.





*Our
      Ace Advantage Card is subject to certain state and federal laws and regulations
      that are subject to change and may impose significant costs or limitations
      on
      the way we conduct our AWP business.*




Because
      our Ace Advantage Card has a debit card component, we are subject to certain
      of
      the same state and federal laws and regulations that govern transactions
      processed by banks and other financial networks generally. These laws and
      regulations govern or affect, among other things:




·
            currency
                reporting;




·
            recording
                and reporting of certain financial transactions;
                and




·
            privacy
                of personal consumer information.




Violation
      of these laws and regulations could result in the suspension of processing
      transactions on our Ace Advantage Card and/or fines and other civil or criminal
      penalties. Depending on the nature and scope of a violation, the resultant
      fines
      and other penalties for noncompliance with applicable requirements could be
      significant and materially and adversely affect our results of operation and
      financial condition.




*We
      cannot guarantee that our customers will comply with the terms of the cardholder
      agreements they execute in order to receive an Ace Advantage Card that is
      required to play our AWP games.*




Notwithstanding
      the opinion issued by the Attorney General in March 2007 regarding the legality
      of certain AWP machines, Texas law excludes amusement games from the definition
      of a gambling device if the games award players exclusively with non-cash
      merchandise prizes, subject to certain limitations regarding the single-play
      value of such prizes. Our AWP games are designed, made and played solely
      for bona fide amusement purposes, and we only award non-cash merchandise prizes
      in a manner we believe complies with Texas law. Additionally, when a customer
      signs our cardholder agreement, they agree not to use their Ace Advantage Card
      to obtain cash or its equivalent, pay a debt or make a payment to any person
      for
      any reason. While we reserve the right to block prohibited activities on our
      Ace
      Advantage Card and/or to deny authorization requests for such
      prohibited activities, we cannot guarantee that our customers will comply with
      the terms of our cardholder agreement, and we are not certain what legal
      consequences to us might result, if any, from a cardholder’s violation of the
      applicable provisions of our cardholder agreement.




8





*Ban
      on indoor smoking could adversely affect our business.*





Many
      people who play bingo and visit our gaming amusement centers are smokers. While
      there are limited bans on indoor smoking in certain Texas municipalities, to
      date efforts to impose a statewide ban on indoor smoking have been unsuccessful.
      However, we believe that if a statewide ban on indoor smoking in Texas is ever
      imposed and/or if there is a proliferation in local anti-smoking bans, it could
      adversely affect the future operations of our bingo supply and AWP
      businesses.




***Economic
      Risks***




*We
      have a limited operating history in AWP gaming and our business plan is
      unproven.*





We
      are
      effectively in the early stages of developing our AWP gaming business and are
      subject to all of the risks and uncertainties inherent in establishing a new
      business, which risks and uncertainties were effectively compounded by the
      opinion issued by the Attorney General in March 2007. We have a limited and
      interrupted operating history of our AWP operations with which to evaluate
      and
      manage the likelihood of profitably operating our AWP gaming business in the
      future. Our AWP gaming operations may ultimately not be successful. In addition
      to the competitive environment in which we operate, the likelihood of our future
      success must also be considered in light of the problems, expenses and delays
      generally encountered in connection with the formation of a new business and
      the
      legal challenges we are currently facing and might face in the future in Texas.
      Also, the gaming products offered by our Ace Gaming Amusement Centers may not
      be
      accepted by the marketplace, or we may not be able to profitably compete against
      other amusement venues, games and products in the marketplace.




*The
      legalization of casino style gaming or other forms of class III gaming would
      materially and adversely affect our results of operations and financial
      position.*





If
      casino
      style gaming and/or other forms of class III gaming such as video lottery
      terminals are legalized in Texas, we believe that the demand for AWP gaming
      in
      Texas would be severely suppressed, which would in turn materially and adversely
      affect our results of operations and financial position.





*Our
      business will require substantial capital and we have limited financial
      resources.*





Our
      existing sources of working capital are limited, and the opinion issued by
      the
      Attorney General in March 2007 may deny us access to additional sources of
      working capital for the time being. Our business plan calls for significant
      capital expenditures, and we have and anticipate that we will continue to incur
      operating losses in the near term. Additional financing could be sought from
      a
      number of sources, including but not limited to, additional sales of equity
      or
      debt securities (including equity-linked or convertible debt securities), loans
      from banks and other financial institutions and loans from related parties.
      We
      may not, however, be able to sell any securities or obtain any such additional
      financing when needed, or do so on terms and conditions acceptable or favorable
      to us. If financing is not available, we may be forced to delay, modify or
      abandon altogether our business plan or our entire business and to dissolve.
      If
      we successfully enter into a financing transaction, any additional equity or
      equity-linked financing would be dilutive to our existing common stockholders,
      and additional debt financing, if available, will further tax our working
      capital sources and/or may involve restrictive financial and other covenants
      regarding such matters as the payment of dividends on our common
      stock.




*We
      depend upon others for the manufacture and development of our bingo and AWP
      gaming products and gaming systems, which subjects our business to the risk
      that
      we are unable to fully control the timing and/or supply of such products to
      the
      markets in which we operate.*





Our
      ability to successfully operate our bingo and gaming amusement businesses
      depends upon our ability to enter into and maintain contractual and
      collaborative arrangements with external game and system manufacturers and
      developers. We currently do not have the financial and technological capacity
      to
      manufacture or develop any of the games or system software and hardware that
      comprise the games and products we offer to our bingo and AWP gaming customers.
      We currently have and intend to retain contracts with certain vendors for the
      delivery of our bingo supply and AWP gaming products and technology. However,
      there are no assurances that such vendors are willing and/or able to supply
      such
      products and technology in the required quantities, at the required times,
      and
      at appropriate quality levels and costs as we may require to profitably grow
      and
      operate our company. We have tried unsuccessfully to obtain game content from
      many of the major gaming supply manufacturers. In the future, we intend to
      explore other options such as developing our own systems and games internally.
      We may be adversely affected by any difficulties encountered by such vendors
      that result in product defects, production delays or the inability to fulfill
      orders on a timely basis. If a vendor cannot meet our quality standards and
      delivery requirements in a timely and cost-efficient manner, we would likely
      suffer costly interruptions in our business operations while we arrange for
      alternative sources. Any extended disruption in the delivery of products could
      prevent us from satisfying customer demand for our products prizes. During
      fiscal year 2007, approximately one-third of our bingo revenue was derived
      from
      the rental of electronic card-minding games manufactured by one vendor.
      Additionally, all of the game content and back-office systems for our owned
      AWP
      machines, which comprised approximately 85% of our total machines deployed
      as of
      October 28, 2007, are currently provided by two vendors. Consequently, if we
      are
      unable to obtain alternative sources for these products and services on a timely
      basis, if at all, it could have a material adverse effect on our results of
      operations and financial condition.




9




*Our
      inability to protect the intellectual property we use could impair our ability
      to compete successfully in the businesses and markets in which we
      operate.*





The
      intellectual property we currently use is critical to our company, and our
      ability to successfully compete in the bingo supply and AWP gaming businesses
      is
      dependent on our proprietary intellectual property, particularly our Ace
      Advantage Card and the system and proprietary software that supports that card.
      We currently rely and intend to rely in the future on a combination of
      copyright, trademark, patent, trade secret laws and nondisclosure agreements
      to
      protect our proprietary technology. Although we have entered into
      confidentiality, non-compete and invention assignment agreements with our
      employees and other persons, and otherwise limit access to and distribution
      of
      our proprietary technology, there can be no assurance that such agreements
      will
      not be breached, that we would have adequate remedies for any breach, or that
      our trade secrets will not otherwise become independently developed or
      discovered by competitors.




*The
      inability to process transactions on our Ace Advantage Card could have a
      material adverse effect on our results of operations and financial
      position.*





We
      believe that our Ace Advantage Card gives us a significant competitive advantage
      in the Texas AWP gaming market in that it allows our gaming patrons to use
      the
      prize points accumulated on their cards for redemptions for non-cash merchandise
      prizes at participating merchants. The processing of transactions for the Ace
      Advantage Card is essentially the same as the processing of transactions for
      most debit cards. Accordingly, we must abide to the standards and regulations
      of
      a sponsor bank and the financial networks which enable the processing of
      transactions on the Ace Advantage Card. If for any reason, we are unable to
      permanently process transactions on the Ace Advantage Card, we believe that
      it
      could have a material and adverse effect on our results of operations and
      financial position as we would lose the competitive advantage afforded us by
      the
      Ace Advantage Card redemption system.





*More
      experienced and better-financed companies may enter the AWP market, which may
      result in our losing significant market share.*





Currently,
      the AWP marketplace in Texas does not have any established major gaming
      competitors (such as Harrah’s Entertainment, Inc., Station Casinos, Inc. and
      Isle of Capri Casinos, Inc.), but is instead a market comprised of small
      fragmented operators. The entry of well financed, established competitors into
      the Texas market could have a material and adverse impact on our ability to
      successfully operate our AWP games and/or to continue to maintain the number
      of
      AWP games in the Texas marketplace that we need to support and expand our AWP
      gaming operations.





*We
      are highly dependent on the services provided by certain executives and other
      key personnel.*





Our
      success depends significantly upon the continued services of certain of our
      executive management and other key employees. Our success also depends on our
      ability to identify, hire, train, retain and motivate skilled technical,
      managerial and marketing personnel. Competition for such personnel is intense
      and there can be no assurance that we will successfully attract, assimilate
      or
      retain a sufficient number of qualified personnel. The failure to attract and
      retain the necessary technical, managerial and marketing personnel could
      have a material adverse impact on our business, financial condition and
      operations.





***Market
      Risks***





*Our
      officers and directors, together with certain other employees and affiliates,
      possess substantial voting power with respect to our common stock, which could
      negatively affect the market price of our common stock.*




Our
      executive officers, non-employee directors and certain employees and affiliated
      persons (15 stockholders in total) will collectively have beneficial ownership
      of approximately 81% of our outstanding common stock upon the conversion of
      the
      approximate 1.6 million shares of the Series A preferred stock we issued in
      October 2006. This ownership represents a significant and controlling portion
      of
      the voting power of our common stockholders. As a result, such directors,
      officers, other employees and affiliated persons will have the ability to
      substantially control our management and affairs through the election and
      removal of our entire board of directors, and all other matters requiring
      stockholder approval, including the future merger, consolidation or sale of
      all
      or substantially all of our assets. This concentrated control could discourage
      others from initiating any potential merger, takeover or other change-of-control
      transaction that may otherwise be beneficial to our common stockholders. As
      a
      result, the market price of our common stock or ultimate sale of our business
      could be adversely affected.





*There
      is no public trading market for our common stock.*




Our
      common stock is not currently eligible for trading on any national or regional
      securities exchange, nor are we certain that an active trading market in our
      common stock will develop, or if such a market develops that it can be
      sustained. As of the date of this report, 9,533,077 shares of our common stock
      are outstanding assuming the conversion of 1.612 million shares of the Series
      A
      preferred stock we issued in October 2006 into an equal number of common shares.
      Of these common shares, 1,934,880 shares, or approximately 20.3% of the
      outstanding shares of our common stock, will be eligible for immediate sale
      in
      the public market upon the effectiveness of a registration statement we filed
      with the Securities and Exchange Commission. The remaining outstanding shares
      of
      our common stock will be subject to sale under Rule 144. Pursuant to Rule 144,
      persons who have beneficially owned shares for at least one year are entitled
      to
      sell those shares without registration by complying with the manner of sale,
      public information, volume limitation, notice and other provisions of Rule
      144.
      Approximately 7.1 million shares of our common stock are subject to lockup
      agreements whereby those shares cannot be traded or otherwise divested, subject
      to certain exceptions, by the subject shareholders until September 28, 2008.
      Sales of a significant number of shares of our common stock in the public market
      could result in a decline in the market price of our common stock, particularly
      in light of the lack of liquidity and anticipated low trading volume in our
      common stock.




10





*Our
      stockholders may experience dilution of their ownership interests upon the
      future issuance of additional shares of our common stock.*





As
      of
      January 15, 2008, we had outstanding 7,921,077 shares of common stock and
      1,612,000 shares of Series A preferred stock that are subject to conversion
      into
      an equal number of shares of our common stock. On March 8, 2007, a majority
      of
      our common stockholders approved the Aces Wired, Inc. 2007 Stock Incentive
      Plan
      (the 2007 Stock Incentive Plan). The maximum number of common stock shares
      for
      which grants may be awarded under the 2007 Stock Incentive Plan at any one
      time
      is limited to 15% of the total outstanding shares of our common stock, subject
      to adjustment for events such as stock dividends and stock splits. We presently
      have outstanding options to acquire 322,400 shares of our convertible Series
      A
      preferred stock, which are convertible into shares of our common stock on a
      one-for-one basis. We are currently authorized to issue a total of 45,000,000
      shares of common stock and 5,000,000 shares of preferred stock, with such
      designations, preferences and rights as determined by our board of directors.
      Issuance of additional shares of common stock and/or convertible preferred
      stock
      may substantially dilute the ownership interests of our existing stockholders.
      The potential issuance of such additional shares of common stock and/or the
      issuance of securities convertible into our common stock may create downward
      pressure on the trading price of our common stock. We may also issue additional
      securities in connection with the hiring of personnel, future acquisitions,
      future public or private offerings of our securities for capital raising
      purposes, or for other business purposes. Any such transactions will further
      dilute the ownership interests of our existing common stockholders.





*We
      do
      not intend to pay dividends in the foreseeable future.*





We
      have
      not paid any dividends on our common stock since our inception. We intend to
      retain earnings from operations, if any, for use in the future operation and
      expansion of our business and, therefore, we do not anticipate paying any
      dividends on our common stock in the foreseeable future.





**Item
      2. Description of Property.**




We
      lease
      our corporate office space in Dallas, Texas under an agreement with a remaining
      basic term of approximately 24 months. The lease provided for free rent during
      the first three months of its term with scheduled increases thereafter in the
      rentals from approximately $5,500 per month for the fourth through the fifteenth
      months of the lease to approximately $6,300 per month during the final 12 months
      of the lease. We also have a one-time option with six months advance written
      notice to the lessor to terminate the lease on July 31, 2008 upon payment of
      an
      approximate $16,400 early termination fee. We occupied this facility on November
      1, 2006.





We
      lease
      office and warehouse space in Dallas, Houston, and San Antonio, Texas both
      directly and indirectly from two of our officers/common stockholders, which
      agreements are described in Part III, Item 12, “Certain Relationships and
      Related Transactions, and Director Independence.” Rentals are fixed and range
      from $7,500 per month to $3,500 per month. The leases for the Dallas and San
      Antonio facilities expire at the end of October 2008, and the lease for the
      Houston facility expires at the end of January 2010. None of the leases provide
      for renewal options; however, we expect to renew the leases in the normal course
      of business at the existing monthly rental rates.





We
      lease
      space for nine amusement gaming centers in Ft. Worth (four centers), San
      Antonio, Corpus Christi, Amarillo, Killeen and Copperas Cove, Texas. As of
      January 15, 2008, we were conducting business operations in five of the centers,
      two of the centers were temporarily closed due to certain litigation described
      in Item 3, “Legal Proceedings,” below and two centers were being prepared for
      openings expected to occur one each during our second and third fiscal quarters
      of 2008. Two of the leases are month-to-month agreements, and the basic terms
      for the other leases range from 36 months to 60 months. Certain of the leases
      provide us with options to extend the leases for periods ranging from 60 days
      to
      two consecutive 60-month periods. We also have the options to terminate early
      most of these leases by providing the lessors with advanced written notice
      of
      such intent and/or if we are precluded by regulatory reasons from operating
      our
      AWP business at those locations. Additionally, certain of the leases require
      us
      to pay termination fees (in amounts ranging from one month’s rental to three
      months’ rentals) if the leases are terminated before the end of their basic
      terms. Rentals for all but two of the gaming amusement center leases are
      variable in nature, which contingent rentals are based on a percentage of the
      hold generated by the gaming machines located in the centers, after certain
      adjustments. Additionally, all but one of the leases with such contingent
      rentals provide for minimum amounts of rentals from between $5,000 per month
      to
      $30,000 per month.  Disregarding the early termination options, the basic
      terms of these leases are scheduled to expire at various dates through April
      2012.




11





**Item
      3. Legal Proceedings.**





**Legal
      Actions Related to the Attorney General’s Opinion**





On
      March
      6, 2007, the Attorney General issued an opinion, which stated that AWP machines
      that reward a player with stored-value cards enabling the purchase of
      merchandise are illegal in Texas. While such opinion is not controlling in
      the
      state or binding on a court of law in the state, its issuance resulted either
      directly or indirectly in the following legal actions against us in fiscal
      year
      2007.





*Nueces
      County*





On
      March
      8, 2007, local authorities in Nueces County, Texas threatened legal actions
      in
      response to the Attorney General’s opinion that resulted in the temporary
      closure of our gaming amusement center in Corpus Christi, Texas. On March 9,
      2007, we filed suit (Cause No. 07-60545-2; *Aces
      Wired Amusement Center #5, LP v. Stellar Point, Ltd.* )
      to
      enjoin that facility’s landlord from requiring us to vacate the premises as a
      consequence of the Attorney General’s opinion and the related actions of the
      local district attorney. The Corpus Christi center was reopened on June 19,
      2007
      pursuant to a temporary injunction issued by the County Court in Nueces County
      on March 23, 2007, which permitted us to operate the Corpus Christi gaming
      amusement center until a final hearing could be held on the merits of the
      case.





Our
      case
      against Stellar Point, Ltd. was scheduled to be heard in the County Court of
      Law
      No.2, Nueces County on September 20, 2007. However, that trial setting was
      canceled and we requested that our case be heard on March 3, 2008. The court,
      on
      its own motion, entered an order dismissing the lawsuit finding that the court
      had no jurisdiction in the case, which order became final on January 11,
      2008.  Based
      upon conversations we had with local authorities while the lawsuit was pending,
      our operations have proceeded without disturbance since the dismissal of the
      case.





*Bell
      County*





On
      March
      19, 2007, we received a request from the county attorney of Bell County, Texas
      that we close our gaming amusement center in Killeen, Texas, which request
      we
      voluntarily complied with on that same date. On April 13, 2007, we filed suit
      (Cause No. 222,849-B; *Aces
      Wired Amusement Center #2, LP v. Concho Rainbow, Inc.* )
      to
      enjoin that facility’s landlord from requiring us to permanently vacate this
      leased facility as a consequence of the Attorney General’s opinion and the
      related actions of the local county attorney.





On
      June
      25, 2007, we presented exhibits and gave testimony regarding our case against
      Concho Rainbow, Inc. in the 146th Judicial District Court of Bell County. The
      court took the evidence under advisement and requested we prepare a trial brief
      before it made its ruling, which trial brief we provided to the court on
      September 26, 2007. However, on January 22, 2008, the court dismissed our case,
      finding that it did not have jurisdiction over the subject matter of the
      proceeding because a justiciable controversy did not exist between the landlord
      and us.




*Potter
      County*





On
      March
      22, 2007, the county attorney in Potter County, Texas indicated that Potter
      County was amenable to an arrangement under which we could continue to operate
      our gaming amusement center in Amarillo, Texas until such time that Potter
      County filed a nuisance action against us for the purpose of determining whether
      our AWP gaming machines constitute gambling devices, gambling paraphernalia
      or
      both under Texas law. On November 8, Potter County filed the nuisance action
      (a
      civil case) and we temporarily closed the Amarillo center the following
      day.





We
      have
      requested that a hearing of the nuisance case be held as soon as possible;
      however, the county attorney’s office in Potter County has refused to cooperate
      with us in this regard. All parties in the nuisance action have filed
      requests with the 251st Judicial District Court of Potter County for a trial
      schedule, and we expect the court to issue a trial schedule by January 28,
      2008.





*Nilesh
      Enterprises*





On
      April
      30, 2007, we gave written notice of our intent to exercise an option to
      terminate early due to regulatory reasons the lease agreement for a facility
      in
      San Antonio, Texas. We entered into this lease in December 2006 for the purpose
      of opening a new gaming amusement center in the second fiscal quarter of 2007.
      However, as a consequence of the opinion issued by the Attorney
      General, which was issued pursuant to a request by the district attorney of
      Bexar County where this facility is located, we believed that if we
      proceeded with opening this center we would most likely face civil and possibly
      criminal charges. Concurrent with exercising the option, we paid a termination
      fee to the landlord equal to three months’ rentals, or approximately $83,000, as
      is provided for in the lease.




On
      December 27, 2007, Nilesh Enterprises, Inc. (Nilesh) filed suit in Bexar County,
      Texas District Court against our wholly-owned subsidiary Aces Wired Amusement
      Center No. 8, L.P. and us. In the lawsuit, Nilesh alleges that we breached
      and
      wrongfully terminated a commercial lease agreement. Nilesh seeks an
      unspecified amount of damages including the following: (1) past due rent; (2)
      brokerage commissions in connection with reletting the premises; and (3) legal
      fees and expenses.




12





On
      January 17, 2008, we filed our answer to this claim asserting that we are not
      liable to Nilesh because of a mutual mistake and/or unilateral mistake.
      Specifically, the purpose of the intended leasehold was frustrated as there
      are
      protective covenants attached to the premises that prohibit the property from
      being used as an “arcade of video games and pinball machines and the
      like.” Therefore, the lease was never valid because this restrictive
      covenant. A court hearing date has not been scheduled.





Although
      the Nilesh lawsuit does not specify an amount for damages claimed, we had
      previously received a written demand from Nilesh for similar damages of
      approximately $319,000. While our legal counsel believes that an unfavorable
      ruling against us is unlikely, we intend to vigorously contest this
      lawsuit.





*Arbitration*





On
      June
      7, 2007, we were notified by one of our gaming software providers and developers
      of that vendor’s intent to exercise its option to terminate an agreement because
      the games and gaming platform provided under the agreement were allegedly being
      used by us in violation of local gambling laws and regulations. On June 19,
      2007, we responded to the notice by stating that our AWP games and system are
      fully compliant with applicable Texas law and exercised our right under the
      subject agreement to settle the issue in arbitration. On July 18, 2007, an
      arbitration meeting was held among all parties of interest, and on September
      6,
      2007, the arbitrator concluded that our AWP machines and system comply with
      Texas gambling laws. On September 24, 2007, the United States District Court
      for
      the Western District of Texas confirmed the arbitrator’s opinion.





*Conclusion*





In
      Texas,
      AWP gaming is not a state regulated industry, and state laws pertaining to
      gambling are interpreted and enforced usually at the county level. While we
      believe our AWP gaming system and Ace Advantage Card are legal, there is no
      assurance we will ultimately prevail in our case in Potter County. Further,
      while the federal court’s confirmation of the arbitrator’s opinion provides us
      with additional credibility, the federal court’s ruling is not binding on a
      Texas court regarding the legality of our AWP operations. While the permanent
      closure of the Amarillo amusement center in itself would not have a significant
      adverse affect on our results of operations and financial condition, an
      unfavorable ruling in Potter County could set an undesirable precedence and
      might encourage similar legal actions against our AWP operations in other
      counties in Texas. Prolonged and/or permanent closures of our gaming amusement
      centers resulting from such future litigation, if any, could collectively have
      an material adverse effect on our results of operations and financial
      condition.





**Other**





As
      reported in certain other of our prior filings with the SEC, Mr. Gordon T.
      Graves, our chairman of the board of directors and principal stockholder, was
      a
      party to certain arbitration regarding Mr. Graves’ alleged violation of the
      non-solicitation and non-competition provisions in his prior employment
      agreement with Multimedia Games, Inc. (MGAM). In April 2007, Mr. Graves and
      MGAM
      agreed to drop their respective claims against each other.





Management
      is not aware of any other legal proceedings contemplated by any governmental
      authority or any other party involving us or our properties, nor is any of
      our
      directors, officers or affiliates a party adverse to us in any legal
      proceedings, or has an adverse interest to us in any legal
      proceedings.





**PART
      II**




**Item
      5. Market for Common Equity and Related Stockholder
      Matters.**





There
      is
      currently no public trading market for our common stock.





We
      had
      7,921,077 shares of common stock issued and outstanding as of January 15, 2008
      and 61 common stockholders as of that date, 15 of whom are our officers,
      employees and non-employee directors or are otherwise affiliated with
      us.





We
      have
      never paid dividends on our common stock, and we do not currently have a policy
      regarding the payment of or the intent to pay dividends on our common stock
      in
      the foreseeable future. In the event dividends are made from our earnings or
      from our other capital resources, the rights of our common stockholders to
      such
      dividends are subordinate to such rights of the holders of the Series A
      convertible preferred stock we issued on October 11, 2006, which are described
      in Note 15, “Capital Stock,” to our consolidated financial statements included
      in this Annual Report on Form 10-KSB.





On
      March
      8, 2007, a majority of our common stockholders approved the Aces Wired, Inc.
      2007 Stock Incentive Plan (the 2007 Stock Incentive Plan). The maximum number
      of
      common stock shares for which grants may be awarded under the 2007 Stock
      Incentive Plan at any one time is limited to 15% of the total outstanding shares
      of our common stock, subject to adjustment for events such as stock dividends
      and stock splits. As of January 15, 2008, no awards had been granted under
      the
      2007 Stock Incentive Plan. The 2007 Stock Incentive Plan is described in more
      detail in Part III, Item 10, “Executive Compensation.”




13





**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation.**





**Overview**





We
      were
      incorporated in Nevada in December 2001 as OEF Corporate Solutions, Inc. On
      October 4, 2006, we acquired 100% of the ownership interests in Goodtime Action
      Amusement Partners, L.P. (Goodtime) and Amusement Innovation Partners, LLC
      (AIP), the general partner of Goodtime, in exchange for 7,623,580 shares of
      our
      common stock. Concurrent with our acquisition of Goodtime, we amended and
      restated our articles of incorporation and bylaws, whereby we, among other
      things, changed our name to Aces Wired, Inc.





Our
      original line of business was to provide EDGAR (electronic data gathering,
      analysis and retrieval) services to companies that file reports with the SEC.
      With our acquisition of Goodtime, we became a gaming and recreation company
      and
      the parent of K&B Sales, Inc. (K&B) and Aces Wired, LLC (AWLLC). K&B
      is a licensed distributor of games and related equipment, supplies and branded
      pull-tabs to charity bingo licensees throughout Texas and has been in operation
      for over 29 years. AWLLC, formed in June 2004, operates in the
      amusement-with-prize (AWP) gaming industry in Texas where it utilizes its
      proprietary financial redemption/player card system (the Ace Advantage Card
      system), which we believe gives us a distinct competitive advantage in the
      Texas
      AWP gaming market. This system allows players to store their prize points from
      playing our AWP games for future redemptions for non-cash merchandise prizes
      from participating merchants.





K&B
      is currently our primary source of cash flow from operations with which to
      sustain our company and grow our AWP business. However, K&B operates in a
      mature and static market in which we do not believe there are opportunities
      for
      significant growth absent the passage of legislation in Texas which would allow
      for new types of bingo games, or by our acquiring market share through business
      acquisitions. Prospects for the future growth of our company currently hinge
      solely on the expansion of our AWP gaming business in Texas in what we believe
      is a rapidly growing market where casino style gambling, or class III gaming,
      is
      illegal. However, if class III gaming is eventually legalized in Texas, we
      believe that if we can obtain the required licensing, we can efficiently adapt
      our gaming amusement centers, AWP machines and games to effectively compete
      in
      that market niche as well.




*AWP
      Gaming Business*





As
      of
      October 28, 2007, and prior to the closure of our gaming center in Amarillo,
      we
      were operating 230 AWP machines in four gaming amusement centers, all of which
      are located in Texas. During December 2007, we opened two new gaming centers
      in
      Texas and deployed additional machines in our other centers such that by January
      15, 2008, we were operating 325 machines. Additionally, pursuant to a program
      we
      began in November 2007, which is described in more detail below, we have
      currently licensed another 135 machines to bingo hall operators in Texas, of
      which 85 are installed and operating with the remaining machines to be installed
      in March 2008.





Our
      AWP
      business effectively began with the business combination among Goodtime, K&B
      and AWLLC in October 2005 with one gaming amusement center in El Paso, Texas
      (in
      which AWLLC was a joint operator) and 40 gaming machines. During fiscal year
      2006, we expanded into five new gaming amusement centers in Ft. Worth, Killeen,
      Corpus Christi (two centers) and Copperas Cove, Texas where, together with
      the
      El Paso center, we were operating 193 machines as of October 29, 2006. We
      also operated a center in McAllen, Texas for eight days in April 2006, which
      center was permanently closed as the request of local authorities. During the
      first four months of our fiscal year 2007 (which ended October 28, 2007) we
      opened a new center in Amarillo, Texas (which was temporarily closed on November
      9, 2007) and closed one of the Corpus Christi centers due to operational
      reasons, such that as of March 3, 2007, we were operating 260 gaming machines
      in
      six centers (including the El Paso center where we ended our participation
      in
      March 2007).





On
      March
      6, 2007, the Attorney General of Texas (the Attorney General) issued an opinion,
      which stated that AWP gaming machines that record a player’s winnings on a
      stored-value debit card are illegal in Texas. Under Texas law, the Attorney
      General’s opinion is not controlling on the state or binding on a court of law
      in that state. Ultimate determination of a law's applicability, meaning or
      constitutionality is determined by the Texas courts. However, certain local
      authorities in Texas have taken, and others may take, actions in response to
      the
      Attorney General’s opinion that resulted in the closure of two of our gaming
      amusement centers in March 2007 and the closure of a third center in November
      2007, which closures are discussed in more detail below. These authorities
      claim
      that our AWP machines, which are played exclusively with our Ace Advantage
      Card,
      operate in a manner similar to the types of cards and gaming machines described
      in the Attorney General’s opinion and are therefore illegal gambling devices. We
      believe our AWP machines and Ace Advantage Card redemption system do not violate
      Texas law regarding gambling devices or otherwise, and we intend to vigorously
      defend our position in the Texas courts.





Despite
      the adverse opinion issued by the Attorney General and the resultant closure
      of
      certain of our gaming amusement centers, we renewed our AWP business expansion
      plans in Texas during the first quarter of fiscal year 2008, which plans were
      suspended after issuance of the Attorney General’s opinion. Our decision to
      revive the expansion of our AWP operations was influenced by a favorable
      arbitration opinion we received regarding the legality of our AWP operations
      in
      Texas and subsequent federal court affirmation of that opinion, which are
      described below.





In
      March
      2007, local authorities in Amarillo, Nueces County, Texas and Killeen, Bell
      County, Texas threatened legal actions in response to the Attorney General’s
      opinion that resulted in the closure of our gaming amusement centers located
      at
      those locations. Also in March 2007, local authorities in Amarillo, Potter
      County, Texas notified us of their intent to file a nuisance action us regarding
      the legality of our AWP operations, but allowed us to operate the Amarillo
      center until November 9, 2007 when the nuisance action was initiated. Such
      legal
      actions and resultant litigation are described in more detail in Part I, Item
      3,
“Legal Proceedings.”




14





On
      April
      30, 2007, we exercised our option to terminate early due to regulatory reasons
      the lease agreement for a facility in San Antonio, Texas where we had planned
      to
      open a new gaming amusement center. Concurrent with exercising the option,
      we
      paid a termination fee to the lessor equal to three months’ rentals, or
      approximately $83,000, as is provided for in the lease. The landlord of that
      facility contends that our exercise of the option was invalid and filed suit
      against us in the county court where this facility is located. Although the
      suit
      does not list damages sought by the landlord, he had previously sent us a
      written demand for damages of approximately $319,000. Our termination of this
      lease and the related litigation are described in more detail in Part I, Item
      3,
“Legal Proceedings.”





On
      May
      25, 2007, we opened an expansion of our gaming amusement center in Ft. Worth,
      which expansion has allowed us to increase the number of AWP machines at that
      location to 80 machines (excluding one five-position game that is unique from
      all of our other games) from 42 machines. We have sinced added another 20
      machines, and depending on customer demand, we might increase the
      number of machines at this center to 150 machines sometime later this
      year.





On
      June
      7, 2007, and also as a consequence of the Attorney General’s opinion in March
      2007, we were notified by one of our gaming software providers and developers
      of
      that vendor’s intent to exercise its option to terminate an agreement with us
      because of our alleged illegal use of the games and gaming platform provided
      under the agreement. As is provided for in the agreement, we took this matter
      to
      arbitration on July 18, 2007. In his September 7, 2007 opinion, the
      arbitrator concluded that our AWP machines and system comply with Texas
      gambling laws, and on September 24, 2007, the United States District Court
      for
      the Western District of Texas confirmed the arbitrator’s opinion.




We
      reopened the Corpus Christi gaming amusement center on June 19, 2007 by
      offering our gaming patrons a different type of AWP gaming system than we
      currently offer in our other Ace Gaming Amusement Centers. The prize points
      from
      playing this new type of AWP game can be redeemed only at the Corpus Christi
      gaming center for non-cash merchandise and also allow our gaming patrons to
      enter sweepstakes games unique to that center for cash and other prizes, such
      as
      a new automobile. While that sweepstakes model performed well (we might deploy
      it in other of our existing and future gaming amusement centers as complements
      to and/or substitutes for our original AWP gaming system), it is complicated
      to
      operate and player demand was not as robust as it was for our original AWP
      games prior to the temporary closure of this center in early March 2007.
      Accordingly, upon independent verification that our AWP system operates in
      the
      manner described in the September 7, 2007 arbitrator’s opinion discussed above,
      as requested by Corpus Christi officials, we reinstated our original AWP model
      there in early January 2008 and intend to expand that center by April 2008.
      The
      expanded center will probably cost approximately $85,000, net of a $40,000
      build-out allowance from the lessor, and will allow us to increase the number
      of
      machines in operations there to 125 machines from the 69 machines we were
      operating in that center at the end of December 2007. We have entered into
      a
      facility lease agreement to accommodate this expansion, which we can terminate
      early upon payment of three months’ minimum rentals ($9,000) for any reason.
      However, early termination of this lease triggers an increase in the minimum
      rentals under our other lease with this landlord to $15,000 per month from
      $12,500 per month.





Our
      Copperas Cove gaming center is only 12 miles from the Killeen center. Since
      the
      closure of the Killeen center, we have enjoyed a significant increase in
      customer traffic and play at our Copperas Cove center such that we have not
      experienced a significant decline in our overall revenue resulting from
      the closure of the Killeen center. The operator of the bingo hall where our
      Copperas Cover gaming center is located intends to close that facility, and
      we
      are in discussions with him regarding the possible move of his and consequently
      our Copperas Cove operations into a newer and larger facility. To date, however,
      we have not made any firm or binding commitments to proceed with this
      project.





On
      September 24, 2007, the United States District Court for the Western District
      of
      Texas issued a final judgment confirming the aforementioned arbitrator's opinion
      that our gaming amusement operations comply with Texas law.  While we
      believe the federal court’s confirmation of the arbitrator's opinion is
      persuasive evidence of the legality of our AWP operations in Texas, the federal
      court’s ruling is not binding in a Texas court respecting this matter. As a
      result of the favorable arbitration decision and federal court ruling, we
      renewed plans to expand our AWP gaming centers in or close to bingo halls in
      Texas. We have also recommenced advertising and promoting our gaming centers
      in
      the local media where we are currently operating, which activities we had
      effectively discontinued subsequent to the Attorney General’s opinion in March
      2007. Historically, player demand and consequently our net revenue have been
      positively correlated with our adverting and promotional expenditures and
      campaigns.





On
      March
      19, 2007, we temporarily closed our gaming amusement center in Killeen, Bell
      County, Texas at the request of local authorities, and on April 13, 2007, we
      initiated litigation with the landlord of that facility to prevent him from
      evicting us due to the alleged illegal nature of our AWP operations. However,
      on
      January 22, 2008 the court dismissed our case finding that it did not have
      jurisdiction over the subject matter because of a justiciable controversy did
      not exist between the landlord and us. We had expected the same or a similar
      result prior to receiving the order of dismissal based on discussions with
      our
      legal counsel and had decided to permanently close the Killeen center in October
      2007. There was no long-term lease agreement or any other binding financial
      obligations associated with this facility. As noted previously, since the
      closing of the Killen center in March 2007, we have enjoyed a significant
      increase in customer traffic at our Copperas Cove amusement center, which we
      believe is due substantially to the migration of our Killeen gaming
      patrons.




15





On
      December 5, 2007, we opened our first amusement center in San Antonio with
      75
      AWP machines at a cost of approximately $185,000, excluding the machines. This
      was our first new amusement center since we opened the Amarillo center in
      November 2006. San Antonio is located in Bexar County, and it was this county’s
      district attorney who requested the opinion that was issued by the Attorney
      General in March 2007. On December 13, 2007, we opened our second gaming
      amusement center in Ft. Worth with 50 AWP machines at a cost of approximately
      $140,000, excluding the machines. The AWP machines for both centers came from
      our inventory of available machines.





In
      addition to the new centers in San Antonio and Ft. Worth and the possible
      expansion of the Corpus Christi and Copperas Cove centers discussed previously,
      our immediate plan is to open two additional gaming amusement centers in Ft.
      Worth one each in February 2008 and March 2008 at a total cost of $135,000
      for
      tenant improvements, and we have entered into lease agreements for these
      facilities. Subject to legal developments and available cash flow, we have
      also
      identified six other locations in Texas and currently plan to open at least
      one
      center per month at those locations beginning in May 2008 through October 2008.
      If we meet all of the objectives of our expansion plan, including the deployment
      of additional machines in certain of our existing centers as well as the new
      centers, we could have a total of 14 gaming amusement centers (assuming we
      reopen the Amarillo center) with approximately 1,300 machines and 200 additional
      employees by the end of our fiscal year 2008.





Based
      on
      our existing inventory, we have enough machines to facilitate the planned
      expansion of our existing centers and to open the two new centers in Ft. Worth.
      In order to complete our fiscal year 2008 expansion plans, we would need to
      acquire approximately 1,100 machines, inclusive of the machines needed to
      support our new AWP licensing business. Depending on the progress of our
      current expansion plan, we expect to either purchase or lease between 400 to
      500
      of those machines and to acquire the remaining machines under existing licensing
      agreements we have with certain game vendors.


Our
        commitment to proceed with our fiscal year 2008 expansion plan is based largely
        on our expectations of the corroboration associated with the federal court’s
        confirmation of the arbitration opinion and a successful outcome in the
        litigation in Potter County. However, we will to the extent warranted revise
        those plans or suspend them altogether for any of the following
        reasons.
 
 ·
              Legal
                  and/or political resistance to our expansion plans and/or our existing
                  AWP
                  operations.
 
 ·
              Adverse
                  legal and/or governmental rulings against our existing and/or future
                  AWP
                  operations.
 
 ·
              Market
                  demand.*
 
 ·
              Available
                  cash flow, as substantially all of the capital required under the
                  plan is
                  expected to be funded with cash flow generated from
                  operations.
 
 **** We
        are
        currently experiencing strong customer traffic at our amusement centers and
        consequently net hold margins well in excess of such budgeted amounts, which
        we
        attribute in part to the recommencement of aggressively advertising our AWP
        business (which we had severely curtailed subsequent to the issuance of the
        Attorney General’s opinion), additional public awareness of us through favorable
        stories in the local press and seasonality. (The winter months are generally
        the
        best months for the Texas bingo market, and we believe the seasonal demand
        for
        our AWP gaming effectively coincides with that market.)


In
      Texas,
      AWP gaming is not a state regulated industry, and state laws pertaining to
      gambling are interpreted and enforced usually at the county level. While we
      believe our AWP gaming system and Ace Advantage Card are legal, there is no
      assurance we will ultimately prevail in our case in Potter County. Further,
      while the federal court’s confirmation of the arbitrator’s opinion provides us
      with additional credibility, the federal court’s ruling is not binding on a
      Texas court regarding the legality of our AWP operations. While the permanent
      closure of the Amarillo amusement center in itself would not have a significant
      adverse affect on our results of operations and financial condition, an
      unfavorable ruling in Potter County could set an undesirable precedence and
      might encourage similar legal actions against our AWP operations in other
      counties in Texas. Prolonged and/or permanent closures of our gaming amusement
      centers resulting from such future litigation, if any, could collectively have
      an material adverse effect on our results of operations and financial
      condition.





*Corpus
      Christi Dog Track*





In
      December 2007, our board of directors approved an agreement between us and
      Graves Management, Inc. (an entity owned by Gordon T. Graves, our chairman
      of
      the board of directors) pursuant to which Graves Management would assign an
      option to us to purchase a 65% interest in a limited partnership that owns
      a dog
      racing license and facility in Corpus Christi, Texas (hereinafter, the “track
      partnership”). Michael T. Gallagher, one of our directors who currently has an
      ownership interest in the track partnership, has an identical option from Graves
      Management, and it has not yet been determined how much of the 65% interest
      will
      be acquired by us or by Mr. Gallagher. The purchase price for the 65% interest
      in the track partnership is approximately $5.0 million in upfront cash, plus
      up
      to an additional $2.5 million in contingent payments upon the occurrence of
      certain events after the closing. Graves Management acquired its option by
      matching an offer from unaffiliated party to acquire such controlling interest
      in the track partnership. We expect to finalize ours and Mr. Gallagher’s rights
      in our respective options and formally enter into the assignment with Graves
      Management in February 2008.





The
      assignment will obligate us and Gallagher to proportionally reimburse Graves
      Management for a $225,000 deposit it paid to secure the option. The initial
      option period ends on March 15, 2008, which deadline can be extended until
      June
      15, 2008 upon payment of an additional $225,000 deposit to the track
      partnership. The deposit is nonrefundable unless a Phase 1 environmental study
      that we are currently conducting determines there are environmental conditions
      at the dog track that, if not remedied by the track partnership at its
      discretion, could reasonably preclude us from acquiring the financing we will
      need to fund our share of the acquisition.




16





Our
      acquisition of the interest in the track partnership is subject to approvals
      by
      the Texas Racing Commission and our board of directors. The dog track has not
      operated since the end of December 2007. If we acquire the facility, we plan
      to
      reopen it this year with dog/horse racing simulcasts and pari-mutuel betting.
      We
      will also deploy a yet to be determined number of AWP machines there, which
      eventually could be as many as 500 machines based on customer demand. We
      anticipate live dog racing would recommence sometime in 2009. As importantly,
      this acquisition also positions us for the possibility that if video lottery
      terminals are approved by the Texas legislature in the future, we believe such
      operations will be limited to state licensed gaming venues such as race
      tracks.





Mr.
      Graves also owns an interest in the track partnership; however, his and Mr.
      Gallagher’s ownership interests in the track partnership are not part of the
      proposed acquisition. A special committee of our board of directors comprised
      of
      Messrs. David E. Danovitch, Martin A. Keane, John J. Schreiber and James J.
      Woodcock, each of whom is independent from and has no ownership interest in
      the
      track partnership, was formed to oversee our participation in this
      transaction.





*Other*





In
      June
      2007, the Texas Lottery Commission approved the concept of using electronic
      display devices to show the results of pull-tab bingo event tickets, which
      product we expect to begin marketing in March 2008. Due to the improved
      entertainment value offered by this system, we believe that the introduction
      of
      this type of pull-tab bingo might stimulate demand for pull-tabs by 10% to
      20%
      annually beginning in early fiscal year 2008.





In
      June
      2007, we entered into an agreement to provide prepaid stored-value card
      processing services (a three-year deal with minimum billings of $40,000 per
      year) to another entity. In August 2007, we entered into a joint venture
      partnership, under which our partner is responsible for marketing and we will
      provide stored-value card processing and similar services to financial
      institutions and other entities. We will employ the excess capacity already
      existing on the system with which we service our own Ace Advantage Card to
      provide these services such that we effectively have no initial investment
      in
      the joint venture or otherwise. To date, no significant revenue or costs have
      been generated or consumed by the joint venture nor do we expect any in the
      near-term.





In
      July
      2007, we successfully deployed our new Ace Advantage Card, for which we have
      received very positive feedback from our gaming patrons. The new Ace Advantage
      Card can be used on credit-card financial networks and increases the number
      of
      merchant locations (particularly restaurants, movie theaters and similar
      entertainment venues) where our gaming patrons can redeem their prize points.
      Also, due to this new feature, the Ace Advantage Card helps insure
      that our gaming patrons do not improperly redeem their prize
      points for money orders or similar negotiable instruments, which redemptions
      might be erroneously construed as winning a cash prize by playing our AWP
      games.





In
      November 2007, we began a new business program for our AWP operations by which
      we license the machines, gaming software, back-office systems (including access
      to our Ace Advantage Card redemption system) and provide ancillary services
      to
      bingo hall operators in Texas. Under this program, the bingo halls will operate
      the machines and we will share in the net revenue generated by those machines.
      To date, we have placed a total of 85 machines in bingo halls in three bingo
      halls, and we will place another 50 machines in another bingo hall in March
      2008. We hope to have agreements with up to 16 bingo halls and 400 AWP machines
      licensed under this program throughout Texas by the end of our fiscal year
      ending November 2, 2008.





In
      October 2007, we entered into a letter of intent with a vendor to provide us
      with at least 100 machines and games under a license agreement. Although the
      fees under this agreement, and a similar licensing agreement we have had in
      place since December 2006, are significantly higher than the license fees we
      pay
      for the games played on our own machines, there are no capital costs or other
      significant long-term financial long-term obligations associated with these
      agreements. Additionally, because of the increased variety and enhanced library
      of games made available to us under these agreements, we believe the stimulation
      in customer play more than offsets the fee difference.





**Results
      of Operations**





The
      following discussions analyze and compare our results of operations for the
      52-week periods ended October 28, 2007 and October 29, 2006 and for the 52-week
      periods ended October 29, 2006 and October 30, 2005. The following information
      should be considered together with our consolidated financial statements and
      the
      accompanying notes to those financial statements beginning at page F-1 of this
      annual report on Form 10-KSB and at page F-1 of the annual report on Form 10-KSB
      for our fiscal year ended October 29, 2006, which we filed with the SEC on
      February 6, 2007.





We
      operate and manage separately two business segments, our bingo supply business
      segment (Bingo) and our AWP gaming business segment (AWP). We do not allocate
      corporate overhead, certain other income (expense) items and income taxes to
      our
      operating business segments. Prior to October 30, 2005 (the last day of our
      fiscal year 2005), our only line of business was our bingo supply distribution
      business, which we began in 1978. Accordingly, the only meaningful
      period-over-period comparisons between the 52-week periods ended October 29,
      2006 and October 30, 2005 relate to our bingo supply business. We only began
      to
      earnestly build our AWP gaming business during the second fiscal quarter of
      2006
      and to create a corporate infrastructure to support the continued expansion
      of
      our AWP gaming business and our company generally after we acquired Goodtime
      in
      October 2006. Accordingly, and as discussed further below, our operations for
      the 52-week periods ended October 28, 2007 and October 29, 2006 were also
      substantially different in scope with respect to our AWP gaming business segment
      and our consolidated operations generally. Principally for these reasons, direct
      comparisons of our results of operations for the subject periods are not
      entirely meaningful or necessarily indicative of our future results of
      operations.





17




Additionally,
      the opinion issued by the Attorney General in March 2007 questioning the
      legality of our AWP gaming business has for the time being created doubts
      regarding our ability to peacefully operate our AWP gaming business in Texas,
      which is currently the only state in which we conduct such business operations.
      Prolonged and/or permanent disruptions of our AWP gaming operations in Texas
      could adversely and materially affect our future results of operations and
      financial position.





Our
      fiscal year generally ends on the last Sunday in October. This fiscal year
      creates better comparability of our quarterly results of operations by usually
      having an equal number of weeks (13) and weekend days (26) in each quarter,
      although this convention periodically necessitates a 53-week fiscal year.
      Hereinafter, *fiscal
      year 2007* refers
      to the 52-week period ended October 28, 2007, *fiscal
      year 2006* refers
      to the 52-week period ended October 29, 2006 and *fiscal
      year 2005* refers
      to the 52-week period ended October 30, 2005. Additionally, certain amounts
      of
      the condensed segment statements of operations for fiscal years 2006 and 2005
      have been reclassified to conform to the fiscal year 2007 financial statement
      presentation.





**Fiscal
      Year 2007 Compared to Fiscal Year 2006**





We
      incurred a net loss of $3,257,000 ($0.44 per basic and diluted common stock
      share) on net revenue of $20,937,000 for fiscal year 2007 compared to a net
      loss
      of $5,101,000 ($0.73 per basic and diluted common stock share) on revenue of
      $17,890,000 for fiscal year 2006. The principal differences between the results
      of operations for fiscal years 2007 and 2006 were as follows:





**Net
                loss for fiscal year 2006**
            
            $
            (5,101,000
            )**(Increase)
                decrease**Share-based
                compensation recognized using the graded vesting attribution method,
                which
                is a significant reason for the increased expense in fiscal year
                2006
            
            
            2,110,000Income
                tax provision due principally to a taxable loss in fiscal year 2007
                compared to taxable income in fiscal year 2006
            
            
            1,166,000Losses
                due to abandonment of leaseholds resulting primarily from our closure
                of
                gaming centers as a consequence of the adverse opinion issued by
                the
                Attorney General in March 2007
            
            
            (458,000
            )Nonoperating
                expense associated with the dividends accrued and paid on the Series
                A
                Preferred Stock due to our inability to timely make effective a
                registration statement related to the common shares into which the
                Series
                A Preferred Stock will eventually be converted
            
            
            (427,000
            )Legal
                expenses related directly to litigation arising from the adverse
                opinion
                issued by the Attorney General in March 2007
            
            
            (211,000
            )Employee
                severance and lease termination payments resulting primarily from
                our
                closure of gaming centers as a consequence of the adverse opinion
                issued
                by the Attorney General in March 2007
            
            
            (156,000
            )Other
            
            
            (180,000
            )**Net
                loss for fiscal year 2007**
            
            $
            (3,257,000
            )





For
      fiscal year 2007, our bingo supply and AWP gaming business segments generated
      net income (loss) before income taxes of approximately $2,997,000 and
      $(2,285,000), respectively. For fiscal year 2006, our bingo supply and AWP
      gaming business segments generated net income (loss) before income taxes of
      approximately $2,971,000 and $(1,446,000), respectively. Corporate expenses
      before income taxes were approximately $4,167,000 for fiscal year 2007 compared
      to $5,970,000 for fiscal year 2006. The following are condensed statements
      of
      operations for our business segments for fiscal years 2007 and
      2006.





**Fiscal
                Year 2007****Bingo**
            
            **AWP**
            
            **Corporate**
            
            **Consolidated**Revenue,
                net
            
            $
            15,166,451
            
            $
            5,770,293
            
            $
            -
            
            $
            20,936,744Share-based
                compensation
            
            
            -
            
            
            126,216
            
            
            1,384,525
            
            
            1,510,741Other
                operating expenses
            
            
            12,161,075
            
            
            7,801,899
            
            
            2,782,133
            
            
            22,745,107Operating
                income (loss)
            
            
            3,005,376
            
            
            (2,157,822
            )
            
            (4,166,658
            )
            
            (3,319,104
            )Other
                income (expense), net
            
            
            (8,142
            )
            
            (127,616
            )
            
            (336,082
            )
            
            (471,840
            )Income
                (loss) before income taxes
            
            
            2,997,234
            
            
            (2,285,438
            )
            
            (4,502,740
            )
            
            (3,790,944
            )Income
                tax benefit
            
            
            -
            
            
            -
            
            
            534,327
            
            
            534,327Net
                income (loss)
            
            $
            2,997,234
            
            $
            (2,285,438
            )
            $
            (3,968,413
            )
            $
            (3,256,617
            )





18





**Fiscal
                Year 2006****Bingo**
            
            **AWP**
            
            **Corporate**
            
            **Consolidated**Revenue,
                net
            
            $
            15,489,201
            
            $
            2,400,339
            
            $
            -
            
            $
            17,889,540Share-based
                compensation
            
            
            -
            
            
            48,316
            
            
            3,572,341
            
            
            3,620,657Other
                operating expenses
            
            
            12,520,286
            
            
            3,714,244
            
            
            2,397,684
            
            
            18,632,214Operating
                income (loss)
            
            
            2,968,915
            
            
            (1,362,221
            )
            
            (5,970,025
            )
            
            (4,363,331
            )Other
                income (expense), net
            
            
            1,990
            
            
            (83,500
            )
            
            (24,072
            )
            
            (105,582
            )Income
                (loss) before taxes
            
            
            2,970,905
            
            
            (1,445,721
            )
            
            (5,994,097
            )
            
            (4,468,913
            )Income
                tax expense
            
            
            -
            
            
            -
            
            
            631,671
            
            
            631,671Net
                income (loss)
            
            $
            2,970,905
            
            $
            (1,445,721
            )
            $
            (6,625,768
            )
            $
            (5,100,584
            )




Our
      results of operations at a business segment level are discussed in more detail
      below.





***Bingo
      Business Segment***





The
      significant changes in the results of operations for our Bingo business segment
      for fiscal years 2007 and 2006 are shown in the table below.




**Increase
                (decrease) from****Fiscal
                Year**
            
            **Fiscal
                Year 2006****2007**
            
            **Amount**
            
            **Percentage**Revenue
            
            $
            15,166,451
            
            $
            (322,750
            )
            
            (2.08
            )Cost
                of sales
            
            
            8,333,452
            
            
            (269,063
            )
            
            (3.13
            )Other
                operating expenses
            
            
            3,489,855
            
            
            (110,362
            )
            
            (3.07
            )Depreciation
                and amortization
            
            
            337,768
            
            
            20,214
            
            
            6.37Other
                income (expense), net
            
            
            (8,142
            )
            
            (10,132
            )
            
            (509.15
            )Income
                before income taxes
            
            $
            2,997,234
            
            
            26,329
            
            
            0.89




·
            The
                decrease in revenue was due primarily to the loss of certain commercial,
                high-volume customers in fiscal year 2007 and other competitive pressures
                that reduced our gross margin on certain products. The decrease in
                cost of
                sales was due to the aforementioned lost
                customers.





·
            The
                net change in other operating expenses was attributable primarily
                to
                decreases in payroll and benefits resulting from a reduction in staff
                and
                a decrease in health insurance premiums, and cuts in other expenses
                such
                as travel, meals and entertainment and marketing due to budgeting
                constraints resulting primarily from the aforementioned decline in
                revenue. These decreases were offset somewhat by a nonrecurring increase
                in professional fees related to the implementation of a new accounting
                system, which did not qualify for capitalization.





While
      we
      were able to effectively offset the revenue loss in fiscal year 2007 by reducing
      operating expenses, we do not believe we can accomplish similar cost savings
      in
      fiscal year 2008. Due to the loss of the aforementioned customers, continued
      pricing pressure from our competitors and expected declines in the number of
      people playing bingo, we currently estimate that our bingo revenue and cash
      flow
      for fiscal 2008 might decline by as much as $1.5 million and $.5 million,
      respectively. However, we are hopeful that the introduction in March 2008
      of a new “video confirmation” style of bingo pull-tabs might increase the
      contribution from our pull-tabs sales by 10% to 20% annually, or between
      $160,000 and $320,000, based on our current pull-tab sales and gross
      margins.





Disregarding
      the above, we are not currently aware of nor do we anticipate any other changes
      in the Texas bingo market or in our bingo operations specifically that might
      otherwise cause significant increases and/or decreases in our operating revenues
      and expenses for fiscal year 2008.




19




***AWP
        Business Segment***
  Our
          ability to generate profits in the future is dependent on our ability to
          place
          AWP machines into revenue service and/or increase the play (and consequently
          the
          net hold) on those and our existing machines. With the exception of contingent
          rentals, if any, and game license fees, the other incremental costs to
          operate
          our AWP machines are insubstantial and, disregarding the opening of new
          centers,
          we can most often add machines at existing centers without having to add
          staff
          or incur significant installation costs. Further, almost all of the direct
          operating expenses associated with our AWP business are variable in nature,
          and
          we have the ability to manage those expenses in relation to our ability
          to
          generate revenue from this business segment. As of October 28, 2007, we
          had most of the administrative infrastructure in place to grow and support
          our AWP business at least through fiscal year 2008. Accordingly, as we
          continue
          to place more AWP machines into operations and/or increase the net hold
          on our
          existing machines, substantially all of the net revenue generated by these
          machines should contribute directly toward covering our fixed costs and,
          ultimately, our pretax profitability. During fiscal year 2007, we also
          acquired
          a substantial inventory of AWP machines and developed more games and back
          office
          systems, which will help reduce the cost of expanding our AWP business
          in fiscal
          year 2008.
 As
        noted
        previously and as illustrated in the following table, we conducted significantly
        more AWP operations during fiscal year 2007 than in fiscal year 2006.
        Accordingly, substantially all of the changes in net revenue and expenses,
        with
        the exception of certain abandonment losses and other expenses associated
        with
        the Attorney General’s opinion, are explained by the increased scope and
        duration of our AWP operations during fiscal year 2007.
 
 **Fiscal
                  Year****2007**
              
              **2006**
              
              **Change**Number
                  of machines at end of period**1**
              
              
              230
              
              
              193
              
              
              19.2
              %Weighted
                  average machines during the period**1,
                  4**
              
              
              191
              
              
              86
              
              
              122.1
              %Machine
                  days (the product of the machines in operations and the number
                  of business
                  days in the period)**1**
              
              
              69,457
              
              
              31,225
              
              
              122.4
              %Operating
                  revenue per machine day**1,
                  2**
              
              $
              81.87
              
              $
              72.14
              
              
              13.5
              %Operating
                  expense per machine day**3**
              
              $
              102.27
              
              $
              119.05
              
              
              (14.1
              )%Operating
                  loss as a percent of operating revenue**1**
              
              
              (23.1
              )%
              
              (54.9
              )%
              
              57.9
              %
 
 **1**
              Excludes
                  the operating results from an amusement center in El Paso where
                  we were a
                  joint operator under a revenue sharing agreement from November
                  2005
                  through March 2007. Also, operating revenue per machine day for
                  fiscal
                  year 2007 does not include revenue we recognized in that period
                  as a
                  result of the expiration of certain Ace Advantage
                  Cards.**2**
              Operating
                  revenue per machine day is the amount of prize points played less
                  the
                  amount of prize points won and promotional giveaways, such as free
                  play
                  and food and beverage.**3**
              Operating
                  expense per machine day is adjusted for abandonment losses and
                  severance
                  and early lease termination payments resulting from the closure
                  of gaming
                  amusement centers. Operating expense per machine day for fiscal
                  year 2007
                  is also adjusted for the legal fees we have incurred that were
                  directly
                  related to litigation arising from the adverse opinion issued by
                  the
                  Attorney General.**4**
              Weighted
                  average number of machines is based on the number of machine days
                  operated
                  during the respective 364-day fiscal
                  years.
 
 The
        following table shows the changes in the results of operations for our AWP
        business segment for fiscal years 2007 and 2006. Operating results for fiscal
        year 2007 included $357,000 of abandonment losses, $211,000 of legal expenses
        and $156,000 of other expenses associated with the permanent closure of gaming
        centers, all of which were directly related to the adverse opinion issued
        by the
        Attorney General in March 2007. We cannot reasonably measure the revenue
        we lost
        due to the resultant temporary and permanent closure of certain of our gaming
        amusement centers as a consequence of the Attorney General’s opinion. We expect
        that net revenue and operating expenses, with the exception of share-based
        compensation, most administrative expenses and abandonment losses, will increase
        significantly in fiscal year 2008 compared to fiscal year 2007 due primarily
        to
        our current expansion plans and assuming there are no significant interruptions
        in our AWP operations during fiscal year 2008.
  20
  **Increase
                  (decrease) from****Fiscal
                  Year**
              
              **Fiscal
                  Year 2006****2007**
              
              **Amount**
              
              **Percentage**Revenue,
                  net
              
              $
              5,770,293
              
              $
              3,369,954
              
              
              140.39Other
                  operating expenses
              
              
              6,488,785
              
              
              3,191,606
              
              
              96.80Share-based
                  compensation
              
              
              126,216
              
              
              77,900
              
              
              161.23Depreciation
                  and amortization
              
              
              854,696
              
              
              460,255
              
              
              116.69Abandonment
                  losses
              
              
              458,418
              
              
              435,794
              
              
              1,926.25Other
                  income (expense), net
              
              
              (127,616
              )
              
              44,116
              
              
              52.83Loss
                  before income taxes
              
              $
              (2,285,438
              )
              
              (839,717
              )
              
              (29.08
              )
 
 
 ·
              The
                  increase in net revenue was due primarily to the increases customer
                  traffic, net hold per machine day and number of machine days operated
                  during fiscal year 2007. The hold ratio for both years remained
                  essentially unchanged at approximately 5.7%. In addition to the
                  new
                  amusement centers we plan to open during fiscal year 2008, we expect
                  the
                  growth in customer traffic during that period will be additionally
                  stimulated by increased expenditures for advertising and promotions
                  and as
                  the public generally becomes more aware of our AWP
                  business.
 
 ·
              The
                  more significant components of other operating expenses for fiscal
                  years
                  2007 and 2006, expressed as a percentage of net revenue, are shown
                  in the
                  following table. Because of the large disparity between the scope
                  of our
                  AWP operations during fiscal years 2007 and 2006, we believe this
                  comparison of the changes in other operating expenses is more meaningful
                  than a comparison of the changes in the amounts of such expenses.
 
 **Fiscal
                  Year****2007**
              
              **2006**(Percent
                  of Net Revenue)**Gaming
                  amusement centers**Payroll
                  and employee benefits
              
              
              21.0
              
              
              25.2Rent
                  and utilities
              
              
              21.5
              
              
              21.8Game
                  license fees
              
              
              8.3
              
              
              6.7Advertising
                  and promotions
              
              
              7.0
              
              
              6.1Professional
                  and contract services (**a**)
              
              
              6.4
              
              
              8.3Other
              
              
              6.6
              
              
              6.170.8
              
              
              74.2**Sales,
                  general and administrative**Payroll
                  and employee benefits
              
              
              15.6
              
              
              20.1Professional
                  and contract services
              
              
              10.5
              
              
              24.9Rent
                  and utilities
              
              
              4.9
              
              
              0.7Other
              
              
              7.1
              
              
              17.138.1
              
              
              62.8108.9
              
              
              137.0
 ( **a** )
          Excludes legal expenses for fiscal year 2007 directly attributable to the
          Attorney General’s opinion.
  21
  *Gaming
                  amusement centers*.
                  Currently, 61% of our gaming center employees are part-time, hourly
                  paid
                  employees. Accordingly, we are able to manage this expense by staffing
                  the
                  centers in proportion to customer traffic. Rent expense for all
                  but one of
                  our gaming amusement centers is contingent based on the net hold
                  generated
                  at the centers, although all of the applicable lease agreements
                  provide
                  for minimum monthly rents. Royalties related to the games played
                  at our
                  amusement centers are based completely on the net hold generated
                  by the
                  respective machines and/or games. Additionally, beginning in fiscal
                  year
                  2007, certain of our machines and games were licensed to us under
                  revenue
                  sharing agreements, which results in higher game license fees than
                  the
                  fees we pay for the games played on our own machines. In late fiscal
                  year
                  2007, we also entered into a similar revenue sharing agreement
                  to acquire
                  a minimum number of machines and games to help facilitate our fiscal
                  year
                  2008 expansion plans. Advertising and promotions expense is expected
                  to
                  increase significantly in fiscal year 2008 compared to fiscal year
                  2007
                  due in large part to the opening of new centers and the fact that
                  we
                  significantly curtailed such expenditures in fiscal year 2007 subsequent
                  to the issuance of the Attorney General’s opinion.*Sales,
                  general and administration*.
                  While we expect increases in payroll and professional/contract
                  services
                  expenses during fiscal year 2008, we expect such increases to be
                  significantly less than what we experienced during fiscal years
                  2007 and
                  2006. These modest increases are primarily due to the fact that
                  we have
                  the infrastructure in place to support our current and expanded
                  operations
                  at least through fiscal year 2008.·
              The
                  increase in depreciation and amortization expense (exclusive of
                  the
                  amortization of an intangible asset that is accounted for as an
                  other
                  operating expense) was principally due to capital additions during
                  the
                  fourth fiscal quarter of fiscal year 2006 and fiscal year 2007
                  related to
                  gaming machines, capitalized gaming software and leasehold improvements
                  to
                  gaming centers. This expense will increase in fiscal year 2008
                  based
                  primarily on the number of new amusement centers we open and owned
                  AWP
                  machines we will deploy during that period.·
              At
                  noted previously, $357,000 of the abandonment losses resulted from
                  the
                  permanent closure of certain gaming centers as a consequence of
                  the
                  Attorney General’s opinion. The remaining losses were the result of our
                  abandoning certain other leaseholds due to operational
                  reasons.
 
 Subsequent
        to October 28, 2007, we opened two new gaming centers in which we had deployed
        125 AWP machines by the end of December 2007. Additionally, we have firm
        plans
        to open two new centers by March 2008 in which we will initially deploy another
        125 machines. By the end of December 2007, we had also deployed 85 machines
        in
        three bingo halls and will deliver 50 machines to another bingo hall operator
        in
        March 2008 under revenue sharing license agreements. As discussed previously,
        if
        we meet all of the objectives for expanding our AWP business during fiscal
        year
        2008, by the end of that year (or November, 2, 2008) we will have in operations
        approximately 1,300 AWP machines in 14 of our own gaming amusement centers
        and
        another 400 machines licensed to 16 bingo hall operators.




22




***Corporate
      Overhead***





In
      addition to income taxes, corporate overhead includes the salaries and benefits
      for our executive officers and other corporate employees, legal and accounting
      fees not otherwise allocated to our Bingo and AWP business segments and other
      corporate and fiscal expenses, such as director and officer liability insurance.
      Corporate overhead also includes interest expense incurred on the notes payable
      to related parties and nonoperating expenses associated with the dividends
      we
      have accrued and paid to the holders of the Series A Preferred Stock. The
      following table shows the changes in the components of our corporate overhead
      for fiscal years 2007 and 2006. The net decrease in fiscal year 2007 expenses
      is
      attributable almost entirely to the decrease in share-based compensation and
      the
      change in the income tax provision for that period compared to fiscal year
      2006.
      Measured as a percentage of total net operating revenues, corporate overhead
      expenses before income taxes were approximately 22% for fiscal year 2007
      compared to 34% for fiscal year 2006.




**Increase
                (decrease) from****Fiscal
                Year**
            
            **Fiscal
                Year 2006****of
                 2007**
            
            **Amount**
            
            **Percentage**Other
                corporate expenses
            
            $
            2,755,632
            
            $
            382,244
            
            
            16.11Share-based
                compensation
            
            
            1,384,525
            
            
            (2,187,816
            )
            
            (61.42
            )Depreciation
                and amortization
            
            
            26,501
            
            
            2,205
            
            
            9.08Other
                income (expense), net
            
            
            (336,082
            )
            
            312,010
            
            
            1,296.15Income
                tax benefit
            
            
            534,327
            
            
            1,165,998
            
            
            184.59Loss
                before income taxes
            
            $
            (3,968,413
            )
            
            2,657,355
            
            
            43.11





·
            The
                increase in other corporate expenses was primarily due to increases
                in
                payroll and employee benefits, professional and contract services
                and rent
                for our corporate offices in Dallas. The increase in payroll is due
                almost
                entirely to the fact that most of the corporate administrative staff
                was
                engaged after we acquired Goodtime in October 2006. We also expect
                to add
                some administrative staff during fiscal year 2008. The increase in
                professional and contract services was due to the engagement of a
                lobbying
                consultant in fiscal year 2007 (which contract we have extended for
                fiscal
                year 2008) and accounting and other professional fees we incurred
                related
                to filings with the SEC and other corporate matters (e.g., the formation
                of subsidiary companies). We first occupied our Dallas office in
                November
                2007.





·
            The
                decrease in share-based compensation is explained below under the
                caption*Share-Based
                Compensation*.





·
            The
                decrease in other income (expense), net is attributable primarily
                to the
                dividends we accrued on the Series A Preferred Stock, which were
                accounted
                for as nonoperating expense. The obligation arose because of our
                failure
                to timely meet a deadline in obtaining the effectiveness of a registration
                statement we filed with the SEC to register the common shares into
                which
                the Series A Preferred Stock will eventually be converted. This financial
                obligation and the issuance of the Series A Preferred Stock generally
                are
                described in more detail at Note 15, “Capital Stock,” to our consolidated
                financial statements included in this annual report on Form
                10-KSB





·
            The
                change in our income tax provision was due primarily to a taxable
                loss for
                fiscal year 2007 (most of which was carried back to fiscal year 2006)
                compared to taxable income for fiscal year 2006. Our provisions for
                income
                taxes for fiscal years 2007 and 2006 are described in more detail
                in Note
                13, “Income Taxes,” to our consolidated financial statements included in
                this annual report on Form 10-KSB.





To
      help
      defray the legal expenses we are incurring that are directly related to the
      litigation arising from the Attorney General’s March 2007 opinion, beginning in
      April 2007, our executive officers and certain other key employees agreed to
      defer the payments of 10% of their base annual salaries. While we currently
      have
      no definitive plans to significantly reduce our corporate overhead, we will,
      if
      necessary, take appropriate actions to reduce such expenses going forward based
      on our expected future cash flow from operations.





In
      March
      2007, the Compensation Committee of our Board of Directors (the Compensation
      Committee) approved employment agreements (the Employment Agreements) for our
      president/chief executive officer and our chief operating officer. The term
      of
      each of the Employment Agreements is for three years (effective March 1, 2007),
      unless terminated earlier. Each officer is guaranteed a minimum annual salary
      of
      $350,000 during the terms of the Employment Agreements, can earn annual bonuses
      and participate in all other compensation and benefits plans provided generally
      to all of our employees, including the 2007 Stock Incentive Plan.





In
      March
      2007, the Compensation Committee also approved a new employment agreement (the
      New Employment Agreement) for our chief financial officer. The New Employment
      Agreement became effective on April 1, 2007 and expires on March 1, 2010, unless
      terminated earlier. The New Employment Agreement provides our chief financial
      officer with a guaranteed a minimum annual salary of $230,000 and allows him
      to
      earn annual bonuses and to participate in all other compensation and benefits
      plans provided generally to all of our employees, including the 2007 Stock
      Incentive Plan.




23





As
      of
      October 28, 2007, no additional compensation had been awarded to any of the
      three executive officers pursuant to their respective employment agreements
      or
      otherwise, nor are there any plans to do so in the near-term. As noted
      previously, each of these executive officers, as well as our chief accounting
      officer and certain other key employees, agreed to defer payment of 10% of
      their
      base annual salaries, effective April 1, 2007.





The
      Employment Agreements and the New Employment Agreement are described in more
      detail in Part III, Item 10, “Executive Compensation.”





***Share-Based
      Compensation***





In
      October 2006, and in conjunction with our acquisition of Goodtime, we granted
      approximately 1,128,000 shares of restricted common stock to certain of our
      executive officers, certain employees and all of non-employee directors in
      exchange for profit interests those persons held in Goodtime. The exchange
      of
      the restricted stock for the profit interests was accounted for as a
      modification of an award pursuant to Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). Under SFAS 123R, when
      an award is modified, the entity is deemed to have repurchased the original
      award by issuing a new award of greater or equal value and incurs additional
      compensation cost for the incremental value of the new award. Immediately prior
      to the exchange, the profit interests were deemed to have no value, whereas
      the
      fair value of the restricted common stock was estimated at $5.00 per share.
      The
      restricted common stock are subject to the same graded vesting terms as were
      the
      profit interests and vest over a weighted-average period of approximately 1.3
      years from the respective grant dates of the profit interests. Because almost
      64% of the restricted shares vested by March 31, 2007 and we elected to
      recognize the compensation cost associated with the restricted common stock
      using the graded vesting attribution method, compensation expense was
      considerably higher in fiscal year 2006 than in fiscal year 2007. The exchange
      of the restricted common stock for the profit interests is described in more
      detail in Note 9, “Share-Based Compensation,” to our consolidated financial
      statements included in this annual report on Form 10-KSB.





As
      of
      October 28, 2007, compensation cost of approximately $265,000 related to the
      remaining nonvested restricted shares will be recognized during the first nine
      months of our fiscal year 2008.





During
      fiscal year 2006, we issued 40,000 shares of our common stock in exchange for
      consulting services. The total fair value of the shares was estimated at
      $150,000 and was based on the fair value of the services we received. While
      the
      2007 Stock Incentive Plan allows us to grant shares to unaffiliated persons
      for
      goods and services, we currently have no plans to do so in the
      near-term.





In
      March
      2007, a majority of our common stockholders approved the 2007 Stock Incentive
      Plan, which provides for the grants of share-based and cash awards to our
      employees (including our executive officers), non-employee directors and other
      persons providing goods and services to us. As of October 28, 2007, no awards
      had been made under the 2007 Stock Incentive Plan, which is currently our only
      equity compensation plan. The 2007 Stock Incentive Plan is described in more
      detail in Part III, Item 10, “Executive Compensation.”





**Fiscal
      Year 2006 Compared to Fiscal Year 2005**





The
      following discussion about our results of operations for our fiscal years 2006
      and 2005 does not consider the actual and possible future ramifications to
      our
      AWP gaming business and our company generally resulting from the opinion issued
      by the Attorney General of Texas on March 6, 2007.





We
      incurred a net loss of $5,101,000 ($0.73 per basic and diluted common stock
      share) on net revenue of $17,890,000 for fiscal year 2006 compared to net income
      of $45,000 ($0.01 per basic and diluted common stock share) on revenue of
      $14,895,000 for fiscal year 2005. Our fiscal year 2006 results of operations
      were negatively affected by $3,621,000 of non-cash charges related to
      share-based compensation, and by increases in depreciation and amortization
      expense of approximately $560,000, interest expense of $141,000 and income
      tax
      expense $605,000 compared to fiscal year 2005. Substantially all of the
      increases in the fiscal year 2006 expenses are attributable to our acquisition
      of Goodtime in October 2006 as follows.





·
            The
                share-based compensation expense was primarily due to the award of
                approximately 1,128,000 shares of restricted common stock to certain
                of
                our executive officers, certain key employees and our non-employee
                directors.





·
            The
                increase in depreciation and amortization was primarily due to the
                acquisition of Goodtime’s tangible and intangible
                assets.





·
            The
                increase in interest expense was primarily due to our assumption
                of debt
                and capitalized lease obligations that Goodtime had incurred to acquire
                working capital, property and equipment and proprietary software
                for our
                AWP business.





·
            The
                increase in income tax expense was primarily due to the non-deductibility
                of substantially all of the aforementioned share-based compensation
                and
                operating losses incurred by certain of our subsidiaries prior to
                our
                acquisition of Goodtime, and by our recognition of deferred tax
                liabilities resulting from the change in the tax status of those
                subsidiaries.




24




For
      fiscal year 2006, our bingo supply and AWP gaming business segments generated
      net income (loss) before income taxes of approximately $2,971,000 and
      $(1,446,000), respectively. For fiscal year 2005, our only business segment
      was
      the bingo supply business. For comparability purposes only, by removing
      corporate overhead comparable to the fiscal year 2006 amount and income taxes,
      our bingo supply business earned income before income taxes of approximately
      $2,521,000 in fiscal year 2005. The following are condensed statements of
      operations for our business segments for fiscal years 2006 and
      2005.





**Fiscal
                Year 2006****Bingo**
            
            **AWP**
            
            **Corporate**
            
            **Consolidated**Revenue,
                net
            
            $
            15,489,201
            
            $
            2,400,339
            
            $
            -
            
            $
            17,889,540Share-based
                compensation
            
            
            -
            
            
            48,316
            
            
            3,572,341
            
            
            3,620,657Other
                operating expenses
            
            
            12,520,286
            
            
            3,714,244
            
            
            2,397,684
            
            
            18,632,214Operating
                income (loss)
            
            
            2,968,915
            
            
            (1,362,221
            )
            
            (5,970,025
            )
            
            (4,363,331
            )Other
                income (expense), net
            
            
            1,990
            
            
            (83,500
            )
            
            (24,072
            )
            
            (105,582
            )Income
                (loss) before taxes
            
            
            2,970,905
            
            
            (1,445,721
            )
            
            (5,994,097
            )
            
            (4,468,913
            )Income
                tax expense
            
            
            -
            
            
            -
            
            
            631,671
            
            
            631,671Net
                income (loss)
            
            $
            2,970,905
            
            $
            (1,445,721
            )
            $
            (6,625,768
            )
            $
            (5,100,584
            )




**Fiscal
                Year 2005****Bingo**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            14,895,186
            
            $
            -
            
            $
            14,895,186Operating
                expenses
            
            
            12,377,633
            
            
            2,449,870
            
            
            14,827,503Operating
                income (loss)
            
            
            2,517,553
            
            
            (2,449,870
            )
            
            67,683Other
                income (expense), net
            
            
            3,751
            
            
            -
            
            
            3,751Income
                (loss) before taxes
            
            
            2,521,304
            
            
            (2,449,870
            )
            
            71,434Income
                tax expense
            
            
            -
            
            
            26,143
            
            
            26,143Net
                income (loss)
            
            $
            2,521,304
            
            $
            (2,476,013
            )
            $
            45,291





***Bingo
      Business Segment***





Because
      we did not operate the AWP business segment in fiscal year 2005, the only
      meaningful period-over-period comparisons between fiscal year 2006 and fiscal
      year 2005 relate to our bingo supply business. Corporate overhead for fiscal
      year 2005 consisted solely of the compensation paid to three of our executive
      officers and payroll related overhead and is not included in the analysis below
      nor are income taxes. The significant changes in other revenues and expenses
      for
      our bingo business segment in fiscal year 2006 compared to fiscal year 2005
      are
      shown in the table below and are discussed in the accompanying footnotes.




**Change
                from Fiscal**
              **Year
                2005****Fiscal
                Year**
            
            **Increase**
            
            **Percentage****2006**
            
            **(decrease)**
            
            **change**Revenue
            
            $
            15,489,201
            
            $
            594,015
            
            
            3.99Cost
                of sales
            
            
            8,602,515
            
            
            109,507
            
            
            1.29Other
                operating expenses
            
            
            3,600,217
            
            
            27,199
            
            
            0.76Depreciation
                and amortization
            
            
            317,554
            
            
            5,947
            
            
            1.91Other
                income (expense), net
            
            
            1,990
            
            
            (1,761
            )
            
            (46.95
            )$
            2,970,905
            
            
            449,601
            
            
            17.83




The
                increases in revenue and cost of sales for fiscal year 2006 was primarily
                due to the increase in branded pull-tab sales, an instant winner
                paper
                ticket similar to a lottery scratch-off ticket, which are popular
                with
                bingo patrons.





***AWP
      Business Segment***





The
      following is an overview of the significant components of the AWP business
      segment’s revenue and expenses for fiscal year 2006.




*Revenue* .
      Substantially all of the revenue from our AWP business comes from the difference
      (or the hold) between the prize points played and the prize points won by our
      AWP gaming patrons. Our revenue from a gaming amusement center in El Paso,
      Texas, where we were a joint operator, was 40% of the hold after certain
      adjustments. Promotional allowances, consisting mostly of direct mail and
      newspaper coupons and entitlement programs, provide our gaming patrons with
      free
      play and are recognized as reductions in revenue when such promotional
      allowances are redeemed. We expect to substantially increase revenue from our
      AWP business in fiscal year 2007 due to the opening of new gaming centers,
      the
      expansion of existing centers and the fact that most of our existing
      centers, which opened at various times during fiscal year 2006, will have been
      operating for all of fiscal year 2007.




25





*Operating
      Expenses* .
      The
      following amounts represent the most significant components of operating
      expenses for fiscal year 2006 as well as the ones we expect to recur annually.
      We expect that substantially all of these expenses will increase in fiscal
      year
      2007 as we open new gaming amusement centers and because our existing centers,
      which opened at various times during fiscal year 2006, will have been operating
      for all of fiscal year 2007.


·
              Salaries
                    and benefits of $1,138,000, including $48,000 of share-based
                    compensation.
                    Most of the employees who work at our gaming amusement centers
                    are hourly
                    employees, whereas our amusement center managers and administrative
                    management and staff are salaried
                    employees.


·
            Contract
                services of $799,000. Contract services include the costs incurred
                for
                security services at our gaming amusement centers and consulting
                and other
                services related to back office systems that support our server-based
                gaming machines and Ace Advantage
                Card.





·
            Rent
                and utilities of $539,000. Rent expense for most of our gaming amusement
                centers is based on a percentage of the hold or the number of gaming
                machines located at the centers.





·
            Depreciation
                and amortization of $394,000. Depreciation and amortization expense,
                which
                excludes the amortization of the proprietary software discussed below,
                was
                primarily related to tenant improvements of the gaming amusement
                centers
                and AWP machines subject to capitalized lease
                agreements.





·
            Advertising
                and promotional expenses of $194,000. We promote our Ace Gaming Amusement
                Centers in the locations in which we operate them through various
                advertising media such as television, radio, newspapers, direct-mailings
                and billboards.





·
            Royalties
                of $187,000. These royalties are incurred under licensing agreements
                we
                have for the games we use in our AWP
                machines.





·
            Amortization
                of $133,000. This expense relates to proprietary software that enables
                us
                to process the redemptions of prize points through the financial
                networks.





*Other
      income (expense).* Other
      income (expense) for fiscal year 2006 was comprised of approximately $78,000
      of
      interest expense on certain debt and capitalized lease obligations we incurred
      to finance AWP machines and proprietary software to support our Ace Advantage
      Card system.





***Corporate
      Overhead***





Excluding
      income taxes, the most significant components of corporate overhead for fiscal
      year 2006 were salaries, benefits and other compensation of $4,778,000 for
      our
      executive officers, administrative staff and non-employee directors and
      professional fees of $907,000, most of which were incurred for accounting and
      legal services associated with our formation and our subsequent acquisition
      of
      and merger into Goodtime. Such compensation expense and professional fees
      included share-based compensation of $3,422,000 and $150,000, respectively.
      Corporate overhead expense for fiscal year 2005 consisted entirely of the
      salaries and benefits of certain of our executive officers who were then the
      executive officers and owners of K&B. Excepting share-based compensation,
      which is discussed below, we expect a modest increase in corporate overhead
      expenses during fiscal year 2007 as we continue to grow our AWP business segment
      albeit at a slower rate because a substantial amount of our corporate
      infrastructure, including the hiring of most personnel, was completed late
      in
      fiscal year 2006.




Although
      we incurred a consolidated pretax loss of $4,469,000, consolidated income tax
      expense was $632,000 for fiscal year 2006 compared to income tax expense of
      $26,000 for fiscal year 2005. The increase in the fiscal year 2006 income tax
      provision was due primarily to the change in our business operations beginning
      with the acquisition of Goodtime in October 2006 that resulted in non-deductible
      expenses of $3,471,000 related to the aforementioned share-based compensation
      and $2,158,000 of operating losses incurred by certain of our subsidiaries
      prior
      to the acquisition of Goodtime, and the recognition of deferred income tax
      expense of $182,000 associated with the change in the tax status of such
      subsidiaries. Refer to Note 13, “Income Taxes,” to our consolidated financial
      statements included in this annual report on Form 10-KSB for additional
      information about our fiscal year 2006 income tax provision.





***Share-Based
      Compensation***





We
      recognized share-based compensation of $3,621,000 during fiscal year 2006
      related to the grant of approximately 1,128,000 shares of restricted common
      stock to certain of our officers, certain employees and all of our non-employee
      directors, and the issuance of 40,000 shares of our common stock for services
      received. The award of the restricted common shares was made in exchange for
      the
      profits interests these officers, employees and directors had in Goodtime prior
      to its acquisition by us and was part of our original capitalization of
      8,000,019 shares of common stock. Additional compensation expense of $1,785,000
      and $386,000 related to such nonvested restricted common shares outstanding
      as
      of October 29, 2006 will be recognized in fiscal year 2007 and fiscal year
      2008,
      respectively. The grant of the restricted common stock shares is described
      in
      more detail at Note 9, “Share-Based Compensation,” to our consolidated financial
      statements included in this annual report on Form 10-KSB.




26




**Liquidity
      and Capital Resources**




We
      had
      cash and cash equivalents of approximately $3,610,000 as of October 28, 2007
      compared to cash and cash equivalents of approximately $7,101,000 as of October
      29, 2006. We also had restricted cash of $91,000 at the end of fiscal year
      2007
      compared to restricted cash of $309,000 at the end of fiscal year 2006.
      Restricted cash as of October 28, 2007 consisted of a non-interest bearing
      account held by and for the benefit of the bank that currently sponsors the
      Ace
      Advantage Card, which restricted funds are used by us to settle the redemptions
      of prize points processed by the bank. Restricted cash as of October 29, 2006
      consisted of a similar non-interest bearing account in the approximate amount
      of
      $59,000 and a cash security deposit of $250,000 held by and for the benefit
      of a
      bank that previously sponsored the Ace Advantage Card. Operationally, the
      sponsorship agreement with that bank ended on December 31, 2006, and all of
      the
      cash security deposit was fully refunded to us by August 2007.





During
      fiscal year 2007, cash and cash equivalents decreased by $3,491,000 due
      primarily to the acquisition of additional capital assets for our AWP business
      and repayments of debt and capital lease obligations, which are described in
      more detail below.





We
      had
      cash and cash equivalents of $7,101,000 as of October 29, 2006 compared to
      cash
      and cash equivalents of approximately $501,000 as of October 30, 2005. We also
      had restricted cash of $309,000 at the end of fiscal year 2006, the purpose
      of
      which is described above. The primary reasons for the approximate $6,600,000
      increase in cash and cash equivalents for fiscal year 2006 were net proceeds
      of
      $7,343,000 from the sale in October 2006 of our Series A Preferred Stock,
      working capital proceeds of $1,600,000 from the issuance of notes payable to
      related parties and proceeds of $1,358,000 from the sale and leaseback of AWP
      machines. During fiscal year 2006, we also made capital expenditures of
      $3,638,000, most of which were for the expansion of our AWP business, and made
      net repayments of $864,000 of debt and capital lease obligations. The sale
      of
      the Series A Preferred Stock is described in more detail in Note 15, “Capital
      Stock,” to our consolidated financial statements included in this annual report
      on Form 10-KSB.





As
      in
      fiscal years 2006 and 2005, all of our cash flow from operations for fiscal
      year
      2007 was provided by our bingo supply operations, which cash flow we expect
      to
      decline for fiscal year 2008. However, we currently believe that as we continue
      to place AWP machines into revenue service (we have deployed 210 machines since
      October 28, 2007), our AWP operations will provide positive cash flow during
      fiscal year 2008. Accordingly, even with the expected decline in cash flow
      from
      our bingo operations, we believe that cash flow generated by consolidated
      operations during fiscal year 2008, together with our currently available cash,
      will sustain our operations and satisfy our financial obligations for at least
      the next 12-month period. These expectations assume we are able to meet most
      of
      the objectives for expanding our AWP business during fiscal year 2008 and that
      there are no prolonged interruptions in the operations of any other of our
      amusement centers or any other unforeseen adverse event that might critically
      test our financial resources.





Notwithstanding
      other matters that might affect our fiscal year 2008 AWP expansion plans, we
      will manage such expansion based on the availability of excess cash flow from
      our consolidated operations. Accordingly, those plans will be altered or even
      suspended outright depending on the availability of sufficient cash flow. Also,
      as described below, in August 2007, we renegotiated a $350,000 bank credit
      facility that had expired on April 30, 2007; and in October 2007, certain
      related parties holding promissory notes payable in the cumulative amount of
      $1,302,000 agreed to exchange those notes for new notes that mature on May
      2009.
      With the exception of possibly financing the acquisition of a dog track in
      Corpus Christi, which was described previously, we presently do not have any
      plans to issue additional equity or debt securities for the purpose of raising
      working capital. However, we may do so in the future provided such financing
      is
      available, can be made under commercially reasonable terms and is complementary
      to our long-term business plan.





*Cash
      Flows for Fiscal Years 2007 and 2006*





Our
      condensed consolidated net cash flows for fiscal years 2007 and 2006 were as
      follows.





**Fiscal
                Year****2007**
            
            **2006**
            
            **Change**Net
                cash provided by (used in):Operating
                activities
            
            $
            (238,094
            )
            $
            10,985
            
            $
            (249,079
            )Investing
                activities
            
            
            (2,625,632
            )
            
            (3,531,341
            )
            
            905,709Financing
                activities
            
            
            (627,271
            )
            
            10,120,782
            
            
            (10,748,053
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            (3,490,997
            )
            $
            6,600,426
            
            $
            (10,091,423
            )





The
      significant changes in our cash flows for fiscal year 2007compared to fiscal
      year 2006 are discussed below.




27





Operating
      activities. Cash flows from operating activities are affected by our results
      of
      operations (net income (loss) adjusted for non-cash credits and charges) and
      from the changes in the assets and liabilities that support such operations.
      The
      components of the approximate $249,000 decrease in net cash provided by
      operating activities during fiscal year 2007 are shown in the following
      table.





**Fiscal
                Year****2007**
            
            **2006**
            
            **Change**Net
                cash provided by (used in) operations
            
            $
            169,034
            
            $
            (120,416
            )
            $
            289,450Increase
                (decrease) in cash from net change in operating assets and
                liabilities
            
            
            (407,128
            )
            
            131,401
            
            
            (538,529
            )Net
                cash provided by operating activities
            
            $
            (238,094
            )
            $
            10,985
            
            $
            (249,079
            )





Historically,
      our cash flow from operations had been provided by our bingo supply business,
      which cash flow in fiscal year 2007 was essentially unchanged from fiscal year
      2006. The improvement in cash flow from consolidated operations for fiscal
      year
      2007 is attributable primarily to the fact that we used approximately $226,000
      less cash in our AWP operations and for corporate overhead purposes during
      fiscal year 2007 than in the prior year. The net decrease in cash flow resulting
      from the changes in operating assets and liabilities during fiscal year 2007
      was
      primarily due to the payment of income taxes payable related to fiscal year
      2006
      and an increase in income taxes receivable related to the carryback of net
      operating losses incurred in fiscal year 2007. Additionally, $250,000 of
      restricted cash associated with our Ace Advantage Card liability was released
      to
      us during fiscal year 2007.





Investing
      Activities. The decrease in net cash used in investing activities during fiscal
      year 2007 was attributable primarily to a decrease in the acquisition of capital
      assets for our AWP business, which in turn was the result of suspending our
      expansion plans after the Attorney General issued his opinion in March
      2007.





Financing Activities. Financing activities for fiscal year 2007 consisted
      entirely of repaying debt and capital lease obligations. As described above,
      in
      fiscal year 2006, we raised approximately $10,121,000 from the issuance of
      certain equity and debt securities, net of related issuance costs and repayments
      of debt and capital lease obligations.





*Current
      Indebtedness and Lease Obligations*





As
      of
      October 28, 2007, we had outstanding two promissory demand notes payable to
      our
      chief executive officer and chief operating officer in the cumulative amount
      of
      approximately $653,000 inclusive of accrued and unpaid interest. The notes
      and
      accrued interest were payable in full on November 11, 2007. As of October 28,
      2007, we also had outstanding a promissory demand note payable to our chairman
      of the board in the approximate amount of $649,000 inclusive of accrued and
      unpaid interest. This note and accrued interest were payable in full on January
      20, 2008. On October 28, 2007, we exchanged new non-demand notes maturing May
      3,
      2009 with each of these related parties in the cumulative amount of $1,302,000.
      The notes are described in more detail in Note 11, “Long-term Debt,” and Note
      17, “Transactions with Related Parties,” to our consolidated financial
      statements included in this annual report on Form 10-K.





In
      August
      2007, we completed the revision of a bank credit facility that had expired
      on
      April 30, 2007. The revised credit facility expires on April 30, 2008, and
      outstanding borrowings at any time are limited to the lesser of $350,000 or
      an
      amount based on our eligible inventory and eligible accounts receivable, as
      such
      terms are defined in the credit facility. Borrowings under the credit facility
      are payable on demand and bear variable-rate interest indexed to the prime
      lending rate (as quoted in *The
      Wall Street Journal* from
      time to time) plus 1%, which interest is payable monthly. Outstanding
      obligations under the credit facility are secured by certain of our inventory,
      accounts receivable and intangible assets and are guaranteed by us, Goodtime
      and
      one of our officers/common stockholders. The financial covenants include minimum
      net worth (based on the net worth of K&B, which is the legal borrower under
      this facility), current ratio and debt-service coverage ratio tests. There
      are
      no commitment fees or compensating balances associated with the credit facility.
      We currently have not borrowed any funds under this credit
      facility.




As
      of
      October 28, 2007, we had future minimum lease payments of approximately
      $3,288,000 due under capitalized lease obligations and operating leases, of
      which approximately $255,000 was payable either directly or indirectly to two
      of
      our executive officers/common stockholders. These obligations are described
      in
      more detail in Note 12, “Leases,” and Note 17, “Transactions with Related
      Parties,” to our consolidated financial statements included in this annual
      report on Form 10-K.





*Other
      Sources and Uses of Cash*





Effective
      March 11, 2007, we became liable to the holders of our Series A Preferred Stock
      to pay dividends to them of $40,300 for each 30-day period (pro rated for
      periods of less than 30 days) from said date to the date a registration
      statement we initially filed with the SEC in November 2006 becomes effective.
      The registration statement was filed principally for the purpose of registering
      the common shares into which the Series A Preferred Stock will be automatically
      converted upon the effectiveness of the registration statement. As of October
      28, 2007, we had accrued dividends through the date we currently believe the
      registration will become effective of approximately $427,000 associated with
      this financial obligation. Approximately $145,000 of the accrued dividends
      are
      unpaid. This financial obligation and the Series A Preferred Stock
      generally are described in more detail in Note 15, “Capital Stock,” to our
      consolidated financial statements included in this annual report on Form
      10-KSB.




28





As
      noted
      previously, in May 2007, we completed a significant expansion of our first
      gaming amusement center in Ft. Worth, Texas at a total cost of approximately
      $440,000 (excluding AWP machines and other personal property), of which amount
      approximately $125,000 will be reimbursed to us through reductions in future
      rentals due under the lease agreement for this facility.





In
      April
      2007, we exercised our early termination option and vacated a leased facility
      in
      San Antonio due to regulatory reasons. The lessor of that facility claims our
      exercise of the termination option was invalid and on December 27, 2007 filed
      a
      lawsuit in Bexar County alleging that we breached the lease. Although the suit
      does not list damages sought by the landlord, he had previously sent us a
      written demand for damages of approximately $319,000. We have been advised
      by
      our legal counsel that the likelihood of any damages being awarded by a court
      is
      unlikely. Our termination of this lease and the related litigation are described
      in more detail in Part I, Item 3, “Legal Proceedings.”





We
      currently have firm plans to open two new amusement centers in Ft. Worth during
      March 2008 and to expand our amusement center in Corpus Christi during April
      2008. All of these centers are located in leased facilities such that the
      capital costs associated with opening/expanding these centers are limited to
      utilitarian improvements to those facilities (e.g., carpeting, paint and cabling
      for the machines and back-office systems) and certain personal property, with
      the exception of the gaming machines. We currently estimate that the total
      cost
      to open/expand the three centers will be approximately $220,000, net of a
      $40,000 build-out allowance from the landlord of the Corpus Christi
      facility.





Subject
      to legal developments and our financial resources, we also plan to open an
      additional six new amusement centers during fiscal year 2008. Our current budget
      to open one of these “generic” centers, which will be located in leased
      facilities, is approximately $350,000, exclusive of the AWP machines that will
      be deployed in those centers. However, the actual cost to open each center
      will
      vary depending on the size and condition of the leased facility and landlord
      build-out allowances we might receive, if any.





In
      order
      to meet all of the objectives of our fiscal year 2008 AWP expansion plan, we
      would need to purchase a certain number of machines costing approximately $2.3
      million, in addition to our current inventory of owned gaming machines and
      the
      machines we believe we can license from other vendors. We have had discussions
      with a company that financed certain gaming machines for us in fiscal year
      2006,
      and they have expressed a willingness to finance additional machines for us
      in
      the future. However, to date, we have not had any formal negotiations respecting
      the number of machines or the other principal terms of a financing arrangement
      with this or any other entity.





As
      of
      January 15, 2008, approximately 15% of the 325 gaming machines we had in
      operations were provided to us by a vendor under a licensing agreement. Pursuant
      to this agreement, the vendor provides us with machines and games for a fixed
      percentage of the net revenue generated by those machines and games. Like our
      own machines, these machines can only be played with our Ace Advantage Card
      and
      are otherwise modified to comply with applicable Texas law. On October 25,
      2007,
      we entered into a letter of intent with another vendor to also provide machines
      and games to us under a similar licensing agreement. The license fees payable
      under this agreement are also based on a percentage of the net revenue generated
      by these machines, subject to incremental increases if certain levels of net
      revenue are achieved. We are obligated to deploy a minimum of 100 of this
      vendor’s machines when they have been successfully modified to operate with our
      back-office and redemption systems and comply with applicable Texas law, which
      we currently expect to happen sometime during the second quarter of fiscal
      year
      2008. There are no significant long-term financial obligations associated with
      either of these agreements.





In
      addition to the capital requirements discussed above regarding the in-process
      and possible other expansion of our AWP business, our preliminary capital budget
      for fiscal year 2008 includes approximately $127,000 primarily for vehicles
      for
      K&B’s service staff and computer equipment. With the exception of agreements
      with certain contractors to perform the build-out work at the new Ft. Worth
      centers and an order for AWP machines costing approximately $450,000, we
      currently do not have any other significant commitments to purchase any of
      the
      capital assets discussed above, and we will manage our future capital
      expenditures based on operational needs, the progress of our AWP expansion
      plans
      and on our existing available cash and projected cash flow from
      operations.





**Critical
      Accounting Policies**





Our
      discussion and analysis of our results of our operations and financial position
      are based upon our consolidated financial statements and the information used
      to
      prepare them. Our consolidated financial statements are prepared in accordance
      with accounting principles generally accepted in the United States and require
      us to make estimates and judgments that affect the reported amounts of our
      assets and liabilities, revenues and expenses, and related disclosures of
      contingent assets and liabilities. We base our estimates and judgments on our
      historical experience, knowledge of current conditions and our beliefs of what
      could occur in the future considering the pertinent and available information.
      Actual results may differ materially from these estimates under different
      assumptions or conditions.





Critical
      accounting policies are defined as those accounting policies and related
      estimates that are reflective of significant judgments and uncertainties that
      potentially can result in materially different results under different
      assumptions and conditions. The application of our critical and significant
      accounting policies are disclosed in Note 4, “Summary of Significant Accounting
      Policies,” Note 9, “Share-Based Compensation,” and Note 13, “Income Taxes,” to
      our consolidated financial statements included in this annual report on Form
      10-KSB.




29





*Income
      Taxes*





Statement
      of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,”
establishes financial accounting and reporting standards for the effect of
      income taxes. The objectives of accounting for income taxes are to recognize
      the
      amount of taxes payable or refundable for the current year and deferred tax
      assets and liabilities for the future tax consequences of events that have
      been
      recognized in an entity’s financial statements or tax returns. Significant
      judgment is required in assessing the future tax consequences of events that
      have been recognized in our financial statements or tax returns. Variations in
      the actual outcome of these future tax consequences could materially impact
      our
      financial position, results of operations, or cash flows. Beginning in the
      first
      quarter of our fiscal year 2008, accruals for tax contingencies, if any, will
      be
      recognized in accordance with Financial Accounting Standard Board Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
      Statement No. 109.”




*Share-Based
      Compensation*





For
      all
      reporting periods prior to October 28, 2007, our only share-based compensation
      plan related to the one-time grant on October 4, 2006 of approximately 1.1
      millions shares of restricted common stock to certain of our executive officers,
      certain employees and all of our non-employee directors. We estimated that
      the
      fair value of the restricted common stock was $5.00 per share (or approximately
      $5.6 million in total), which fair value was based on the sales price per share
      of 1.612 million shares of nonredeemable convertible preferred stock we sold
      on
      October 11, 2006 in conjunction with our acquisition of Goodtime (the Series
      A
      Preferred Stock). The restricted common stock was granted in exchange for
      certain profit interests such officers, employees and non-employee directors
      held in Goodtime prior to our acquisition of Goodtime on October 4, 2006. We
      accounted for the exchange as a modification of an award pursuant to SFAS No.
      123 (revised 2004), “Share-Based Payment” (SFAS 123R), which we adopted
      concurrent with the exchange. To date, our common stock has never been publicly
      traded. Accordingly, we based our fair value estimate of the restricted common
      stock on the sales price per share of the Series A Preferred Stock because
      the
      preferred stock automatically converts into an equal number of common stock
      shares upon the effectiveness of this registration statement, the holders of
      the
      preferred stock are not entitled to regular dividends and the grant of the
      restricted common stock and the issuance of the Series A Preferred Stock were
      both directly associated with our acquisition of Goodtime.




On
      March
      8, 2007, a majority of our common stockholders approved the Aces Wired, Inc.
      2007 Stock Incentive Plan (the 2007 Stock Incentive Plan), which plan provides
      for the granting of common stock and cash based awards, including stock options,
      to our employees, non-employee directors and other persons providing goods
      and
      services to us. We will account for the grants of awards made under the 2007
      Stock Incentive Plan in accordance with SFAS 123R, which replaced SFAS No.
      123,
“Accounting for Stock-Based Compensation” (SFAS 123), and superseded Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB
      25). SFAS 123R requires that all share-based payments to employees, including
      grants of stock options to employees, be recognized as compensation cost in
      the
      financial statements based on their fair values. SFAS 123R also requires that
      the realized excess tax benefits associated with these share-based payments
      be
      classified as financing activities in the statement of cash flows rather than
      as
      operating activities as was the practice under SFAS 123 and APB 25. Prior to
      our
      adoption of SFAS 123R, we accounted for the profit interests as liability awards
      pursuant to SFAS 123, but had not recognized any compensation expense prior
      to
      the modification.




SFAS
      123R
      requires companies to measure the cost of employee services received in exchange
      for an award of equity instruments based on the fair value of such awards
      generally on the dates they are granted. The fair value of a share of nonvested
      stock awarded to an employee is measured at the market price (or estimated
      market price, if the stock is not publicly traded) of a share of the same stock
      as if it were vested and issued on the grant date. The fair value of the awards
      of stock options is estimated using option-pricing models. The resultant cost
      is
      recognized as compensation cost over the period of time during which an employee
      is required to provide services to the company (the service period) in exchange
      for the award, the service period generally being the same as the vesting period
      of the award.





The
      fair
      values of our stock options will be estimated using the Black-Scholes-Merton
      option-pricing model. This option-pricing model requires us to make several
      assumptions regarding the following key variables used in the model to calculate
      the fair value of the stock options. We presently expect that our stock options
      will be granted with at-the-money exercise prices.





·
            The*risk-free
                interest rate*will be based on the U.S. Treasury yield curve in effect for the
                expected
                lives of the options at their dates of
                grant.





·
            The*dividend
                yield*will initially be zero percent as we have never paid nor do we intend
                to
                pay dividends on our common stock in the foreseeable
                future.





·
            The*expected
                lives of stock our options*will initially be determined using the “simplified” method prescribed in
                the SEC’s Staff Accounting Bulletin No. 107 (SAB 107) as we expect our
                options to be “plain vanilla options,” as such term is defined in SAB 107,
                and we have no historical experience upon which to otherwise reasonably
                estimate such expected lives.





·
            The*volatility
                of an entity’s common stock*is
                the most critical assumption used in calculating the fair value of
                stock
                options. For entities who have little if any trading history for
                their
                common stock, like us, SFAS 123R allows such entities to use a volatility
                factor based on the average volatilities of similar entities and
                for
                periods of time approximating the expected terms of the stock options
                (until such time that an entity has sufficient historical information
                with
                which to reasonably estimate the volatility of its own common stock).
                For
                purposes of identifying similar entities, an entity considers
                characteristics such as industry, stage of life cycle, size and financial
                leverage. Because of the effects of diversification that are present
                in an
                industry sector index, the volatility of an index cannot be substituted
                for the average of volatilities of otherwise similar entities in
                a fair
                value measurement.




30




Compensation
      cost is recognized only for those options and other equity and liability awards
      that are expected to vest. Although certain nonvested shares of restricted
      stock
      granted to two of our non-employee directors and one of our employees were
      eventually forfeited, we consider such forfeitures to be unusual events, and
      due
      to our lack of broader historical experience in this area, we will initially
      assume that all future awards will vest unless actual experience indicates
      otherwise. The compensation cost associated with stock options and other equity
      and liability awards with cliff vesting terms will be recognized over the
      requisite service period on a straight-line basis. The compensation cost
      associated with stock options and other equity and liability awards with graded
      vesting terms is recognized over the requisite service period using the graded
      vesting attribution method, whereby each separately vesting portion of the
      award
      is recognized on a straight-line basis as if the award was in-substance,
      multiple awards. In addition to service conditions, equity and liability awards
      granted under the 2007 Stock Incentive Plan may also include performance or
      market conditions.





Grants
      of
      share-based awards under the 2007 Stock Incentive Plan will be made from our
      authorized and unissued common shares and treasury stock, if any. No awards
      were
      granted under the 2007 Stock Incentive Plan as of October 28, 2007.


*Impairment
        of Long-Lived Assets, Including Goodwill*
 
 On
        March
        6, 2007, the Attorney General of Texas issued an opinion that
        amusement-with-prize machines that record a player’s winnings on a stored-value
        debit card are illegal in Texas. As a consequence of this opinion, we closed
        our
        gaming amusement centers in Corpus Christi, Nueces County, Texas on March
        8,
        2007 and in Killeen, Bell County, Texas on March 19, 2007. We were also notified
        in March 2007 by authorities in Amarillo, Potter County, Texas of the county’s
        intent to file a nuisance (or civil) action against us for the purpose of
        determining whether our AWP gaming machines constitute illegal gambling devices
        and/or gambling paraphernalia under Texas law. As discussed previously, we
        were
        able to reopen the Corpus Christi amusement center in June 2007, and we
        abandoned the Killeen amusement center in October 2007. Under the terms of
        an
        agreement with Potter County, we continued to operate the Amarillo center
        until
        November 8, 2007 when the nuisance action was filed.
 
 SFAS
        No.
        144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS
        144) and SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142)
        require an entity to test the carrying values of its long-lived assets,
        including intangible assets and goodwill, whenever events and circumstances
        indicate that such long-lived assets might be impaired. The first step of
        the
        impairment test under SFAS 144 is to determine whether the expected future
        undiscounted cash flow resulting from the direct use of the long-lived asset
        (or
“asset group,” which can include goodwill) being tested exceeds the carrying
        value of the long-lived asset (asset group). If the carrying value of the
        long-lived asset (asset group) is not recoverable (i.e., the undiscounted
        cash
        flow is less than the carrying value), the impairment loss, if any, is measured
        as the difference between the fair value of the long-lived asset (asset group)
        and its carrying value (the second step of the test). The first step of the
        impairment test under SFAS 142 is to determine whether the fair value of
        the
        reporting unit to which goodwill is assigned exceeds the carrying value of
        the
        reporting unit. If the fair value of the reporting unit is less than its
        carrying value, goodwill is considered to be impaired. The second step of
        the
        SFAS 142 test is to allocate such fair value (the “purchase consideration”) to
        the tangible and intangible assets and liabilities of the reporting unit
        in a
        manner essentially the same as that prescribed under SFAS 141, “Business
        Combinations.” The recognized impairment loss is the difference between the
        carrying value of goodwill and its adjusted, or “implied,” basis resulting from
        the allocation of the reporting unit’s fair value to its other tangible and
        intangible assets and liabilities.
  In
        light
        of the adverse events resulting from the opinion issued by the Attorney General,
        we tested the carrying values of our long-lived assets, including intangible
        assets subject to amortization and goodwill, in accordance with the applicable
        guidance provided in SFAS 144 for long-lived assets to be held and used.
        The
        tests were performed for the long-lived assets (asset group) in use and under
        development as of October 28, 2007. The asset group in use was comprised
        principally of the following:
 
 ·
              The
                  four gaming amusement centers in operations as of October 28,
                  2007;
 
 ·
              Goodwill
                  assigned to our AWP reporting unit (which reporting unit for the
                  purpose
                  of the SFAS 144 test was considered to be the asset group);
                  and
 
 ·
              Intangible
                  assets subject to amortization and certain other long-lived assets
                  that
                  are specific to our AWP business segment and were in use as of
                  October 28,
                  2007.
 
 The
        asset
        group under development was comprised of spare gaming machines we either
        own or
        were acquired under capitalized lease obligations and related back-office
        systems we had as of October 28, 2007, which we have and/or intend to deploy
        as
        follows.
 
 ·
              Based
                  on customer demand, we plan to increase the number of machines
                  in our
                  first Ft. Worth amusement center to 180 machines by the end of
                  fiscal year
                  2008 (there were 80 machines operating in that center at the end
                  of
                  December 2007);
 
 ·
              We
                  have deployed 115 machines in two new gaming centers we opened
                  in December
                  2007;
 
 ·
              We
                  will deploy 125 machines in two new gaming centers we expect to
                  open by
                  March 2008 (we have entered into lease agreements for and are currently
                  making tenant improvements to those facilities);
                  and
 
 ·
              We
                  have and/or will deploy 125 machines in four bingo halls in Texas
                  (the
                  “satellite” centers) pursuant to a licensing program we began in November
                  2007.
 
 Our
        SFAS
        144 impairment test assumes there are eight of our own amusement centers
        and the
        four satellite centers with up to 675 gaming machines in operation at various
        times over periods of approximately five years, which periods approximated
        the
        expected remaining useful life of the gaming machines (the “primary asset,” as
        defined in SFAS 144) as of October 28, 2007. Subsequent to the temporary
        closure
        of the Amarillo center and the opening of the two new centers mentioned
        previously, we were operating 275 machines in five amusement centers as of
        December 31, 2007. The expected future AWP operations used in our SFAS 144
        impairment test were limited to the number of AWP machines we had either
        in
        operations at our existing amusement centers or inventory as of October 28,
        2007
        together with the two amusement centers we have since opened and other fiscal
        year 2008 expansion plans for which we currently have or have made firm
        commitments. Further, our SFAS 144 impairment test does not include the revenue
        and expense associated with AWP machines and games licensed to us by certain
        vendors.
  31
  Our
        SFAS
        144 impairment test is based in large part on numerous assumptions and estimates
        about our future results of operations. The forward-looking information set
        forth in the tables below is solely for the purpose of presenting certain
        of
        those assumptions and results of the SFAS 144 impairment test and should
        not be
relied upon for any other purpose. The assumptions and estimates underlying
        such
        forward-looking information reflect assumptions and estimates that management
        believes to be reasonable as of the date of this annual report; however,
        those
        assumptions and estimates are subject to numerous risks and uncertainties,
        including the risks set forth under the heading “Risk Factors” and the others
        risks discussed elsewhere in this annual report. The results for the future
        periods presented in the [pro forma] table will vary, perhaps materially
        and
        adversely, from the information set forth below. The following should be
        read in
        conjunction with the information under the headings “Risk Factors”,
“Forward-Looking Statements” and “Management’s Discussion and Analysis or Plan
        of Operations” included elsewhere in this annual report on Form
        10-KSB.
 
 The
        undiscounted cash flows used in the SFAS 144 impairment tests were
        probability-weighted expected cash flows. These cash flows were substantially
        derived from our historical operating results, current business plan and
        market
        forecasts and, due to our limited historical AWP operations and the legal
        uncertainties currently clouding our AWP business, were discounted based
        on
        management’s assessments that our gaming centers and the satellite centers
        remain open and a certain level of net revenue is realized at each of those
        centers. Based in part on the advice of legal counsel, we assessed probabilities
        that a particular center remained open throughout the test period, which
        probabilities are illustrated in the pro forma table below. We assessed a
        probability of 90% to all of the centers (including one of the satellite
        centers) that are or will be located in a Texas municipality in which we
        have
        peacefully conducted our AWP operations since December 2005. We assessed
        a
        probability of 75% to one of our other existing centers that is currently
        in
        operations where we previously encountered legal actions. For all of the
        other
        centers (including three of the satellite centers) where we are currently
        facing
        legal action and/or have limited or no experience with local authorities
        regarding their tolerance of our AWP operations, we assessed a probability
        of
        50% that such centers would remain open throughout the test period.
 
 Certain
        of the other key assumptions and results of our SFAS 144 impairment test
        are
        summarized in the [pro forma] table below. The actual amounts for the existing
        amusement centers for the 52-week period ended October 28, 2007 are presented
        solely for the purpose of comparing our historical cash flow to our estimated
        future cash flow from AWP operations for those particular centers. The pro
        forma
        calculations for the existing centers, with the exception of the Amarillo
        center, include the periods beginning with the first fiscal quarter of 2008
        through the remaining expected useful life (five years) of the gaming machines
        expected to be eventually deployed at those centers, which varies depending
        on
        when the machines were originally placed into operation. The Amarillo center
        is
        assumed to reopen in July 2008. The pro forma period for each of the new
        amusement centers and the satellite centers is generally five years beginning
        in
        the month such centers actually opened or are currently expected to open.
        The
        pro forma periods collectively end at various dates beginning in May 2011
        through November 2013.
 
 **Actual****52-week period ended October 28, 2007****Per machine day****Weighted**
              
              
              
              
              
              **Cash flow**
              
              
              
              **Cash flow****Existing amusement centers**
              
              **average # of**
                **machines (a)**
              
              **Machine**
                **days**
              
              **Net revenue**
              
              **before interest**
                **(b)**
              
              **Net revenue**
              
              **before interest**
                **(b)****Open
                  centers****#1**
              
              
              55
              
              
              19,967
              
              $
              1,789,418
              
              $
              565,612
              
              $
              89.62
              
              $
              28.33**#2**
              
              
              43
              
              
              15,736
              
              
              1,371,115
              
              
              572,630
              
              
              87.13
              
              
              36.39**#3**
              
              
              25
              
              
              9,044
              
              
              821,837
              
              
              224,203
              
              
              90.87
              
              
              24.79Total
                  open centers
              
              
              123
              
              
              44,747
              
              
              3,982,370
              
              
              1,362,445
              
              
              89.00
              
              
              30.45**Temporarily
                  closed center****#1**
              
              
              49
              
              
              17,850
              
              
              1,086,522
              
              
              139,153
              
              
              60.87
              
              
              7.80**Total
                  existing centers**
              
              
              172
              
              
              62,597
              
              
              5,068,892
              
              
              1,501,598
              
              
              80.98
              
              
              23.99**Permanently
                  closed (two) centers**
              
              
              19
              
              
              6,860
              
              
              617,753
              
              
              83,689
              
              
              90.05
              
              
              12.2069,457
              
              $
              5,686,645
              
              
              1,585,287
              
              
              81.87
              
              
              22.82**AWP
                  segment administrative
                  expenses** **(c)**
              
              
              
              
              
              
              
              
              
              
              
              (2,084,316
              )**Net
                  cash flow before interest - actual**
              
              
              
              
              
              
              
              
              
              
              $
              (499,029
              )
  **(a)**
              Weighted
                  average number of machines is based on the number of machine days
                  operated
                  during the period.**(b)**
              Under
                  SFAS 144, the recoverability of the carrying value of long-lived
                  assets is
                  dependent on the undiscounted cash flow “expected to arise as a direct
                  result of the use . . . of the asset (asset group)” being tested, which
                  cash flow oftentimes excludes expenditures for capital assets (other
                  than
                  the replacement and/or future development of the assets being tested,
                  if
                  any) and interest payments. The following is a reconciliation of
                  our
                  actual cash flow before interest from our AWP operations and the
                  net loss
                  before income taxes we recognized for that business segment for
                  the
                  52-week period ended October 28, 2007. We do not allocate corporate
                  overhead or income taxes to our operating
                  segments.
  32
  Loss
                  before income taxes
              
              $
              (2,285,438
              )Noncash
                  adjustments:Depreciation
                  and amortization
              
              
              988,496Abandonment
                  losses
              
              
              458,418Share-based
                  compensation
              
              
              126,216Amortization
                  of prepaid rent and game license fees
              
              
              90,390Other,
                  net
              
              
              (9,329
              )Total
                  noncash adjustments
              
              
              (631,247
              )Addback
                  interest expense
              
              
              132,218Net
                  cash flow before interest from AWP operations
              
              $
              (499,029
              )
  **(c)**
              We
                  do not allocate administrative expenses to our amusement centers
                  for
                  internal financial and management reporting
                  purposes.
  **Pro forma****Approximate five-year periods****Probability-weighted expected amounts****Weighted**
              
              
              
              
              
              
              
              **Per machine day****Existing amusement centers**
              
              **average # of**
                **machines (a)**
              
              **Machine**
                **days**
              
              **Net revenue**
                **(b)**
              
              **Cash flow (c)**
              
              **Net revenue**
                **(b)**
              
              **Cash flow****Open
                  centers (probability center remains open)****#1
                  (90%)**
              
              
              136
              
              
              298,011
              
              $
              20,801,438
              
              $
              8,170,544
              
              $
              69.80
              
              $
              27.42**#2
                  (75%)**
              
              
              53
              
              
              76,860
              
              
              4,994,023
              
              
              1,765,093
              
              
              64.98
              
              
              22.97**#3
                  (90%)**
              
              
              22
              
              
              32,480
              
              
              2,822,741
              
              
              634,748
              
              
              86.91
              
              
              19.54Total
                  open centers
              
              
              185
              
              
              407,351
              
              
              28,618,202
              
              
              10,570,385
              
              
              70.25
              
              
              25.95**Closed
                  centers (probability center remains open)****#1
                  (50%)**
              
              
              35
              
              
              51,700
              
              
              1,480,324
              
              
              307,121
              
              
              28.63
              
              
              5.94Total
                  existing centers
              
              
              209
              
              
              459,051
              
              
              30,098,526
              
              
              10,877,506
              
              
              65.57
              
              
              23.70**New
                  centers (probability center remains open)****#1
                  (50%)**
              
              
              39
              
              
              85,659
              
              
              5,782,703
              
              
              2,768,400
              
              
              67.51
              
              
              32.32**#2
                  (90%)**
              
              
              32
              
              
              70,000
              
              
              4,785,323
              
              
              996,699
              
              
              68.36
              
              
              14.24**#3
                  (90%)**
              
              
              42
              
              
              91,350
              
              
              6,256,716
              
              
              1,224,354
              
              
              68.49
              
              
              13.40**#4
                  (90%)**
              
              
              62
              
              
              137,025
              
              
              9,387,719
              
              
              3,494,243
              
              
              68.51
              
              
              25.50Total
                  new centers
              
              
              175
              
              
              384,034
              
              
              26,212,461
              
              
              8,483,696
              
              
              68.26
              
              
              22.09**Satellite
                  (four) centers (67% weighted average probability all centers remain
                  open
                  (d))**
              
              
              104
              
              
              228,375
              
              
              3,966,054
              
              
              1,513,127
              
              
              17.37
              
              
              6.63**Total
                  all centers**
              
              
              488
              
              
              1,071,460
              
              $
              60,277,041
              
              
              20,874,329
              
              
              56.26
              
              
              19.48**AWP
                  segment administrative expenses****(e)**
              
              
              
              
              
              
              
              
              
              
              
              (7,171,380
              )**Net
                  undiscounted cash flow - pro forma**
              
              
              
              
              
              
              
              
              
              
              $
              13,702,949
  33
  **(a)**
              Weighted
                  average number of machines is based on the number of machine days
                  operated
                  in the period and a 364/371-day fiscal year, as
                  applicable.**(b)**
              Our
                  estimates of pro forma net revenue and net revenue per machine
                  day are
                  based on our historical operating results, current business plan
                  and
                  market forecasts. Due to our limited operating experience and the
                  significant increase in the number of AWP machines and amusement
                  centers
                  assumed in our SFAS 144 impairment test, we estimated a range of
                  net
                  revenue amounts for each center considering the market in which
                  the center
                  is (will be) located and the number of machines deployed at each
                  center.
                  We then assessed a probability of realizing each of the amounts
                  in the
                  range, with the highest probabilities generally assigned to the
                  lowest
                  estimated amount. Additionally, we took into account our past positive
                  correlation between advertising and promotional expenditures and
                  customer
                  traffic (and consequently net revenue) at our existing amusement
                  centers.
                  Our pro forma projections assume expenditures of approximately
                  10.4% of
                  net revenue annually for advertising and promotions (20% in year
                  one for
                  our new amusement centers), which we believe will help us achieve
                  the pro
                  forma net revenue estimates. While we believe these probability-weighted
                  expected estimates are reasonable, we currently have limited experience
                  upon which to gauge the accuracy of those estimates, particularly
                  respecting the success of the new amusement and satellite centers
                  and the
                  assumed increase in the number of machines deployed in one of our
                  existing
                  centers to 180 machines from the 80 machines in operations there
                  at the
                  end of December 2007.**(c)**
              Pro
                  forma cash flow for each of the existing and new amusement centers
                  and the
                  satellite centers was comprised principally of cash flow from operations,
                  but also included capital expenditures for improvements for the
                  new
                  amusement centers (e.g., build-out costs) and the end-of-lease
                  purchase of
                  certain machines we acquired under capital leases in fiscal year
                  2006. Pro
                  forma operating expenses for the existing and new amusement centers
                  were
                  based in part on historical experience, existing facility lease
                  and game
                  license agreements and our current operating plan and budgets.
                  Pro forma
                  operating expenses for the satellite centers, including revenue
                  sharing,
                  were based on the terms of the respective license agreements.
                  Additionally, certain of our more significant operating expenses,
                  such as
                  facility rent expense and game and back-office license fees, increase
                  or
                  decrease with the net revenue we generate from the AWP
                  machines.**(d)**
              Based
                  on the probability-weighted expected cash flow for each of the
                  four
                  centers.**(e)**
              Total
                  pro forma administrative expenses are probability-weighted
                  amounts based on the simple average of the cumulative probabilities
                  that the existing and new amusement centers remain
                  open.
  Under
        our
        SFAS 142 impairment test of goodwill, the fair value of the AWP reporting
        unit
        was determined using the *income
        approach valuation technique* and *unobservable
        inputs* as
        defined in SFAS 157, ”Fair Value Measurements.” The discounted cash flows used
        in this test were based substantially on the undiscounted probability-weighted
        expected cash flows we used in our SFAS 144 impairment test, with the only
        significant change in assumptions being that the SFAS 142 test assumed
        replacement of the gaming machines (and thus additional net cash flow) over
        the
        same approximate five-year periods we used in the SFAS 144 test. Additionally,
        because a crux of this test was to determine the fair value of the AWP reporting
        unit, or business enterprise, the cash flows used in the SFAS 142 impairment
        test included certain cash flows not applicable to our SFAS 144 impairment
        test,
        such as debt service payments specific to the AWP reporting unit and income
        taxes.
 
 Based
        on
        the results of our SFAS 144 and SFAS 142 impairment tests, management concluded
        that as of October 28, 2007, the carrying values of our long-lived assets
        associated with our AWP gaming business, including intangible assets subject
        to
        amortization, were recoverable and our goodwill was not impaired. However,
        our
        assessments of the recoverability of the long-lived assets and the impairment
        of
        the goodwill assigned to our AWP reporting unit are susceptible to changes
        over
        time in the critical estimates and assumptions we used in arriving at those
        conclusions.
 
 The
        critical estimates and assumptions used in our impairment tests are the number
        of machines we place into revenue service, the net revenue generate from
        those
        machines and the probabilities that our existing and new amusement centers
        remain in operation. As of October 28, 2007, we had either in operation or
        inventory all of the amusement machines that we assumed will be deployed
        in our
        SFAS 144 impairment test. The only significant incremental costs of placing
        an
        AWP machine into operations are contingent rentals (if any) based on the
        net
        hold generated by the machine and game license fees. Accordingly, almost
        all of
        the incremental net revenue earned by placing a machine into operation is
        realized as contribution toward the other operating and administrative expenses
        associated with our AWP business and the recoverability of those long-lived
        assets that do not directly generate cash flow, such as the intangible assets
        subject to amortization and goodwill. Our impairment tests assume that we
        are
        able to profitably and without prolonged and/or permanent interruptions conduct
        our AWP business in Texas. While we believe the assumptions and estimates
        we
        used in our SFAS 144 and SFAS 142 impairment tests are reasonable based on
        the
        relevant information currently available to us, those estimates and assumptions
        may prove inaccurate.
  34
  AWP
        gaming is not a state regulated industry in Texas, and the interpretation
        and
        enforcement of laws and regulations associated with gambling and/or gambling
        devices is generally done at the local (usually county) level. Accordingly,
        while our AWP operations might for the moment be considered compliant with
        applicable law in certain counties, there are no assurances we will not face
        future legal action in those and/or other Texas counties where we conduct
        our
        AWP business. In the event we are forced to cease operations of all or
        substantially all of our AWP amusement business in Texas for a prolonged
        period
        or permanently and are unable to profitably deploy our amusement machines
        in
        markets outside of Texas, we could incur impairment losses in the future.
        The
        following table illustrates a range of possible impairment losses we would
        incur
        under SFAS 144 and SFAS 142 if: 1) we are unable to reopen the Amarillo
        amusement center; or 2) we are forced to abandon altogether our AWP business
        operations in Texas and are unable to successfully expand those operations
        outside of that state. The amounts in the table are as of October 28, 2007
        and
        do not assume salvage values for any of the personal property associated
        with
        our AWP business segment as we believe such amounts would not be
        significant.
  CarryingvalueAmarillo
                  amusement center**(*)**
              
              $
              202,977AWP
                  machines
              
              
              2,811,630Goodwill
              
              
              2,913,522Intangible
                  assets subject to amortization
              
              
              1,144,765Other
                  long-lived assets
              
              
              1,678,657Total
                  long-lived assets subject to SFAS 144 and SFAS 142
              
              $
              8,751,551
  **(*)**Leasehold improvements and certain personal property other than
                  the AWP
                  machines deployed at that center.




**Item
      7. Financial Statements.**





Our
      consolidated financial statements, accompanying notes and Report of Independent
      Registered Public Accounting Firm are included in this annual report on
      Form 10-KSB beginning on page F-1.





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





On
      October 4, 2006, our Board of Directors dismissed Hawkins Accounting (Hawkins)
      as our independent accountant and engaged Weaver and Tidwell, L.L.P. as our
      new
      independent accountants. During our most recent fiscal year and the subsequent
      interim periods through the date of Hawkins’s dismissal, there were no
      disagreements with Hawkins, whether or not resolved, on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedure, which disagreements, if not resolved to Hawkins’s satisfaction, would
      have caused it to make reference to the subject matter of the disagreements
      in
      connection with its reports.




**Item
      8A. Controls and Procedures.**





Under
      the
      supervision and with the participation of management, including our principal
      executive officer and principal financial officer, we conducted an evaluation
      of
      the design and effectiveness of our financial disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934 (the Exchange Act), as amended, as of the end of the fiscal
      year covered by this Annual Report on Form 10-KSB (the Evaluation Date). Based
      on this evaluation, our principal executive officer and principal financial
      officer concluded that as of the Evaluation Date such disclosure controls and
      procedures were effective such that the financial information relating to our
      company, including that of our consolidated subsidiaries, required to be
      disclosed in our reports to the SEC is: (i) recorded, processed, summarized
      and
      reported within the time periods specified in the applicable SEC regulations
      and
      forms; and (ii) is accumulated and communicated to management, including our
      principal executive officer and principal financial officer, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      such required financial disclosure.





During
      our fiscal fourth quarter ended October 28, 2007, we did not make any changes
      in
      our internal controls over financial reporting that materially affected, or
      are
      reasonably likely to materially affect, our internal controls over financial
      reporting.




35




**PART
      III**




**Item
      9. Directors and Executive Officers of the Registrant.**





Our
      officers and members of our board of directors are as follows.




**Name**
            
            **Age**
            
            **Position**Kenneth
                R. Griffith
            
            58
            
            President,
                Chief Executive Officer and DirectorChristopher
                C. Domijan
            
            52
            
            Executive
                Vice President, Chief Financial Officer and SecretaryKnowles
                B. Cornwell
            
            55
            
            Executive
                Vice President and Chief Operating OfficerNicholas
                F. Holt
            
            49
            
            Chief
                Accounting Officer and ControllerGordon
                T. Graves
            
            71
            
            Chairman
                of the Board of DirectorsDavid
                E. Danovitch
            
            45
            
            DirectorMichael
                T. Gallagher
            
            68
            
            DirectorMartin
                A. Keane
            
            71
            
            DirectorJohn
                J. Schreiber
            
            67
            
            DirectorJames
                J. Woodcock
            
            69
            
            Director





**Kenneth
      R. Griffith - President, Chief Executive Officer and
      Director.** Mr.
      Griffith is the founder of K&B Sales, Inc., d.b.a. Goodtime Action Games.
      Over the past 29 years he has grown K&B into a prominent bingo distributor
      in Texas and implemented the first player rewards program for bingo halls in
      Texas. Mr. Griffith was the first president of the Bingo Distributors
      Association of Texas. Mr. Griffith has served as a Director of the Company
      since
      October 4, 2006.




**Christopher
      C. Domijan - Executive Vice President, Chief Financial Officer and
      Secretary.** Prior to
      joining the Company, Mr. Domijan was the chief financial officer of Nevada
      Gold
& Casinos (AMEX: UWN). During his five years with Nevada Gold & Casinos,
      Mr. Domijan also served as secretary and treasurer. Mr. Domijan has over twenty
      years of financial management experience, including nine years as chief
      financial officer for companies in the hospitality and financial services
      industries.





**Knowles
      B. Cornwell, CPA - Executive Vice President and Chief Operating
      Officer.** Prior to
      our acquisition of Goodtime, Mr. Cornwell was responsible for sales at K&B’s
      electronic bingo division, a position he has occupied since 1997. He is
      currently a member of the Texas Lottery Commission’s Bingo Advisory Committee.
      He is also a founding member of BKR Cornwell Jackson, a public accounting firm
      based in Dallas, Texas.





**Nicholas
      F. Holt, CPA - Chief Accounting Officer and Controller.** For the
      past seven years, Mr. Holt has served as the chief financial officer for
      K&B. During this time he has been instrumental in enacting improvements in
      inventory management, developing networks for all locations and managing the
      Company’s accounting and finance functions. Prior to joining K&B Sales, Mr.
      Holt practiced public accounting for 14 years.





**Gordon
      T. Graves - Chairman of the Board of Directors** . Mr.
      Graves was formerly chairman of the board and chief executive officer of
      Multimedia Games, Inc. (NASDAQ: MGAM). He was chief executive officer of MGAM
      from September 1994 until February 2003, and he remained a member of their
      board
      of directors until February 2004. During his 10-year tenure, MGAM grew its
      market capitalization by approximately 9,200% from $3 million to $277 million.
      He was first person to build the on-line lotto system and was a pioneer of
      interactive class II gaming. Since December 1993, and from 1989 to 1990, Mr.
      Graves has been the president of Graves Management, Inc., a management
      consulting and investment company that provides services to one of our
      subsidiaries. Mr. Graves has served as a Director of the Company since October
      4, 2006.





**David
      E. Danovitch - Director.** Mr.
      Danovitch has been a partner since 2004 in the law firm Gersten Savage, LLP
      in
      New York City, where he specializes in corporate finance, securities, mergers
      and acquisitions, and broker-dealer regulations and compliance. Between 2002
      and
      2003, he served as both executive vice president and chief financial officer
      and
      president and chief executive officer for ioWave, Inc., a multinational
      telecommunications company. Mr. Danovitch has served as a Director of the
      Company since October 4, 2006 and as Chairman of the Audit Committee since
      September 10, 2007 .





**Michael
      T. Gallagher - Director.** Mr.
      Gallagher is a certified personal injury trial lawyer and a principal of The
      Gallagher Law Firm in Houston, Texas. He is a former president of the Texas
      Trial Lawyers Association. Mr. Gallagher has served on numerous government
      appointed committees concerning workers compensation, tenure of judges, speedy
      trials and grievance oversight. Mr. Gallagher has served as a Director of the
      Company since October 4, 2006.




**Martin
      A. Keane - Director.** Mr.
      Keane has served as vice president of Genetic Programming Inc., a genetic
      programming research company since 2000. From 1986 to present, he has worked
      as
      an engineering and management consultant in the design of several systems.
      From
      2000 to 2004, Mr. Keane also served as a member of the board of directors of
      MGAM. Mr. Keane is the author of several United States patents. Mr. Keane has
      served as a Director of the Company since October 4, 2006.




36


**John
      J. Schreiber - Director.** Mr.
      Schreiber has worked as a gaming and security consultant since 1998 in Las
      Vegas, Nevada. Mr. Schreiber has served as a Director of the Company since
      October 4, 2006.





**James
      J. Woodcock - Director.** Since
      1981, Mr. Woodcock has been the owner and chief executive officer of Hy-Bon
      Engineering Company, based in Midland, Texas. Hy-Bon is an engineering firm
      and
      manufacturer of vapor recovery, gas booster, and casing pressure reduction
      systems for the oil and gas industry. Mr. Woodcock has been a director
      since 2002, chairman of the Teton Energy Corp.’s Compensation Committee since
      2003 and chairman of that company since February 2005. From 1997 to 2002, Mr.
      Woodcock was the chairman of Transrepublic Resources, a private oil and gas
      exploration firm located in Midland Texas. From 1996 until 2003, Mr. Woodcock
      was a board member and chairman of the board of Renovar Energy, a private
      waste-to-energy firm located in Midland Texas. Mr. Woodcock has served as a
      Director of the Company since October 4, 2006.




On
      March
      9, 2007, William S. McCalmont resigned from our Board of Directors. His
      resignation was not the result of any disagreement with us; Mr. McCalmont simply
      decided to pursue other opportunities in light of the actions taken against
      our
      AWP business and our company generally that resulted from the adverse opinion
      issued by the Attorney General in March 2007. Mr. McCalmont was a member of
      our
      Audit Committee and had served as a director since October 4, 2006. In
      consideration for his past services as a director, we granted Mr. McCalmont
      10,000 shares of our restricted common stock. Mr. McCalmont’s place on our Board
      of Directors is vacant, and we are not currently seeking a replacement for
      him.





On
      August
      16, 2007, Rexford A. Yeisley, age 60 and a member of our board of directors
      and
      chairman of the audit committee since October 4, 2006, passed away. Mr. Yeisley
      was also our independent financial expert, and we are currently seeking his
      replacement.




Our
      Amended and Restated Articles of Incorporation provide for a maximum of 15
      directors, and with the loss of Mr. Yeisley and the departure of Mr. McCalmont,
      our board of directors currently stands at seven members.





***Code
      of Ethics***





On March
      8, 2007, a majority of our common stockholder approved the Aces Wired, Inc.
      Code of Business Conduct and Ethics (the Code), which establishes guidelines
      and
      standards regarding business and professional ethics and conduct for all of
      the
      officers, non-employee directors and employees of Aces Wired and each of our
      wholly-owned subsidiaries. The Code is available on our website at www.aceswired.com .





**Item
      10. Executive Compensation.**





The
      Compensation Committee of our Board of Directors (the Compensation Committee)
      reviews and approves the salaries, cash and stock bonuses and benefits for
      our
      executive officers and certain key employees, as well as the other terms of
      employment for our executive officers. The Compensation Committee has also
      been
      appointed by the Board of Directors to administer our Aces Wired Inc. 2007
      Stock
      Incentive Plan (the 2007 Stock Incentive Plan), which is our only active
      long-term equity compensation plan. Under its charter, the Compensation
      Committee has the authority to retain, at our expense, such independent counsel
      or other advisers as it deems necessary to carry out its responsibilities.
      For
      fiscal year 2007, the Compensation Committee did not use the services of a
      compensation consultant, but may do so in the future.





In
      determining compensation for our executive officers other than our chief
      executive officer, the Compensation Committee solicits input from the chief
      executive officer regarding the duties, responsibilities and performance of
      the
      other executive officers. The chief executive officer also recommends to the
      Compensation Committee the base salary for all our executive officers and the
      awards made under any long-term equity compensation plan. Occasionally, the
      executive officers are invited to attend meetings of the Compensation Committee;
      however, no executive officer attends any executive session of the Compensation
      Committee or is present during deliberations or determination of that executive
      officer’s compensation.





Annual
      compensation for our executive officers consists of a base salary, company
      contributions to their 401(k) savings plans and long-term equity-based
      compensation. Our executive officers are also eligible for performance-based
      stock and cash bonuses that may be granted under the 2007 Stock Incentive Plan.
      Annual compensation for the non-employee members of our board of directors
      consists of long-term equity-based compensation in addition to reimbursement
      for
      any expenses they might incur to attend board meetings. Our chief executive
      officer, who is also one of our directors, is not compensated for his services
      as a board member.





On
      March
      8 2007, the Compensation Committee approved employment agreements for our chief
      executive officer, chief operating officer and chief financial officer, which
      agreements are described in more detail below. No long-term equity compensation
      awards were granted under the 2007 Stock Incentive Plan during fiscal year
      2007
      or to date.




37





The
      following table sets forth the compensation we paid to our chief executive
      officer and to certain of our other officers during the periods
      indicated.




**Summary
      Compensation Table**





RestrictedFiscal
            
            
            
            
            
            Stock
            
            All
                OtherName
                and Principal Position
            
            Year
            
            Salary**(a)**
            
            Bonus
            
            Awards**(b)**
            
            Compensation**(c)**
            
            Total**Kenneth
                R. Griffith -**
            
            
            2007
            
            $
            350,000
            
            $
            -
            
            $
            -
            
            $
            7,750
            
            $
            357,750**President,
                Chief Executive Officer and Director**
            
            
            2006
            
            
            388,235
            
            
            62,000
            
            
            -
            
            
            7,500
            
            
            457,735**Knowles
                B. Cornwell -**
            
            
            2007
            
            
            350,000
            
            
            -
            
            
            -
            
            
            7,750
            
            
            357,750**Executive
                Vice President and Chief Operating Officer**
            
            
            2006
            
            
            378,235
            
            
            78,000
            
            
            -
            
            
            7,500
            
            
            463,735**Christopher
                C. Domijan -**
            
            
            2007
            
            
            230,000
            
            
            -
            
            
            262,030
            
            
            77,950
            
            
            569,980**Executive
                Vice President, Chief Financial Officer and
                Secretary**
            
            
            2006
            
            
            167,083
            
            
            -
            
            
            1,327,341
            
            
            -
            
            
            1,494,424**Nicholas
                F. Holt -**
            
            
            2007
            
            
            150,000
            
            
            -
            
            
            262,030
            
            
            4,238
            
            
            416,268**Chief
                Accounting Officer and Controller**
            
            
            2006
            
            
            138,448
            
            
            33,000
            
            
            1,327,341
            
            
            4,148
            
            
            1,502,937**Michael
                L. Roerick -**
            
            
            2007
            
            
            120,000
            
            
            -
            
            
            24,158
            
            
            -
            
            
            144,158**Chief
                Technology Officer**
            
            
            2006
            
            
            120,000
            
            
            -
            
            
            78,760
            
            
            -
            
            
            198,760




**(a)**
            Effective
                April 1, 2007, each of the named persons above agreed to defer the
                payment
                of 10% of their respective base annual salaries to help defray the
                legal
                fees we are incurring to litigate those matters discussed previously
                that
                resulted from the opinion issued by the Attorney General of Texas
                in March
                2007. As of October 28, 2007, we had accrued the following obligations
                related to these deferrals, which amounts are not subject to interest
                or
                any other time-value related
                adjustment.




Griffith
            
            Cornwell
            
            Domijan
            
            Holt
            
            Roerick
            
            Total$
            20,412
            
            $
            20,412
            
            $
            13,417
            
            $
            8,750
            
            $
            7,000
            
            $
            69,991




**(b)**
            Amounts
                represent compensation expense recognized pursuant to Statement of
                Financial Accounting Standards No. 123 (revised 2004), “Share-Based
                Payment” (SFAS 123R). Messrs. Domijan, Holt and Roerick were originally
                issued profit interests in Goodtime in September 2005 and July 2006,
                respectively, which awards were exchanged for restricted common stock
                concurrent with our acquisition of Goodtime in October 2006. Messrs.
                Domijan and Holt each received 360,847 restricted shares, which were
                fully
                vested as of March 31, 2007. Mr. Roerick received 25,412 restricted
                shares, of which 12,706 shares vested on August 3, 2007. The restricted
                common shares, whether vested or nonvested, have the same rights
                as our
                other outstanding common shares respecting, among other things, voting
                and
                dividend rights. The exchange of the profit interests for the restricted
                common shares and the valuation of such common shares are described
                in
                Note 9, "Share-Based Compensation," to our consolidated financial
                statements included in this annual report on Form
                10-KSB.




**(c)**
            With
                the exception of Mr. Domijan, the amounts represent our annual
                contributions to the 401(k) savings accounts for each of the other
                named
                executive officers, as applicable. Other compensation for Mr. Domijan
                in
                fiscal year 2007 represents reimbursement of relocation
                expenses.




**Employment
      Agreements**





On
      March
      8, 2007, we entered into employment agreements, with Mr. Griffith and Mr.
      Cornwell (the Employment Agreements). The Employment Agreements provide for
      three-year terms, effective March 1, 2007, and guarantee Messrs. Griffith and
      Cornwell with annual base salaries of not less than $350,000. Under the terms
      of
      the Employment Agreements, Messrs. Griffith and Cornwell participate in all
      other compensation and benefits plans provided generally to all of our
      employees, including the 2007 Stock Incentive Plan, and provides the officers
      or
      their heirs, as applicable, with certain compensation in the event their
      employment with us ends prior to the expiration of the Employment Agreements
      due
      to reasons such as their death, disability or termination by us without
      cause.




On
      March
      8, 2007, we entered into a new employment agreement with Mr. Domijan (the New
      Employment Agreement). The New Employment Agreement provides for a three-year
      term, effective April 1, 2007, and guarantees Mr. Domijan with an annual base
      salary of not less than $230,000. Under the terms of the New Employment
      Agreement, Mr. Domijan participates in all other compensation and benefits
      plans
      provided generally to all of our employees, including the 2007 Stock Incentive
      Plan, and provides him or his heirs, as applicable, with certain compensation
      in
      the event his employment with us ends prior to the expiration of the New
      Employment Agreement due to reasons such as his death, disability or termination
      by us without cause.




38




As
      part
      of his original employment agreement with us, Mr. Domijan received a 5% profit
      interest in Goodtime prior to subsequent dilution. As discussed previously,
      as a
      result of our acquisition of Goodtime on October 4, 2006, Mr. Domijan’s profit
      interest in Goodtime was exchanged for 360,847 shares of our restricted common
      stock, which shares became fully vested on March 31, 2007.





The
      Employment Agreements and the New Agreement are described in more detail under
      Item 5.02(e), “Departure of Directors or Principal Officers; Election of
      Directors; Appointment of Principal Officers; Compensatory Arrangements of
      Certain Officers,” in the current report on Form 8-K we filed with the SEC on
      March 14, 2007 and Exhibits 10.2, 10.3 and 10.4 thereto. Additional information
      regarding Mr. Domijan’s original employment agreement can be found at Exhibit
      10.1 to the current report on Form 8-K we filed with the SEC on October 10,
      2006.





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**





As
      of
      October 28, 2007, Mr. Roerick had 12,706 shares of nonvested common stock,
      all
      of which become fully vested on August 3, 2008. To date, there is not a public
      trading market for our common stock; therefore, the market value of these
      nonvested shares was $0 as of October 28, 2007.





With
      the
      exception of Mr. Roerick’s nonvested shares and those nonvested restricted
      common shares held by certain of our directors, which are described below under
      “Director Compensation,” there were no other equity compensation awards
      outstanding as of October 28, 2007.





**Option
      Grants in Last Fiscal Year**




On
      March
      8, 2007, a majority of our common stockholders approved the 2007 Stock Incentive
      Plan, which is presently our only active long-term equity compensation plan.
      The
      2007 Stock Incentive Plan allows for grants to our employees (inclusive of
      our
      executive officers), non-employee directors and other persons providing goods
      and services to us of restricted common stock shares, options to acquire shares
      of our common stock, stock appreciation rights and certain other common stock
      and cash based awards, as are defined in the 2007 Stock Incentive Plan. The
      maximum number of common stock shares for which grants may be awarded under
      the
      2007 Stock Incentive Plan at any one time is limited to 15% of the total
      outstanding shares of our common stock, subject to adjustment for events such
      as
      stock dividends and stock splits. Additionally, the maximum number of common
      stock shares for which grants may be awarded in any one calendar year is limited
      to 8% of the number of common stock shares outstanding as of the first day
      of
      such calendar year. As of October 28, 2007, no awards had been granted to our
      executive officers, non-employee directors or otherwise under the 2007 Stock
      Incentive Plan. The 2007 Stock Incentive Plan is described in more detail under
      Item 1.01, “Entry into a Material Definitive Agreement,” in the current report
      on Form 8-K we filed with the SEC on March 14, 2007 and Exhibit 10.1 thereto.
      As
      of October 28, 2007, no awards had been made under the 2007 Stock Incentive
      Plan.




**Director
      Compensation**




The
      following table shows the compensation paid or accrued during our fiscal year
      ended October 28, 2007 to those non-employee individuals who served our
      directors during that year.





FeesEarned
                or
            
            RestrictedPaid
                In
            
            Stock
            
            OtherName**(a)**
            
            Cash**(b)**
            
            Awards**(c)**
            
            Compensation**(d)**
            
            Total**Gordon
                T. Graves - Chairman of the Board**
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -**David
                E. Danovitch**
            
            
            1,187
            
            
            157,630
            
            
            -
            
            
            158,817**Michael
                T. Gallagher**
            
            
            -
            
            
            157,630
            
            
            -
            
            
            157,630**Martin
                A. Keane**
            
            
            2,660
            
            
            157,630
            
            
            24,461
            
            
            184,751**William
                S. McCalmont**
            
            
            -
            
            
            1,684
            
            
            -
            
            
            1,684**John
                J. Schreiber**
            
            
            867
            
            
            157,630
            
            
            3,472
            
            
            161,969**James
                J. Woodcock**
            
            
            2,516
            
            
            157,630
            
            
            -
            
            
            160,146**Rexford
                A. Yeisley**
            
            
            1,159
            
            
            78,744
            
            
            -
            
            
            79,903





**(a)**
            Another
                one of our directors, Mr. Kenneth R. Griffith, is not included in
                the
                table because he is also one of the named officers in the Summary
                Compensation Table above. Mr. Griffith does not receive any compensation,
                cash or otherwise, for his services as a
                director.





**(b)**
            Amounts
                represent reimbursements we made to our directors for out-of-pocket
                expenses they incurred in connection with their attendance at meetings
                of
                our board of directors during fiscal year 2007. Our directors do
                not
                otherwise earn any cash compensation in connection with serving on
                our
                board of directors.




39


**(c)**
            Amounts
                represent compensation expense recognized pursuant to SFAS 123R.
                Upon our
                acquisition of Goodtime in October 2006, our non-employee directors,
                with
                the exception of Mr. Graves, were each granted 50,824 shares of restricted
                common stock in exchange for the profit interests in Goodtime they
                were
                originally granted in July 2006. With the exception of Mr. McCalmont,
                all
                of the vested shares in table below vested on August 3, 2007. All
                of the
                nonvested shares vest on August 3,
                2008.




Number
                of Restricted Common Shares************
            
            Granted
            
            Vested
            
            Nonvested
            
            Forfeited**David E. Danovitch**
            
            
            50,824
            
            
            25,412
            
            
            25,412
            
            
            -**Michael T. Gallagher**
            
            
            50,824
            
            
            25,412
            
            
            25,412
            
            
            -**Martin A. Keane**
            
            
            50,824
            
            
            25,412
            
            
            25,412
            
            
            -**William S. McCalmont**
            
            
            50,824
            
            
            10,000
            
            
            -
            
            
            40,824
            **(e)****John J. Schreiber**
            
            
            50,824
            
            
            25,412
            
            
            25,412
            
            
            -**James J. Woodcock**
            
            
            50,824
            
            
            25,412
            
            
            25,412
            
            
            -**Rexford A. Yeisley**
            
            
            50,824
            
            
            25,412
            
            
            -
            
            
            25,412
            **(f)**




The
                restricted common shares, whether vested or nonvested, have the same
                rights as our other outstanding common shares respecting, among other
                things, voting and dividend rights. To date, there is not a public
                trading
                market for our common stock; therefore, the market value of these
                restricted shares was $0 as of October 28, 2007. The exchange of
                the
                profit interests for the restricted shares and the valuation of such
                shares are described in Note 9, “Share Based Compensation,” to our
                consolidated financial statements included in this annual report
                on Form
                10-KSB.**(d)**
            Amounts
                represent compensation paid or accrued for consulting and other
                professional services. Additionally, in fiscal year 2007, a company
                owned
                by Mr. Graves billed one of our subsidiaries approximately $81,250
                for
                management services. Mr. Graves, however, is not personally compensated
                under this arrangement.





**(e)**
            Mr.
                McCalmont's shares were forfeited concurrent with his resignation
                from our
                board of directors in March 2007. The remaining 10,000 shares were
                awarded
                to him for his past services as a
                director.




**(f)**
            Mr.
                Yeisley's shares were forfeited upon his passing in August 2007 pursuant
                to the terms of the award.




40




**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





The
      following table provides the beneficial ownership known by us as of October
      28,
      2007 of our common stock and Series A Preferred Stock. The holders of the Series
      A Preferred Stock vote on all matters submitted for vote to our common
      stockholders and can convert their Series A Preferred Stock into our common
      stock on a one-for-one basis. The shares listed in the table include those
      common and preferred shares, as applicable, that each person has a right to
      acquire within 60 days following October 28, 2007 by that person’s ability to
      exercise options to acquire additional Series A Preferred Stock and to convert
      their Series A Preferred Stock into common stock. The information is presented
      for beneficial owners of more than 5% of our common stock and Series A Preferred
      Stock, and for our directors, our named executive officers and for the group
      comprised of all of our directors and named executive officers. We know of
      no
      persons other than those identified in the table who beneficially owned more
      than 5% of the outstanding shares of our common stock and Series A Preferred
      Stock as of October 28, 2007. The table is based on 7,921,077 shares of our
      common stock and 1,612,000 shares of our Series A Preferred Stock outstanding
      as
      of October 28, 2007. Each beneficial owner’s percentage ownership is determined
      by including common and preferred shares, as applicable, underlying that
      person’s options to acquire additional Series A Preferred Stock and to convert
      their Series A Preferred Stock into common stock currently or within 60 days
      following October 28, 2007, but excludes such options and the conversion of
      Series A Preferred Stock held by any other person. Except as noted in the table,
      the address for each person listed is the address of our principal executive
      offices located at 12225 Greenville Avenue, Suite 861, Dallas, Texas
      75243.





**Shares
                Beneficially Owned**Common
                Stock
            
            Series
                A Preferred Stock**Name
                and Address of Beneficial Owner**
            
            Number
            
            Percent
            
            Number
            
            PercentGordon
                T. Graves**1**
            
            
            2,997,746
            
            
            35.68
            
            
            480,000
            
            
            28.37Kenneth
                R. Griffith
            
            
            2,013,541
            
            
            25.42
            
            
            -
            
            
            -Knowles
                B. Cornwell
            
            
            1,234,106
            
            
            15.58
            
            
            -
            
            
            -Scott
                L. Swid**2**
            
            
            480,000
            
            
            5.71
            
            
            480,000
            
            
            28.37c/o
                SLS Capital, 140 West 57th, New York, NY 10019Christopher
                C. Domijan
            
            
            360,847
            
            
            4.56
            
            
            -
            
            
            -Nicholas
                F. Holt
            
            
            360,847
            
            
            4.56
            
            
            -
            
            
            -RSA
                Capital**3**
            
            
            240,000
            
            
            2.94
            
            
            240,000
            
            
            14.5311006
                Tibbs, Dallas, TX 75230U.S.
                Bank, f.b.o. Brazos Micro Cap Fund**4**
            
            
            240,000
            
            
            2.94
            
            
            240,000
            
            
            14.531555
                N. Rivercenter Dr., Suite 302, Milwaukee, WI 53212Jacob
                W. Doft**5**
            
            
            120,000
            
            
            1.49
            
            
            120,000
            
            
            7.35c/o
                Highline Capital, One Rockefeller Plaza, 30th FloorNew
                York, NY 10020David
                E. Danovitch**6**
            
            
            50,824
            
            
            *****
            
            
            -
            
            
            -Michael
                T. Gallagher**6**
            
            
            50,824
            
            
            *****
            
            
            -
            
            
            -Martin
                A. Keane**6**
            
            
            50,824
            
            
            *****
            
            
            -
            
            
            -John
                J. Schreiber**6**
            
            
            50,824
            
            
            *****
            
            
            -
            
            
            -James
                J. Woodcock**6**
            
            
            50,824
            
            
            *****
            
            
            -
            
            
            -**All
                directors and executive officers as a group (10
                persons)**
            
            
            **7,221,207**
            
            
            **85.96**
            
            
            **480,000**
            
            
            **28.37**





**1**
            The
                common stock and Series A Preferred Stock shares beneficially owned
                by Mr.
                Graves include 400,000 shares of outstanding Series A Preferred Stock
                and
                assume the exercise of options to acquire an additional 80,000 shares
                of
                Series A Preferred Stock.**2**
            Mr.
                Swid has voting control and investment power over the Series A Preferred
                Stock shares held collectively by Permal Special Situations, LTD;
                SLS
                Offshore Fund, LTD; and SLS Investors, LP. The common stock and Series
                A
                Preferred Stock shares beneficially owned by Mr. Swid include 400,000
                shares of outstanding Series A Preferred Stock and assume the exercise
                of
                options to acquire an additional 80,000 shares of Series A Preferred
                Stock.**3**
            The
                common stock and Series A Preferred Stock shares beneficially owned
                by RSA
                Capital include 200,000 shares of outstanding Series A Preferred
                Stock and
                assume the exercise of options to acquire an additional 40,000 shares
                of
                Series A Preferred Stock.**4**
            The
                common stock and Series A Preferred Stock shares beneficially owned
                by
                U.S. Bank include 200,000 shares of outstanding Series A Preferred
                Stock
                and assume the exercise of options to acquire an additional 40,000
                shares
                of Series A Preferred Stock.**5**
            Mr.
                Doft has voting control and investment power over the Series A Preferred
                Stock shares held collectively by Highline Capital International,
                Ltd.;
                Highline Capital Partners QP, LP; and Highline Capital Partners,
                LP. The
                common stock and Series A Preferred Stock shares beneficially owned
                by Mr.
                Doft include 100,000 shares of outstanding Series A Preferred Stock
                and
                assume the exercise of options to acquire an additional 20,000 shares
                of
                Series A Preferred Stock.





**6**
            As
                of October 28, 2007, 25,412 of the shares were vested, and the remaining
                25,412 shares vest on August 3, 2008. Messrs. Danovitch, Gallagher,
                Keane,
                Schreiber and Woodcock must be a stockholder and be one of our directors
                or a director of an affiliated company on each vesting date for their
                respective vesting increments to occur. Messrs. Danovitch, Gallagher,
                Keane, Schreiber and Woodcock may vote their entire shares pending
                vesting
                and are entitled to dividends on our common stock, if any, until
                such time
                as it becomes apparent that vesting will not occur as to such shares,
                or
                any portion thereof.




*****
            Less
                than 1%.




Ms.
      Shahvaran and Messrs. Graves, Griffith, Cornwell, Domijan, Holt, Danovitch,
      Gallagher, Keane, McCalmont, Schreiber and Woodcock, and Mr. Yeisley’s estate
      (individually and collectively the Holder or Holders, as applicable) are a
      party
      to a Lock-Up Letter Agreement, dated September 28, 2006, whereby each
      stockholder agrees that, without the prior written consent of Merriman Curhan
      Ford & Co. (which consent may be withheld in its sole discretion), he will
      not during the period commencing on the date of the letter agreement and ending
      on the earlier of (a) 180 days after the registration statement is declared
      effective, or (b) two years from the date of the Lock-Up Letter Agreement (or
      September 28, 2008) ((a) and (b), each a Lock-Up Period) (i) directly or
      indirectly offer, pledge, sell, contract to sell, sell any option or contract
      to
      purchase, purchase any option or contract to sell, grant any option, right
      or
      warrant for the sale of (including, without limitation, any short sale),
      establish an open “put equivalent position” within the meaning of Rule 16a-1(h)
      under the Securities Exchange Act of 1934 (the Exchange Act), as amended, and
      the rules and regulations promulgated thereunder, lend or otherwise dispose
      of
      or transfer any securities of the Company currently or hereafter owned either
      of
      record or beneficially (as defined in Rule 13d-3 under the Exchange Act) by
      the
      Holders, or publicly announce the Holders’ intention to do any of the foregoing,
      or (ii) enter into any swap or other arrangement that transfers, in whole or
      in
      part, directly or indirectly, any of the economic consequences of ownership
      of
      any securities of the Company currently or hereafter owned either of record
      or
      beneficially (as defined in Rule 13d-3 under the Exchange Act) by the Holders,
      or publicly announce the Holders’ intention to do any of the foregoing, whether
      any such transaction described in clause (i) or (ii) above is to be settled
      by
      delivery of common stock of the Company or such other securities, in cash or
      otherwise ((i) or (ii), each a Disposition).




41




The
      restriction has been expressly agreed to preclude each Holder from engaging
      in
      any hedging or other transaction which is designed to or reasonably expected
      to
      lead to or result in a disposition of the Company’s common stock or securities
      convertible into, exchangeable, or exercisable for the Company’s common stock
      during the Lock-up Period, even if such securities would be disposed of by
      someone other than the Holder.




**Item
      12. Certain Relationships and Related Transactions, and Director
      Independence.**





**Loans
      from Officers and Stockholders**





In
      November 2005, we borrowed approximately $620,000 from Mr. Kenneth R. Griffith,
      our president and chief executive officer, for working capital purposes, of
      which approximately $248,000 was repaid during fiscal year 2006 and the balance
      was converted into a 4.48% unsecured, demand promissory note payable, due
      November 11, 2007. On October 28, 2007, this note, together with interest of
      approximately $33,000 accrued on the note since its inception, was exchanged
      for
      a new 4.88% unsecured, non-demand promissory note in the amount of approximately
      $405,000, which matures on May 3, 2009.





In
      November 2005, we borrowed approximately $380,000 from Mr. Knowles B. Cornwell,
      our executive vice president and chief operating officer, for working capital
      purposes, of which approximately $152,000 was repaid during fiscal year 2006
      and
      the balance was converted into a 4.48% unsecured, demand promissory note
      payable, due November 11, 2007. On October 28, 2007, this note, together with
      interest of approximately $20,000 accrued on the note since its inception,
      was
      exchanged for a new 4.88% unsecured, non-demand promissory note in the amount
      of
      approximately $248,000, which matures on May 3, 2009.





In
      January 2006, Mr. Gordon T. Graves, our chairman of the board of directors
      and
      principal stockholder, made a capital contribution of $400,000 to Goodtime.
      In
      that same month, we also issued a 4.64% unsecured, demand promissory note
      payable due January 20, 2008 for $600,000 to Mr. Graves, the proceeds from
      which
      were used for working capital purposes. On October 28, 2007, this note, together
      with interest of approximately $49,000 accrued on the note since its inception,
      was exchanged for a new 4.88% unsecured, non-demand promissory note in the
      amount of approximately $649,000, which matures on May 3, 2009.





**Lease
      Obligations to Officers and Stockholders**





We
      are
      the lessee and Mr. Griffith is the landlord for our office/warehouse facility
      at
      11827 Judd Ct., Dallas, Texas. The minimum monthly rental under this lease
      is
      $7,500, and the lease expires October 31, 2008. During fiscal years 2007 and
      2006, we paid Mr. Griffith minimum rentals of $90,000 per year pursuant to
      this
      agreement. We are also obligated under this lease to pay property taxes and
      insurance for this facility, which executory costs approximated $16,000 per
      year
      for fiscal years 2007 and 2006.





We
      are
      the lessee and Texaco Rd., LP is the landlord for our office/warehouse
      facility located at 12511 Texaco Rd., Houston, Texas. Texaco Rd., LP is a
      partnership that is owned by Mr. Griffith and Mr. Cornwell. The minimum monthly
      rental under this lease is $5,000, and the lease expires January 31, 2010.
      During fiscal years 2007 and 2006, we paid Texaco Rd., LP $60,000 per year
      pursuant to this agreement. We are also obligated under this lease to pay
      property taxes and insurance for this facility, which executory costs
      approximated $9,000 per year for fiscal years 2007 and 2006.





We
      are
      the lessee and 4967 Space Center, LP is the landlord for our
      office/warehouse facility located at 4967 Space Center, San Antonio, Texas.
      4967
      Space Center, LP is a partnership that is owned by Mr. Griffith and Mr.
      Cornwell. The minimum monthly rental under this lease is $3,500, and the lease
      expires October 31, 2008. During fiscal years 2007 and 2006, we paid Space
      Center, LP $42,000 per year pursuant to this agreement. We are also obligated
      under this lease to pay property taxes and insurance for this facility, which
      executory costs approximated $6,000 per year for fiscal years 2007 and
      2006.





Minimum
      lease payments of approximately $255,000 were remaining under the above lease
      agreements as of October 28, 2007, not including executory costs for which
      we
      are also responsible. During fiscal years 2007 and 2006, such executory costs,
      which are variable in nature, approximated $31,000 per year.




42




**Other
      Related Party Transactions**





Graves
      Management, Inc. (Graves), an affiliated company owned by Mr. Graves, provides
      us with consulting services related to our AWP business operations, for which
      we
      incurred expenses of approximately $81,000 and $114,000 during fiscal years
      2007
      and 2006, respectively. The agreement may be terminated by either party by
      giving 30 days advance written notice. Effective April 1, 2007, Graves agreed
      to
      defer the payments due to it under this agreement to help defray the legal
      costs
      arising from the adverse opinion issued by the Attorney General in March 2007,
      which liability was approximately $47,000 as of October 28, 2007. Mr. Graves
      has
      never been personally compensated under this agreement.




**Item
      13. Exhibit List and Reports on Form 8-K.**





**Number**
            
            **Exhibit**2.1
            
            Agreement
                Concerning the Exchange of Securities, dated as of October 4, 2006,
                by and
                among OEF Corporate Solutions, Inc., Goodtime Action Amusement Partners,
                L.P., the partners of Goodtime Action Amusement Partners, L.P. and
                the
                members of Amusement Innovation Partners, LLC (incorporated by reference
                to Exhibit 2.1 to the registrant’s current report on Form 8-K filed on
                October 10, 2006).3.1
            
            Amended
                and Restated Articles of Incorporation (incorporated by reference
                to
                Exhibit 3.1 to the registrant’s current report on Form 8-K filed on
                October 10, 2006).3.2
            
            Amended
                and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
                the
                registrant’s current report on Form 8-K filed on October 10,
                2006).4.1
            
            Certificate
                of Designations for Series A Convertible Preferred Stock (incorporated
                by
                reference to Exhibit 4.1 to the registrant’s current report on Form 8-K
                filed on October 10, 2006).4.2
            
            Form
                of Purchase Agreement, dated as of October 9, 2006, by and among
                Aces
                Wired, Inc. and the purchasers party thereto (incorporated by reference
                to
                Exhibit 4.3 to the registrant’s current report on Form 8-K filed on
                October 10, 2006).10.1
            
            Employment
                Agreement by and between Goodtime Action Amusement Partner, L.P.
                and
                Christopher Domijan, dated as of October 31, 2005 and First Amendment
                to
                Employment Agreement dated as of July 16, 2006 (incorporated by reference
                to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on
                October 10, 2006).10.2
            
            Lease
                Agreement dated as of September, 2006 by and between registrant and
                Dallas
                High Point Centre Associates, Ltd. for certain real property located
                at
                12225 Greenville Avenue, Suite 861, Dallas, Texas (incorporated by
                reference to Exhibit 10.2 to the registrant’s registration statement on
                Form SB-2 filed on November 8, 2006).10.3
            
            Lease
                Agreement dated as of November 1, 2003 by and between registrant
                and
                Texaco Rd., LP for certain real property located at 11827 Judd Ct.,
                Dallas, Texas (incorporated by reference to Exhibit 10.2 to the
                registrant’s registration statement on Form SB-2 filed on November 8,
                2006).10.4
            
            Lease
                Agreement dated as of February 1, 2005 by and between registrant
                and
                Texaco Rd., LP for certain real property located at 12511 Texaco
                Rd.,
                Houston, Texas (incorporated by reference to Exhibit 10.2 to the
                registrant’s registration statement on Form SB-2 filed on November 8,
                2006).10.5
            
            Lease
                Agreement dated as of November 1, 2003 by and between registrant
                and 4967
                Space Center, LP for certain real property located at 4967 Space
                Center,
                San Antonio, Texas (incorporated by reference to Exhibit 10.2 to
                the
                registrant’s registration statement on Form SB-2 filed on November 8,
                2006).10.6
            
            Aces
                Wired, Inc. 2007 Stock Incentive Plan (incorporated by reference
                to
                Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March
                14, 2007).10.7
            
            Employment
                Agreement, dated March 8, 2007, by and between Aces Wired, Inc. and
                Kenneth R. Griffith (incorporated by reference to Exhibit 10.2 to
                the
                registrant’s current report on Form 8-K filed on March 14,
                2007).10.8
            
            Employment
                Agreement, dated March 8, 2007, by and between Aces Wired, Inc. and
                Knowles B. Cornwell (incorporated by reference to Exhibit 10.3 to
                the
                registrant’s current report on Form 8-K filed on March 14,
                2007).10.9
            
            Employment
                Agreement, dated March 8, 2007, by and between Aces Wired, Inc. and
                Christopher C. Domijan (incorporated by reference to Exhibit 10.4
                to the
                registrant’s current report on Form 8-K filed on March 14,
                2007).16.1
            
            Letter
                on Change in Certifying Accountant from Hawkins Accounting (incorporated
                by reference to Exhibit 16.1 to the registrant’s current report on Form
                8-K/A filed on October 23, 2006).




43




21
            
            Subsidiaries*31.1
            
            Rule
                13a-14(a) Certification of Chief Executive Officer*31.2
            
            Rule
                13a-14(a) Certification of Chief Financial Officer*32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                Certification*32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                Certification**
                Filed herewith.





**Item
      14. Principal Accountants Fees and Services.**





We
      were
      billed by Weaver and Tidwell, L.L.P., an independent public accounting firm,
      for
      the following professional services they performed for us during the fiscal
      years ending October 28, 2007 and October 29, 2006.





**Fiscal
                Year****2007**
            
            **2006****Audit
                Fees**-
                services related to the audits and reviews, respectively, of the
                Company’s
                annual and quarterly financial statements.
            
            $
            116,279
            
            $
            95,379**Audit-Related
                Fees -**assurance
                and related services rendered in connection with the Company’s filing in
                fiscal year 2006 of Form 8-K related to the acquisition of Goodtime
                Action
                Amusement Partners, L.P. and Form SB-2, as amended in fiscal year
                2007,
                related to the registration for resale of certain common stock
                shares.
            
            
            22,400
            
            
            31,500**Tax
                Fees**-
                services related to income and sales tax compliance.
            
            
            11,255
            
            
            4,200$
            149,934
            
            $
            131,079





**All
      Other Fees** .
      Weaver
      and Tidwell, L.L.P. did not provide any other services or products to the
      Company during fiscal years 2007 and 2006.





Our
      Audit
      Committee has established its pre-approval policies and procedures, pursuant
      to
      which the Audit Committee approved the foregoing services provided by Weaver
      and
      Tidwell, L.L.P. to the Company during fiscal years 2007 and 2006.




44




**Signatures**





**Date**
            
            **Signature/Title**January
                28, 2008
            
            By:
                /s/ Kenneth R. GriffithKenneth
                R. Griffith
              President,
                Chief Executive Officer and DirectorJanuary
                28, 2008
            
            By:
                /s/ Christopher C. DomijanChristopher
                C. Domijan
              Executive
                Vice President, Chief Financial Officer and SecretaryJanuary
                28, 2008
            
            By:
                /s/ Gordon GravesGordon
                Graves
              Chairman
                of the Board of DirectorsJanuary
                28, 2008
            
            By:
                /s/ David E. DanovitchDavid
                E. Danovitch
              DirectorJanuary
                28, 2008
            
            By:
                /s/ Michael T. GallagherMichael
                T. Gallagher
              DirectorJanuary
                28, 2008
            
            By:
                /s/ Martin A. KeaneMartin
                A. Keane
              DirectorJanuary
                28, 2008
            
            By:
                /s/ John J. SchreiberJohn
                J. Schreiber
              DirectorJanuary
                28, 2008
            
            By:
                /s/ James J. WoodcockJames
                J. Woodcock
              Director





45


**Financial
        Statements**
  **Aces
        Wired, Inc.**
  **Consolidated
        Financial Statements**
 
 **As
        of and for the 52-week Periods ended October 28, 2007 and October 29,
        2006**
  PageReport
                  of Independent Registered Public Accounting Firm
              
              F-2Consolidated
                  Balance Sheets as of October 28, 2007 and October 29, 2006
              
              F-3Consolidated
                  Statements of Operations for the 52-week Periods ended October
                  28, 2007
                  and October 29, 2006
              
              F-4Consolidated
                  Statements of Changes in Stockholders' Equity and Partners' Capital
                  (Deficit) for the 52-week Periods ended October 28, 2007 and October
                  29,
                  2006
              
              F-5Consolidated
                  Statements of Cash Flows for the 52-week Periods ended October
                  28, 2007
                  and October 29, 2006
              
              F-6Notes
                  to Consolidated Financial Statements
              
              F-7


F-1




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and


Stockholders
      of Aces Wired, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Aces Wired, Inc. as
      of
      October 28, 2007 and October 29, 2006 and the related consolidated statements
      of
      operations, changes in stockholders’ equity and partners' capital (deficit), and
      cash flows for the fiscal years then ended. These consolidated financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Aces Wired, Inc. at October
      28, 2007 and October 29, 2006 and the results of their operations and their
      cash
      flows for the fiscal years then ended, in conformity with accounting principles
      generally accepted in the United States of America.





**/s/
      WEAVER AND TIDWELL, L.L.P.**





Dallas,
      Texas


January
      28, 2008






F-2




**Aces
      Wired, Inc.**




**Consolidated
      Balance Sheets**





**October
      28, 2007 and October 29, 2006**




**October
                  28,**
              
              **October
                  29,****2007**
              
              **2006****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              $
              3,610,045
              
              $
              7,101,042Restricted
                  cash
              
              
              90,969
              
              
              308,878Trade
                  accounts receivable, net of provision for doubtful
                  accounts
              
              
              893,582
              
              
              801,008Inventory,
                  net of valuation provision
              
              
              789,875
              
              
              879,154Income
                  taxes receivable
              
              
              359,779
              
              
              —Prepaid
                  expenses and other
              
              
              376,017
              
              
              387,297Deferred
                  income tax assets
              
              
              95,474
              
              
              53,582Total
                  current assets
              
              
              6,215,741
              
              
              9,530,961**Property
                  and equipment**,
                  net of accumulated depreciation and amortization
              
              
              5,641,223
              
              
              4,569,361**Goodwill**
              
              
              2,913,522
              
              
              2,913,522**Intangible
                  assets**,
                  net of accumulated amortization
              
              
              1,185,596
              
              
              1,427,836**Other
                  assets**
              
              
              222,373
              
              
              104,971Total
                  assets
              
              $
              16,178,455
              
              $
              18,546,651**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Current
                  maturities of long-term debt and capitalized lease
                  obligations
              
              $
              352,945
              
              $
              646,718Trade
                  accounts payable
              
              
              527,216
              
              
              625,192Income
                  taxes payable
              
              
              62,858
              
              
              416,126Other
                  accrued expenses and liabilities
              
              
              689,240
              
              
              409,507Total
                  current liabilities
              
              
              1,632,259
              
              
              2,097,543**Long-term
                  notes payable to related parties**
              
              
              1,302,002
              
              
              1,247,432**Long-term
                  debt and capitalized lease obligations**,
                  less current maturities
              
              
              576,999
              
              
              910,497**Deferred
                  income tax liabilities**
              
              
              95,474
              
              
              263,967**Other
                  deferred liabilities and credits**
              
              
              290,385
              
              
              —Total
                  liabilities and deferred credits
              
              
              3,897,119
              
              
              4,519,439**Commitments
                  and contingencies****Stockholders'
                  equity**Series
                  A convertible preferred stock, 1,612,000 shares issued and
                  outstandingat
                  2007 and 2006 (liquidation preference of $8,205,081 as of October
                  28,
                  2007)
              
              
              1,612
              
              
              1,612Common
                  stock, 8,000,019 shares issued and 7,921,077 shares and
                  8,000,019shares
                  outstanding at 2007 and 2006, respectively
              
              
              8,000
              
              
              8,000Additional
                  paid-in capital
              
              
              17,639,510
              
              
              16,128,690Accumulated
                  deficit
              
              
              (5,367,707
              )
              
              (2,111,090
              )Treasury
                  stock, 78,942 shares at $.001 par value per share
              
              
              (79
              )
              
              —Total
                  stockholders' equity
              
              
              12,281,336
              
              
              14,027,212Total
                  liabilities and stockholders' equity
              
              $
              16,178,455
              
              $
              18,546,651


See
      accompanying Notes to Consolidated Financial Statements.




F-3




**Aces
      Wired, Inc.**




**Consolidated
      Statements of Operations**





**For
      the 52-week Periods ended October 28, 2007 and October 29,
      2006**


**52-week
                  Period ended****October
                  28,**
              
              **October
                  29,****2007**
              
              **2006****Revenue**Bingo
                  supply and services
              
              $
              15,166,451
              
              $
              15,489,201Gaming
                  amusement centers
              
              
              6,069,448
              
              
              2,554,25421,235,899
              
              
              18,043,455Less
                  promotional allowances
              
              
              299,155
              
              
              153,915Net
                  revenue
              
              
              20,936,744
              
              
              17,889,540**Expenses**Cost
                  of sales - bingo supply and services
              
              
              8,333,452
              
              
              8,602,515Operating
                  expenses - gaming amusement centers(includes
                  share-based compensation of $126,216 and $48,316 for 2007 and 2006,
                  respectively)
              
              
              6,615,001
              
              
              3,345,495Operating
                  expenses - bingo supply and services
              
              
              3,489,855
              
              
              3,600,217Corporate
                  overhead (includes share-basedcompensation
                  of $1,384,525 and $3,572,341 for 2007 and 2006,
                  respectively)
              
              
              4,140,157
              
              
              5,945,729Abandonment
                  losses
              
              
              458,418
              
              
              22,624Depreciation
                  and amortization
              
              
              1,218,965
              
              
              736,291Total
                  expenses
              
              
              24,255,848
              
              
              22,252,871**Operating
                  loss**
              
              
              (3,319,104
              )
              
              (4,363,331
              )**Other
                  income (expense)**Interest
                  income
              
              
              147,430
              
              
              28,003Interest
                  expense
              
              
              (186,788
              )
              
              (141,048
              )Other,
                  net
              
              
              (432,482
              )
              
              7,463Total
                  other income (expense), net
              
              
              (471,840
              )
              
              (105,582
              )**Loss
                  before income taxes**
              
              
              (3,790,944
              )
              
              (4,468,913
              )**Income
                  tax benefit (expense)**
              
              
              534,327
              
              
              (631,671
              )**Net
                  loss**
              
              $
              (3,256,617
              )
              $
              (5,100,584
              )**Net
                  loss per common stock share:**Basic
                  and Diluted
              
              $
              (0.44
              )
              $
              (0.73
              )**Weighted
                  average number of common****stock
                  shares outstanding:**Basic
                  and Diluted
              
              
              7,487,196
              
              
              6,974,496


See
      accompanying Notes to Consolidated Financial Statements.





F-4


**Aces
      Wired, Inc.**





**Consolidated
      Statements of Changes in Stockholders' Equity and Partners' Capital
      (Deficit)**




**For
      the 52-week Periods ended October 28, 2007 and October 29,
      2006**


**Series
                  A**
              
              
              
              
              
              **Retained****convertible**
              
              **Common**
              
              **Additional**
              
              **earnings
                  /**
              
              
              
              **Partners'
                  capital (deficit)**
              
              **Total****preferred**
              
              **stock**
              
              **paid-in**
              
              **(accumulated**
              
              **Treasury**
              
              **General**
              
              **Limited**
              
              
              
              **ownership****stock
                  (*)**
              
              **(**)**
              
              **capital**
              
              **deficit)**
              
              **stock**
              
              **partner**
              
              **partners**
              
              **Total**
              
              **interests****Balance
                  at October 30, 2005**
              
              $
              —
              
              $
              403
              
              $
              —
              
              $
              3,002,699
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              3,003,102Net
                  loss for the 52-week period ended October 29, 2006
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,100,584
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,100,584
              )—
              
              
              —
              
              
              —
              
              
              
              
              
              
              
              
              —
              
              
              —Goodtime
                  Action Amusement Partners, L.P. (Goodtime)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1
              )
              
              (13,207
              )
              
              (13,208
              )
              
              (13,208
              )Capital
                  contributions
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              200
              
              
              667,401
              
              
              667,601
              
              
              667,601Issuance
                  of equity interest in K&B Sales, Inc. to acquire Aces Wired,
                  LLC
              
              
              —
              
              
              —
              
              
              4,490,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              4,490,000Issuance
                  of partnership interests in Goodtime to acquire K&B Sales,
                  Inc.
              
              
              —
              
              
              (403
              )
              
              (4,490,000
              )
              
              (3,002,699
              )
              
              —
              
              
              —
              
              
              7,493,102
              
              
              7,493,102
              
              
              —Reverse
                  stock split (OEF Corporate Solutions, Inc.)
              
              
              —
              
              
              336
              
              
              (336
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Exchange
                  of 7,623,580 shares of common stock for 100% ownership interest
                  in
                  Goodtime
              
              
              —
              
              
              7,624
              
              
              5,150,377
              
              
              2,989,494
              
              
              —
              
              
              (199
              )
              
              (8,147,296
              )
              
              (8,147,495
              )
              
              —Sale
                  of 1,612,000 shares of Series A convertible preferred stock, net
                  of
                  issuance costs
              
              
              1,612
              
              
              —
              
              
              6,941,782
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              6,943,394Issuance
                  of options to acquire 322,400 shares of Series A convertible preferred
                  stock
              
              
              —
              
              
              —
              
              
              399,250
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              399,250Issuance
                  of 40,000 shares of common stock for services received
              
              
              —
              
              
              40
              
              
              149,960
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              150,000Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              3,470,657
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              3,470,657Excess
                  tax benefit from issuance of common stock shares for
                  services
              
              
              —
              
              
              —
              
              
              17,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              17,000**Balance
                  at October 29, 2006**
              
              
              1,612
              
              
              8,000
              
              
              16,128,690
              
              
              (2,111,090
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              14,027,212Net
                  loss for the 52-week period ended October 28, 2007
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,256,617
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,256,617
              )Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              1,510,741
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,510,741Forfeiture
                  of 78,942 issued and unvested shares of common stock
              
              
              —
              
              
              —
              
              
              79
              
              
              —
              
              
              (79
              )
              
              —
              
              
              —
              
              
              —
              
              
              —**Balance
                  at October 28, 2007**
              
              $
              1,612
              
              $
              8,000
              
              $
              17,639,510
              
              $
              (5,367,707
              )
              $
              (79
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              12,281,336




**(*)**
            Series
                A convertible preferred stock, $.001 par value; 5,000,000 shares
                authorized as of October 28, 2007 and October 29, 2006; liquidation
                preference of $5.00 per share plus accrued and unpaid
                dividends.**(**)**
            Common
                stock:K&B
                Sales, Inc. (Predecessor Company) - $1.00 par value; 10,000 shares
                authorized and 403 shares outstanding as of October 30,
                2005.Aces
                Wired, Inc. (formerly OEF Corporate Solutions, Inc.) - $.001 par
                value;
                45,000,000 shares authorized as of October 28, 2007 and October 29,
                2006.





See
      accompanying Notes to Consolidated Financial Statements.




F-5




**Aces
      Wired, Inc.**




**Consolidated
      Statements of Cash Flows**




**For
      the 52-week Periods ended October 28, 2007 and October 29,
      2006**


**52-week
                  Period ended****October
                  28,**
              
              **October
                  29,****2007**
              
              **2006****Cash
                  Flows from Operating Activities**Net
                  loss
              
              $
              (3,256,617
              )
              $
              (5,100,584
              )Adjustments
                  to reconcile net loss to net cash provided by(used
                  in) operating activities:Share-based
                  compensation
              
              
              1,510,741
              
              
              3,620,657Depreciation
                  and amortization of property and equipment
              
              
              1,130,525
              
              
              683,256Abandonment
                  losses
              
              
              458,418
              
              
              22,624Amortization
                  of intangible assets
              
              
              242,240
              
              
              206,397Inventory
                  valuation provision
              
              
              181,726
              
              
              228,919Provision
                  for doubtful accounts receivable
              
              
              79,879
              
              
              38,331Deferred
                  income taxes
              
              
              (210,385
              )
              
              144,413Other,
                  net
              
              
              32,507
              
              
              35,571Changes
                  in operating assets and liabilities:Restricted
                  cash
              
              
              217,909
              
              
              (58,878
              )Trade
                  accounts receivable
              
              
              (172,453
              )
              
              (13,447
              )Inventory
              
              
              (92,447
              )
              
              (187,504
              )Income
                  taxes receivable
              
              
              (359,779
              )
              
              —Prepaid
                  expenses and other current assets
              
              
              35,311
              
              
              (206,889
              )Trade
                  accounts payable
              
              
              (97,976
              )
              
              126,514Income
                  taxes payable
              
              
              (330,157
              )
              
              416,126Accrued
                  expenses and liabilities
              
              
              279,733
              
              
              199,306Other
                  operating assets and liabilities, net
              
              
              112,731
              
              
              (143,827
              )Net
                  cash provided by (used in) operating activities
              
              
              (238,094
              )
              
              10,985**Cash
                  Flows from Investing Activities**Proceeds
                  from sales of property and equipment
              
              
              —
              
              
              36,784Cash
                  acquired in business acquisition
              
              
              —
              
              
              35,221Cash
                  surrender value of officer life insurance policy
              
              
              —
              
              
              34,315Acquisitions
                  of property and equipment
              
              
              (2,620,632
              )
              
              (3,637,661
              )Other
              
              
              (5,000
              )
              
              —Net
                  cash used in investing activities
              
              
              (2,625,632
              )
              
              (3,531,341
              )**Cash
                  Flows from Financing Activities**Proceeds
                  from issuance of Series A convertible preferred stock
              
              
              —
              
              
              8,060,000Proceeds
                  from issuance of notes payable to related parties
              
              
              —
              
              
              1,599,900Proceeds
                  from sales and leaseback transactions
              
              
              —
              
              
              1,357,505Proceeds
                  from borrowings under bank credit facility
              
              
              —
              
              
              1,000,000Capital
                  contributions to partnerships
              
              
              —
              
              
              667,601Excess
                  tax benefit from issuance of common stock for services
              
              
              —
              
              
              17,000Series
                  A convertible preferred stock issuance costs
              
              
              —
              
              
              (717,356
              )Repayments
                  of debt and capital lease obligations
              
              
              (627,271
              )
              
              (1,863,868
              )Net
                  cash provided by (used in) financing activities
              
              
              (627,271
              )
              
              10,120,782**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              (3,490,997
              )
              
              6,600,426**Cash
                  and cash equivalents - beginning of the period**
              
              
              7,101,042
              
              
              500,616**Cash
                  and cash equivalents - end of the period**
              
              $
              3,610,045
              
              $
              7,101,042


See
      accompanying Notes to Consolidated Financial Statements.




F-6


**Aces
      Wired, Inc.**


**Notes
        to Consolidated Financial Statements**




**1.
      Business, Organization and Basis of Presentation**




Aces
      Wired, Inc. (Aces Wired or the Company) is the parent company of Goodtime Action
      Amusement Partners, L.P. (Goodtime). As further described in Note 2 and Note
      4,
      Goodtime, a gaming and recreation company, was created on October 31, 2005
      in a
      business combination with K&B Sales, Inc. (K&B) and Aces Wired, LLC
      (AWLLC). K&B distributes electronic bingo games and related equipment,
      supplies, and branded pull tabs to charity bingo licensees throughout the state
      of Texas and has been in business for over 28 years. AWLLC was organized in
      June
      2004 and currently operates in the amusement-with-prize (AWP) gaming market
      in
      Texas where it utilizes its proprietary financial redemption/player card system
      (the Ace Advantage Card system). This system allows the Company’s gaming patrons
      to use their prize points from playing the Company’s AWP machines for future
      redemptions for non-cash merchandise from participating merchants. As of
      October 28, 2007, the Company operated approximately 230 AWP machines in four
      gaming amusement centers in Texas, called Ace Gaming Amusement Centers. The
      Company’s only business operations and properties are located in the state of
      Texas.





The
      Company was incorporated in Nevada in December 2001 under the name OEF Corporate
      Solutions, Inc. (OEF), and from its inception until October 4, 2006, the Company
      provided EDGAR (electronic data gathering, analysis and retrieval) services
      to
      companies that file reports with the U.S. Securities and Exchange Commission
      (the SEC). On October 4, 2006, and pursuant to the terms of the Agreement
      Concerning the Exchange of Securities among the Company, Goodtime, the partners
      of Goodtime and the members of Goodtime’s general partner, Amusement Innovation
      Partners, LLC (AIP), the Company exchanged 7,623,580 shares of its common stock
      with the partners and members of Goodtime and AIP for all of the outstanding
      ownership interests of Goodtime and AIP. As a result of the exchange, Goodtime
      became the Company’s wholly-owned subsidiary, and the former partners and
      members of Goodtime and AIP, including certain affiliated persons holding
      nonvoting profit interests in Goodtime, collectively became the beneficial
      owners of approximately 95.3% of the issued and outstanding common stock shares
      of the Company. OEF had no meaningful operations and no assets or liabilities
      immediately prior to the exchange and its stockholders retained approximately
      4.2% of the issued and outstanding common stock shares of the Company as of
      the
      date of the acquisition.





Although
      the Company is the legal parent company, its acquisition of Goodtime was
      accounted for as a reverse acquisition whereby Goodtime was considered to be
      the
      accounting acquirer and continuing entity for financial reporting purposes
      and
      no goodwill or intangible assets were recorded. Accordingly, these consolidated
      financial statements have been prepared as if Goodtime had always been the
      reporting entity and then on October 4, 2006 was recapitalized and changed
      its
      name to Aces Wired, Inc., the successor company of OEF.





As
      described in more detail at Note 2 and Note 16, legal actions resulting from
      an
      opinion issued by the Attorney General of Texas (the Attorney General) in March
      2007 resulted in the temporary and permanent closure of certain of the Company’s
      gaming amusement centers. Except as described in those Notes, these financial
      statements do not contain any other adjustments, including the recognition
      of
      impairment losses on the Company’s goodwill and other long-lived assets
      associated with its AWP gaming business, resulting from the actual and/or
      possible future closures of its gaming amusement centers, or other events
      related to the Attorney General’s opinion that might adversely affect the
      Company’s amusement-with-prize gaming business generally.





Unless
      noted otherwise in this report, the terms “Aces Wired” and “Company” refer to
      the financial position, results of operations and cash flows of Aces Wired,
      Inc.
      and its consolidated subsidiaries as of and for the 52-week periods ended
      October 28, 2007 and October 29, 2006. Additionally, further references to
      Goodtime relate to both Goodtime and AIP as required in the context of the
      narrative.


**2.
      Business Risk, Contingencies and Impairment**


Texas
          law
          excludes from the definition of a gambling device all electronic,
          electromechanical, or mechanical contrivances designed, made and played
          solely
          for bona fide amusement purposes if the contrivance rewards the player
          exclusively with noncash merchandise prizes, toys or novelties, or a
          representation of value redeemable for those items, subject to certain
          value
          limitations. The Company’s AWP machines, which are played exclusively with
          its Ace Advantage Card, are expressly designed and deployed in a manner
          that the
          Company believes is compliant with Texas law. However, on March 6, 2007,
          the
          Attorney General issued an opinion stating that AWP gaming machines that
          record
          a player’s winnings on a stored-value debit card are illegal in Texas because a
          stored-value debit card is a medium of exchange within the definition of
          cash
          and, therefore, does not constitute a non-cash merchandize prize. Under
          Texas
          law, the Attorney General’s opinion is not controlling in the state or binding
          on a court of law in that state. Ultimate determination of a law's
          applicability, meaning or constitutionality is determined by the Texas
          courts.
 
 Interpretation
          and enforcement of gambling and similar laws and regulations in Texas are
          generally conducted at the county level of government. In March 2007, local
          authorities in Nueces County, Texas and Bell County, Texas threatened legal
          actions in response to the Attorney General’s opinion that resulted in the
          closure of the Company’s gaming amusement centers in Corpus Christi, Texas and
          Killeen, Texas, claiming that the Company’s AWP machines, together with its Ace
          Advantage Card, operate in a manner similar to the types of cards and gaming
          machines described in the Attorney General’s opinion and are therefore illegal
          gambling devices. Also as a result of the Attorney General’s opinion, the
          Company reached an agreement in March 2007 with authorities in Potter County,
          Texas that allowed the Company to operate its gaming amusement center in
          Amarillo, Texas until November 8, 2007 when Potter County filed a nuisance
          action against the Company for the purpose of determining whether the Company’s
          AWP gaming machines constitute gambling devices, gambling paraphernalia
          or both
          under Texas law.
 F-7
  Aces
            Wired, Inc.
 **Notes
              to Consolidated Financial Statements**
 Statement
          of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies,”
(SFAS 5) requires the accrual of losses when they are probable and relate
          to the
          current or prior periods. As of October 28, 2007, two of the gaming centers
          affected by the Attorney General’s opinion (Corpus Christi and Amarillo) were
          operating; however, based on discussions with its legal counsel, the permanent
          closure of the Killeen was considered to be probable. As a result of permanently
          closing the Killeen center, the Company incurred a loss of approximately
          $51,000
          due to the abandonment of improvements to that leasehold and certain personal
          property. There was no lease agreement or other long-term financial obligation
          associated with the Killeen center.
 
 On
          June
          19, 2007, the Company reopened the Corpus Christi amusement center based
          on a
          temporary injunction it had received from the court in March 2007. Based
          in part
          on a favorable arbitration opinion and associated federal court affirmation,
          which are described in Note 16, it currently appears the Company will not
          further face legal action for the time being, if at all, against its AWP
          operations in Nueces County.
 
 As
          also
          described in Note 16, the Company has been unsuccessful to date in obtaining
          a
          court hearing regarding the nuisance action filed against its AWP operations
          in
          Potter County, and the Amarillo center remains closed. Based on consultation
          with legal counsel, the Company cannot currently determine if the closure
          of the
          Amarillo center will become permanent; however, it considers such event
          to be
          reasonably possible. If the Company is required to permanently close the
          Amarillo center, it would incur a loss of approximately $211,000 based
          primarily
          on the carrying values as of October 28, 2007 of the leasehold improvements
          to
          and certain personal property located at that center. The lease agreement
          for
          this facility allows the Company to terminate the lease without penalty
          if it is
          precluded from conducting its AWP operations there due to regulatory
          reasons.
 
 As
          a
          consequence of the Attorney Generals’ opinion, the Company also incurred
          expenses of approximately $136,000 resulting from severance benefits for
          furloughed employees and the early termination of a lease agreement for
          a
          facility in San Antonio in which the Company had planned to open an amusement
          center. The early termination of this lease and resultant litigation are
          described in Note 16.
 
 SFAS
          No.
          142, “Goodwill and Other Intangible Assets,” (SFAS 142) and SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS 144),
          respectively, require an entity to test the carrying values of its goodwill
          and
          other long-lived assets, including intangible assets subject to amortization,
          whenever events and circumstances indicate that such assets might be impaired.
          In light of the adverse events resulting from the March 6, 2007 opinion
          issued
          by the Attorney General, the Company tested the carrying values of its
          goodwill,
          intangible assets subject to amortization and other long-lived assets associated
          with its AWP gaming business in accordance with the applicable guidance
          provided
          in SFAS 142 and SFAS 144.
 
 The
          first
          step of an impairment test under SFAS 144 is to determine whether the future
          undiscounted cash flow expected to be generated by a long-lived asset (asset
          group) exceeds its carrying value. The Company’s SFAS 144 test was performed for
          the long-lived assets (asset groups) in use and under development as of
          October
          28, 2007. The asset group in use was comprised principally of the four
          gaming
          amusement centers in operations as of October 28, 2007, goodwill assigned
          to the
          AWP reporting unit (such reporting unit being considered the asset group
          for the
          purpose of the test) and certain intangible assets subject to amortization.
          The
          asset group under development was defined as available gaming machines
          and
          related back-office systems the Company has or plans to deploy in certain
          of its
          existing amusement centers, two new gaming centers the Company opened in
          December 2007, two centers it expects to open by March 2008 (and for which
          it
          has undertaken the necessary improvements to leased facilities) and under
          firm
          licensing agreements with four bingo hall operators in Texas (the “satellite”
centers). The undiscounted cash flows used in the test were substantially
          derived from the Company’s historical operating results, current business plan
          and market forecasts. However, due to the legal uncertainties currently
          clouding
          the Company’s AWP business and the Company’s limited and interrupted historical
          AWP operations, the undiscounted cash flows were probability-weighted expected
          cash flows based on management’s assessments that the Company’s amusement
          centers and the satellite centers remain open and a certain level of cumulative
          net revenue is realized.


As
            described in Note 7, goodwill resulted from the Company’s business combination
            with AWLCC in October 2005, which effectively was the beginning of the
            Company’s
            AWP gaming business. As it pertains to the Company, the first step of
            an
            impairment test of goodwill under SFAS 142 is to determine whether the
            fair
            value of the reporting unit exceeds its carrying value. If the fair value
            of the
            reporting unit is less than its carrying value, then goodwill is considered
            to
            be impaired. The Company used the income approach valuation technique
            and a
            measurement date of October 28, 2007 to determine the fair value of the
            AWP
            reporting unit. The Company employed probability-weighted expected undiscounted
            cash flows determined in a manner essentially the same as that described
            above.
            Additionally, because a critical aspect of the Company’s SFAS 142 impairment
            test was to value the AWP business enterprise, the SFAS 142 test assumed
            that
            the AWP machines used in the SFAS 144 test (the “primary asset” for the purpose
            of that test) were replaced at the end of their initial useful economic
            life and
            considered other cash flows (e.g., income taxes and debt service payments)
            in
            addition to the probability-weighted expected undiscounted cash flows
            used in
            the SFAS 144 impairment test.
 
 Based
            on
            the results of these tests, management concluded that as of October 29,
            2007 the
            carrying values of the Company’s long-lived assets associated with its AWP
            gaming business, including intangible assets subject to amortization,
            were
            recoverable and its goodwill was not impaired. However, as the determination
            of
            future cash flows is based and consequently dependent on the Company’s
            expectations of its future financial performance, impairment of the Company’s
            long-lived assets could occur in the future if actual operating results
            differ
            materially and adversely from such expectations.
 F-8
 Aces
                Wired, Inc.
 **Notes
                  to Consolidated Financial Statements**
 AWP
            gaming is not a state regulated industry in Texas, and the interpretation
            and
            enforcement of laws and regulations associated with gambling and/or gambling
            devices is generally done at the local (usually county) level. Accordingly,
            while the Company’s AWP operations might for the moment be considered compliant
            with applicable law in certain counties, there are no assurances the
            Company
            will not face future legal action in those and/or other Texas counties
            where is
            conducts it AWP business. In the event the Company is forced to cease
            operations
            of all or substantially all of its AWP gaming business in Texas for a
            prolonged
            period, if not permanently, it could have a material and adverse effect
            on the
            Company’s results of operations and financial position.
 **3.
            Goodtime**





Goodtime,
      a Texas limited partnership, was formed on September 26, 2005, and on October
      31, 2005, it acquired 100% of the issued and outstanding common stock shares
      of
      K&B and 100% of the outstanding ownership interests in AWLLC. When the
      Company acquired Goodtime on October 4, 2006, the stockholders of K&B and
      the members of AWLLC had partnership interests of approximately 42.6% each
      in Goodtime, after certain amendments to the partnership agreement diluted
      their
      original interests in Goodtime.





As
      is
      described in more detail in Note 7, Goodtime’s acquisition of K&B and AWLLC
      was accounted for as a business combination pursuant to SFAS No. 141, “Business
      Combinations” (SFAS 141). Due to the significance of K&B’s financial
      position and operations as of October 31, 2005 compared to the financial
      position and operations of Goodtime and AWLLC as of that date, K&B was
      considered to be the accounting acquirer and predecessor company of
      Goodtime.




**4.
      Summary of Significant Accounting Policies**





*Principles
      of Consolidation*





The
      accompanying consolidated financial statements as of and for the 52-week periods
      ended October 28, 2007 and October 29, 2006 include the accounts of Aces Wired
      and its wholly-owned subsidiaries. All significant intercompany balances and
      transactions have been eliminated.





OEF
      previously reported its financial results on a calendar year basis. Its results
      of operations for the period January 1, 2006 through October 4, 2006, the date
      of the reverse acquisition with Goodtime, were inconsequential and are not
      included in the Company’s consolidated statement of operations for the 52-week
      period ended October 29, 2006.




*Fiscal
      Year*




The
      Company’s fiscal year is a 52- or 53-week period ending on the Sunday closest to
      October 31 of each calendar year. This fiscal year creates better comparability
      of the Company’s quarterly results of operations by usually having an equal
      number of weeks (13) and weekend days (26) in each quarter, although this
      convention periodically necessitates a 53-week fiscal year (e.g., fiscal year
      2008 is a 53-week period ending November 2, 2008). As used hereinafter in the
      Notes to these financial statements, *fiscal
      year 2007* refers
      to the 52-week period ended October 28, 2007, and *fiscal
      year 2006* refers
      to the 52-week period ended October 29, 2006.




*Use
      of Estimates*





The
      preparation of consolidated financial statements in conformity with the
      accounting principles generally accepted in the United States of America
      requires the Company to make estimates and judgments that affect the reported
      amounts of assets and liabilities, revenue and expenses, and related disclosures
      of contingent assets and liabilities. The Company continually evaluates these
      estimates, including those related to its provisions for doubtful trade accounts
      receivable and obsolete and excess inventory, useful lives for depreciable
      and
      amortizable tangible and intangible assets, impairment of long-lived assets
      including intangible assets and goodwill, share-based compensation, income
      taxes
      and litigation. These estimates are based on historical information and
      experience, information that is currently available to the Company, and on
      various other assumptions that the Company believes to be reasonable considering
      the circumstances related to and the character of such estimates. Actual results
      could vary from those estimates, and those variances might be
      significant.





*Reclassifications*





Certain
      financial statement amounts for fiscal year 2006 have been reclassified to
      conform to the financial statement presentation for fiscal year 2007. The most
      significant of these reclassifications are illustrated in the following
      table.


**As
                  previously**
              
              **Increase****Fiscal
                  year 2006**
              
              **reported**
              
              **(decrease)**
              
              **Conformed****Balance
                  sheet**Restricted
                  cash
              
              $
              250,000
              
              $
              58,878
              **(a)**
              $
              308,878Total
                  current assets
              
              
              9,472,083
              
              
              58,878
              
              
              9,530,961Total
                  assets
              
              
              18,487,773
              
              
              58,878
              
              
              18,546,651Trade
                  accounts payable
              
              
              550,486
              
              
              74,706
              **(b)**
              
              625,192Income
                  taxes payable
              
              
              332,216
              
              
              83,910
              **(c)**
              
              416,126Other
                  accrued expenses and liabilities
              
              
              509,245
              
              
              (99,738
              )**(d)**
              
              409,507Total
                  current liabilities
              
              
              2,038,665
              
              
              58,878
              
              
              2,097,543Long-term
                  notes payable to related parties
              
              
              —
              
              
              1,247,432
              
              
              1,247,432Long-term
                  debt and capitalized lease obligations,less
                  current maturities
              
              
              2,157,929
              
              
              (1,247,432
              )
              
              910,497Total
                  liabilities
              
              
              4,460,561
              
              
              58,878
              
              
              4,519,439Total
                  liabilities and stockholders' equity
              
              
              18,487,773
              
              
              58,878
              
              
              18,546,651**Statement
                  of operations**Less
                  promotional allowances
              
              
              109,588
              
              
              44,327
              **(e)**
              
              153,915Net
                  revenue
              
              
              17,933,867
              
              
              (44,327
              )
              
              17,889,540Cost
                  of sales - bingo supply and services
              
              
              8,624,657
              
              
              (22,142
              )**(f)**
              
              8,602,515Operating
                  expenses - gaming amusement centers
              
              
              2,249,401
              
              
              1,096,094
              **(g)**
              
              3,345,495Operating
                  expenses - bingo supply and services
              
              
              3,580,215
              
              
              20,002
              **(h)**
              
              3,600,217Share-based
                  compensation
              
              
              3,620,657
              
              
              (3,620,657
              )
              
              —Corporate
                  overhead
              
              
              3,332,133
              
              
              2,613,596
              **(i)**
              
              5,945,729Abandonment
                  losses
              
              
              —
              
              
              22,624
              **(j)**
              
              22,624Depreciation
                  and amortization
              
              
              889,653
              
              
              (153,362
              )**(k)**
              
              736,291Total
                  expenses
              
              
              22,296,716
              
              
              (43,845
              )
              
              22,252,871Operating
                  loss
              
              
              (4,362,849
              )
              
              (482
              )
              
              (4,363,331
              )Other
                  income (expense)
              
              
              (106,064
              )
              
              482
              **(l)**
              
              (105,582
              )




F-9


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**
 **Debit****Reclassifications**
              
              **(credit)****(a)**
              
              
              Cash
                  held by sponsor bank for settlement of cardholder
                  liability
              
              $
              58,878**(b)**
              
              
              Unfunded
                  cardholder liability
              
              
              2,347Accrued
                  rentals payable for electronic bingo games
              
              
              (77,053
              )(74,706
              )**(c)**
              
              
              State
                  franchise taxes payable
              
              
              (83,910
              )**(d)**
              
              
              Cardholder
                  liability
              
              
              (61,225
              )State
                  franchise taxes payable
              
              
              83,910Accrued
                  rentals payable for electronic bingo games
              
              
              77,05399,738**(e)**
              
              
              Free
                  food and beverage provided to gaming amusement center
                  patrons
              
              
              44,327**(f)**
              
              
              Incentives
                  for early payment of vendor invoices
              
              
              (22,142
              )**(g)**
              
              
              Amortization
                  of favorable gaming contracts
              
              
              133,360Salaries
                  and benefits
              
              
              468,166Professional
                  services
              
              
              231,015Travel
              
              
              143,289Contract
                  services
              
              
              116,275Share-based
                  compensation
              
              
              48,316Free
                  food and beverage provided to gaming amusement center
                  patrons
              
              
              (44,327
              )1,096,094**(h)**
              
              
              Amortization
                  of customer list
              
              
              20,002**(i)**
              
              
              Share-based
                  compensation
              
              
              3,572,341Salaries
                  and benefits
              
              
              (468,166
              )Professional
                  services
              
              
              (231,015
              )Travel
              
              
              (143,289
              )Contract
                  services
              
              
              (116,275
              )2,613,596**(j)**
              
              
              Abandonment
                  loss
              
              
              22,624**(k)**
              
              
              Amortization
                  of favorable gaming contracts
              
              
              (133,360
              )Amortization
                  of customer list
              
              
              (20,002
              )(153,362
              )**(l)**
              
              
              Abandonment
                  loss
              
              
              (22,624
              )Discounts
                  for early payment of vendor invoices
              
              
              22,142(482
              )




*Revenue
      Recognition*




The
      sale
      of bingo supplies to customers is recognized when the products are shipped
      to
      the Company’s customers. Revenue from the rentals of electronic bingo systems to
      customers is recognized on a revenue-sharing basis pursuant to the terms of
      certain agreements the Company has with the vendors who provide such bingo
      systems to the Company.





The
      Company generally allows its customers 60 days after the date of sale to return
      bingo supplies for credit on their account, which customer returns are
      recognized as reductions in sales. Amounts billed to customers for shipping
      and
      handling are included in sales, whereas the costs incurred by the Company for
      shipping and handling are included in cost of sales. Additionally, the Company
      recognizes rebates and incentives it gives to its customers as reductions in
      sales and recognizes rebates and incentives it receives from its vendors as
      reductions in cost of sales.




Substantially
      all of the revenue from the operations of the Company’s gaming amusement centers
      is derived from the play on the AWP machines deployed at the centers. Such
      gaming revenue is in turn the cash equivalent value of the difference (or the
      hold) between the prize points wagered by and the prize points won by the
      Company’s gaming patrons. The Company’s revenue from a gaming amusement center
      in El Paso, Texas, where the Company was a joint operator with the Tigua Indian
      Tribe from November 2005 until February 2007, was 40% of the hold after certain
      adjustments, which revenue approximated 0.5% and 5.1%, respectively, of total
      hold for fiscal years 2007 and 2006. Additionally, beginning in February 2007,
      the Company deployed specially modified AWP machines and games of other vendors
      in certain of its amusement centers, which generated approximately 7.6% of
      the
      Company’s total hold for fiscal year 2007. In return, the Company paid the
      vendors approximately 23% of the hold generated by those particular machines
      and
      games, which expense is included in operating expense - gaming amusement centers
      in the accompanying statement of operations for fiscal year 2007.




F-10


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


Promotional
      allowances, consisting mostly of direct mail and newspaper coupons and
      entitlement programs, provide the Company’s gaming patrons with free play
      credits and are recognized as reductions in operating revenue when such
      promotional allowances are redeemed. Beginning in June 2007, the Company
      introduced a new, sweepstakes-based AWP gaming system at its amusement center
      in
      Corpus Christi, Texas. The cost of the sweepstakes prizes awarded under this
      system are recognized as a reduction in the hold generated at this
      center.





The
      Company also pays fees to certain software vendors for the use of their games
      on
      its AWP machines and for related data processing and other services, which
      are
      based on the hold derived from the play of the respective games and are included
      in operating expenses - gaming amusement centers in the accompanying statement
      of operations for fiscal years 2007 and 2006. The contractual rates for these
      fees range from 6% to 9.2% of the hold.





*Advertising
      and Promotional Costs*





Advertising
      and promotional costs are expensed in the period incurred and were approximately
      $445,000 and $284,000 for fiscal years 2007 and 2006, respectively.





*New
      Gaming Amusement Center Costs*





Promotional
      and other costs associated with the opening of new gaming amusement centers
      are
      expensed as incurred.





*Share-Based
      Compensation*





The
      Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R)
      concurrent with its issuance of certain restricted common stock shares in
      October 2006, which is described in more detail in Note 8.





*Income
      Taxes*





The
      Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for
      Income Taxes” (SFAS 109). The Company recognizes deferred tax assets and
      liabilities for the estimated tax consequences of temporary differences between
      the tax bases of assets and liabilities and their reported amounts using enacted
      tax rates in effect or the year the differences are expected to reverse, net
      of
      a valuation allowance to reduce deferred tax assets to the amount that is more
      likely than not to be realized. As described in more detail in Note 13, the
      Company accounts for Texas franchise and margin taxes as components of its
      income tax provision.




*Net
      Loss per Share*





Net
      loss
      per common stock share is computed pursuant to the provisions of SFAS No. 128,
      “Earnings Per Share” (SFAS 128). Under SFAS 128, basic earnings (loss) per
      common stock share is computed by dividing net income (loss) available to common
      stockholders by the weighted average number of common stock shares outstanding
      during the period, excluding nonvested restricted common shares. Diluted
      earnings (loss) per common stock share reflects the dilution for all potentially
      dilutive securities such as the Company’s nonvested restricted common stock and
      convertible preferred stock.





As
      is
      discussed in Note 1, the Company’s acquisition of Goodtime on October 4, 2006
      was accounted for as a reverse acquisition, or recapitalization, of Goodtime.
      Accordingly, the computations of basic and diluted net loss per common stock
      share for fiscal year 2006 are based on the premise that the Company acquired
      Goodtime on the first day of the subject period. Additionally, the common shares
      issued in connection with the acquisition of Goodtime included approximately
      823,000 shares of nonvested restricted common stock that were granted to certain
      of the Company’s officers, certain employees and all of its non-employee
      directors. For the purposes of computing basic and diluted net loss per common
      stock share for fiscal year 2006, it was assumed that such nonvested common
      shares vested on and pursuant to their actual vesting dates and
      terms.





Approximately
      140,000 and 823,000 nonvested restricted common stock shares are not included
      in
      the computations of diluted net loss per common share for fiscal years 2007
      and
      2006, respectively, because their inclusion would be antidilutive. Additionally,
      1,612,000 potential common stock shares related to convertible preferred stock
      were excluded from the computations of diluted net loss per common stock share
      for fiscal years 2007 and 2006 because they were antidilutive.





For
      additional information regarding the restricted common stock shares and the
      convertible preferred stock, see Note 9 and Note 15, respectively.




F-11


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


*Goodwill*





Goodwill
      represents the purchase consideration given in excess of the net assets acquired
      in a business combination. SFAS 142 requires an entity to test the carrying
      values of its goodwill and intangible assets with indefinite lives at least
      annually or whenever events and circumstances indicate that such long-lived
      assets might be impaired. The first step of the impairment test under SFAS
      142
      is to determine whether the fair value of the reporting unit to which goodwill
      is assigned exceeds the carrying value of the reporting unit. The Company has
      determined that its reporting units are its operating business segments pursuant
      to the disclosure requirements of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information” (SFAS 131). If the fair value of the
      reporting unit is less than its carrying value, goodwill is considered to be
      impaired. The second step of the SFAS 142 test is to allocate such fair value
      (the “purchase consideration”) to the tangible and intangible assets and
      liabilities of the reporting unit in a manner essentially the same as that
      prescribed under SFAS 141. The impairment loss is recognized in the reporting
      period such determination is made and is the difference between the carrying
      value of goodwill and its adjusted, or “implied,” basis resulting from the
      allocation of the reporting unit’s fair value to its other tangible and
      intangible assets and liabilities.





Management
      reviewed the carrying value of goodwill assigned to the AWP reporting unit
      pursuant to SFAS 142 and concluded that as of October 28, 2007 and October
      29, 2006, the carrying value of goodwill was not impaired. For fiscal year
      2007,
      the carrying value of goodwill was tested as a result of the adverse opinion
      issued by the Attorney General, which is described at Note 2.





*Impairment
      of Long-Lived Assets, including Intangible Assets Subject to
      Amortization*





SFAS
      No.
      144 requires an entity to test the carrying values of its long-lived assets,
      including intangible assets subject to amortization and goodwill if it is
      included in the “asset group” being tested, whenever events and circumstances
      indicate that such long-lived assets might be impaired. The first step of the
      impairment test under SFAS 144 is to determine whether the expected future
      undiscounted cash flow resulting from the direct use of the long-lived asset
      (asset group) being tested exceeds the carrying value of the long-lived asset
      (asset group). If the carrying value of the long-lived asset (asset group)
      is
      not recoverable (i.e., the undiscounted cash flow is less than the carrying
      value), the impairment loss, if any, is measured as the difference between
      the
      fair value of the long-lived asset (asset group) and its carrying value (the
      second step of the test) and is recognized in the reporting period such
      determination is made.





As
      described in Note 2 and Note 19, the Company recognized impairment losses of
      approximately $458,000 resulting primarily from the abandonment of leaseholds
      for gaming amusement centers it closed during fiscal year 2007.





*Cash
      and Cash Equivalents*




The
      Company considers all investments purchased with a then remaining maturity
      of
      three months or less to be cash equivalents.





*Restricted
      Cash*





The
      Company’s AWP machines can only be played by using the Ace Advantage Card, which
      is a stored-value card issued by a sponsor bank. When the Company’s gaming
      patrons redeem prize points accumulated on their Ace Advantage Cards with
      participating merchants, the bank processes such redemptions through the
      financial networks on behalf of the Company.





Restricted
      cash as of October 28, 2007 consisted of a non-interest bearing account held
      by
      and for the benefit of the bank that currently sponsors the Ace Advantage Card,

      which restricted funds are used by the Company to settle the redemptions of
      prize points processed by the bank. Pursuant to the terms of the subject
      agreement, the Company is also required to maintain a $5,000 cash security
      deposit with the bank, which is included in other assets in the accompanying
      consolidated balance sheet as of October 28, 2007.





Restricted
      cash as of October 29, 2006 consisted of a similar non-interest bearing account
      in the approximate amount of $59,000 and a cash security deposit of $250,000
      held by and for the benefit of a bank that previously sponsored the Ace
      Advantage Card. Operationally, the sponsorship agreement with this bank ended
      on
      December 31, 2006, and all of the cash security deposit was fully refunded
      to
      the Company by August 2007.





*Trade
      Accounts Receivable*





The
      Company considers the collection of trade accounts receivables to be doubtful
      when such receivables are unpaid for 60 or more days from the date of sale.
      Receivables that are ultimately deemed to be uncollectible are charged to the
      provision for doubtful trade accounts receivable, whereas recoveries of accounts
      previously written off are credited to the provision. The Company’s provisions
      for doubtful trade accounts receivable were approximately $163,000 and $114,000
      as of October 28, 2007 and October 29, 2006, respectively.




F-12


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


*Inventory*





Inventory
      consists of bingo related supplies held for resale and is valued at the lower
      of
      average cost or market value. The Company had provisions for obsolete and excess
      inventory of approximately $136,000 and $145,000 at October 28, 2007 and October
      29, 2006, respectively.





*Property
      and equipment*





Property
      and equipment are stated at cost and consisted of the following amounts as
      of
      October 28, 2007 and October 29, 2006.




**Estimated****October
                  28,**
              
              **October
                  29,**
              
              **useful
                  life****2007**
              
              **2006**
              
              **(years)**Amusement
                  gaming machines and back-office systems
              
              $
              2,376,664
              
              $
              1,113,350
              
              
              5Bingo
                  rental equipment
              
              
              1,643,971
              
              
              1,545,958
              
              
              5Improvements
                  to leased facilities
              
              
              820,747
              
              
              338,481
              
              
              5
                  to 20Capitalized
                  software
              
              
              820,195
              
              
              382,703
              
              
              3
                  to 10Vehicles
              
              
              775,774
              
              
              744,041
              
              
              5Furniture,
                  fixtures and other equipment
              
              
              465,768
              
              
              453,432
              
              
              5
                  to 10Computer
                  equipment
              
              
              344,956
              
              
              259,026
              
              
              5
                  to 77,248,075
              
              
              4,836,991Less
                  accumulated depreciation and amortization
              
              
              (2,584,713
              )
              
              (1,900,709
              )4,663,362
              
              
              2,936,282Amusement
                  gaming machines under capitalized lease obligations
              
              
              1,355,758
              
              
              1,355,758
              
              
              *****Less
                  accumulated amortization
              
              
              (444,619
              )
              
              (96,432
              )911,139
              
              
              1,259,326Purchase
                  deposits and construction work in progress
              
              
              66,722
              
              
              373,753Property
                  and equipment, net
              
              $
              5,641,223
              
              $
              4,569,361






*****
            These
                machines are being amortized over the four-year basic terms of the
                subject
                leases.





Depreciation
      and amortization are provided for on a straight-line basis over the lesser
      of
      the estimated useful lives of the assets or the lease terms, including periods
      for which renewals of the leases are reasonably assured. Residual values for
      all
      of the Company’s property and equipment, including equipment under capitalized
      lease obligations, are assumed to be zero at the end of their depreciable lives.
      Costs for the routine maintenance and repairs of property and equipment,
      inclusive of materials and services, are expensed as incurred. Modifications
      that significantly enhance the functionality and/or extend the useful economic
      lives of property and equipment are capitalized and depreciated/amortized over
      the remaining useful lives of the assets or lease terms, as applicable. With
      the
      exception of losses arising from the abandonment of leaseholds for gaming
      amusement centers, other gains and losses from the disposals of other property
      and equipment are included in other income (expense), net in the accompanying
      consolidated statements of operations and were not significant for either fiscal
      year 2007 or fiscal year 2006.




*Recently
      Issued Accounting Pronouncements*





Other
      recent accounting pronouncements that the Company has adopted or will be
      required to adopt in the future are summarized below.




In
      December 2006, the FASB issued FASB Staff Position, EITF 00-19-2, “Accounting
      for Registration Payment Arrangements,” (FSP EITF 00-19-2), which addresses a
      company’s accounting for registration payment arrangements. FSP EITF 00-19-2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      SFAS No. 5, “Accounting for Contingencies.” For registration payment
      arrangements and financial instruments subject to those arrangements that were
      entered into prior to its issuance, FSP EITF 00-19-2 is effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. Although the Company is not required
      to adopt FSP EITF 00-19-2 until the first quarter of fiscal year 2008, the
      Company elected to adopt it during the second quarter of fiscal year 2007,
      the
      effects of which are described at Note 15.





In
      September 2006, the FASB issued FASB Staff Position No. FAS 13-1 (As Amended),
      “Accounting for Rental Costs Incurred during a Construction Period” (FAS 13-1).
      This position requires a company to recognize as rental expense the rental
      costs
      associated with a ground or building operating lease during a construction
      period, except for costs associated with projects accounted for under SFAS
      No.
      67, “Accounting for Costs and Initial Rental Operations of Real Estate
      Projects.” FAS 13-1 is effective for reporting periods beginning after December
      15, 2005 and was adopted by the Company in the first quarter of fiscal year
      2007
      and did not have a significant impact on the Company’s results of operations.




F-13


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108, "Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements" (SAB 108). SAB 108 provides guidance on
      the
      consideration of the effects of prior year misstatements in quantifying current
      year misstatements for the purpose of a materiality assessment. SAB 108
      establishes an approach that requires quantification of financial statement
      errors based on the effects of each on a company's balance sheet and statement
      of operations and the related financial statement disclosures. Early application
      of the guidance in SAB 108 is encouraged in any report for an interim period
      of
      the first fiscal year ending after November 15, 2006, and was adopted by the
      Company in the first quarter of fiscal year 2007.





In
      June
      2006, the FASB issued FASB
      Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109" (FIN
      48). FIN 48 clarifies the accounting for uncertainty in income taxes by
      prescribing the recognition threshold a tax position is required to meet before
      being recognized in the financial statements. It also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. The cumulative effects, if any, of applying
      FIN 48 will be recorded as an adjustment to retained earnings as of the
      beginning of the period of adoption. FIN 48 is effective for fiscal years
      beginning after December 15, 2006, and the Company will be required to adopt
      it
      in the first quarter of fiscal year 2008. The Company does not expect the
      adoption of FIN 48 will have a significant impact, if any, on its consolidated
      results of operations and financial condition.





In
      June
      2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06−3 (EITF
      06-3), “How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should Be Presented in the Income Statement (That Is, Gross versus
      Net Presentation).” EITF 06−3 applies to any tax assessed by a governmental
      authority that is directly imposed on a revenue producing transaction between
      a
      seller and a customer. EITF 06−3 allows companies to present taxes either gross
      within revenue and expense or net. If taxes subject to this issue are
      significant, a company is required to disclose its accounting policy for
      presenting taxes and the amount of such taxes that are recognized on a gross
      basis. The Company currently presents such taxes net. EITF 06−3 will be adopted
      by the Company during the first quarter of fiscal year 2008. These taxes are
      currently not material to the Company’s consolidated financial
      statements.





**5.
      Balance Sheet Details**





Details
      of certain other of the Company’s balance sheet amounts as of October 28, 2007
      and October 29, 2006 were as follows.





*Prepaid
      Expenses and Other*





Prepaid
      expenses and other consisted of the following amounts as of October 28,
      2007 and October 29, 2006.




**October
                28,**
            
            **October
                29,****2007**
            
            **2006**Insurance
            
            $
            133,667
            
            $
            140,514Rent
            
            
            124,552
            
            
            —Licenses
                and royalties
            
            
            88,626
            
            
            142,530Professional
                services
            
            
            —
            
            
            49,533Other
            
            
            29,172
            
            
            54,720$
            376,017
            
            $
            387,297




Prepaid
      rent relates primarily to reimbursements the Company will receive from the
      landlord of one of its gaming amusement centers for tenant improvements the
      Company made to that facility, which reimbursements will be realized by the
      Company as reductions in the future rentals payable under the subject lease
      agreement.





*Income
      Taxes Payable*





Income
      taxes payable as of October 28, 2007 was comprised solely of accrued Texas
      margin taxes, whereas such liability as of October 29, 2006 included
      approximately $84,000 of accrued Texas franchise taxes as well as federal income
      taxes payable.




F-14


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


*Other
      Accrued Expenses and Liabilities*





Other
      accrued expenses consisted of the following amounts as of October 28, 2007
      and
      October 29, 2006.





**October
                28,**
              **2007**
            
            **October
                29,**
              **2006**Payroll
            
            $
            263,704
            
            $
            114,518Series
                A preferred stock dividends
            
            
            145,081
            
            
            —Cardholder
                liability
            
            
            90,969
            
            
            61,225Property
                taxes
            
            
            83,830
            
            
            55,538Professional
                fees
            
            
            36,773
            
            
            85,000Other
            
            
            68,883
            
            
            93,226$
            689,240
            
            $
            409,507




Cardholder
      liability represents the cash equivalent value of the cumulative outstanding
      prize points on the Ace Advantage Cards as of October 28, 2007 and October
      29,
      2006. Although the Company pre-funds the future settlement of this liability
      with the sponsor bank that issues the cards, the Company remains the primary
      obligor for this obligation until such time that the related prize points are
      actually redeemed or expire.





Effective
      April 1, 2007, the Company’s executive officers and certain of its other key
      employees agreed to the defer the payment of 10% of their base annual salaries
      to help defray the legal costs arising from the adverse opinion issued by the
      Attorney General in March 2007, which liability is included in accrued payroll
      as of October 28, 2007.





*Other
      Deferred Liabilities and Credits*





Other
      deferred liabilities and credits consisted of the following amounts as of
      October 28, 2007.





**October
                28,**
              **2007**Lease
                incentives
            
            $
            171,532Lease
                liabilities
            
            
            118,853$
            290,385





Lease
      incentives are associated with tenant improvements made by the Company to
      certain gaming amusement centers, which improvements were either directly funded
      by the landlord or are being reimbursed to the Company by reductions in future
      rentals payable. The lease incentives are amortized on a straight-line basis
      as
      a reduction to rent expense over the basic terms of the subject lease
      agreements. Lease liabilities were the cumulative differences between rent
      expense recognized on a straight-line basis and actual rental payments related
      to operating lease agreements for the Company’s corporate offices and certain of
      its gaming amusement centers.




F-15


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


**6.
      Supplemental Cash Flow Information**





Supplemental
      cash flow information for fiscal years 2007 and 2006 is presented in the
      following table.


**Fiscal
                  year****2007**
              
              **2006**Cash
                  paid for interest
              
              $
              127,682
              
              $
              22,977Cash
                  paid for income taxes
              
              
              531,000
              
              
              25,000Cash
                  received for refunds of income taxes
              
              
              141,895
              
              
              —Noncash
                  investing and financing activities:Exchange
                  of notes payable to related parties
              
              
              1,302,002
              
              
              —Lease
                  incentives
              
              
              60,735Negative
                  amortization of notes payable to related parties
              
              
              54,570
              
              
              47,432Business
                  acquisitions:Common
                  stock issued
              
              
              —
              
              
              4,490,000Fair
                  value of assets received
              
              
              —
              
              
              5,547,133Fair
                  value of liabilities assumed
              
              
              —
              
              
              (997,133
              )Net
                  assets acquired
              
              
              —
              
              
              4,550,000Cash
                  acquired
              
              
              —
              
              
              (35,221
              )Net
                  noncash assets acquired
              
              
              —
              
              
              4,514,779Issuance
                  of common stock for services received
              
              
              —
              
              
              150,000Dealer
                  financing and assumption of note for vehicles
              
              
              —
              
              
              57,678


**7.
      Business Combinations**





*Goodtime*





In
      September 2005, the stockholders of K&B and the owners of AWLLC formed
      Goodtime for the purpose of merging K&B and AWLLC. K&B, a supplier of
      bingo supplies and electronic bingo games in Texas, was considered to be an
      efficient and cost effective way to quickly expand AWLLC’s AWP business in Texas
      primarily by utilizing K&B’s relationships with bingo center operators
      throughout the state and K&B’s name recognition. On October 31, 2005,
      Goodtime acquired all of the issued and outstanding common stock shares of
      K&B and all of the ownership interests in AWLLC, and in exchange the common
      stockholders of K&B and the members of AWLLC received 50% partnership
      interests respectively in Goodtime prior to subsequent dilution of those
      interests. Goodtime’s acquisition of K&B and AWLLC was accounted for as a
      business combination pursuant to SFAS 141. Due principally to the significance
      of its financial position and results of operations as of October 31, 2005
      compared to those of Goodtime and AWLLC, K&B was considered to be the
      accounting acquirer of AWLLC and concurrent with its acquisition of AWLLC,
      K&B merged with and into Goodtime. For financial reporting purposes, K&B
      was considered to be the predecessor company of Goodtime due principally to
      the
      insignificance of Goodtimes’s financial position and operations prior to the
      business combination.




Based
      on
      the terms of the business combination, K&B effectively acquired 100% of the
      ownership interests in AWLLC in exchange for 50% of the equity interests in
      K&B. Accordingly, the total consideration given by K&B to acquire AWLLC
      was determined to be 50% of the fair value of K&B as of October 30, 2005, or
      $4,490,000, which valuation was done on an enterprise value basis by an
      independent valuation firm engaged by management. K&B also incurred direct
      acquisition costs of $60,000 in connection with the transaction. The following
      table summarizes the fair values allocated to AWLLC’s tangible and intangible
      assets and liabilities as of October 30, 2005, which fair values were determined
      by management with the assistance of the same independent valuation firm that
      appraised K&B.




Cash
            
            $
            35,221Restricted
                cash
            
            
            250,000Other
                current assets
            
            
            91,999Property
                and equipment
            
            
            687,391Intangible
                asset
            
            
            669,000Goodwill
            
            
            2,913,522Total
                assets acquired
            
            
            4,647,133Liabilities
                assumed
            
            
            (97,133
            )Total
                consideration paid
            
            $
            4,550,000





The
      intangible asset relates to favorable contracts to provide electronic games
      to
      the Company for its AWP business and is amortized on a straight-line basis
      over
      five years, which useful life reflects the estimated playability of the
      associated games. Goodwill recognized in the business combination represents
      the
      total consideration given by K&B in excess of the fair values of the net
      assets it received from AWLLC.




F-16


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


*Other
      Business Acquisition*





In
      March
      2006, a subsidiary of the Company acquired the assets of an unaffiliated entity
      that provided the subsidiary with certain data processing services that
      supported the Ace Advantage Card system. Total consideration given for this
      acquisition was $900,000 and consisted of long-term debt and other liabilities
      assumed by the Company’s subsidiary. In exchange, the subsidiary received an
      intangible asset (proprietary computer software, which enables the Company
      to
      process the redemption of prize points through the financial networks) and
      property and equipment with fair values of $884,000 and $16,000, respectively.
      The fair value of the intangible asset was determined by management as the
      present value of the future savings the Company expects to realize by performing
      the data processing internally.




**8.
      Intangible Assets**





The
      fair
      values, net book values and estimated useful lives of the Company’s intangible
      assets as of October 28, 2007 and October 29, 2006 are presented in the
      following tables. All of the Company’s intangible assets were acquired in a
      business combination or were otherwise purchased.





**As
                of October 28, 2007****Fair
                value**
              **at
                acquisition**
            
            **Accumulated**
              **amortization**
            
            **Net**
              **book
                value**
            
            **Useful
                life**
              **(years)**Proprietary
                computer software
            
            $
            884,400
            
            $
            (141,475
            )
            $
            742,925
            
            
            10Favorable
                electronic game contracts
            
            
            669,000
            
            
            (267,160
            )
            
            401,840
            
            
            5Customer
                list
            
            
            100,000
            
            
            (59,169
            )
            
            40,831
            
            
            5$
            1,653,400
            
            $
            (467,804
            )
            $
            1,185,596






**As
                of October 29, 2006****Fair
                value**
              **at
                acquisition**
            
            **Accumulated**
              **amortization**
            
            **Net**
              **book
                value**
            
            **Useful
                life**
              **(years)**Proprietary
                computer software
            
            $
            884,400
            
            $
            (53,035
            )
            $
            831,365
            
            
            10Favorable
                electronic game contracts
            
            
            669,000
            
            
            (133,360
            )
            
            535,640
            
            
            5Customer
                list
            
            
            100,000
            
            
            (39,169
            )
            
            60,831
            
            
            5$
            1,653,400
            
            $
            (225,564
            )
            $
            1,427,836




Expense
      related to the amortization of the Company’s intangible assets was $242,240 and
      $206,397 for fiscal years 2007 and 2006, respectively, and is included in the
      following amounts in the accompanying consolidated statements of operations
      for
      those two periods.





**Fiscal
                year**
              **2007**
            
            **Fiscal
                year**
              **2006**Operating
                expenses - gaming amusement centers
            
            $
            133,800
            
            $
            133,360Depreciation
                and amortization
            
            
            88,440
            
            
            53,035Operating
                expenses - bingo supply and services
            
            
            20,000
            
            
            20,002$
            242,240
            
            $
            206,397





The
      estimated future amortization expense as of October 28, 2007 of the Company’s
      intangible assets is as follows.




**Fiscal
                year****2008**
            
            $
            242,240**2009**
            
            
            242,240**2010**
            
            
            223,071**2011**
            
            
            88,880**2012**
            
            
            88,440**Thereafter**
            
            
            300,725$
            1,185,596




F-17


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


The
      carrying values of the Company’s intangible assets subject to amortization are
      tested whenever circumstances indicate that impairment might exist. As discussed
      in Note 2, management reviewed the carrying values of certain of its intangible
      assets as of October 28, 2007 pursuant to the applicable provisions of
      SFAS 144 and concluded that the carrying values of its intangible assets
      were not impaired as of that date.





**9.
      Share-Based Compensation**





*SFAS
      123R*





In
      December 2004, the FASB issued SFAS 123R, which superseded APB Opinion No.
      25,
“Accounting for Stock Issued to Employees,” and replaces SFAS 123, “Accounting
      for Stock-Based Compensation” (SFAS 123), as amended, with respect to
      share-based payment transactions with employees. SFAS 123R is effective for
      public entities that file as small business issuers at the beginning of the
      first interim or annual reporting period that begins after December 15, 2005.
      The Company, however, adopted SFAS 123R for its fiscal year ended October 29,
      2006 in connection with the modification on October 4, 2006 of certain then
      outstanding liability awards, which modification and liability awards are
      described in more detail below. Prior to its adoption of SFAS 123R, the Company
      had accounted for the liability awards pursuant to the applicable provisions
      of
      SFAS 123.





SFAS
      123R
      requires companies to measure the cost of employee services received in exchange
      for an award of equity instruments based on the fair value of such awards on
      the
      dates they are granted. The fair value of the awards is estimated using
      option-pricing models for grants of stock options or the fair value at the
      measurement date for awards of stock. The resultant cost is recognized as
      compensation cost over the period of time during which an employee is
      required to provide services to the company (the service period) in exchange
      for
      the award, the service period generally being the same as the vesting period
      of
      the award. Under SFAS 123, the issuance of equity instruments to non-employees
      (other than non-employee directors) in exchange for goods and services is
      measured at the fair value of either the goods and services received or the
      equity instruments exchanged, whichever is more reliably measurable, and the
      resultant compensation cost is recognized in the periods in which the goods
      and
      services are received.





SFAS
      123R
      also amends SFAS No. 95, “Statement of Cash Flows”(SFAS 95), such that the
      benefits realized for tax deductions in excess of deferred income tax assets
      resulting from recognized stock compensation expense are reported as financing
      cash flows rather than as operating cash flows. During fiscal year 2006, the
      Company realized excess tax benefits of $17,000 from the book and tax basis
      difference related to shares of its common stock issued for services
      received.





*Restricted
      Common Stock*





On
      September 26, 2005, Goodtime’s partnership agreement was amended such that two
      of the Company’s officers were each granted a 5% non-voting profit interest in
      Goodtime. The profit interests vested from the date of the grant through March
      31, 2007 and included a market condition such that the officers only
      participated in certain defined cash distributions of the partnership in excess
      of $16 million. On July 28, 2006, Goodtime’s partnership agreement was amended
      again such that certain of the Company’s employees and all of its non-employee
      directors were collectively granted an approximate 5.3% non-voting profit
      interest in Goodtime. These profit interests vest from the date of the grant
      through August 3, 2008 and included a market condition such that the employees
      and non-employee directors only participated in certain defined cash
      distributions of the partnership in excess of $30 million. Prior to its adoption
      of SFAS 123R, the Company had accounted for the profit interests in Goodtime
      as
      liability awards pursuant to SFAS 123 using the intrinsic value based method,
      but had not recognized any compensation cost prior to its acquisition of
      Goodtime.




When
      the
      Company acquired Goodtime on October 4, 2006, the profit interests in Goodtime
      were exchanged for approximately 1,128,000 shares of restricted common stock,
      which were granted concurrent with and from the total common shares the Company
      issued in exchange for Goodtime. These restricted common stock shares vest
      over
      the same respective periods as had the profit interests in Goodtime, but are
      subject only to service conditions. The Company accounted for the exchange
      of
      the profit interests in Goodtime for the restricted common stock as a
      modification of an award pursuant to SFAS 123R. Under SFAS 123R, when an award
      is modified, the entity is deemed to have repurchased the original award by
      issuing a new award of greater or equal value and incurs additional compensation
      cost for the incremental value of the new award.





The
      restricted common stock was initially valued at approximately $5,641,000 in
      total (or $5.00 per share). As there was no public trading market for the
      Company’s common stock on the grant date, the fair value of the restricted
      common stock was based on the sales price per share for 1,612,000 shares of
      convertible preferred stock the Company sold in a private placement as a
      condition precedent to its acquisition of Goodtime, which transaction is
      described in more detail at Note 15.




F-18


Aces
        Wired, Inc.
 **Notes
          to Consolidated Financial Statements**


Compensation
      cost related to the restricted common stock is recognized using the graded
      vesting attribution method, whereby each separately vesting portion of the
      award
      is recognized on a straight-line basis as if the award was in-substance,
      multiple awards. Also, compensation cost related to the grant of the restricted
      common stock is not deductible to the Company because of tax elections made
      by
      the Company’s officers, employees and non-employee directors when they received
      the profit interests in Goodtime. Accordingly, the Company does not recognize
      deferred income tax assets when it recognizes compensation cost associated
      with
      the grant of the restricted common stock.





During
      fiscal year 2007, the Company recognized compensation cost related to the
      restricted common stock of approximately $1,511,000 (or $0.20 basic and diluted
      net loss per common share), net of adjustments related to the forfeiture during
      that period of approximately 79,000 nonvested restricted shares. During fiscal
      year 2006, the Company recognized compensation cost of approximately
      $3,471,000 (or $0.50 per basic and diluted net loss per common stock share)
      related to the restricted common stock due in part from the modification in
      October 2006 of certain previously vested profit interests in
      Goodtime.





The
      following table summarizes the restricted common stock activity during fiscal
      year 2007.





**Shares**
            
            **Fair
                Value per Share**Nonvested
                as of October 29, 2006
            
            
            823,342
            
            $
            5.00Granted
            
            
            —
            
            
            —Vested
            
            
            (604,634
            )
            
            5.00Forfeited
            
            
            (78,942
            )
            
            5.00Nonvested
                as of October 28, 2007
            
            
            139,766
            
            
            5.00





The
      Company expects that all of the nonvested restricted common shares outstanding
      as of October 28, 2007 will vest on their scheduled vesting date of August
      3,
      2008. As of October 28, 2007, approximately $265,000 of compensation cost
      related to such nonvested restricted shares had not been recognized and will
      be
      expensed over a weighted average period of approximately nine months during
      fiscal year 2008.





During
      fiscal year 2007, and pursuant to the terms of their awards, approximately
      79,000 issued and nonvested restricted common shares were forfeited to the
      Company due to the resignation of one and the passing of another of the
      Company’s non-employee directors and the resignation of one of its employees.
      The restricted common shares had been granted to these persons in October 2006
      in exchange for their respective profit interests in Goodtime. As of October
      28,
      2007, the forfeited shares had not been canceled and are accounted for as
      donated treasury stock using the par value method.





*2007
      Stock Incentive Plan*





In
      March
      2007, a majority of the Company’s common stockholders approved the Aces Wired,
      Inc. 2007 Stock Incentive Plan (the 2007 Stock Incentive Plan). The 2007 Stock
      Incentive Plan allows for grants to the Company’s employees (inclusive of its
      executive officers), non-employee directors and other persons providing goods
      and services to the Company of restricted common stock shares, options to
      acquire shares of common stock, stock appreciation rights and certain other
      common stock and cash based awards as are defined in the 2007 Stock Incentive
      Plan. The maximum number of common stock shares for which grants may be awarded
      under the 2007 Stock Incentive Plan at any one time is limited to 15% of the
      total outstanding shares of the Company’s common stock, subject to adjustment
      for events such as stock dividends and stock splits. Additionally, the maximum
      number of common stock shares for which grants may be awarded in any one
      calendar year is limited to 8% of the number of common stock shares outstanding
      as of the first day of such calendar year. As of October 28, 2007, no awards
      had
      been made under the 2007 Stock Incentive Plan.





*Shares
      Reserved*





No
      common
      shares had been reserved as of October 28, 2007 for the grants of share-based
      awards under the 2007 Stock Incentive Plan.





*Other
      Share-Based Compensation*





In
      June
      2006, the Company entered into an agreement with an entity for consulting
      services. Pursuant to the terms of the agreement, the Company paid cash
      consideration and issued 40,000 shares of its common stock with a fair value
      of
      $150,000, which fair value was measured at the beginning of the service
      agreement based on the cash value of the services and is included in corporate
      overhead in the accompanying consolidated statement of operations for fiscal
      year 2006.




F-19




**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**




**10.
      Financial Instruments and Credit Risk**





The
      fair
      value of the Company’s long-term debt as of October 28, 2007 was approximately
      $1,173,000 compared to a carrying value on that date of approximately
      $1,302,000. The fair values were estimated using discounted cash flows and
      discount rates based primarily on the interest rate generally charged under
      the
      Company’s bank credit facility for secured borrowings.





The
      carrying amounts as of October 28, 2007 approximated the fair values as of
      that
      date for the Company’s cash and cash equivalents, restricted cash, trade and
      other accounts receivable and accounts payable due to the high turnover and
      short-term maturities of these assets and liabilities.





Financial
      instruments which potentially subject the Company to credit risk include certain
      cash and cash equivalent deposits and trade accounts receivable. The Company
      maintains its cash and cash equivalent deposit accounts with local and other
      U.S. domestic banks. These deposit accounts are on demand accounts to minimize
      risk, but oftentimes the account balances exceed the federally insured limit
      of
      $100,000 per financial institution. The Company has never incurred losses
      related to the failure of a financial institution and believes that it was
      not
      so at risk as of October 28, 2007 due to the financial strength of the
      institutions in which the Company maintains its cash and cash equivalent deposit
      accounts. The Company’s trade accounts receivable consist of uncollateralized
      receivables from K&B’s customers. Management routinely assesses the
      creditworthiness and credit history of K&B’s customers and establishes
      credits limits, and in some cases the denial of credit, based on these
      assessments.




**11.
      Long-term Debt**





The
      Company’s outstanding long-term debt consisted of the following amounts as of
      October 28, 2007 and October 29, 2006.


**October
                  28,**
              
              **October
                  29,****2007**
              
              **2006**Promissory
                  notes payable to related parties, principal andinterest
                  at 4.88% due May 3, 2009
              
              $
              1,302,002
              
              $
              -Promissory
                  notes payable to related parties, principal andinterest
                  at 4.48% payable on demand or November 11, 2007
              
              
              -
              
              
              625,923Promissory
                  note payable to related party, principal andinterest
                  at 4.48% payable on demand or January 20, 2008
              
              
              -
              
              
              621,509Promissory
                  note payable, interest at 6%, level quarterlyprincipal
                  and interest payments through September 30, 2007
              
              
              -
              
              
              348,4951,302,002
              
              
              1,595,927Less
                  current maturities
              
              
              -
              
              
              (348,495
              )Long-term
                  debt
              
              $
              1,302,002
              
              $
              1,247,432


All
      of
      the Company’s outstanding long-term debt as of October 28, 2007 consisted of
      three unsecured promissory notes payable to the Company’s chairman of the board
      of directors and two of its executive officers (the new notes), which were
      issued on that date in exchange for three then outstanding notes payable held
      by
      these related parties (the original notes). The cumulative principal amount
      of
      the new notes, which do not have a demand clause, includes approximately
      $102,000 of simple interest accrued on the original notes since their issuance
      in November 2005 and January 2006 to October 28, 2007. The Company’s
      relationships with the related parties are described in more detail at Note
      17.





The
      Company had a bank credit facility under which there were no outstanding
      obligations as of October 29, 2006. During fiscal year 2007, the terms of this
      credit facility were amended such that the maximum borrowing capacity was
      reduced to $350,000 from $900,000 and the life of the facility was extended
      to
      April 30, 2008 from April 30, 2007. Outstanding borrowings at any time are
      limited to the lesser of $350,000 or an amount based on eligible inventory
      and
      eligible accounts receivable, as such terms are defined in the credit facility.
      Borrowings under the credit facility are payable on demand or at its expiration
      and bear variable-rate interest indexed to the prime lending rate (as quoted
      in *The
      Wall Street Journal* from
      time to time) plus 1%, which interest is payable monthly. Outstanding
      obligations under the credit facility are secured by inventory, accounts
      receivable and intangible assets and are guaranteed by Aces Wired, Goodtime
      and
      one of the Company’s officers/common stockholders. The financial covenants
      include minimum net worth (based on the net worth of K&B, which is the legal
      borrower under this facility), current ratio and debt-service coverage ratio
      tests. There are no commitment fees or compensating balances associated with
      the
      credit facility. During fiscal year 2007, the Company did not borrow any funds
      under this credit facility.




F-20


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


Maturities
      of the Company’s long-term debt as of October 28, 2007 were as
      follows.




**Fiscal
                year****2008**
            
            $
            —**2009**
            
            
            1,302,002**2010**
            
            
            —**2011**
            
            
            —**2012**
            
            
            —**Thereafter**
            
            
            —$
            1,302,002




**12.
      Leases**





*Capitalized
      Lease Obligations*





In
      April
      2006 and August 2006, the Company sold and leased back certain of its amusement
      gaming machines with an aggregate net book value of approximately $1,356,000.
      Each of the two subject leases provide for a 48-month noncancelable basic term
      and provide the Company with options to renew each lease for a 12-month period
      and to purchase all but not less than all of the equipment for its fair market
      value at the end of either the basic or renewal terms. The Company accounts
      for
      the subject lease agreements as capital leases pursuant to SFAS No. 13,
“Accounting for Leases.”





The
      Company recorded a deferred gain of $20,983 on the April 2006 transaction,
      which
      gain is being recognized on a straight-line basis over 48 months as a reduction
      in the amortization expense of the related capitalized equipment. Amortization,
      net of equipment under capitalized lease obligations was $348,187 and $78,072
      for fiscal years 2007 and 2006, respectively, and is included in depreciation
      and amortization in the accompanying consolidated statements of operations
      for
      those periods. The net book value of the capitalized equipment was $911,139
      as
      of October 28, 2007, inclusive of the $13,115 unamortized balance of the
      deferred gain.





*Operating
      Leases*





The
      Company leases office and warehouse space in Dallas, Houston, and San Antonio,
      Texas both directly and indirectly from two of its officers/common stockholders.
      Rentals are fixed and range from $7,500 per month to $3,500 per month. The
      leases for the Dallas and San Antonio facilities expire at the end of October
      2008, and the lease for the Houston facility expires at the end of January
      2010.
      None of the leases provide for renewal options; however, the Company expects
      to
      renew or replace the leases in the normal course of business.





The
      Company also leases office and warehouse space in Dallas and Lubbock, Texas
      under an agreement that expires on April 30, 2008 and under two month-to-month
      agreements.





On
      September 6, 2006, the Company entered into a lease agreement for corporate
      office space in Dallas with a basic term of 39 months. The lease provided for
      free rent during the first three months of the lease with scheduled increases
      thereafter in the rentals from approximately $5,500 per month for the fourth
      through the fifteenth months of the lease to approximately $6,300 per month
      during the final 12 months of the lease. The Company also has a one-time option
      to terminate the lease on July 31, 2008 upon payment of a termination fee of
      approximately $16,400. The Company occupied this facility on November 1,
      2006.





As
      of
      October 28, 2007, the Company leased space for six gaming amusement centers
      in
      Ft. Worth, Killeen, Amarillo, Corpus Christi, Copperas Cove and San Antonio,
      Texas. At that date, the Company was also the lessee pursuant to a lease
      agreement for a gaming amusement center it plans to open in Ft. Worth during
      the
      second quarter of fiscal year 2008 when that property is expected to become
      available for occupancy. Two of these leases are month-to-month agreements.
      The
      basic terms for the other leases range from 36 months to 60 months and certain
      of those leases provide the Company with options to extend the leases for
      periods ranging from 60 months to two consecutive 60-month periods. The Company
      also has options to terminate early all of its gaming amusement center leases
      by
      providing the landlords with advanced written notice of such intent and/or
      if
      the Company is precluded by regulatory reasons from operating its amusement
      gaming business at those locations. Under certain of the leases, the Company
      is
      required pay fees if the leases are terminated for any reason prior to the
      expiration of the basic terms. Rentals for all but two of the gaming amusement
      center leases are variable in nature, which contingent rentals are based on
      a
      percentage of the hold generated by the gaming machines located in the centers,
      after certain adjustments. Additionally, all but one of the leases with such
      contingent rentals provide for minimum amounts of rentals from between $5,000
      per month to $30,000 per month. Disregarding the Company’s early termination
      options, the basic terms of these leases are scheduled to expire at various
      dates through April 2012.





Rent
      expense for real property is recognized on a straight-line basis and begins
      at
      the time the Company takes possession of the property and/or obtains the right
      to control the use of the property, which oftentimes occurs before commencement
      of business operations at such property and/or commencement of the related
      contractual rental payments. In addition to the lease for the Company’s
      corporate offices, the lease agreements for certain of its gaming amusement
      centers also provided the Company with a “rent holiday” and/or contain scheduled
      increases in the minimum monthly rentals during the basic terms of the leases.
      As a result, during the early periods of these particular leases recognized
      rent
      expense was greater than the related rental payments, which differences will
      reverse during the latter periods of the leases. As of October 28, 2007, the
      Company had recorded a noncurrent deferred liability of approximately $119,000
      related to such cumulative timing differences.




F-21


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


During
      fiscal year 2007, the Company also recognized lease incentives of approximately
      $198,000 related to reimbursements from the landlords for tenant improvements
      the Company made to certain of its gaming amusement centers. The lease
      incentives are amortized on a straight-line basis as a reduction to rent expense
      over the basic terms of the subject lease agreements, the cumulative unamortized
      balance of which was approximately $172,000 as of October 28, 2007.





*Minimum
      Lease Payments and Rent Expense*





The
      scheduled future minimum lease payments as of October 28, 2007 under the
      Company’s capitalized lease obligations and operating leases with noncancelable
      basic terms in excess of one year were as follows, which do not include the
      following amounts:





·
            contingent
                rentals based on the hold at certain of the Company’s leased gaming
                amusement centers;





·
            reductions
                in future rentals for one gaming amusement center for which the Company
                is
                entitled;





·
            executory
                costs for one gaming amusement center and certain other of its leased
                real
                property for which the Company is liable;
                and





·
            the
                minimum monthly rentals related to the aforementioned gaming amusement
                center the Company expects to open duringthe
                second quarter of fiscal year 2008.




**Operating
                leases (*)****Fiscal
                year**
            
            **Capitalized****lease**
              **obligations**
            
            **Related**
              **party**
            
            **Other**
            
            **Total****2008**
            
            $
            444,661
            
            $
            189,500
            
            $
            775,991
            
            $
            965,491**2009**
            
            
            418,944
            
            
            60,000
            
            
            791,969
            
            
            851,969**2010**
            
            
            211,326
            
            
            5,000
            
            
            655,515
            
            
            660,515**2011**
            
            
            —
            
            
            —
            
            
            579,580
            
            
            579,580**2012**
            
            
            —
            
            
            —
            
            
            230,220
            
            
            230,220**Thereafter**
            
            
            —
            
            
            —
            
            
            —
            
            
            —1,074,931
            
            $
            254,500
            
            $
            3,033,275
            
            $
            3,287,775**Less
                amount representing imputed****interest
                at an annual rate of 11.23%**
            
            
            (144,987
            )**Present
                value of minimum lease payments****under
                capitalized lease obligations**
            
            
            929,944**Less
                current maturities**
            
            
            (352,945
            )**Long-term
                capitalized lease obligations**
            
            $
            576,999




**(*)**
              Assumes
                  that the lease for the corporate office space in Dallas will not
                  be
                  terminated early nor are any of the leases for the gaming amusement
                  centers terminated before the end of their basic terms due to regulatory
                  reasons or as is otherwise provided for in the lease
                  agreements.




Rent
      expense under operating leases during fiscal years 2007 and 2006 consisted
      of
      the following amounts.




**Fiscal
                Year****2007**
            
            **2006**Minimum
                rentals
            
            $
            1,018,630
            
            $
            325,802Contingent
                rentals
            
            
            566,851
            
            
            398,341Executory
                costs
            
            
            52,303
            
            
            31,429Amortization
                of lease incentives
            
            
            (26,764
            )
            
            -Total
                rent expense
            
            $
            1,611,020
            
            $
            755,572




F-22


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**




Minimum
      rentals for fiscal year 2007 include approximately $97,000 of fees the Company
      paid in connection with the early termination of leases for two of its gaming
      amusement centers.





Rent
      expense is included in the following amounts at the consolidated statements
      of
      operations for fiscal years 2007 and 2006.





**Fiscal
                Year****2007**
            
            **2006**Operating
                expenses - gaming amusement centers
            
            $
            1,290,380
            
            $
            496,893Operating
                expenses - bingo supply and services
            
            
            255,577
            
            
            253,669Corporate
                overhead
            
            
            65,063
            
            
            5,010Total
                rent expense
            
            $
            1,611,020
            
            $
            755,572




**13.
      Income Taxes**





The
      Company accounts for income taxes under the asset and liability method pursuant
      to SFAS 109. Deferred income tax assets and liabilities are recognized for
      the
      estimated future tax consequences attributable to differences between the
      financial statement carrying amounts of existing assets and liabilities and
      their respective tax bases. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the fiscal years
      in which those temporary differences are expected to be realized or settled.
      The
      effect on deferred tax assets and liabilities resulting from a change in tax
      rates is recognized in income in the period such rate change occurs. When
      assessing the ultimate realization of its deferred tax assets, management
      considers whether it is more likely than not that some portion or all of the
      Company’s deferred tax assets will not be realized. The ultimate realization of
      the Company’s deferred tax assets is dependent upon its generation of future
      taxable income during the periods in which those temporary differences become
      deductible.





The
      components of the Company’s income tax benefit (expense) for fiscal years 2007
      and 2006 were as follows.


**Fiscal
                  Year****2007**
              
              **2006**Current:Federal
              
              $
              382,890
              
              $
              (403,348
              )State
              
              
              (58,948
              )
              
              (83,910
              )323,942
              
              
              (487,258
              )Deferred:Federal
              
              
              210,385
              
              
              (152,559
              )State
              
              
              —
              
              
              8,146210,385
              
              
              (144,413
              )Provision
                  for income taxes
              
              $
              534,327
              
              $
              (631,671
              )




The
      current federal income tax benefit for fiscal year 2007 resulted primarily
      from
      the carryback of a portion of the tax loss for that fiscal year to fiscal year
      2006 for which the Company had a federal income tax liability.





In
      May
      2006, the state of Texas enacted legislation that restructured the state
      business tax by replacing the taxable capital and earned surplus components
      of
      the then current state franchise tax with a new “taxable margin” component. This
      new tax is assessed on Texas sourced taxable margin, which is defined as the
      lesser of (i) 70% of total revenue or (ii) total revenue less (a) cost of goods
      sold or (b) compensation and benefits. Although the subject legislation states
      that the margin tax is not an income tax, it has the characteristics of an
      income tax since it is determined by applying a tax rate (generally 0.5% of
      taxable margin for enterprises engaged in retail or wholesale trade and 1.0%
      of
      taxable margin for all other enterprises) to a base that considers both revenue
      and expenses. Therefore, the Company accounted for the Texas margin tax, which
      became effective with the beginning of fiscal year 2007 (October 30, 2006),
      as
      income tax expense in fiscal year 2007. During fiscal year 2006 and prior to
      the
      effective date of the margin tax, the Company also accounted for the Texas
      franchise tax as income tax expense pursuant to EITF Issue No. 91-8,
“Application of FASB Statement No. 96 to a State Tax Based on the Greater of
      a
      Franchise Tax or an Income Tax.” Because the Company accounts for the Texas
      margin tax as income tax, determination of that tax is subject to the provisions
      of SFAS 109 regarding the recognition of deferred taxes. Accordingly, the
      Company recalculated its deferred tax assets and liabilities for Texas based
      on
      the new margin tax rate and the change, which was not significant, was
      recognized as a component of deferred state income taxes for fiscal year 2006.




F-23


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


Income
      tax benefit (expense) for fiscal years 2007 and 2006 differed from the
“expected” tax benefit (expense) for each year computed by applying the
      respective year’s U.S. federal corporate income tax rate to loss before income
      taxes as follows.


**Fiscal
                  Year****2007**
              
              **2006**Computed
                  expected tax benefit (expense)
              
              $
              1,288,921
              
              $
              1,519,430State
                  income taxes, net of federal income taxes
              
              
              (38,906
              )
              
              (47,235
              )Non-deductible
                  share-based compensation
              
              
              (513,652
              )
              
              (1,180,023
              )Non-deductible
                  dividends on preferred stock
              
              
              (145,241
              )
              
              —Change
                  in deferred tax valuation allowance
              
              
              (110,141
              )
              
              —Losses
                  attributable to nontaxable subsidiaries
              
              
              —
              
              
              (733,669
              )Change
                  in tax status of subsidiaries
              
              
              —
              
              
              (182,118
              )Other
              
              
              53,346
              
              
              (8,056
              )Provision
                  for income taxes
              
              $
              534,327
              
              $
              (631,671
              )





As
      described in more detail at Note 15, in March 2007, the holders of the Company’s
      Series A Preferred Stock became entitled to dividends because the Company
      was not able to make effective on a timely basis a registration statement
      relating to the common shares into which the preferred stock will eventually
      be
      converted. Although the Company elected to account for the dividends as
      nonoperating expenses, they are not deductible for income tax purposes. For
      fiscal year 2006, the net losses incurred by certain of the Company’s
      wholly-owned subsidiaries prior to the acquisition of Goodtime on October 4,
      2006 were not deductible for consolidated federal and state income tax
      purposes.





Deferred
      income taxes reflect the estimated future tax effects of temporary differences
      between the amounts of assets and liabilities recognized for financial reporting
      purposes and such amounts recognized for tax purposes. The Company’s deferred
      tax assets and deferred tax liabilities as of October 28, 2007 and October
      29,
      2006 were as follows.


**October
                  28,**
              
              **October
                  29,****2007**
              
              **2006**Deferred
                  tax assets:Net
                  operating loss carryforward
              
              $
              141,993
              
              $
              —Accruals
                  not currently deductible for tax purposes
              
              
              126,891
              
              
              —Provision
                  for doubtful accounts receivable
              
              
              55,469
              
              
              38,808Inventory
                  valuation provision
              
              
              46,319
              
              
              —Intangible
                  assets subject to amortization for tax purposes
              
              
              23,483
              
              
              12,460Other
              
              
              20,701
              
              
              15,208Total
                  gross deferred tax assets
              
              
              414,856
              
              
              66,476Less
                  valuation allowance
              
              
              (110,141
              )
              
              —Net
                  deferred tax assets
              
              
              304,715
              
              
              66,476Deferred
                  tax liabilities:Property
                  and equipment
              
              
              (168,089
              )
              
              (94,743
              )Intangible
                  asset not subject to amortization for tax purposes
              
              
              (136,626
              )
              
              (182,118
              )Total
                  deferred tax liabilities
              
              
              (304,715
              )
              
              (276,861
              )Net
                  deferred taxes
              
              $
              —
              
              $
              (210,385
              )




F-24





**Aces
      Wired, Inc.**




**Notes
      to Consolidated Financial Statements**






Current
      and noncurrent deferred taxes consisted of the following amounts as of October
      28, 2007 and October 29, 2006.


**October
                  28,**
              
              **October
                  29,****2007**
              
              **2006**Current
                  deferred tax assets
              
              $
              129,948
              
              $
              53,582Less
                  valuation allowance
              
              
              (34,474
              )
              
              —Deferred
                  tax assets, net
              
              
              95,474
              
              
              53,582Noncurrent
                  deferred tax assets
              
              
              284,908
              
              
              12,460Noncurrent
                  deferred tax liabilities
              
              
              (304,715
              )
              
              (276,427
              )(19,807
              )
              
              (263,967
              )Less
                  valuation allowance
              
              
              (75,667
              )
              
              —Deferred
                  tax liabilities, net
              
              
              (95,474
              )
              
              (263,967
              )Net
                  deferred taxes
              
              $
              —
              
              $
              (210,385
              )





Concurrent
      with the Company’s acquisition of Goodtime in October 2006, certain of
      Goodtime’s previously nontaxable subsidiaries became taxable subsidiaries of the
      Company. Pursuant to the applicable provisions of SFAS 109, such event resulted
      in the recognition by the Company of an approximate $182,000 deferred tax
      liability related to an intangible asset that is not amortizable for income
      tax
      purposes, which resulted in a deferred income tax expense of an equal amount
      in
      fiscal year 2006.





As
      of
      October 28, 2007, the Company had recorded a valuation allowance to reflect
      the
      estimated amount of deferred tax assets that might not ultimately be realized.
      In assessing whether deferred tax assets may be realized, management considers
      whether it is more likely than not that some portion or all of the deferred
      tax
      assets will not be realized. The ultimate realization of deferred tax assets
      is
      dependent upon the generation of future taxable income during the periods in
      which temporary differences, including carryforward losses and tax credits,
      become deductible. Subsequent to the Company’s acquisition of Goodtime, the
      Company has incurred significant net operating losses for book purposes and
      incurred a consolidated taxable loss for its tax year ending October 28, 2007.
      Further, the actual and potential adverse effects on the Company’s AWP business
      resulting from the opinion issued by the Attorney General in March 2007 creates
      additional doubts respecting the Company’s ability to generate taxable profits
      in the future. Accordingly, the Company’s “more likely than not” assessment
      respecting the future utilization of its deferred tax assets was principally
      based its book and tax losses after the acquisition of Goodtime and the
      uncertainty about its future business prospects resulting from the Attorney
      General’s opinion.





As
      of
      October 28, 2007, the Company had approximately $418,000 of net operating loss
      carryforward generated in fiscal year 2007 to offset against future taxable
      income for federal income tax purposes, which expires in 2027.





**14.
      401(k) Savings Plan**





The
      Company sponsors a 401(k) deferred compensation plan in which its qualified
      employees may contribute up to 15% of their eligible earnings annually on a
      pretax basis. The Company matches 50% of the first 6% of the employees’ annual
      contribution to the plan, which matching contributions approximated $67,000
      and
      $62,000 for fiscal years 2007 and 2006, respectively.





**15.
      Capital Stock**





As
      of and
      prior to October 28, 2007, there was no public trading market for either the
      Company’s or K&B’s capital stock.





*Common
      Stock*





On
      October 4, 2006, the Company issued approximately 7,624,000 shares of its common
      stock, inclusive of the restricted common shares discussed below, in exchange
      for all of the ownership interests in Goodtime. Immediately prior to the
      acquisition of Goodtime, the Company effected a reverse stock split such that
      its then issued and outstanding common stock shares were reduced to
      approximately 336,000 shares from approximately 3,855,000
      shares.





Concurrent
      with the Company’s acquisition of Goodtime, approximately 1,128,000 shares of
      restricted common stock with a fair value of $5.00 per share were granted to
      certain of the Company’s officers, certain employees and all of its non-employee
      directors in exchange for their profit interests in Goodtime. Approximately
      305,000 of such restricted shares with a total fair value of $1,525,000 were
      vested at the grant date. During fiscal year 2007, approximately 604,000 of
      the
      restricted shares with a total fair value of $3,020,000 became vested and
      approximately 79,000 such shares with a total fair value of $395,000 were
      forfeited. The remaining approximate 140,000 nonvested restricted shares with
      a
      total fair value of $700,000 are expected to vest on August 3, 2008. All of
      the
      restricted common shares, including the forfeited shares, which are held as
      treasury stock, are considered to be issued shares for legal purposes. The
      holders of the restricted shares have the same rights and entitlements as the
      Company’s other common stockholders, such as voting and dividend rights, whether
      or not such restricted shares are vested.




F-25


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


In
      March
      2007, a majority of the Company’s common stockholders approved the 2007 Stock
      Incentive Plan, which provides for equity and cash based awards as are defined
      in the 2007 Stock Incentive Plan. Common shares granted under the 2007 Stock
      Incentive Plan will be made from available unissued common stock and/or treasury
      stock. As of October 28, 2007, no awards had been made under the 2007 Stock
      Incentive Plan.





No
      dividends were paid to the Company’s common stockholders during fiscal years
      2007 and 2006.





*Series
      A Preferred Stock*





On
      October 11, 2006, and as a condition precedent to its acquisition of Goodtime,
      the Company sold 1,612,000 shares of its nonredeemable Series A convertible
      preferred stock (the Series A Preferred Stock) for $8,060,000 (or $5.00 per
      share), before related issuance costs. The purchasers of the Series A Preferred
      Stock also received options to acquire up to an additional 322,400 shares of
      Series A convertible preferred stock at $5.00 per share (the Options). The
      Series A Preferred Stock automatically converts into an equal number of the
      Company’s common stock shares upon the effectiveness of a registration statement
      (the Registration Statement) the Company filed with the SEC on November 8,
      2006,
      as amended. The Options, if not previously exercised, expire upon the
      effectiveness of the Registration Statement.





At
      issuance, the effective conversion rate per share of the Series A Preferred
      Stock was less than the fair value per share of the Company’s common stock,
      which constitutes an embedded beneficial conversion feature pursuant to EITF
      Issue No. 98-5, “Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Ratios.” However, the
      intrinsic value of the beneficial conversion feature of approximately $399,000
      and the resultant discount had not been recognized as of October 28, 2007
      because of the contingency discussed below related to the effectiveness of
      the
      Registration Statement. Once the Registration Statement becomes effective and
      the Series A Preferred Stock become convertible, the beneficial conversion
      feature will be recorded as additional paid-in-capital and the discount will
      be
      recognized as a deemed dividend on the Series A Preferred Stock. Additionally,
      approximately $399,000 of the total sales proceeds of the Series A Preferred
      Stock was allocated to the Options based on the relative fair values at the
      issuance date of the Options and the Series A Preferred Stock, which allocated
      proceeds were recorded as additional paid-in-capital as of October 29, 2006.
      The
      initial carrying value of the Series A Preferred Stock was approximately
      $6,944,000 net of issuance costs of approximately $717,000.





As
      of
      October 28, 2007, the Registration Statement had not been declared effective
      by
      the SEC. Pursuant to the provisions of the Certificate of Designation for the
      Series A Preferred Stock, if the Registration Statement was not effective within
      150 days of the issuance date of the Series A Preferred Stock, or March 10,
      2007, the holders of the Series A Preferred Stock became entitled to dividends
      equal to $0.025 per share for each 30-day period following that deadline (or
      $40,300, pro rated for periods of less than 30 days). Accordingly, the Company
      began accruing the subject dividends as of March 11, 2007, which are payable
      within three business days after the end of each such 30-day or pro rated
      period.





The
      Company elected to account for its liability to pay dividends to the holders
      of
      the Series A Preferred Stock pursuant to FSP EITF 00-19-2. Under FSP EITF
      00-19-2, if the transfer of consideration under a registration payment
      arrangement becomes probable and can be reasonably estimated subsequent to
      the
      inception of the arrangement, or if the measurement of a previously recognized
      contingent liability increases or decreases in a subsequent period, the initial
      recognition of the contingent liability or the change in a previously recognized
      contingent liability is recognized in earnings. The Company recognized expense
      of approximately $427,000, which represents the Company’s estimate of the total
      dividends it has paid and will be required to pay to the holders of the Series
      A
      Preferred Stock before the Registration Statement is declared effective by
      the
      SEC. This charge is included in other income (expense), net at the accompanying
      consolidated statement of operations for fiscal year 2007.





The
      holders of the Series A Preferred Stock are also entitled to payments if after
      conversion of the Series A Preferred Stock into the registered shares of the
      Company’s common stock, the holders of the Series A Preferred Stock are
      prohibited from selling such common shares as a result of certain suspensions,
      if any, of the prospectus forming part of the Registration Statement. Such
      cumulative payments, including the dividend payments discussed previously,
      are
      limited to 10% of the total gross sales proceeds of the Series A Preferred
      Stock, or $806,000.





The
      Series A Preferred Stock rank senior to the Company’s common stock with respect
      to the payment of dividends. Upon voluntary or involuntary liquidation,
      dissolution or winding-up of the Company prior to the conversion of the Series
      A
      Preferred Stock, the holders of the Series A Preferred Stock will receive in
      priority over the Company’s common stockholders, to the extent there are funds
      so available, a liquidation preference equal to the purchase price of the Series
      A Preferred Stock plus accrued dividends thereon, if any. The holders of the
      Series A Preferred Stock are entitled to vote together as a single class on
      all
      matters voted on by the Company’s common stockholders as though the Series A
      Preferred Stock have been converted into an equal number of common stock shares.
      Additionally, the Company may not undertake certain actions, such as entering
      into an agreement which would effect a change of control of the Company, without
      the approval by vote or in writing of at least two-thirds of the holders of
      the
      Series A Preferred Stock.





F-26


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


**16.
      Other Commitments and Contingencies**





**Litigation
      related to the Attorney General’s Opinion**





As
      discussed in Note 2, on March 6, 2007, the Attorney General issued an opinion
      which stated that AWP machines that record a player’s winnings on a stored-value
      debit card are illegal in Texas. While such opinion is not controlling in the
      state or binding in a court of law in that state, its issuance resulted either
      directly or indirectly in the following legal actions against the Company during
      fiscal year 2007.





*Nueces
      County*





On
      March
      8, 2007, local authorities in Nueces County, Texas threatened legal actions
      in
      response to the Attorney General’s opinion that resulted in the temporary
      closure of the Company’s gaming amusement center in Corpus Christi, Texas. On
      March 9, 2007, the Company filed suit (Cause No. 07-60545-2; *Aces
      Wired Amusement Center #5, LP v. Stellar Point, Ltd.* )
      to
      enjoin that facility’s landlord from requiring it to vacate the premises as a
      consequence of the Attorney General’s opinion and the related actions of the
      local district attorney. The Corpus Christi center was reopened on June 19,
      2007
      pursuant to a temporary injunction issued by the County Court in Nueces County
      on March 23, 2007, which permitted the Company to operate the Corpus Christi
      gaming amusement center until a final hearing could be held on the merits of
      the
      case.





The
      case
      against Stellar Point, Ltd. was scheduled to be heard in the County Court of
      Law
      No.2, Nueces County on September 20, 2007. However, that trial setting was
      canceled and the Company requested that the case be heard on March 3, 2008.
      The
      court, on its own motion, entered an order dismissing the lawsuit finding that
      the court had no jurisdiction in the case, which order became final on January
      11, 2008. Based upon conversations we had with local authorities while the
      lawsuit was pending, our operations have proceeded without disturbance since
      the
      dismissal of the case.





*Bell
      County*





On
      March
      19, 2007, the Company received a request from the county attorney of Bell
      County, Texas requesting that it close its gaming amusement center in Killeen,
      Texas, which request was voluntarily complied with on that same date. On April
      13, 2007, the Company filed suit (Cause No. 222,849-B; *Aces
      Wired Amusement Center #2, LP v. Concho Rainbow, Inc.* )
      to
      enjoin that facility’s landlord from requiring it to permanently vacate this
      leased facility as a consequence of the Attorney General’s opinion and the
      related actions of the local county attorney.





On
      June
      25, 2007, the Company presented exhibits and gave testimony regarding its case
      against Concho Rainbow, Inc. in the 146th Judicial District Court of Bell
      County. The court took the evidence under advisement and requested that the
      Company prepare a trial brief before the court made a ruling, which the Company
      provided to the court on September 26, 2007. However, on January 22, the court
      dismissed the case, finding that the court did not have jurisdiction over the
      subject matter of the proceeding because a justiciable controversy did not
      exist
      between the landlord and the Company.





*Potter
      County*





On
      March
      22, 2007, the county attorney in Potter County, Texas indicated that Potter
      County was amenable to an arrangement whereby the Company could continue to
      operate its gaming amusement center in Amarillo, Texas until such time that
      Potter County filed a nuisance action against the Company for the purpose of
      determining whether its AWP gaming machines constitute gambling devices,
      gambling paraphernalia or both under Texas law. On November 7, Potter County
      filed the nuisance action (a civil case) and the Company temporarily closed
      the
      Amarillo center on the following day.





The
      Company has requested that a hearing of the nuisance case be held as soon as
      possible; however, the county attorney’s office in Potter County has refused to
      cooperate with the Company in this regard. All parties in the nuisance
      action have filed requests with the 251st Judicial District Court of Potter
      County for a trial schedule, and the Company’s expects the court to issue a
      trial schedule by January 28, 2008.





*Nilesh
      Enterprises*





On
      April
      30, 2007, the Company gave written notice of its intent to exercise an option
      to
      terminate early due to regulatory reasons the lease agreement for a facility
      in
      San Antonio, Texas. The Company entered into this lease in December 2006 for
      the
      purpose of opening a new gaming amusement center in the second fiscal quarter
      of
      2007. However, as a consequence of the opinion issued by the Attorney
      General, which was issued pursuant to a request by the district attorney of
      Bexar County where this facility is located, the Company believed that if
      it proceeded with opening this center it would most likely face civil and
      possibly criminal charges. Concurrent with exercising the option, the Company
      paid a termination fee to the landlord equal to three months’ rentals, or
      approximately $83,000, as is provided for in the lease.




F-27


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


On
      December 27, 2007, Nilesh Enterprises, Inc. (Nilesh) filed suit in Bexar County,
      Texas District Court against the Company’s wholly-owned subsidiary Aces Wired
      Amusement Center No. 8, L.P. and the Company. In the lawsuit, Nilesh alleges
      that the Company breached and wrongfully terminated a commercial lease
      agreement. Nilesh seeks an unspecified amount of damages including the
      following: (1) past due rent; (2) brokerage commissions in connection with
      reletting the premises; and (3) legal fees and expenses.





On
      January 17, 2008, the Company filed its answer to this claim asserting that
      it
      is not liable to Nilesh because of a mutual mistake and/or unilateral mistake.
      Specifically, the purpose of the intended leasehold was frustrated as there
      are
      protective covenants attached to the premises that prohibit the property from
      being used as an “arcade of video games and pinball machines and the
      like.” Therefore, the lease was never valid because this restrictive
      covenant.





Although
      the Nilesh lawsuit does not specify an amount for damages claimed, the Company
      had previously received a written demand from Nilesh for similar damages of
      approximately $319,000. Based on the advice of legal counsel, management
      believes that an unfavorable ruling against it is remote and the Company has
      not
      recognized a contingent liability related to this lawsuit.





*Arbitration*





On
      June
      7, 2007, the Company was notified by one of its gaming software providers and
      developers of that vendor’s intent to exercise its option to terminate an
      agreement because the games and gaming platform provided under the agreement
      were allegedly being used by the Company in violation of local gambling laws
      and
      regulations. On June 19, 2007, the Company responded to the notice by stating
      that its AWP games and system are fully compliant with applicable Texas law
      and
      exercised its right under the subject agreement to settle the issue in
      arbitration. On July 18, 2007, an arbitration meeting was held among all parties
      of interest, and on September 6, 2007, the arbitrator concluded that the
      Company’s AWP machines and system comply with Texas gambling laws. On September
      24, 2007, the United States District Court for the Western District of Texas
      confirmed the arbitrator’s opinion.





*Conclusion*





In
      Texas,
      AWP gaming is not a state regulated industry, and state laws pertaining to
      gambling are interpreted and enforced usually at the county level. While the
      Company believes its AWP gaming system and Ace Advantage Card are legal, there
      is no assurance the Company will ultimately prevail in the case in Potter
      County. While the permanent closure of the Amarillo amusement center in itself
      would not have a significant adverse affect on the Company’s results of
      operations and financial condition, an unfavorable ruling in Potter County
      could
      set a undesirable precedence and might encourage similar legal actions against
      the Company’s AWP operations in other counties in Texas. Prolonged and/or
      permanent closures of gaming amusement centers resulting from such future
      litigation, if any, could collectively have an material adverse effect on the
      Company’s results of operations and financial condition.





**Other
      Litigation**





As
      of
      October 28, 2007, there were no other legal proceedings, either anticipated
      or
      threatened, to which the Company was a party to or to which the Company’s
      property was subjected.





**Guarantees
      and Indemnification**





The
      Company provides a guaranty to the bank that sponsors the Ace Advantage
      Card for any losses the bank might incur in administering the sponsorship
      agreement. The Company believes that if it becomes obligated to settle this
      guaranty, it would not have a material effect on its results of operations
      or
      financial condition.





Aces
      Wired is a guarantor of K&B’s $350,000 credit facility that expires on April
      30, 2008. There were no obligations outstanding under this credit facility
      as of
      October 28, 2007.





The
      Company is the lessee under certain leases for real property. It is common
      in
      such commercial lease transactions for the lessee to agree to indemnify the
      lessor and other related third parties for tort liabilities that arise out
      of or
      relate to lessee’s use or occupancy of the leased premises. In some cases, this
      indemnity extends to related liabilities arising from the negligence of the
      indemnified parties, but usually excludes any liabilities caused by their gross
      negligence or willful misconduct. Additionally, the lessee typically indemnifies
      such parties for any environmental liability that arises out of or relates
      to
      its use of the leased premises. The Company believes that it is adequately
      covered by insurance (subject to deductibles) for most tort liabilities and
      related indemnities described above with respect to real property that it
      leases.




F-28





**Aces
      Wired, Inc.**




**Notes
      to Consolidated Financial Statements**






**17.
      Transactions with Related Parties**





*Loans
      from Officers and Stockholders*





In
      November 2005, the Company’s president and chief executive officer, Mr. Kenneth
      Griffith, loaned the Company approximately $620,000, of which approximately
      $248,000 was repaid during fiscal year 2006 and the balance was converted into
      a
      4.48% unsecured, demand promissory note payable, due November 11, 2007. Interest
      of approximately $17,000 and $16,000 was accrued on the note during fiscal
      years
      2007 and 2006 and is included in interest expense in the respective accompanying
      consolidated statements of operations. On October 28, 2007, this note, together
      with interest accrued on the note since its inception, was exchanged for a
      new
      4.88% unsecured, non-demand promissory note in the amount of approximately
      $405,000, which matures on May 3, 2009.





In
      November 2005, the Company’s executive vice president and chief operating
      officer, Mr. Knowles Cornwell, loaned the Company approximately $380,000, of
      which approximately $152,000 was repaid during fiscal year 2006 and the balance
      was converted into a 4.48% unsecured, demand promissory note payable, due
      November 11, 2007. Interest of approximately $10,000 per fiscal year was accrued
      on the note during fiscal years 2007 and 2006 and is included in interest
      expense in the respective accompanying consolidated statements of operations.
      On
      October 28, 2007, this note, together with interest accrued on the note since
      its inception, was exchanged for a new 4.88% unsecured, non-demand promissory
      note in the amount of approximately $248,000, which matures on May 3,
      2009.





In
      January 2006, the Company’s chairman of the board and its principal stockholder,
      Mr. Gordon Graves, made a capital contribution of $400,000 to Goodtime and
      loaned the Company $600,000 in the form of a 4.64% unsecured, demand promissory
      note payable, due January 20, 2008. Interest of approximately $27,000 and
      $22,000 was accrued on the note during fiscal years 2007 and 2006 and is
      included in interest expense in the respective accompanying consolidated
      statements of operations. On October 28, 2007, this note, together with interest
      accrued on the note since its inception, was exchanged for a new 4.88%
      unsecured, non-demand promissory note in the amount of approximately $649,000,
      which matures on May 3, 2009.





*Lease
      Obligations to Officers and Stockholders*





The
      Company leases office and warehouse space in Dallas, Houston, and San Antonio,
      Texas both directly and indirectly from Messrs. Griffith and Cornwell. Rentals
      are fixed and range from $7,500 per month to $3,500 per month. The Company
      incurred rent expense under these leases of approximately $223,000, inclusive
      of
      executory costs for which the Company is liable under the leases, during each
      of
      fiscal years 2007 and 2006, which expenses are included in operating expenses
      -
      bingo supply and services at the accompanying consolidated statements of
      operations for those two fiscal years. The leases for the Dallas and San Antonio
      facilities expire at the end of October 2008, and the lease for the Houston
      facility expires at the end of January 2010. None of the leases provide for
      renewal options; however, the Company expects to renew or replace the leases
      in
      the normal course of business. Minimum lease payments of approximately $255,000
      were remaining under these leases as of October 28, 2007, exclusive of executory
      costs.





*Employment
      Agreements*





On
      March
      8, 2007, the Company entered into employment agreements, with Messrs. Griffith
      and Cornwell (the Employment Agreements). The Employment Agreements provide
      for
      three-year terms, effective March 1, 2007, and guarantee Messrs. Griffith and
      Cornwell with annual base salaries of not less than $350,000. Under the terms
      of
      the Employment Agreements, Messrs. Griffith and Cornwell participate in all
      other compensation and benefits plans provided generally to all of the Company’s
      employees, including the 2007 Stock Incentive Plan, and provides the officers
      or
      their heirs, as applicable, with certain compensation in the event their
      employment with the Company ends prior to the expiration of the Employment
      Agreements due to reasons such as their death, disability or termination by
      the
      Company without cause.





On
      March
      8, 2007, the Company entered into a new employment agreement with Mr.
      Christopher Domijan, its executive vice president, chief financial officer
      and
      secretary (the New Employment Agreement), which replaced an employment agreement
      the Company originally entered into with Mr. Domijan in October 2005. The New
      Employment Agreement provides for a three-year term, effective April 1, 2007,
      and guarantees Mr. Domijan with an annual base salary of not less than $230,000.
      Under the terms of the New Agreement, Mr. Domijan participates in all other
      compensation and benefits plans provided generally to all of the Company’s
      employees, including the 2007 Stock Incentive Plan, and provides him or his
      heirs, as applicable, with certain compensation in the event his employment
      with
      the Company ends prior to the expiration of the New Employment Agreement due
      to
      reasons such as his death, disability or termination by the Company without
      cause.




As
      part
      of his original employment agreement with the Company, Mr. Domijan received
      a 5%
      profit interest in Goodtime prior to subsequent dilution. Concurrent with the
      Company’s acquisition of Goodtime in October 2006, Mr. Domijan’s profit interest
      in Goodtime was exchanged for 360,847 shares of the Company’s restricted common
      stock, which shares became fully vested on March 31, 2007.




F-29


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


*Other
      Related Party Transactions*





Graves
      Management, Inc. (Graves), an affiliated company owned by Mr. Graves, provides
      the Company with consulting services related to its AWP business operations,
      for
      which the Company incurred expenses of approximately $81,000 and $114,000 during
      fiscal years 2007 and 2006, respectively. The agreement may be terminated by
      either party by giving 30 days advance written notice. Effective April 1, 2007,
      Graves agreed to defer the payments due to it under this agreement to help
      defray the legal costs arising from the adverse opinion issued by the Attorney
      General in March 2007, which liability was approximately $47,000 as of October
      28, 2007. Mr. Graves has never been personally compensated under this
      agreement.





In
      May
      2006, the Company sold a building for approximately $37,000 to Mr. Griffith
      and
      recognized an approximate $18,000 gain, which is included in other income
      (expense), net in the accompanying consolidated statement of operations for
      fiscal year 2006. In May 2006, the Company also sold to Mr. Griffith a
      whole-life insurance policy on him at the policy’s $41,065 cash surrender value.
      No gain or loss was recorded on the sale.




Mr.
      Graves beneficially owns 400,000 shares of the Series A Preferred Stock, upon
      which the Company accrued dividends of approximately $106,000 during the fiscal
      year 2007. Approximately $46,000 of these dividends was unpaid as of October
      28,
      2007, which liability is included in other accrued expenses and liabilities
      at
      the consolidated balance sheet for fiscal year 2007. The purpose of these
      dividends, which were accrued on all outstanding shares of Series A Preferred
      Stock during fiscal year 2007, is discussed at Note 15.





During
      fiscal year 2007, the Company paid approximately $25,000 and $3,000,
      respectively, to two non-employee members of its board of directors for
      consulting services.





**18.
      Critical Suppliers**





The
      Company’s future operating results might be affected by a number of factors,
      including the availability of goods and services provided by its suppliers.
      For
      fiscal year 2007, approximately one-third of the Company’s revenue from its
      bingo supply distribution business came from the rental of electronic bingo
      card-minding machines supplied by one vendor. Additionally, substantially all
      of
      the games played on the Company’s AWP machines, which are specially modified to
      comply with Texas law regarding gambling devices, are provided by just two
      vendors. Interruptions in the provision and/or the availability of such machines
      and games for a prolonged period, if not permanently, could have a material
      adverse effect on the Company’s results of operations and financial position if
      the Company is not able to timely find substitute suppliers for these goods
      and
      services.





**19.
      Segment Information.**




*Description
      of Segments*





SFAS
      131
      requires disclosures related to certain components of a company for which
      separate financial information is available that is evaluated regularly by
      a
      company’s chief operating decision maker in deciding the allocation of company
      resources and assessing performance. The Company has two principal operating
      subsidiaries, K&B and AWLLC, each of which is or is the primary component of
      a reportable business segment pursuant to SFAS 131. K&B is a state licensed
      supplier of electronic bingo games and equipment, branded pull tabs and bingo
      supplies in Texas and has been in business for over 29 years. AWLLC was
      organized in June 2004 and, together with certain other of the Company’s
      subsidiaries, does business in the AWP amusement gaming industry in Texas.
      As of
      October 28, 2007, AWLLC was operating 230 AWP machines in four gaming amusement
      centers, compared to the 193 AWP machines AWLLC was operating in six gaming
      amusement centers at the end of fiscal year 2006. Texas is currently the only
      geographic area in which the Company has business operations and
      properties.





*Segment
      Data*





The
      Company derives the results of operations and other financial information
      regarding K&B and AWLLC directly from the same financial reporting system
      that the Company uses to prepare its consolidated financial statements and
      other
      financial management reports. Management measures the performance of each
      operating business segment based on several metrics including net earnings
      from
      operations and earnings before interest, income taxes and depreciation and
      amortization. Management uses these financial metrics to assist it in evaluating
      the performance of and to assign resources to each of its operating business
      segments. The Company does not allocate to its operating business segments
      any
      corporate-level expenses (such as compensation for its executive officers),
      nonoperating income and expenses not identifiable with an operating business
      segment and income taxes. As used hereinafter, the bingo supply and services
      business segment is referred to as *Bingo* and the
      AWP amusement gaming business segment is referred to as *AWP* .
      Corporate fiscal and other unallocated income and expenses, which include income
      taxes, are referred to as *Corporate* .
      The
      Company historically has had no intersegment revenue nor does it expect to
      have
      any significant intersegment revenue in the near term.




F-30


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


Most
      of
      the Company’s assets are accounted for at a subsidiary level, which for the most
      part corresponds with its business segments. Certain assets are, however,
      allocated by the Company to the business segment that is the principal
      beneficiary from the realization of those assets. Corporate and other
      unallocated assets after elimination of intercompany receivables are composed
      primarily of cash and cash equivalents, income taxes receivable/payable and
      deferred income tax assets. The Company’s long-lived assets are comprised
      primarily of property and equipment, goodwill and purchased intangible
      assets.





Selected
      condensed financial information for the Company’s business segments for fiscal
      years 2007 and 2006 is presented in the following tables.


**Fiscal
                  Year 2007****Bingo**
              
              
              **AWP**
              
              
              **Corporate**
              
              
              **Consolidated**Revenue,
                  net
              
              $
              15,166,451
              
              $
              5,770,293
              
              $
              —
              
              $
              20,936,744Depreciation
                  and amortization**(a)**
              
              
              (357,768
              )
              
              (988,496
              )
              
              (26,501
              )
              
              (1,372,765
              )Other
                  significant noncash expenses:Share-based
                  compensation
              
              
              —
              
              
              (126,216
              )
              
              (1,384,525
              )
              
              (1,510,741
              )Abandonment
                  losses
              
              
              —
              
              
              (458,418
              )
              
              —
              
              
              (458,418
              )Provisions
                  for doubtful accounts receivable and inventory valuation
              
              
              (261,605
              )
              
              —
              
              
              —
              
              
              (261,605
              )Segment
                  income (loss) before income taxes
              
              
              2,997,234
              
              
              (2,285,438
              )
              
              (4,502,740
              )
              
              (3,790,944
              )Income
                  tax benefit
              
              
              
              
              
              
              
              
              534,327
              
              
              534,327Net
                  loss
              
              
              
              
              
              
              
              
              (3,968,413
              )
              
              (3,256,617
              )Segment
                  assets
              
              $
              3,260,165
              
              $
              10,087,117
              
              $
              2,831,173
              
              $
              16,178,455Acquisitions
                  of property and equipment (including noncash acquisitions)
              
              
              255,706
              
              
              2,390,745
              
              
              34,917
              
              
              2,681,368
  **Fiscal
                  Year 2006****Bingo**
              
              
              **AWP**
              
              
              **Corporate**
              
              
              **Consolidated**Revenue,
                  net
              
              $
              15,489,201
              
              $
              2,400,339
              
              $
              -
              
              $
              17,889,540Depreciation
                  and amortization**(b)**
              
              
              (337,556
              )
              
              (527,801
              )
              
              (24,296
              )
              
              (889,653
              )Other
                  significant noncash expenses:Share-based
                  compensation
              
              
              -
              
              
              (48,316
              )
              
              (3,572,341
              )
              
              (3,620,657
              )Abandonment
                  losses
              
              
              -
              
              
              (22,624
              )
              
              -
              
              
              (22,624
              )Provisions
                  for doubtful accounts receivable and inventory valuation
              
              
              (267,250
              )
              
              -
              
              
              -
              
              
              (267,250
              )Segment
                  income (loss) before income taxes
              
              
              2,970,905
              
              
              (1,445,721
              )
              
              (5,994,097
              )
              
              (4,468,913
              )Income
                  tax expense
              
              
              
              
              
              
              
              
              (631,671
              )
              
              (631,671
              )Net
                  loss
              
              
              
              
              
              
              
              
              (6,625,768
              )
              
              (5,100,584
              )Segment
                  assets
              
              $
              3,289,840
              
              $
              8,504,679
              
              $
              6,752,132
              
              $
              18,546,651Acquisitions
                  of long-lived assets (including noncash acquisitions):Goodwill
              
              $
              -
              
              $
              2,913,522
              
              $
              -
              
              $
              2,913,522Intangible
                  assets
              
              
              -
              
              
              1,553,400
              
              
              -
              
              
              1,553,400Property
                  and equipment
              
              
              501,927
              
              
              3,216,540
              
              
              -
              
              
              3,718,467Total
              
              
              501,927
              
              
              7,683,462
              
              
              -
              
              
              8,185,389





**(a)**
            Includes
                approximately $154,000 related to the amortization of certain intangible
                assets that is included in other operating expenses for the Bingo
                and AWP
                business segments at the accompanying statement of operations for
                fiscal
                year 2007.**(b)**
            Includes
                approximately $153,000 related to the amortization of certain intangible
                assets that is included in other operating expenses for the Bingo
                and AWP
                business segments at the accompanying statement of operations for
                fiscal
                year 2006.





*Abandonment
      Losses*





As
      described in Note 2, during fiscal year 2007, the Company recognized impairment
      losses of approximately $357,000 related to certain personal property and tenant
      improvements for two gaming amusement centers it abandoned as a consequence
      of
      the adverse opinion issued by the Attorney General in March 2007. During fiscal
      year 2007, the Company also recognized impairment losses of approximately
      $101,000 resulting primarily from the abandonment of tenant improvements to
      leased gaming center facilities it closed for operational reasons.




F-31


**Aces
        Wired, Inc.**
  **Notes
        to Consolidated Financial Statements**


In
      July
      2006, the Company abandoned unamortized leasehold improvements of approximately
      $23,000 after it closed an amusement gaming center due to threatened legal
      action the Company chose not to contest.





*Major
      Customers*




No
      single
      customer represented 10% or more of the Company’s total net revenue for either
      fiscal year 2007 or fiscal year 2006.




F-32