UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


X
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended
            December
      31, 2009TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from
            
            toCommission
      file number
            000-30375Las
      Vegas Gaming, Inc.(Exact
      name of Registrant as specified in its charter)Nevada
            
            88-0392994(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)3980
      Howard Hughes Parkway, Suite 450, Las Vegas, Nevada
            
            89169(Address
      of principal executive offices)
            
            (Zip
      Code)Registrant’s
      telephone number, including area code:
            (702)
      871-7111Securities
      registered under Section 12(b) of the Act:Title
      of each class
            
            Name
      of each exchange on which registeredSecurities
      registered under Section 12(g) of the Act:Common
      Stock Series A, $.001 par value(Title
      of each class)(Title
      of each class)Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act. Yes o   No 
      xIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act. Yes  o   No 
      xIndicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.  Yes  x   No 
      oIndicate
      by check mark if the disclosure of delinquent filers pursuant to Item 405
      of Regulation S-K (§229.405 of this chapter) is not contained in herein,
      and will not be contained, to the best of the registrant’s knowledge, in
      definitive proxy or information statements incorporated by reference in
      Part III of this Form 10-K or any amendment to this Form 10-K.  oIndicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See the definitions of “large accelerated filer,”
      “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
      Exchange Act.
              
              Large
      accelerated filer  o                                                                                                             Accelerated
      filer   o
              Non-accelerated
      filer    o  (do
      not check if smaller reporting company)Smaller
      reporting company  xIndicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act).  Yes  o

        No   x






Table of Contents








State
      the aggregate market value of the voting and non-voting common equity held
      by non-affiliates computed by reference to the price at which the common
      equity was last sold, or the average bid and asked price of such common
      equity, as of the last business day of the registrant’s most recently
      completed second fiscal quarter.  $37,435,372Indicate
      the number of shares outstanding of each of the registrant’s classes of
      common stock, as of the latest practicable date.Common
      Stock Series A, $.001 par value
            
            14,974,149
      shares as of December 31, 2009Documents
      Incorporated By Reference:









Table of Contents


TABLE OF CONTENTS
 ITEM
      1.
                                          BUSINESS
                                          1ITEM
      1A.
                                          RISK FACTORS
                                          17ITEM
      1B.
                                          UNRESOLVED STAFF COMMENTS
                                          17ITEM
      2.
                                          PROPERTIES
                                          17ITEM
      3.
                                          LEGAL PROCEEDINGS
                                          17ITEM
      4.
                                          SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                                          18ITEM
      5.
                                          MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY
      SECURITIES
                                          19ITEM
      6.
                                          SELECTED FINANCIAL DATA
                                          22ITEM
      7.
                                          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
                                          22ITEM
      7A.
                                          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                                          28ITEM
      8.
                                          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                          28ITEM
      9.
                                          CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                          52ITEM
      9A.
                                          CONTROLS AND PROCEDURES
                                          52ITEM
      9B.
                                          OTHER
      INFORMATION
                                          53ITEM
      10.
                                          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
                                          54ITEM
      11.
                                          EXECUTIVE COMPENSATION
                                          54ITEM
      12.
                                          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS
                                          54ITEM
      13.
                                          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                          54ITEM
      14.
                                          PRINCIPAL ACCOUNTING FEES AND SERVICES
                                          54ITEM
      15.
                                          EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                                          55







PlayerVision,
RoutePromo, NumberVision, WagerVision, AdVision, Nevada Numbers, The Million
Dollar Ticket, and Nevada Keno are some of our trademarks.  This
Annual Report on Form 10-K contains trademarks and trade names of other parties,
corporations and organizations.




Table of Contents


PART
I




ITEM 1. BUSINESS.




Overview




During
2009 we continued to focus our development efforts on our proprietary
application delivery system, known as PlayerVision.  Through our
PlayerVision system, we offer gaming operators the ability to increase the
productivity of their existing gaming machines by delivering additional wagering
opportunities, customer service enhancements, entertainment applications, games,
and other content to their existing gaming machines, such as slot machines,
poker machines, and video lottery terminals.  Our PlayerVision system
is flexible and compatible with virtually all gaming machines currently produced
by all major manufacturers.  As a result, we view every gaming machine
as a revenue opportunity for our PlayerVision system.  Since we plan
to offer an option to acquire PlayerVision at little or no up front capital cost
to casino operators in exchange for a recurring licensing fee, we expect to
provide operators with an ability to increase significantly the earning power
and functionality of their gaming machines with little or no financial
risk.  In addition, we are currently a leading supplier of keno and
bingo games, systems, and supplies.




The
PlayerVision system consists of proprietary software that runs on our own
hardware as well as other vendors’ server-based application delivery systems
such as the sbX Experience Management System from International Gaming
Technology (“IGT”).  Our ability to deliver applications through our
own delivery system as well as that of other server-based gaming systems
provides our customers with the ability to achieve 100% gaming floor coverage
without the need to replace their existing machines.  Our system gives
our customers a transition path from legacy machines to server-based
gaming.




There are
four delivery channels related to PlayerVision
functionality:  service, marketing, entertainment and
gaming.  Each application group addresses a specific cost reduction,
revenue enhancing application set, player experience or operator control
feature, including “Beverage-on-Demand”, NumberVision and WagerVision - turning
each gaming machine into a multi-tasking touch-point for the customer who will
see more, do more and - as a result - play more.






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In
addition to the PlayerVision applications identified above, it is our mission to
develop new applications that will position PlayerVision as a platform for a
variety of new multimedia and gaming functions.




Historically,
we have been one of the leading suppliers of keno and bingo games, systems, and
supplies, a relatively small market associated with nominal growth and smaller
companies.  Our current principal business is the delivery of new,
linked-progressive, mega jackpot games to the worldwide gaming
industry.  However, to date, we have devoted a significant portion of
our resources toward the development, regulatory approval, and marketing of our
PlayerVision system.  In comparison to the keno and bingo market, we
believe that the potential market for our PlayerVision system, i.e., the gaming machine
market, is much larger and more dynamic.  While we continue to provide
equipment, supplies and games for use by our customers in the keno and bingo
segments of the gaming industry, subject to our ability to continue as a going
concern, addressed below, we expect these revenues will continue to decline as
we focus on the deployment of PlayerVision.  PlayerVision has not had
a significant revenue effect on our financial statements to date.  Due
primarily to our focus on the development of our PlayerVision system and other
factors, we have incurred expenses in excess of our revenue and have generated
losses to date.





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In May
2009, we received approval for nine software applications on our robust and
scalable PlayerVision 3 platform from the Nevada Gaming Control Board
laboratory.  These software applications include Beverage-on-Demand,
ServiceVision, VoyeurVision, Live TV, AdVision, YouTube, CasinoTunes,
ValetVision, and BurstVision.  We will submit these same applications
for Gaming Laboratories International (GLI) approval, an independent accredited
testing laboratory, in the third quarter of 2010.




Based on
the foregoing, and other than the insignificant revenue realized from our early
adoption agreements, and subject to economic uncertainties discussed herein, and
our ability to continue as a going concern, as discussed below, we expect to
begin to realize more significant revenue from our PlayerVision system during
the third quarter of 2010.  This would mark a significant shift in the
type of revenue recognized by us.  The anticipated revenue would be
from the installation of our nine software applications on the PlayerVision 3
platform in the United States, primarily Nevada for now.  No assurance
can be given, however, that we will begin installing our PlayerVision 3
applications or begin realizing revenue from our PlayerVision system during the
third quarter of 2010 or at all.




We expect
to continue to incur losses for the remainder of 2010, and we expect to face
competition from larger, more formidable competitors as we attempt to enter the
gaming machine market.  Due to continuing expenses related to our
PlayerVision system, we plan to continue to rely on funds from third party
financing sources, if available, in addition to funds from operations to sustain
our operations in 2010.




We are
presently unable to satisfy our obligations as they come due and do not have
enough cash to sustain our anticipated working capital requirements for the
remainder of 2010.  Unless we obtain third-party financing or
otherwise raise capital through the sale of assets or otherwise in the near
future, we will be unable to continue as a going concern.




Industry
Overview




The
domestic and global gaming markets have grown rapidly and consistently over most
of the last decade despite some slowdown in the past two years due to the
macroeconomic recession. This growth has generally brought increased social and
political acceptance of legalized gaming throughout many diverse societies. As a
result, there is a rising public sector/municipal dependency on gaming revenues
for funding of programs and projects that would not otherwise
exist.  In the United States in 2007, the gaming industry was a $92.2
billion business consisting of casinos spread throughout 48 states. In addition,
many jurisdictions are currently pushing for liberalization of existing gaming
legislation and introduction of new regulations designed to augment sources of
gaming tax revenue.  Twelve states now allow commercial (non-tribal)
gaming, compared to only two in 1980.




The
conventional wisdom that the gaming industry is recession-proof has been
challenged over the last 24 months. However, recent economic pressures have
prompted new efforts to legalize casino gaming and to liberalize gaming laws to
fill fiscal gaps.  Furthermore, in the current environment, operators
are pressured to extract the most out of existing operations by enhancing the
competitiveness of their slot machine floor at minimal investment rather than
deploying cash into new or expanded equipment or facilities. While historical
U.S. trends suggest a resilient recovery will eventually be at hand, through our
PlayerVision product we expect to offer the casino operator a product that will
enhance the gaming machine’s productivity while simultaneously enhancing the
customer’s playing experience – all with little or no money up
front.




PlayerVision
can also be deployed outside the United States.  Casinos in
jurisdictions such as Macau, Western and Central Europe, South Korea, Singapore,
Australia, Japan, Vietnam, Taiwan, and the Philippines should be attracted to
our product.  However, we will need to get approval from the relevant
regulatory bodies prior to a roll out of PlayerVision in these
jurisdictions.




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1.7
million EGMs (Electronic Gaming Machines or slot machines as they are commonly
referred to) were installed worldwide as of the end of 2009, with approximately
50% in North America. These machines represent the gaming industry's most
resilient and predictable revenue stream and usually comprise well over 50% of
total gaming revenue for the typical casino operator. The historical EGM
replacement cycle of 5-6 years will likely be stretched out over the next few
years as the recession works its way out of the world
economy.  However, new technology may disrupt the normal replacement
cycle.  The last such technology was the "Ticket-In-Ticket-Out"
revolution in 2000. We believe the next such revolution will be Server-Based
Gaming, which allows operators to manage casino floors more effectively and
efficiently.  It will also usher into the gaming industry the art of
multi-tasking as the EGM will now be able to provide the player several
experiences concurrently with gambling on the next pull of the handle (or more
typically, the next push of the button).




Increased
popularity and social acceptance of gaming as a leisure activity is also fueling
the growth of server-based gaming. According to the 2008 American Gaming
Association Survey of Casino Entertainment, 84% of Americans believe that casino
gaming is an acceptable activity for themselves or others, an increase of 5%
since 2006. The simplicity and instant appeal of EGMs versus other gambling
opportunities create familiarity and adoption across the board, characterized by
ease-of-use and informality. EGMs have demonstrated greater appeal than any
other gaming activity. Additionally, technology has become a significant part of
the gaming experience, allowing for more innovative content and customer
convenience. A new younger player demographic translates into a multi-tasking
"user interface" that creates new revenue opportunities.




As the
gaming machine base continues to grow we believe that our target market will
continue to expand.  We believe that a consistent need for improvement
in gaming activities and demand for greater entertainment value for players will
give us the ability to market PlayerVision aggressively and to provide gaming
operators with a single solution to introduce additional functionality without a
wholesale replacement of their existing gaming machines.




Our
Strategy




Our
strategy is to provide the premier enhancement system for the installed base of
gaming machines by delivering additional wagering opportunities, cost saving
opportunities, promotions, games, and other content on existing gaming machines
and delivering those same applications over the newer server-based deliver
systems and gaming machines.  No assurance can be given, however, that
we will be successful.  In order to achieve this objective, we are
pursuing the following strategies:




·
            Increased Revenue Potential
      for Operators.Our sales effort stresses the ability of our
      PlayerVision system to provide gaming operators with the opportunity to
      increase significantly the earning power and functionality of their gaming
      machines. Since our PlayerVision system directly interfaces with the
      existing video, audio, and printing functions of the machine, we are able
      to use the machine’s existing video screen (or attached alternatives) to
      deliver additional games, promotions, additional wagering opportunities,
      and other forms of entertainment. If desired by our customers, we have a
      kiosk driven ticket redemption system featuring its own accounting system
      separate and apart from the main slot accounting system.  We can
      also provide alternative viewing options if the casino operator would
      prefer not to use the main screen.




·
            Compelling Patron Experience.We expect to offer PlayerVision as a single multimedia delivery
      system for a wide range of content directly on the existing screens of
      gaming machines. By adding PlayerVision, a gaming machine is transformed
      from a single use, single wager option into a multimedia experience that
      can deliver to the player extra wagering opportunities and targeted,
      promotional content in addition to traditional slot play. Through
      PlayerVision, the operator will be able to enhance the functionality of
      its existing EGMs and deliver targeted gaming opportunities and
      promotional content to players.  In exchange, the player will
      receive an enhanced playing experience, information about promotions,
      entertainment, and dining opportunities, and the opportunity to win
      jackpots and other prizes.






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·
            Reduce operating costs.Through our Beverage on Demand feature, an operator may be able to
      cut its drink delivery costs approximately in
  half.




·
            Low Operator Risk.As
      an alternative, we expect to offer the gaming operators the ability to
      substantially reduce operating cost, extend the replacement cycle and
      increase significantly the earning power and functionality of their
      existing gaming machines at little or no up front capital cost. This
      strategy involves installing PlayerVision at little or no up front capital
      cost to gaming operators in exchange for recurring software license
      fees.




·
            New Applications.We
      plan to continue the development of innovative applications to be
      delivered through our PlayerVision system. To date, we have designed our
      PlayerVision system to deliver advertisements, multimedia content, casino
      services, promotional materials, and wagering
      opportunities.  Since PlayerVision engages the existing video,
      audio and printing functions of the gaming machine, and since our kiosk
      driven ticket redemption system features its own path to the slot
      accounting system, we believe that our PlayerVision system can be used as
      a platform to deliver a wide array of casino services, multimedia or
      gaming content directly to patrons.




PlayerVision
is a single, flexible, and dynamic platform that can be used to deliver casino
services, multimedia or gaming content developed either by us or third parties.
Because of the integration of PlayerVision with all of the functions of the
gaming machine, we expect that PlayerVision can be used by gaming operators to
control all aspects of their gaming machines. By establishing our PlayerVision
system as the premier enhancement system for the installed base of gaming
machines, we believe that we will be able to establish a significant barrier to
entry for any potential competitors.




PlayerVision
System




Through
PlayerVision, players will at once enjoy a multi-wagering/multi-tasking
immersive experience that results in a substantial increase in percentage of
wallet for the operator. A powerful retrofit solution, we expect that
PlayerVision will enable operators to reduce operating costs and increase
efficiencies for both new and legacy gaming floors, featuring:




·
            On-the-fly
      machine "customization" by casino and customer at minimal cost, using
      existing slot screens for a variety of innovative
      applications;




·
            Increased
      time on device with added wagering and targeted
  marketing;




·
            Beverage-on-demand,
      allowing reduced head count with improved player experience;
      and




·
            On-demand
      multimedia offering private access to shows, products and
      services.




We expect
to offer PlayerVision at a little to no up front capital cost to the operator in
exchange for recurring license fees, thereby increasing earning power and
functionality of gaming machines without financial risk.




Slot
operations serve as the primary source of revenue in almost any gaming
operation. In need of sources of incremental revenue and cost savings, the
industry is primed for a technology that utilizes the processing power now
available through server-based environments. By installing off-the-shelf CPUs
into any EGM (a 30-minute process), PlayerVision converts a single-use slot
machine into a multi-dimensional revenue generator and cost container. We
believe we are the developer/owner of some of the most significant intellectual
property/technology in the industry related to deployment of server-based gaming
applications.  No assurances can be given that the deployment of
server-based gaming applications will be successful or that our intellectual
property/technology will play a significant role in server-based gaming
applications.




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Casino
Games




We offer
two keno games, Nevada Numbers and The Million Dollar Ticket, and collect
royalties on several bingo style games. The revenue generated from our casino
games is primarily based on collecting per ticket or per game fees from our
various customers.  On March 31, 2009, our contract with Treasure
Island to maintain the $3.9 million base jackpot bankroll for Nevada Numbers and
The Million Dollar Ticket expired, and we shut down the games as a
result.  We expect to restart the games as soon as we find funding for
the $3.9 million base jackpot.




Nevada
Numbers




Nevada
Numbers is a variation of classic keno, which prior to its shutdown noted above
has been played in many casinos in Nevada.  Keno is a game in which
bets are made and recorded on a keno ticket. This ticket contains 80 numbered
squares that correspond exactly to 80 numbered balls in a selection hopper. A
player marks a ticket to play between two and 20 different numbers. The keno
operator then draws 20 out of the 80 numbers and displays the results throughout
the casino. The more numbers that match, the more money the player wins. Payout
awards vary from casino to casino and depend on the amounts
wagered.




Nevada
Numbers differs from classic keno in that fewer numbers (five rather than 20)
are drawn and a “linked’’ or “progressive’’ component has been added. We linked
together the play of Nevada Numbers at multiple casinos so that players at
several different locations all choose numbers that are matched to the same
five-number draw. In addition, Nevada Numbers featured a starting jackpot of
$5.0 million that was progressive, in that it grew with the purchase of each
Nevada Numbers ticket and could be won at each draw.  Any winner of
the Nevada Numbers progressive jackpot will be paid the amount of the
progressive meter in equal installments over a period of 20 years.  At
our sole discretion, we may offer the winner an option to receive a discounted
value immediately.  The process of linking games and creating a
progressive jackpot provided an enticement to players because of the potential
for a life-changing event.




Although
Nevada Numbers has traditionally been limited to the keno lounges of casinos, we
are taking measures to expand its visibility.  First, we have
incorporated Nevada Numbers as part of NumberVision.  Through
NumberVision, we propose to position Nevada Numbers as a dynamic game that will
give players the opportunity to win a progressive jackpot of at least $5.0
million. Second, subject to regulatory approval of NumberVision, we will market
the game to third-party race and sports books for use on their existing wagering
terminals.




The
Million Dollar Ticket




Based on
the classic keno game, The Million Dollar Ticket offers the chance to win $1.0
million and a progressive jackpot. In order to win the $1.0 million and the
progressive jackpot, the player must pick 10 numbers correctly out of 20 drawn
from a pool of 80.  As stated previously, we shut down this game on
March 31, 2009 and will restart when we receive funding for the
jackpot.




Super
Bingo Games




Super
Bingo Games are odds-based bingo games with life-changing prizes that are
offered as side bets to existing bingo games.  We offer these games at
various jackpot levels-as high as $50,000 in some cases.  We purchase
insurance for the larger jackpots.  Our Super Games are structured so
that the bingo operator is guaranteed a profit for each wager
made.  We have placed Super Bingo Games in four Nevada casinos and ten
non-Nevada locations.






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Keno
and Bingo Systems and Supplies




The
worldwide keno system market is limited and has been declining for several
years. We are attempting to invigorate the market and gain an additional share
of the market by enhancing our keno system through the addition of several new
games and features to the platform.




Keno and
bingo supplies sales contribute significantly to our revenue, but consist of low
margin items, including crayons, various paper products, and ink.




Other
Businesses




We also
generate revenue through various keno participation agreements and the
maintenance of our equipment under service contracts.




·
            Nevada Keno and Related
      Participation Agreements.Through agreements with participating
      casinos, we offer Nevada Keno, a “satellite-linked’’ traditional keno game
      played in multiple casinos.  We are currently operating Nevada
      Keno in three casinos.  However, we believe we will soon be
      operating in 2-3 more.  However, no assurances can be given that
      we will operate Nevada Keno in additional
      casinos.  Additionally, principally in Nebraska, we provide
      equipment in return for a share in the revenue generated in various keno
      salons.




·
            Service Contracts.Most
      of our customers that purchase keno and bingo equipment also purchase a
      service contract from us to provide routine maintenance for the
      equipment.




·
            RoutePromo.  RoutePromo
      is designed to deliver promotional tickets or vouchers to players upon the
      occurrence of an event specified by the operator, such as hitting a
      four-of-a-kind or better on a video poker machine.  The key
      feature of RoutePromo is its ability to recognize a specified event
      generated by the game and deliver the programmed response to the specified
      event.




RoutePromo
is designed to work as follows:




·
            first,
      the operator specifies the events that will trigger RoutePromo, such as a
      four-of-a- kind or better on a video poker
  machine;




·
            second,
      upon the occurrence of the specified event, RoutePromo is activated and a
      message is sent to the gaming machine to issue a promotional ticket or
      voucher;




·
            third,
      the gaming machine alerts the player and prints the free promotional
      ticket or voucher; and




·
            fourth,
      the gaming machine returns to its original
  state.




We
currently charge a fixed monthly fee for the ability to offer
RoutePromo.






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Through
our agreement with United Coin Machine Company, the largest slot route operator
in Nevada, we developed a variation of our keno game called The Million Dollar
Ticket, known as the Gamblers Bonus Million Dollar Ticket, to be used in
conjunction with RoutePromo.  Gamblers Bonus Million Dollar Ticket is
a free promotional game that gives players the chance to win various prizes,
including a $1.0 million grand prize, by matching numbers on their promotional
tickets with numbers picked in a random weekly drawing.  Under our
agreement, we are obligated to provide software, hardware, and support to United
Coin for the game.  In addition, we are financially responsible for
the payouts associated with the game.  In return, United Coin is
obligated to pay us $1.25 for each ticket distributed.  During the
second quarter of 2008, we rolled out Gamblers Bonus Million Dollar Ticket at
approximately 100 United Coin route locations.  On January 31, 2009,
we closed down the game with United Coin because there was little interest among
bar owners and convenience store owners to offer an expensive promotion in
difficult economic times.




Manufacturing




We
outsource the manufacturing of the various components of our PlayerVision 3
system to Apple, Hitachi, and various other key suppliers.  Lead times
for certain key components can be as long as eight weeks.




Marketing
and Distribution




PlayerVision




As part
of our objective to provide the leading single multimedia and game delivery
system, we have started to implement a plan that will market our PlayerVision
system to customers through direct and indirect channels. Our plan involves the
following steps:




·
            Direct Sales Efforts.Through the hiring of additional personnel to our sales and
      marketing staff, we will market PlayerVision to operators located
      primarily in North America and to Native American tribes. As part of our
      direct sales efforts, we attend trade shows, such as G2E in Las Vegas,
      Nevada.




·
            Strategic Partnerships.We supplement our direct sales efforts by targeting third-party
      distributors and regional operators.  IGT and Ebet are key
      examples of entities that we expect will be distributing our
      product.  By forming strategic relationships with these parties,
      we hope to gain access to smaller and more fragmented markets around the
      globe and secure the broadest placement for
  PlayerVision.




We plan
to conduct all of our sales and marketing efforts from our headquarters in Las
Vegas, Nevada.  Although we do not have any current plans to open any
sales offices, we will review the need for such additional offices in response
to the needs of our customers and our strategic partners.




Casino
Games




We
license our games directly to casinos.  We make initial contacts
through the mailing of marketing materials, referrals, or direct solicitation by
our employees and marketing agents.  We promote licensed games to the
general public using various types of media, including billboards, newspapers,
magazines, radio, and television.  Advertising within a particular
casino may include advertisement on strategically placed LCDs, table tents,
flyers, signs on the tops of gaming machines, and show cards to stimulate
curiosity and game play.






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Keno
and Bingo Systems and Supplies.




We are
one of the world’s few keno equipment suppliers.  Most sales in this
area result from unsolicited inquiries or direct solicitation of customers by
our sales staff.  The marketplace for bingo equipment, electronic
playing devices, and supplies in Nevada is relatively small, consisting of
approximately 40 potential customers.  However, we believe that the
recent introduction of wireless gaming devices into the marketplace in Nevada
and other jurisdictions may increase the potential market for bingo-related
products.  No assurance can be given that the market for bingo-related
products will increase.  Direct sales to the casino are the primary
means of sale for these products.  The marketplace for gaming supplies
is large and geographically dispersed.  Our primary marketing tool is
a catalog that we periodically distribute to our customers and potential
customers.




Competition




PlayerVision
System




We
encounter significant competition in the market for innovative gaming
technologies that deliver interactive gaming, animated content, and
cross-promotional opportunities to gaming operators. The key competitive factors
are functionality, accuracy, reliability, and pricing.  We believe
that PlayerVision is a single, integrated solution because of the
following:




·
            PlayerVision
      uses the existing primary screen of the gaming machine or a smaller
      secondary video screen or a mounted side
screen;




·
            PlayerVision
      engages the existing video, audio and printing functions of the gaming
      machine regardless of the
manufacturer;




·
            PlayerVision
      involves little or no up front capital cost to gaming operators;
      and




·
            PlayerVision
      delivers a broad range of
functionalities.




We are
unaware of any other product that delivers casino services, multimedia and
gaming content through the existing various screens of gaming
machines.  Although we face competition from products that use smaller
secondary video screens and cost thousands of dollars, such as iView developed
by Bally Systems and NexGen developed by IGT, we expect to be able to deliver
content for little or no up front capital cost and deliver the content directly
to the patron through all existing screens rather than just an auxiliary
2x6-inch screen.




Since we
are able to use all existing screens of a gaming machine, as well as its
existing video, audio and printing functions, we expect to offer to gaming
operators a solution that requires little or no up front capital cost, involves
minimal installation time, and interfaces with virtually all gaming
machines.  In addition, although there are products that deliver
advertising or promotional content through secondary video screens installed
onto gaming machines, we do not believe that there are currently any products
that can deliver the additional wagering opportunities that PlayerVision can or
any products that can provide an expandable platform for additional content on
the existing screens of gaming machines.




Nevertheless,
there is no guarantee that PlayerVision will be accepted in the
marketplace.  Many of our potential competitors possess substantially
greater financial, technical, marketing, and other resources than we do, which
affords them competitive advantages over us.  As a result, our
competitors may introduce products that have advantages over PlayerVision in
terms of features, functionality, ease of use, and revenue producing
potential.  If we are unable to compete effectively, or incur any
delays, either regulatory or otherwise, in our ability to fully introduce
PlayerVision, our operations and financial condition may be adversely
affected.




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Keno
and Bingo Systems and Supplies.




The keno
and bingo systems and supplies industry is characterized by limited
competition.  We compete primarily with other companies that provide
keno and bingo systems, including electronic systems, keno, bingo supplies, and
related services.  In addition, we compete with other similar forms of
entertainment, including casino gaming, other forms of Class II gaming, and
lotteries. Our key competitor is XpertX in the keno market.  We
compete by providing superior service, lower prices, innovative games, and a
quality fully functional keno system.




Research
and Development




Our
research and development efforts focus on developing new applications for our
PlayerVision system and reducing its cost. During 2008 we considerably expanded
our internal R&D effort by employing 5 new software engineers, one of which
became our Chief Technical Officer in March 2008.  We layed off all of
our software engineers in December 2009 in order to conserve cash.  We
will hire software engineers back to work when we raise significant
capital.  We plan to engage, from time to time, independent
consultants and advisors to assist us.




Intellectual
Property and Other Proprietary Rights




We hold
several patents, including a patent related to Nevada Numbers.  We
have been recently issued a patent for “closed loop,” a key application in our
PlayerVision technology.  In addition, we have several more patents
pending with respect to the PlayerVision system and certain of its various
applications.  We also hold several trademarks filed with the state of
Nevada and the U.S. Patent and Trademark Office, including trademark rights to
PlayerVision, Nevada Numbers and The Million Dollar Ticket, and other
intellectual property that is protected by federal copyright and trade secret
laws.




We rely
on the proprietary nature of our intellectual property, primarily in the form of
patent protection, for development of our products.  We believe that
our success depends in part on protecting our intellectual
property.  If we cannot protect our intellectual property against the
unauthorized use by others, our competitive position could be
harmed.




The risks
associated with our intellectual property, include the following:




·
            The
      inability of intellectual property laws to protect our intellectual
      property rights;





·
            Attempts
      by third parties to challenge, invalidate, or circumvent our intellectual
      property rights;





·
            The
      unauthorized use by third parties of information that we regard as
      proprietary despite our efforts to protect our proprietary
      rights;





·
            The
      independent development of similar
technology;





·
            The
      inability to protect our intellectual property rights in foreign
      jurisdictions; and





·
            A
      lack of adequate capital to defend and protect our intellectual
      property.






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We may
not be able to obtain effective patent, trademark, service mark, copyright, and
trade secret protection in every country in which our products are
used.  We may find it necessary to take legal action to enforce or
protect our intellectual property rights or to defend against claims of
infringement, and such actions may be unsuccessful.  In addition, we
may not be able to obtain a favorable outcome in any intellectual property
litigation.  Significant amounts could be expended to defend and
protect our intellectual property.  Moreover, our competitors may
develop products or technologies similar to ours without infringing on our
intellectual property rights.




Government
Regulation




We are
subject to regulation by governmental authorities in most jurisdictions in which
we operate.  Gaming regulatory requirements vary from jurisdiction to
jurisdiction, and obtaining licenses and findings of suitability for our
officers, directors, and principal stockholders, registrations, and other
required approvals with respect to us, our personnel, and our products are time
consuming and expensive.  Generally, gaming regulatory authorities
have broad discretionary powers and may deny applications for or revoke
approvals on any basis they deem reasonable.  We have approvals that
enable us to conduct our business in numerous jurisdictions, subject in each
case to the conditions of the particular approvals.  These conditions
may include limitations as to the type of game or product we may sell or lease,
as well as limitations on the type of facility, such as riverboats, and the
territory within which we may operate, such as tribal nations.




Jurisdictions
in which we, and specific personnel, where required, have authorizations with
respect to some or all of our products and activities include New Jersey,
Nevada, Arizona, Nebraska, Oregon, Washington, and Montana.  In
addition to these jurisdictions, we have authorizations with respect to certain
Native American tribes throughout the United States that have compacts with the
states in which their tribal dominions are located or operate or propose to
operate casinos.  These tribes may require suppliers of gaming and
gaming-related equipment to obtain authorizations.




Overview




Gaming Devices and Equipment.We sell or lease products that are considered to be “gaming devices’’ or
“gaming equipment’’ in jurisdictions in which gaming has been
legalized.  Although regulations vary among jurisdictions, each
jurisdiction requires various licenses, findings of suitability, registrations,
approvals, or permits for companies and their key personnel in connection with
the manufacture and distribution of gaming devices and equipment.




Associated Equipment.Some of
our products fall within the general classification of “associated
equipment.’’  “Associated equipment’’ is equipment that is not
classified as a “gaming device,’’ but which has an integral relationship to the
conduct of licensed gaming. Regulatory authorities in some jurisdictions have
the discretion to require manufacturers and distributors to meet licensing or
suitability requirements prior to or concurrently with the use of associated
equipment.  In other jurisdictions, the regulatory authorities must
approve associated equipment in advance of its use at licensed
locations.  We have obtained approval of our associated equipment in
each jurisdiction that requires such approval and in which our products that are
classified as associated equipment are sold or used.




Regulation of Officers, Directors,
and Stockholders.In many jurisdictions, any officer or director is
required to file an application for a license, finding of suitability, or other
approval and, in the process, subject himself or herself to an investigation by
those authorities.  As for stockholders, any beneficial owner of our
voting securities or other securities may, at the discretion of the gaming
regulatory authorities, be required to file an application for a license,
finding of suitability, or other approval and, in the process, subject himself
or herself to an investigation by those authorities.  The gaming laws
and regulations of most jurisdictions require beneficial owners of more than 5%
of our outstanding voting securities to file certain reports and may require our
key employees or other affiliated persons to undergo investigation for licensing
or findings of suitability.




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In the
event a gaming jurisdiction determines that an officer, director, key employee,
stockholder, or other personnel of our company is unsuitable to act in such a
capacity, we will be required to terminate our relationship with such person or
lose our rights and privileges in that jurisdiction.  This may have a
materially adverse effect on us.  We may be unable to obtain all the
necessary licenses and approvals or ensure that our officers, directors, key
employees, affiliates, and certain other stockholders will satisfy the
suitability requirements in each jurisdiction in which our products are sold or
used.  The failure to obtain such licenses and approvals in one
jurisdiction may affect our licensure and approvals in other
jurisdictions.  In addition, a significant delay in obtaining such
licenses and approvals could have a material adverse effect on our business
prospects.




Regulation
and Licensing – Nevada




The
manufacture, sale, and distribution of gaming devices for use or play in Nevada
or for distribution outside of Nevada, the manufacturing and distribution of
associated equipment for use in Nevada, and the operation of gaming machine
routes and inter-casino linked systems in Nevada are subject to the Nevada
Gaming Control Act and the regulations promulgated thereunder and various local
ordinances and regulations.  These activities are subject to the
licensing and regulatory control of various Nevada gaming authorities, including
the Nevada Gaming Commission, the Nevada State Gaming Control Board, and various
local, city, and county regulatory agencies, collectively referred to as the
Nevada Gaming Authorities.




The laws,
regulations, and supervisory practices of the Nevada Gaming Authorities are
based upon declarations of public policy with the following
objectives:




·
            preventing
      any direct or indirect involvement of any unsavory or unsuitable persons
      in gaming or the manufacture or distribution of gaming devices at any time
      or in any capacity;




·
            strictly
      regulating all persons, locations, practices, and activities related to
      the operation  of licensed gaming establishments and the
      manufacturing or distribution of gaming devices and
    equipment;




·
            establishing
      and maintaining responsible accounting practices and
      procedures;




·
            maintaining
      effective controls over the financial practices of licensees, including
      requirements covering minimum procedures for internal fiscal controls and
      safeguarding assets and revenue, reliable recordkeeping, and periodic
      reports to be filed with the  Nevada Gaming
      Authorities;




·
            preventing
      cheating and fraudulent practices;
and




·
            providing
      and monitoring sources of state and local revenue based on taxation and
      licensing fees.




Change in
such laws, regulations, and procedures could have an adverse effect on our
operations.




We are
registered with the Nevada Gaming Commission as a publicly traded corporation,
or a Registered Corporation.  We are also licensed in Nevada as a
manufacturer and distributor of gaming devices and as an operator of an
inter-casino linked system.  We have obtained from the Nevada Gaming
Authorities the various authorizations they require to engage in manufacturing,
distribution, and inter-casino linked system activities in
Nevada.  The regulatory requirements set forth below apply to us as a
Registered Corporation and as a manufacturer, distributor, and operator of an
inter-casino linked system. Our gaming approvals and licenses are also
conditioned to allow the Chairman of the Nevada State Gaming Control Board or
his designee to order us to cease any gaming activities if the Chairman
determines that the minimum bankroll requirements set forth in the Nevada Gaming
Control Act are not being met.




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All
gaming devices that are manufactured, sold, or distributed for use or play in
Nevada, or for distribution outside of Nevada, must be manufactured by licensed
manufacturers and distributed and sold by licensed distributors.  The
Nevada Gaming Commission must approve all gaming devices manufactured for use or
play in Nevada before distribution or exposure for play.  The Chairman
of the Nevada State Gaming Control Board must administratively approve
associated equipment before it is distributed for use in
Nevada.  Inter-casino linked systems must also be approved by the
Nevada Gaming Commission.  The approval process for an inter-casino
linked system includes rigorous testing by the Nevada State Gaming Control
Board, a field trial, and a determination as to whether the inter-casino linked
system meets standards that are set forth in the regulations of the Nevada
Gaming Commission. On November 19, 2001, we received the final approval of the
Nevada Gaming Commission for our inter-casino linked system known as Nevada
Numbers.  In November 2007, we received final approval from Nevada for
our AdVision and Live TV software applications on the PlayerVision 2 platform on
IGT Game King Machines only.  In May 2009, we received approval for
nine software applications on our PlayerVision 3 platform from the Nevada Gaming
Control Board.  These software applications include
Beverage-on-Demand, ServiceVision, VoyeurVision, Live TV, AdVision, YouTube,
CasinoTunes, ValetVision, and BurstVision.  In addition, the Nevada
Gaming Control Act requires any person, such as our company as an operator of an
inter-casino linked system, that receives a share of gaming revenue from a
gaming device operated on the premises of a licensee, to remit and be liable to
the licensee for that person’s proportionate share of the license fees and tax
paid by the licensee.  The gross revenue fees for non-restricted
locations are 6.75% of gross revenue, which is equal to the difference between
amounts wagered by casino players and payments made to casino
players.  Significant increases in the fixed fees or taxes currently
levied per machine or the fees currently levied on gross revenue could have a
material adverse effect on our operations.




As a
gaming licensee (a “Registered Corporation”), we are periodically required to
submit detailed financial and operating reports to the Nevada Gaming Commission
and furnish any other information the Nevada Gaming Commission may
require.  No person may receive any percentage of gaming revenue from
us without first obtaining authorizations from the Nevada Gaming
Authorities.




The
Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, us in order to determine whether
such individual is suitable or should be licensed as a business associate of a
gaming licensee.  Our officers, directors, and certain key employees
are required to file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming
Authorities.  The Nevada Gaming Authorities may deny an application
for licensing for any cause that they deem reasonable.  A finding of
suitability is comparable to licensing.  Both require submission of
detailed personal and financial information, which is followed by a thorough
investigation.  The applicant for licensing or a finding of
suitability must pay all the costs of the investigation.  Changes in
licensed positions must be reported to the Nevada Gaming
Authorities.  In addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
the power to disapprove a change in corporate position.




If the
Nevada Gaming Authorities were to find an officer, director, or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
us, we would have to sever all relationships with that person.  In
addition, the Nevada Gaming Commission may require us to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.




We are
required to submit detailed financial and operating reports to the Nevada Gaming
Commission.  In addition, we are required to report to or have
approved by the Nevada Gaming Commission substantially all material loans,
leases, sales of securities, and similar financing transactions.




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Should we
be found to have violated the Nevada Gaming Control Act, the licenses we hold
could be limited, conditioned, suspended, or revoked.  In addition, we
and the persons involved could be required to pay substantial fines, at the
discretion of the Nevada Gaming Commission, for each separate violation of the
Nevada Gaming Control Act.  The limitation, conditioning, or
suspension of any of our licenses could, and revocation of any license would,
materially adversely affect our manufacturing, distribution, and inter-casino
linked system operations.




Regulation of Security Holders.Any beneficial holder of our voting securities, regardless of the number
of shares owned, may be required to file an application, be investigated, and
have his or her suitability as a beneficial holder of our voting securities
determined if the Nevada Gaming Commission finds reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada.  The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such
investigation.




The
Nevada Gaming Control Act requires any person that acquires beneficial ownership
of more than 5% of a Registered Corporation’s voting securities to report the
acquisition to the Nevada Gaming Commission.  It also requires
beneficial owners of more than 10% of a Registered Corporation’s voting
securities to apply to the Nevada Gaming Commission for a finding of suitability
within 30 days after the Chairman of the Nevada State Gaming Control Board mails
a written notice requiring such filing.  Under certain circumstances,
an “institutional investor,’’ as defined in the Nevada Gaming Control Act, which
acquires more than 10%, but not more than 25%, of the Registered Corporation’s
voting securities may apply to the Nevada Gaming Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only.  An institutional investor
that has obtained a waiver may, in certain circumstances, own more than 25%, but
not more than 29% of a Registered Corporation’s voting securities for a limited
period of time and maintain the waiver.




An
institutional investor is deemed to hold voting securities for investment
purposes if the voting securities were acquired and are held in the ordinary
course of its business as an institutional investor and were not acquired and
are not held for the purpose of causing, directly or indirectly (1) the election
of a majority of the members of the board of directors of the Registered
Corporation; (2) any change in the Registered Corporation’s corporate charter,
bylaws, management, policies, or operations or those of any of its gaming
affiliates; or (3) any other action that the Nevada Gaming Commission finds to
be inconsistent with holding the Registered Corporation’s voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include (a) voting
on all matters voted on by stockholders; (b) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in management, policies or
operations; and (c) other activities the Nevada Gaming Commission may determine
to be consistent with investment intent.  If the beneficial holder of
voting securities that must be found suitable is a corporation, partnership, or
trust, it must submit detailed business and financial information, including a
list of beneficial owners.  The applicant is required to pay all costs
of investigation.




Any
person who fails or refuses to apply for a finding of suitability or a license
within 30 days after being ordered to do so by the Nevada Gaming Commission or
the Chairman of the Nevada State Gaming Control Board may be found
unsuitable.  The same restrictions apply to a record owner if the
record owner, after request, fails to identify the beneficial
owner.  Any stockholder of a Registered Corporation found unsuitable
and that holds, directly or indirectly, any beneficial ownership in the voting
securities beyond such period of time as the Nevada Gaming Commission may
specify for filing any required application may be guilty of a criminal offense.
Moreover, the Registered Corporation will be subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Registered Corporation, it (i) pays that
person any dividend on its voting securities; (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
ownership; (iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts (including, if
necessary, the immediate purchase of said voting securities for cash at fair
value) to require such unsuitable person to completely divest all voting
securities held.




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The
Nevada Gaming Commission, in its discretion, may require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation if the
Nevada Gaming Commission finds reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the state of
Nevada.  If the Nevada Gaming Commission determines that a person is
unsuitable to own such security, it may sanction the Registered Corporation,
which sanctions may include the loss of its approvals if, without the prior
approval of the Nevada Gaming Commission, it: (i) pays to the unsuitable person
any dividend, interest, or other distribution; (ii) recognizes any voting right
of such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.




Regulation of Capital Stock.We are required to maintain current stock ledgers in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record owner may be required to
disclose the identity of the beneficial owner to the Nevada Gaming
Authorities.  A failure to make such disclosure may be grounds for
finding the record owner unsuitable.  We are also required to render
maximum assistance in determining the identity of the beneficial owners of our
securities.  The Nevada Gaming Commission has the power to require us
to imprint our stock certificates with a legend stating that the securities are
subject to the Nevada Gaming Control Act.  To date, the Nevada Gaming
Commission has not imposed such a requirement on us.




We may
not make a public offering of our securities without the prior approval of the
Nevada Gaming Commission if the securities or proceeds are to be used to
construct, acquire, or finance gaming facilities in Nevada or to retire or
extend obligations incurred for such purposes.  Such approval, if
given, does not constitute a finding, recommendation, or approval by the Nevada
Gaming Commission or the Nevada State Gaming Control Board as to the accuracy or
adequacy of the prospectus or the investment merit of the offered securities,
and any representation to the contrary is unlawful.  Any offer by us
to sell common stock will require the review of, and prior approval by, the
Nevada Gaming Commission.




Changes in Control.Changes
in control of a Registered Corporation through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct,
by which anyone obtains control, may not lawfully occur without the prior
approval of the Nevada Gaming Commission.  Entities seeking to acquire
control of a Registered Corporation must meet the strict standards established
by the Nevada State Gaming Control Board and the Nevada Gaming Commission prior
to assuming control of a Registered Corporation.  The Nevada Gaming
Commission also may require persons that intend to become controlling
stockholders, officers, or directors, and other persons who expect to have a
material relationship or involvement with the acquired company, to be
investigated and licensed as part of the approval process.




The
Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities, and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming.  The Nevada Gaming Commission has established a
regulatory scheme to minimize the potentially adverse effects of these business
practices upon Nevada’s gaming industry and to further Nevada’s policy
to:




·
            assure
      the financial stability of corporate gaming licensees and their
      affiliates,




·
            preserve
      the beneficial aspects of conducting business in the corporate form,
      and




·
            promote
      a neutral environment for the orderly governance of corporate
      affairs.






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In
certain circumstances, approvals are required from the Nevada Gaming Commission
before the Registered Corporation can make exceptional repurchases of voting
securities above market price and before a corporate acquisition opposed by
management can be consummated.  The Nevada Gaming Control Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation’s board of directors in response to a tender offer made directly to
the Registered Corporation’s stockholders for the purpose of acquiring control
of the Registered Corporation.




License Fees and Taxes.License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, must be paid to the state of Nevada and to the
counties and cities in which gaming operations are conducted.  These
fees and taxes, depending upon their nature, are payable monthly, quarterly, or
annually and are based upon either a percentage of the gross revenue received or
the number of gaming devices operated.  Annual fees are also payable
to the state of Nevada for renewal of licenses as an operator of a gaming
machine route, manufacturer, and/or distributor.




Any
person who is licensed, required to be licensed, registered, required to be
registered, or who is under common control with any such persons, collectively,
“Licensees,’’ and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada State Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada State Gaming Control Board of his or her
participation outside of Nevada. The revolving fund is subject to increase or
decrease at the discretion of the Nevada Gaming
Commission.  Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Gaming Control
Act.  Licensees also are subject to disciplinary action by the Nevada
Gaming Commission if they knowingly violate any laws of the foreign jurisdiction
pertaining to the non-Nevada gaming operations, fail to conduct the foreign
gaming operations in accordance with the standards of honesty and integrity
required of Nevada gaming operations, engage in activities or enter into
associations that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, or employ, contract with, or associate with, a person in
the non-Nevada operations who has been denied a license or finding of
suitability in Nevada on the ground of unsuitability.




Other
Jurisdictions




All other
jurisdictions that have legalized gaming require various licenses,
registrations, findings of suitability, permits, and approvals of manufacturers
and distributors of gaming devices and equipment as well as licensure provisions
related to changes in control.  In general, such requirements involve
restrictions similar to those of Nevada.




For
gaming device and system approvals, most jurisdictions in the United States,
including most Native American tribes and state regulatory agencies, accept
testing results from GLI, a leading private gaming device and systems testing
laboratory.  GLI also provides testing services for over 400 gaming
regulatory bodies worldwide.  GLI has already approved NumberVision,
AdVision and Live TV on our PlayerVision2 platform.  We expect to
submit for approval all of our software applications on the PlayerVision 3
platform to GLI sometime during the third quarter of 2010.  If
necessary, we also plan to apply directly for approvals from those jurisdictions
that do not accept GLI testing results for certain devices and systems, such as
New Jersey, Pennsylvania, and Montana.




Federal
Regulation




The
Federal Gambling Devices Act of 1962, or the Federal Act, makes it unlawful, in
general, for any person to manufacture, transport, or receive gaming machines,
gaming machine type devices, and components across state lines or to operate
gaming machines unless that person has first registered with the Attorney
General of the United States.  We have registered and must renew our
registration annually. In addition, the Federal Act imposes various record
keeping and equipment identification requirements. Violation of the Federal Act
may result in seizure and forfeiture of the equipment, as well as other
penalties.




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Application
of Future or Additional Regulatory Requirements




In the
future, we intend to seek the necessary registrations, licenses, approvals, and
findings of suitability for us, our products, and our personnel in other
jurisdictions throughout the world where significant sales of our products are
expected to be made.  However, we may be unable to obtain these
registrations, licenses, approvals, or findings of suitability, which if
obtained may be revoked, suspended, or conditioned.  In addition, we
may be unable to obtain on a timely basis, or to obtain at all, the necessary
approvals of our future products as they are developed, even in those
jurisdictions in which we already have existing products licensed or
approved.  If a registration, license, approval or finding of
suitability is required by a regulatory authority and we fail to seek or do not
receive the necessary registration, license, approval or finding of suitability,
we may be prohibited from selling our products for use in that jurisdiction or
may be required to sell our products through other licensed entities at a
reduced profit.




Employees




As of
December 31, 2009, we had 27 full-time employees, 13 of whom were involved in
keno and bingo operations, 1 of whom was involved in engineering and research
and development, 4 of whom were involved in sales, and 9 of whom were involved
in finance and administration. With the implementation of our new business focus
on our PlayerVision system and upon receipt of sufficient funding, we anticipate
an increase in employees dedicated to developing and growing this business in
the third quarter of 2010.  Our employees are not subject to any
collective bargaining agreement with us. We have never experienced a work
stoppage, and we believe our employee relations to be good.




Corporate
History




We were
incorporated in the State of Nevada on April 28, 1998.




ITEM 1A.   RISK FACTORS.




Not
required.




ITEM 1B. UNRESOLVED STAFF COMMENTS.




Not
applicable.





ITEM 2. PROPERTIES.




Our
corporate headquarters and our PlayerVision business is located at 3980 Howard
Hughes Parkway, Suite 450, Las Vegas, Nevada 89169 and comprised of
approximately 8,300 square feet of office space under a favorable sublease
agreement through July 31, 2011.  This space adequately meets our
facility and capacity requirements.  Our bingo and keno headquarters
are located at 4000 West Ali Baba, Suite D, Las Vegas, Nevada 89118, which is
comprised of approximately 4,800 square feet of office space and 5,700 square
feet of warehouse space under a month-to-month sublease.  We had a
Reno, Nevada office consisting of approximately 7,500 square feet under an
executed lease that expires in 2013.  Due to our poor financial
condition, we have broken the lease and moved from the facility and are in final
settlement negotiations with the landlord.  We also lease an Omaha,
Nebraska service office consisting of approximately 900 square feet of space
under a month-to-month lease.




ITEM 3. LEGAL
PROCEEDINGS




On
September 15, 2008, Steven Brandstetter and J & S Gaming filed a lawsuit
against us, among other defendants, in Department 11 of the Nevada Eighth
Judicial District Court captioned Brandstetter, et al. v. Bally Gaming, Inc., et
al., case no. 08-A-571641-C alleging against us claims of breach of contract,
misrepresentation, breach of fiduciary duty and unjust enrichment regarding a
non-disclosure agreement executed in May 2002 pertaining to the plaintiffs’
gaming concepts.  In August 2009, a Motion of Summary Judgment was
granted and the case was dismissed.




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On August
26, 2009, a lawsuit was filed by Adline Network Holdings, LLC, a Georgia
Corporation, Adline Media LLC, a Georgia Limited liability company, Adline
Network LLC, a Georgia limited liability company, and Sam Johnson, a former
officer and employee, alleging breach of an Acquisition Agreement, breach of a
Consulting Agreement, breach of a covenant of good faith and fair dealing,
negligent misrepresentation, common law fraud (fraud in the
inducement/fraudulent misrepresentation), 10b-5 securities violations and
declaratory relief.  In response to our Motion to Dismiss filed on
October 16, 2009, the plaintiffs filed a first amended
complaint.  Since then, the plaintiffs have filed a second amended
complaint with essentially the same allegations, but naming the Chairman of the
Board, the Chief Executive Officer, and Chief Financial Officer individually in
the lawsuit also.  We are unable to estimate minimum costs, if any, to
be incurred by us upon the ultimate disposition of this matter and, accordingly,
no provision has been made.




On
December 22, 2009, a lawsuit was filed by Zak Khal, a former officer and
employee of the Company alleging a severance benefit of $100,000 and unused
vacation time of $29,135 are owed him and additional damages in excess of
$10,000 to be specifically determined at trial.  We are vigorously
defending this lawsuit and are unable to estimate minimum costs, if any, to be
incurred by us upon the ultimate disposition of this matter and, accordingly, no
provision has been made.




On April
26, 2010, a lawsuit was filed by 990 Rock LLC, the landlord for our Reno office
space for breaching the lease agreement which provided for a total monthly rent
payment of $11,123 through April 30, 2013.  The landlord alleges that
they spent $335,735 on tenant improvements prior to our
occupancy.  The plaintiff is alleging damages in excess of
$10,000.  We are unable to estimate minimum costs to be incurred by us
upon the ultimate disposition of this matter and, accordingly, no provision has
been made.







ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.




No
matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended December 31, 2009.




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PART
II




ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
 MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.




Our
authorized capital stock consists of 90,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share, that may be issued in one or more series.




Common
Stock




Our Board
of Directors has designated two series of common stock, one referred to as
“Common Stock’’ and the other referred to as “Common Stock Series
A.”  As of December 31, 2009, there were no shares of our Common Stock
outstanding and 14,974,149 shares of our Common Stock Series A outstanding held
of record by 580 stockholders.  There is no active market for our
Common Stock or our Common Stock Series A.




Each
share of Common Stock and Common Stock Series A has identical rights and
privileges in every respect.  Each holder of either Common Stock or
Common Stock Series A has the right to cast one vote for each share held of
record on all matters submitted to a vote of our holders of common
stock.  The holders of either series of common stock vote together as
a single class except to the extent that voting as a separate class or series is
required by law.  The holders of both series of common stock are
entitled to receive dividends on a pro rata basis, payable in cash, stock, or
otherwise, as may be declared by our Board of Directors out of any funds legally
available for the payment of dividends, subject to the rights of holders of any
outstanding preferred stock.  We did not declare any cash dividend on
our Common Stock or Common Stock Series A in fiscal 2009 or
2008.  Upon our liquidation, dissolution or winding-up, the holders of
both series of common stock will be entitled to receive after distribution in
full of any preferential amounts owed to debt holders or holders of our
preferred stock, all of the remaining assets available for distribution ratably
in proportion to the number of shares of common stock held by them. Neither
series of our common stock provides holders with preferences or any preemptive,
conversion or exchange rights.  There are no redemption or sinking
fund provisions applicable to either series of common stock.




Preferred
Stock




Our
articles of incorporation authorize our Board of Directors, without further
stockholder action, to issue up to 10,000,000 shares of preferred stock in one
or more series and to fix the designations, powers, preferences, and privileges
of the preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preference, sinking fund terms, and
number of shares constituting any series or the designation of any
series.  Our Board of Directors, without stockholder approval, has the
authority to issue preferred stock with voting, conversion, or other rights that
could adversely affect the voting power and other rights of the holders of
common stock.  Depending upon the terms of preferred stock established
by our Board of Directors, any or all series of preferred stock could have
preference over common stock with respect to dividends and other distributions
and upon our liquidation, and could have the effect of delaying or preventing a
change in control or making removal of management more difficult.  If
any shares of preferred stock are issued with voting powers, the voting power of
the outstanding common stock would be diluted.  Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of our common stock.




Our Board
of Directors has designated the following six series of preferred stock, where
the conversion ratio, the authorized number of shares and the outstanding number
of shares for each series are provided:




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·
            “Series
      B Convertible Preferred Stock’’ – convertible into Common Stock Series A
      on a one-to-five basis, 76,750 shares authorized and 50,000 shares
      outstanding as of December 31,
2009.




·
            “Series
      E Convertible Preferred Stock” – convertible into Common Stock Series A on
      a one-to-one basis, 810,800 shares authorized and outstanding as of
      December 31, 2009.




·
            “Series
      F Convertible Preferred Stock” – convertible into Common Stock Series A at
      the lower of $3.50 or 30% off the IPO price, where “IPO price” means the
      per share price to the public of any common shares offered by us that in
      the aggregate results in capital in excess of $10.0 million being raised
      and the shares of a class of our common stock being listed and traded on a
      national stock exchange.  There are 200,000 shares authorized
      and 0 shares outstanding as of December 31,
  2009.




·
            “Series
      G Convertible Preferred Stock” – convertible into Common Stock Series A at
      the lower of $3.50 or 30% off the IPO price, where “IPO price” means the
      per share price to the public of any common shares offered by us that in
      the aggregate results in capital in excess of $10.0 million being raised
      and the shares of a class of our common stock being listed and traded on a
      national stock exchange.  There are 150,000 shares authorized
      and outstanding as of December 31,
2009.




·
            “Series
      H Convertible Preferred Stock” – convertible into Common Stock Series A at
      the lower of $2.50 or 30% off the IPO price, where “IPO price” means the
      per share price to the public of any common shares offered by us that in
      the aggregate results in capital in excess of $10.0 million being raised
      and the shares of a class of our common stock being listed and traded on a
      national stock exchange.  There are 98,500 shares authorized and
      outstanding as of December 31,
2009.




·
            “Series
      I Preferred Stock” – convertible into Common Stock Series A on a
      one-for-one basis.  There are 4,693,878 shares authorized and
      outstanding as of December 31,
2009.




In
October 2008, we filed Certificates of Withdrawal with the Nevada Secretary of
State whereby we withdrew the designations of our Series A, Series C and Series
D Convertible Preferred Stock, as no shares of these series were then
outstanding.  Except for Series F, G and I, none of our series of
preferred stock have dividend rights.  In 2009, we paid $32,877 in
dividends to the holder of Series F and issued 7,156 shares of Common Stock
Series in lieu of cash dividends and as a reimbursement of legal fees associated
with the redemption of Series F Preferred Stock for $1,000,000.  In
2008, we paid $97,233 in dividends to the holders of our Series F and G
Convertible Preferred Stock.  Except for Series I Preferred Stock,
none of our series of preferred stock have voting rights.  With
respect to the rights upon liquidation, dissolution, or winding up, our
preferred stock ranks senior to both series of common stock, but junior to any
existing or future indebtedness. Among the holders of our outstanding preferred
stock, the following preferences upon liquidation, dissolution or winding up are
applicable:




·
            first,
      holders of Series I Preferred Stock are entitled to receive $2.45 per
      share;




·
            second,
      holders of Series B Convertible Preferred Stock are entitled to receive
      $5.00 per share;




·
            third,
      holders of Series E and G Convertible Preferred Stock are entitled to
      receive $5.00  per share;
and




·
            fourth,
      holders of Series H convertible Preferred Stock are entitled to receive
      $5.00 per share.






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The
liquidation preference for each series of preferred stock is equal to the
original purchase price of the preferred stock.




During
2008, all shares of Series C and D Convertible Preferred Stock were converted to
Common Stock Series A.




During
the year ended December 31, 2008, holders of 52,850 shares of Series B
Convertible Preferred Stock converted their shares on a one-to-five basis for
264,250 shares of Common Stock Series A.  We also redeemed 27,500
shares of Series B Convertible Preferred Stock at $5 per share for a total
redemption of $137,500 during the year ended December 31, 2008.




In the
first quarter of 2009, we closed the Gamblers Bonus Million Dollar game due to a
lack of ticket sales.  Accordingly, we redeemed the $1,000,000 of
Series F Preferred Stock from our investor.  We closed our Million
Dollar Ticket Game as well for the same reason.  We also temporarily
suspended our Nevada Numbers game to change the draw to hourly rather than
daily.  We restarted the Nevada Numbers game on March 1, 2009 but
again suspended it on March 31, 2009 due to a lack of funds to meet our Nevada
Gaming bankroll requirements.  This suspension resulted from the
change in ownership at Treasure Island and the new ownership’s decision to not
continue bankrolling our game.  The game will remain suspended until
we can find approximately $3.9 million for the bankroll.  When we
restarted Nevada Numbers on March 1, 2009, we restored Series F Convertible
Preferred Stock for $1,000,000 to be used as additional bankroll needed for
Nevada Numbers.  Due to the March 31, 2009 shutdown, the Nevada
Numbers bankroll funds associated with Series F Convertible Preferred Stock were
no longer needed.  Therefore, in April 2009, we again redeemed the
Series F Convertible Preferred Stock and the $1,000,000 was returned to the
investor.




Options




As of
December 31, 2009, we had outstanding options to purchase an aggregate of
2,452,142 of our Common Stock Series A at exercise prices ranging from $2.00 to
$5.00 per share, with a weighted average exercise price of $3.27 per
share.




Warrants




As of
December 31, 2009, we had outstanding warrants to purchase an aggregate of
5,658,476 shares of our Common Stock Series A at exercise prices ranging from
$1.00 to $5.00 per share with a weighted average exercise price of $2.12 per
share.




Unregistered
Sales of Equity Securities




During
the quarter ended March 31, 2009, we issued 225,000 shares of Common Stock
Series A at $2.50 per share for a total investment of $562,500 to the holder of
our Series F and G Convertible Preferred Stock.  During the quarter
ended June 30, 2009, we issued 7,156 shares of Common Stock Series A to our
Series F Convertible Preferred Stock investor in lieu of legal fees incurred by
him for the restoration of Series F Convertible Preferred stock and for cash
dividends on Series F Convertible Preferred Stock when it was redeemed in April
2009.  In October 2009, we sold 40,000 shares of Common Stock Series A
for $100,000. These issuances were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act in that the
issuance did not involve a public offering.





During
the year ended December 31, 2009, we issued options and warrants to purchase a
total of 1,122,440 shares of Common Stock Series A to our employees and members
of our board of directors, all with an exercise price of $2.50 per share,
primarily with a four-year vesting schedule and a five-year
life.  These issuances were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act in
that the issuance did not involve a public offering.




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Related
party transactions:




Our Board Chairman and CFO, were each
granted 30,000 stock options respectively for personal guarantees of stockholder
advances and personal loans made to the Company during 2009.  They
were also granted 30,000 and 35,000 stock options, respectively, for personal
guarantees of stockholder advances, and the CFO was granted 5,000 shares for
advances personally made to the Company during 2008.








ITEM 6. SELECTED
FINANCIAL DATA.




Not
required.





ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS
OF OPERATIONS.




The
following discussion of our financial condition and results of operations should
be read together with the consolidated financial statements and the related
notes included in this report. This discussion contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties.  Our actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below as well as those
discussed elsewhere in this report. We disclaim any obligation to update
information contained in any forward-looking statement.




Overview





Our current principal business is the
delivery of new, linked-progressive, mega jackpot games to the worldwide gaming
industry.  Our offering of these types of games includes Nevada
Numbers, Super Bonanza Bingo, and Million Dollar Ticket.  On March 31,
2009, because of the expiration of our contract with Treasure Island whereby
Treasure Island had agreed to maintain the $3.9 million base jackpot bankroll,
we shut down Nevada Numbers and Million Dollar Ticket.  We expect to
restart the games as soon as we find funding for the $3.9 million base
jackpot.  During the second quarter of 2008, we launched Gamblers
Bonus Million Dollar Ticket in cooperation with one of the larger slot route
operators in Nevada.  We subsequently shut this game down on January
31, 2009.  Although we have recently focused our business on the
development of our proprietary multimedia delivery system, known as
PlayerVision, we have not generated significant revenues to date.  We
continue to provide equipment, supplies and casino games for use by our
customers in the keno and bingo segments of the gaming industry.  Due
to our focus on the development of our PlayerVision system, we have incurred
expenses in excess of our revenue and have generated losses for 2008 and
2009.





We have received regulatory approval
from Nevada with respect to RoutePromo, and we have received regulatory approval
from Nevada and GLI for AdVision and Live TV on IGT Game King, WMS, and
Aristocrat machines on our PlayerVision 2 platform.  We have also
received approval from GLI with respect to NumberVision on our PlayerVision 2
platform. PlayerVision 3 is the next generation of our PlayerVision
system.  We received regulatory review and approval from Nevada in May
2009, with respect to our PlayerVision 3 platform: Beverage-on-Demand,
ServiceVision, ValetVision, AdVision, Live TV, CasinoTunes, YouTube, BurstVision
and VoyeurVision.  We expect to submit these same nine software
applications for GLI approval in 2010.  We expect to submit
WagerVision and NumberVision for regulatory review and approval on the
PlayerVision 3 platform in Nevada and GLI sometime in the fourth quarter of
2010.  Because the regulatory approval of new gaming applications is a
complex process, we may experience delays in developing and introducing the
PlayerVision 3 applications.





We will continue for 2010 to incur
expenses related to the development and regulatory approval for the remaining
PlayerVision modules, and we will face competition from larger, more formidable
competitors as we enter the gaming machine market.  Due to continuing
expenses related to our PlayerVision system without substantial generation of
revenues during this time, we will be using cash, and we will require funds from
third party financing sources, in addition to funds from operations, to sustain
our operations in 2010.  As discussed below under “Liquidity –
Outlook,” our ability to continue our operations as a going concern may be in
doubt.





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Critical
Accounting Policies and Estimates





The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with generally
accepted accounting principles.  The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, and expenses and related disclosure of
contingent assets and liabilities.  On an ongoing basis, we evaluate
our estimates.  We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances.  These estimates and assumptions provide a basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.  Actual results may differ
from these estimates under different assumptions or conditions, and these
differences may be material.





We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.





Revenue Recognition





PlayerVision.  The revenue
from Player Vision will result from installation fees, activation fees, fees for
services, and revenue sharing arrangements.  We will recognize
installation and activation fees for PlayerVision upon installation and
recognize the costs associated with the installation (labor and supplies) at
that time.  We will recognize revenue from the revenue sharing
arrangements as earned and recognize maintenance expenses as incurred against
the corresponding revenue.  Manufacturing costs will be capitalized
and depreciated over the life of the asset.





Casino Games.  As wagers are
made within our inter-linked systems, we recognize our share of each wager made
as revenue.  Based on the revenue proceeds, we purchase insurance to
fund the base jackpot.  We also estimate the cost for any uninsured
base jackpot and the expense for any progressive jackpot and, accordingly,
establish a liability on our balance sheet as a progressive jackpot
liability.  For our other casino games, we recognize our share of
revenue upon the sale of each ticket.  We have the discretion to
purchase insurance to fund jackpots.  We recognize costs associated
with uninsured jackpots as each ticket is sold based on mathematical
probabilities dictated by the odds of the game.





Products.  We generally
recognize sales of bingo and keno equipment when installed and sales of supplies
when the products are shipped.  We recognize distribution royalties
from the placement of electronic bingo devices over time, based on customer
usage.  Warranty costs and related liabilities associated with product
sales have not been material.  We recognize fees from equipment
maintenance contracts sold separately (with no bundled deliverables) evenly over
the term of the contract.  Prior to shipment, we include equipment and
supplies in inventories and stated at the lower of cost, as determined on a
“first-in first-out’’ basis, or market.





Other.  We include keno
revenue from the operation of a keno route subject to multiple participation
agreements in other revenue in an amount equal to the net win from such gaming
activities, which is the difference between gaming wins and
losses.  We reflect amounts due to the owners of the facilities in
which the keno games are conducted (effectively contingent rent) as an
expense.





Intangible Assets





We review goodwill and other intangible
assets for impairment annually, and whenever events or circumstances indicate
the carrying value may not be recoverable or warrant a revision to the estimated
remaining useful life.






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Our forecasted future cash flows used
to test the recoverability or determine the fair value of intangibles are based
on assumptions that are consistent with plans used to manage the underlying
business.  Factors used in our evaluations of potential impairment and
fair value require significant judgments about respective estimated useful
lives, risk rates, forecasted growth rates, brand history, expected market
growth, competitive environment, market share, future business prospects and
success of our products.  Changes in these estimates and assumptions
could materially affect the determination of recoverability or fair
value.  While we believe that our estimates of future revenues and
cash flows are reasonable, different assumptions could materially affect our
assessment of useful lives, recoverability and fair
values.  Application of the goodwill impairment test requires
judgment, including the identification of reporting units, allocation of related
goodwill, assignment of corporate shared assets and liabilities to reporting
units, and determination of the fair value of each reporting unit.  We
determine the fair value of our reporting units using the discounted cash flow
method, and compare the implied valuation multiples to a group of guideline
public companies under the Market approach to test the reasonableness of the
discounted cash flow results.





Our intangible assets consist of key
patents and technology rights with a five year life related to PlayerVision
which went to market for the first time during the fourth quarter of
2007.  We recorded an intangible impairment charge of $606,667 during
the year ended December 31, 2008, as we have abandoned our plans to develop and
market “at home” wagering.  In addition, since our keno business is
now incurring monthly losses and since our keno liabilities far exceed our keno
assets and since we recently sold this business for $100,000 (Note 13), we
recorded an impairment charge for our keno business goodwill of $326,942 during
the year ended December 31, 2009.





Income Taxes





We have effectively provided a full
valuation allowance for the tax effects of our net operating losses at December
31, 2008 and 2009 to offset the deferred tax asset that might otherwise have
been recognized as a result of operating losses in the current period and prior
periods since, because of our history of operating losses, management is unable
to conclude at this time that realization of such benefit is currently more
likely than not.





Recent Accounting
Pronouncements





Casino Jackpot Liabilities





On March 18, 2010, the Financial
Accounting Standards Board (FASB) issued FASB Accounting Standards Codification
924-405, Casino Jackpot
Liabilities, which states that jackpots on which the Company can avoid
payment do not meet the definition of a liability until the jackpot is
won.  This is effective for years beginning on or after December 15,
2010 and may have a significant effect on the financial statements of the
Company which has not yet been determined.





There are no more recent accounting
pronouncements that would have a significant effect on our future financial
position, results of operations and operating cash flows.





Results of Operations





Year Ended December 31, 2009 Compared
with Year Ended December 31, 2008





Revenue.  Casino
games revenue for the year ended December 31, 2009, decreased $778,000 or 30.8%
to $1,748,000 from $2,526,000 for the year ended December 31,
2008.  The lower casino games revenue principally resulted from a
reduction of $328,000 of revenue for Gamblers Bonus Million Dollar Ticket which
was not in existence for eleven months of 2009 but was being played for nine
months of 2008, a reduction of $289,000 of revenue for Nevada Numbers and
Million Dollar Ticket due to the discontinuance of the game on March 31, 2009,
and a reduction of $159,000 of revenue from Super Coverall Bingo, offset by a
$50,000 license fee received from the buyer of our bingo business for a license
to distribute Nevada Numbers.




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Product sales for the year ended
December 31, 2009, decreased by $247,000 or 19.6% to $1,008,000 from $1,255,000
for the year ended December 31, 2008. Keno equipment sales amounted to $178,000
for the year ended December 31, 2009 compared to $225,000 during the year ended
December 31, 2008. This decrease in Keno equipment sales was due to a delay by
customers to buy new keno systems due to the state of the
economy.  Bingo and keno supplies sales also declined by $173,000
during the year ended December 31, 2009 versus the same period in the prior year
due to loss of market share.





Other revenue for the year ended
December 31, 2009, increased by $66,000 or 6.5% to $1,063,000 from $998,000 for
the year ended December 31, 2008.  Revenue from Keno route and
participation agreements increased $165,000 for the year ended December 31,
2009, compared to the year ended December 31, 2008, due to the opening of three
new route locations, two in Nevada, for the entire year ended December 31, 2009
and one in Oklahoma for seven months for the year ended December 31, 2009,
versus the two new Nevada locations being opened for seven months during the
year ended December 31, 2008.  Our bingo and keno parts and service
business declined by $99,000 in the year ended December 31, 2009 versus the same
period in the prior year.





Cost and
Expenses.  Cost and expenses of casino games for the year ended
December 31, 2009, decreased by $1,495,000 or 50.6% to $1,459,000 from
$2,954,000 for the year ended December 31, 2008.  The decrease
resulted primarily from the lower costs and expenses associated with the
discontinuance of the Nevada Number, Million Dollar Ticket, and Super Coverall
Bingo games as previously discussed.





Product cost and expenses for the year
ended December 31, 2009, decreased $697,000 or 53.2% to $611,000 from $1,307,000
for the year ended December 31, 2008.  This decrease resulted
primarily from the decline in Keno equipment sales and the $678,000 writedown of
our PlayerVision 2 inventory for obsolescence in 2008.  The writedown
was due to the replacement of PlayerVision 2 with the more robust PlayerVision 3
platform, which is the product we are taking to market.  Gross margin
on product sales has declined from 49.9% to 39.5% (exclusive of the $678,000
writedown in 2008 noted above) as we have had to do more discounting on Keno
equipment sales.





Other cost and expenses for the year
ended December 31, 2009, decreased $356,000 or 28.9% to $875,000 from $1,232,000
for the year ended December 31, 2008 as we reduced salary expenses by $371,000
through headcount reductions in our Keno service staff.  Our keno
route jackpot expense and participation fees increased by $42,000 during the
year ended December 31, 2009 versus the same period in the prior year consistent
with the increase in keno route and participation revenue mentioned
previously.





Other Operating
Expenses.  Selling, general and administrative expenses for the
year ended December 31, 2009, decreased by $2,320,000 or 34.9% to $4,327,000
from $6,647,000 for the year ended December 31, 2008, as legal, auditing and
consulting fees decreased by $1,132,000 during the year ended December 31, 2009,
compared to the same period in 2008.  These fees decreased primarily
as a result of a reduction in legal fees resulting from settlement of the IGT
lawsuit in October 2008.  In addition, the following items contributed
to the decrease in operating expenses:  (1) Board of Directors fees
were reduced by $38,000 versus the prior year as we have not had the cash
available to compensate our Board; (2) salaries were reduced by $499,000 versus
the prior year due to the furlough of eight PlayerVision administrative
employees on August 1, 2009; (3) travel and entertainment costs were reduced by
$245,000 versus the prior year as part of our cost reduction measures; and (4)
marketing and promotions expense were reduced by $388,000 versus the prior year
as part of our cost reduction measures.





Research and development cost for the
year ended December 31, 2009, have decreased by $1,021,000 or 72.5% to $386,000
from $1,407,000 for the year ended December 31, 2008, due to the furlough of
seven engineering employees on August 1, 2009 and due to the capitalization of
internal and external engineering costs during the period of January 1, 2009
through June 30, 2009 of $709,000 as we had proven technological feasibility of
PlayerVision 3 late in the fourth quarter of 2008.  We stopped
capitalizing these costs on July 1, 2009 when we began our attempt to deploy our
product to the gaming marketplace.






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Depreciation and amortization for the
year ended December 31, 2009, decreased $548,000 or 37.9% to $897,000 from
$1,445,000 for the year ended December 31, 2008, because more of our aging asset
base has been fully depreciated and because our asset base has decreased due to
the sale of our bingo business on August 19, 2009.





Finance
Costs.  Finance costs for the year ended December 31, 2009,
decreased $2,294,000 or 95.0% to $119,000 from $2,413,000 for the year ended
December 31, 2008, due to the elimination of certain costs previously paid to
our primary lender, CAMOFI, who was paid in full in October 2008 with proceeds
from equity capital invested by IGT.





Interest and Other
Income.  Interest and other income for the year ended December 31,
2009, increased by $88,000 to $(31,000) from $(119,000) from the year ended
December 31, 2008.  The increase was primarily due to the decline in
fair value on our marketable securities of $78,000 during the year ended
December 31, 2008, offset by a decrease in the loss on the sale of assets of
$44,000 during the year ended December 31, 2009 versus the same period in the
prior year.





Liquidity
and Capital Resources




Outlook




The
United States has been experiencing a widespread and severe economic recession
that, among other things, has curtailed casino gaming development, activity and
profitability, both nationwide and particularly in our local market, and has
resulted in highly reduced availability of credit and capital financing and
heightened economic risks.  We have been grossly undercapitalized in
2009 and unable to deploy PlayerVision given our severe lack of cash resources,
an inability to raise a significant amount of capital, and the lower and more
restrictive capital expenditure budgets exhibited by our potential gaming
operator customers in this very difficult economic climate.




The
continuing effects and duration of these developments and related uncertainties
on the Company’s future operations and cash flows cannot be estimated at this
time but likely will be significant, and in its audit report on our consolidated
financial statements, our independent registered accounting firm has expressed
substantial doubt as to our ability to continue as a going concern (see Note 8
to our consolidated financial statements).




We
presently are unable to satisfy our obligations as they come due and do not have
enough cash, inclusive of the sale of our bingo and keno businesses, to sustain
our anticipated working capital requirements and our business expansion plans
for the remainder of 2010.  Subject to unforeseen effects of the
economic risks and uncertainties discussed in the foregoing paragraph and to our
ability to raise working capital, we expect to continue for the remainder of the
calendar year 2010 to incur expenses related to the development and regulatory
approval for the remaining PlayerVision modules and additional modules presently
in development.  The further delay of the rollout of our PlayerVision
system and/or the failure to obtain additional third-party financing, will have
material adverse effects on our cash flow, results of operations and financial
condition including significant uncertainty as to our ability to continue as a
going concern.  No assurance can be given that we will be able to
secure any third party financing or that such financing will be available to us
on acceptable terms.




Given the
current financial market disruptions, credit crisis and economic recession,
including the current downturn in the gaming industry and our current default on
our $1.5 million note with IGT and our dividends in arrears to our Series I and
Series G shareholders totaling $995,000, it is difficult at this time to obtain
any third-party financing on acceptable terms, whether public or private equity
or debt, strategic relationships, capital leases or other
arrangements.  In addition, we have significant restrictive covenants
under our recent financing with IGT that may prohibit us, in certain
circumstances, from obtaining third party financing without IGT’s prior written
consent.  Furthermore, any additional equity financing may be dilutive
to stockholders, and debt financing, if available, may involve restrictive
covenants.  Strategic arrangements, if necessary to raise additional
funds, may require that we relinquish rights to certain of our technologies or
products or agree to other material obligations and covenants.




- 26
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Although
casino gaming development, activity and profitability for 2009 were down and are
expected to remain down for 2010, we believe that if our PlayerVision system is
placed in casinos, such casinos will generate additional revenue and possibly
achieve cost savings.  Because of the selling points, we believe that
our product has appeal even in the current depressed gaming
environment.  Other than the insignificant revenue realized from our
early adoption agreements, we do not expect to begin to realize revenue from our
PlayerVision system until the third quarter of 2010, though we cannot provide
assurance that the market will ever accept our PlayerVision
system.  Any failure by us to install our PlayerVision system within
our expected schedule or on terms acceptable to us will likely have a material
adverse impact on our cash flow, results of operations and financial
condition.  In addition, we expect to face competition from larger,
more formidable competitors as we enter the gaming machine market.  A
lack of market acceptance of our PlayerVision system, failure to obtain
additional financing, or unforeseen adverse competitive, economic, or other
factors may adversely impact our cash position, and thereby materially adversely
affect our financial condition and business operations.




Cash
Flows




Cash used
in operating activities decreased by $3,994,000 for the year ended December 31,
2009, versus the same period in the prior year primarily because of our
reduction in net loss of $7,859,000 offset by a reduction in noncash charges of
$2,761,000, a decrease in accounts receivable of $143,000, and an increase in
accounts payable and accrued expenses of $1,036,000.  Our cash
provided by investing activities consisted principally of net cash inflows in
connection with the reduction in the jackpot reserve deposits of $1,012,000
because of the discontinuance of the Gamblers Bonus Million Dollar Ticket game
in January 2009 and $931,000 for the sale of our bingo assets offset by cash
outflows for capital expenditures of $825,000.  Our cash inflows from
financing activities of $1,076,000 in the year ended December 31, 2009,
consisted principally of $662,500 of new capital from the sale of Common Stock
Series A, advances from the buyer of our bingo business assets of $494,000, a
borrowing from IGT for $1,500,000 advances from stockholders of $300,000 offset
by the net redemption of Series F Convertible Preferred Stock for $1,000,000
following the shutdown of the Nevada Numbers game and the repayment of
shareholder advances of $845,000.




Capital
Expenditures




Capital
expenditures increased by $384,000 which includes a decrease in capital
expenditures of $248,000 for the year ended December 31, 2009, compared to
the same period in the prior year offset by capitalizing $632,000
of our PlayerVision 3 engineering costs in 2009 prior to the projected
rollout to the marketplace of nine new software applications.  For
2010, other than our obligation to pay any jackpots that may be won, we
anticipate that our most significant capital resource requirement will relate to
the purchase of approximately $10 million of PlayerVision control units for the
rollout of our PlayerVision System.




The
foregoing notwithstanding, due to uncertainties about our ability to continue as
a going concern and general economic conditions, no assurance can be given that
we will be able purchase sufficient control units or that such control units
will be available at an acceptable price, or at all.  No assurance can
be given that we will be able to secure any third-party financing or that such
financing will be available to us on acceptable terms.




Sources
of Capital




We have
traditionally relied on various forms of third party financing in order to
sustain our operations.  On February 13, 2009, we signed a binding
term sheet with IGT whereby IGT advanced $1.5 million to us.  On
September 4, 2009 (effective June 1, 2009), we signed a Secured Promissory Note
for the advance in favor of IGT which carries an interest rate of 10% per annum
and is due January 29, 2010, which we are presently in default on.  We
sold our bingo business on August 19, 2009 and received proceeds of $1.1
million.  We agreed to sell our keno business on November 4, 2009, for
$100,000, which we have received $52,000 to date as a loan in late January, 2010
and pending regulatory approval, we will receive the remaining $48,000 in the
future.  During the year ended December 31, 2009, we sold $662,500 of
Common Stock Series A.




- 27
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 Table of Contents






We
presently do not use any derivative financial instruments to hedge our exposure
to adverse fluctuations in interest rates, foreign exchange rates, fluctuations
in commodity prices, or other market risks, nor do we invest in speculative
financial instruments.




Off
Balance Sheet Financing Arrangements and Contractual Obligations




At
December 31, 2009, we had total payments due under our various contractual
obligations as follows.




Less
      thanType
      of Obligation
            
            Total
            
            
            one
      year
            
            
            1-3
      years
            
            
            3-5
      years
            
            LongerNotes
      Payable
            
            
            1,522,977
            
            
            
            1,506,711
            
            
            
            16,266Operating
      lease obligationsReal
      estate
            
            
            789,052
            
            
            
            341,122
            
            
            
            447,930Other
            
            
            114,169
            
            
            
            55,972
            
            
            
            54,357
            
            
            
            3,840Total
            
            
            2,426,198
            
            
            
            1,903,805
            
            
            
            518,553
            
            
            
            3,840







ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.




Not
required.





ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.







INDEX
TO FINANCIAL STATEMENTS


Report
      of Independent Registered Public Accounting Firm
              29Consolidated
      Balance Sheets
              30Consolidated
      Statements of Operations
              31Consolidated
      Statements of Stockholders' Equity
              32Consolidated
      Statements of Cash Flows
              34Notes
      to Consolidated Financial Statements
              35


- 28
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 Table of Contents


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Board of
Directors


Las Vegas
Gaming, Inc.


Las
Vegas, Nevada





We have
audited the accompanying consolidated balance sheets of Las Vegas Gaming, Inc.
and subsidiaries as of December 31, 2008 and 2009, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Las Vegas Gaming, Inc. and
Subsidiaries as of December 31, 2008 and 2009, and the results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 8 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 8. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.








/s/ PIERCY BOWLER TAYLOR
&
KERN


PIERCY
BOWLER TAYLOR & KERN,


Certified
Public Accountants & Business Advisors


A
Professional Corporation





May 12,
2010


LAS
VEGAS, NEVADA








- 29
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 Table of Contents


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





December
      31,ASSETS
            
            2008
            
            
            2009Current
      assetsCash
      and cash equivalents
            
            $
            497,529
            
            
            $
            5,293Investment
      in marketable securities
            
            
            5,068
            
            
            
            -Accounts
      receivable, net of allowance of $578 and $1,762
            
            
            576,847
            
            
            
            336,352Inventories
            
            
            454,026
            
            
            
            223,287Prepaid
      expenses, deposits and other
            
            
            79,881
            
            
            
            34,311Jackpot
      reserve deposits
            
            
            1,230,761
            
            
            
            218,6282,844,112
            
            
            
            817,871Equipment,
      net of accumulated depreciation of $1,238,738 and $978,785
            
            
            924,256
            
            
            
            505,486Other
      assetsGoodwill
            
            
            2,371,178
            
            
            
            1,413,901Patents
      and other intangibles, net of accumulated amortization of $1,165,742 and
      $1,415,905
            
            
            278,330
            
            
            
            757,267Other
            
            
            56,451
            
            
            
            42,212$
            6,474,327
            
            
            $
            3,536,737LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIENCY)Current
      liabilitiesNote
      payable
            
            $
            -
            
            
            $
            1,500,000Advances
      from buyer of bingo business
            
            
            -
            
            
            
            494,342Advances
      from stockholders
            
            
            600,000
            
            
            
            55,000Accounts
      payable
            
            
            1,227,430
            
            
            
            1,017,375Accrued
      salaries
            
            
            22,458
            
            
            
            391,122Accrued
      dividends
            
            
            178,959
            
            
            
            994,607Other
      payables and accrued expenses
            
            
            195,893
            
            
            
            189,574Current
      portion of long-term debt
            
            
            11,957
            
            
            
            6,711Deferred
      gain on the sale of bingo business
            
            
            -
            
            
            
            68,991Progressive
      jackpot liability
            
            
            1,555,360
            
            
            
            1,612,9463,792,057
            
            
            
            6,330,668Long-term
      debt, net of current portion
            
            
            23,119
            
            
            
            16,266Conditionally
      redeemable equitySeries
      B Convertible Preferred Stock, $.001 par value, 130,350 and 50,000shares
      issued and outstanding
            
            
            250,000
            
            
            
            250,000Stockholders'
      equity (deficiency)Convertible
      Preferred Stock, $.001 par, 10,000,000 shares authorized:Series
      E:  810,800 shares authorized, 810,800 and 810,800 shares issued
      and outstanding
            
            
            811
            
            
            
            811Series
      F: 200,000 shares authorized, 200,000 and 0 shares issued and
      outstanding
            
            
            200
            
            
            
            -Series
      G: 150,000 shares authorized, 150,000 shares issued and
      outstanding
            
            
            150
            
            
            
            150


Series
      H: 98,500 shares authorized, 98,500 shares issued and
      outstanding
            
            
            99
            
            
            
            99Series
      I: 4,693,878 shares authorized, 4,693,878 shares issued and
      outstanding
            
            
            4,694
            
            
            
            4,694Common
      Stock, $.001 par value, 90,000,000 shares authorized:Common
      Stock Series A:  25,000,000 shares authorized, 14,849,690 and
      14,974,149 shares issued and outstanding
            
            
            14,850
            
            
            
            14,974Common
      Stock: 65,000,000 shares authorized, no shares issued or
      outstanding
            
            
            -
            
            
            
            -Additional
      paid-in capital
            
            
            44,160,702
            
            
            
            44,245,949Less
      stock subscriptions receivable
            
            
            (188,245
            )
            
            
            -Deficit
            
            
            (41,584,110
            )
            
            
            (47,326,874
            )2,409,151
            
            
            
            (3,060,197
            )$
            6,474,327
            
            
            $
            3,536,737





The
accompanying notes are an integral part of these financial
statements.


- 30
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 Table of Contents


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED DECEMBER 31, 2008 AND 2009





2008
            
            
            2009RevenuesCasino
      games
            
            $
            2,525,884
            
            
            $
            1,747,571Product
      sales
            
            
            1,255,428
            
            
            
            1,008,202Other
            
            
            997,680
            
            
            
            1,063,4814,778,992
            
            
            
            3,819,254Costs
      and expensesCasino
      games
            
            
            2,953,973
            
            
            
            1,459,236Product
      costs
            
            
            1,307,205
            
            
            
            610,611Other
            
            
            1,231,820
            
            
            
            875,3715,492,998
            
            
            
            2,945,218Gross
      operating income (loss)
            
            
            (714,006
            )
            
            
            874,036Other
      operating expensesSelling,
      general, and administrative
            
            
            6,646,859
            
            
            
            4,326,765Research
      and development
            
            
            1,407,308
            
            
            
            386,337Depreciation
      and amortization
            
            
            1,445,129
            
            
            
            897,3629,499,296
            
            
            
            5,610,464Operating
      loss
            
            
            (10,213,302
            )
            
            
            (4,736,428
            )Other
      income and expenseFinance
      costs
            
            
            (2,413,102
            )
            
            
            (119,136
            )Interest
      income and other
            
            
            (119,095
            )
            
            
            (30,785
            )Net
      loss
            
            
            (12,745,499
            )
            
            
            (4,886,349
            )Preferred
      stock dividends
            
            
            (276,192
            )
            
            
            (856,415
            )Net
      loss attributed to common stockholders
            
            $
            (13,021,691
            )
            
            $
            (5,742,764
            )Net
      loss per common share
            
            $
            (0.96
            )
            
            $
            (0.38
            )Weighted
      average shares outstanding
            
            
            13,611,837
            
            
            
            15,064,821





The
accompanying notes are an integral part of these financial
statements.


- 31
-
 Table of Contents


LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


YEARS ENDED DECEMBER 31, 2008 AND
2009





Series
      A Convertible
              Preferred
              Stock
            
            
            Series
      C Convertible
              Preferred
              Stock
            
            
            Series
      D Convertible
              Preferred
              Stock
            
            
            Series
      E Convertible
              Preferred
              Stock
            
            
            Series
      F Convertible
              Preferred
              Stock
            
            
            Series
      G Convertible
              Preferred
              Stock
            
            
            Series
      H Convertible
              Preferred
              Stock
            
            
            Series
      I
              Preferred
              Stock
            
            
            Common
              Stock
              (Including
              Series
      A)
            
            
            Additional
              Paid-In
              Capital
            
            
            Less
      Due From
              Officers
      and
              Stockholders
            
            
            DeficitBalances,
      January 1, 2008
            
            
            -
            
            
            $
            35
            
            
            $
            125
            
            
            $
            744
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            12,563
            
            
            $
            26,497,097
            
            
            $
            (235,414
            )
            
            $
            (28,562,419
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (12,745,499
            )Dividends
      payable Series F and Series G Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (276,192
            )Exercise
      of warrants and options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            103
            
            
            
            118,696
            
            
            
            (16,831
            )Issuance
      of warrants for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            356,109Other
      Stock based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,065
            
            
            
            2,128,269
            
            
            
            52,000Cash
      received from employees and stockholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,000Conversion
      of Series B Convertible Preferred Stock to Common Stock Series
      A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            264
            
            
            
            263,986Conversion
      of Series C Convertible Preferred Stock to Common Stock Series
      A
            
            
            
            
            
            
            (35
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            175
            
            
            
            (140
            )Conversion
      of Series D Convertible Preferred Stock to Common Stock Series
      A
            
            
            
            
            
            
            
            
            
            
            (125
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            125Sale
      of Series E Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            67
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            334,933Sale
      of Series F Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            200
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            639,872Sale
      of Series G Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            150
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            479,904Sale
      of Series H Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            99
            
            
            
            
            
            
            
            
            
            
            
            492,402Sale
      of Series I Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,694
            
            
            
            
            
            
            
            11,290,207Issuance
      of warrants to IGT
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            819,126Sale
      of Common Stock Series A to Employees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            55
            
            
            
            110,667Sale
      of Common Stock Series A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            500
            
            
            
            629,574Balances,
      December 31, 2008
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            811
            
            
            $
            200
            
            
            $
            150
            
            
            $
            99
            
            
            $
            4,694
            
            
            $
            14,850
            
            
            $
            44,160,702
            
            
            $
            (188,245
            )
            
            $
            (41,584,110
            )






- 32
-
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Series
      A Convertible
              Preferred
              Stock
            
            
            Series
      C Convertible
              Preferred
              Stock
            
            
            Series
      D Convertible
              Preferred
              Stock
            
            
            Series
      E Convertible
              Preferred
              Stock
            
            
            Series
      F Convertible
              Preferred
              Stock
            
            
            Series
      G Convertible
              Preferred
              Stock
            
            
            Series
      H Convertible
              Preferred
              Stock
            
            
            Series
      I Preferred
              Stock
            
            
            Common
              Stock
              (Including
              Series
      A)
            
            
            Additional
              Paid-In
              Capital
            
            
            Less
      Due From
              Officers
      and
              Stockholders
            
            
            DeficitBalances,
      January 1, 2009
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            811
            
            
            $
            200
            
            
            $
            150
            
            
            $
            99
            
            
            $
            4,694
            
            
            $
            14,850
            
            
            $
            44,160,702
            
            
            $
            (188,245
            )
            
            $
            (41,584,110
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,886,349
            )Dividends
      Payable to Series F and Series G Convertible Preferred Stock and Series I
      Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (856,415
            )Issuance
      of stock options and warrants for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            574,693Issuance
      of Common Stock Series A to reimburse for legal expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27
            
            
            
            17,863Cancellation
      of Common Stock Series A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (168
            )
            
            
            (169,744
            )
            
            
            182,245Cancellation
      of Series F Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (400
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,999,600
            )Re-issuance
      of Series F Convertible Preferred Stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            200
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            999,800Cash
      received from employees and stockholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,000Sale
      of Common Stock Series A
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            265
            
            
            
            662,235Balances,
      December 31, 2009
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            811
            
            
            $
            -
            
            
            $
            150
            
            
            $
            99
            
            
            $
            4,694
            
            
            $
            14,974
            
            
            $
            44,245,949
            
            
            $
            (-
            )
            
            $
            (47,326,874
            )




The
accompanying notes are an integral part of these consolidated financial
statements.


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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOW


YEARS
ENDED DECEMBER 31, 2008 AND 2009




2008
            
            
            2009Operating
      activitiesNet
      loss
            
            $
            (12,745,499
            )
            
            $
            (4,886,349
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Write
      off of debt issuance costs and costs of warrants associated with
      extinguished debt
            
            
            (569,368
            )
            
            
            -Marketable
      security received for licensing fee
            
            
            82,814
            
            
            
            5,068Depreciation
      and amortization of equipment and software
            
            
            355,404
            
            
            
            267,707Market
      write down of inventory for obsolescence
            
            
            678,175
            
            
            
            64,761Loss
      on disposal of assets
            
            
            72,040
            
            
            
            29,360Bad
      Debt Expense
            
            
            10,697
            
            
            
            51,720Impairment
      of keno equipment
            
            
            -
            
            
            
            50,000Capitalization
      of engineering costs
            
            
            -
            
            
            
            (631,899
            )Amortization
      of debt issuance costs
            
            
            1,287,804
            
            
            
            -Amortization
      of intangibles
            
            
            578,628
            
            
            
            250,161Impairment
      of intangibles
            
            
            606,667
            
            
            
            324,942Fair
      value adjustment of debt derivative liability
            
            
            (168,449
            )
            
            
            -Stock-based
      compensation
            
            
            823,450
            
            
            
            584,693Other
            
            
            (2,604
            )
            
            
            22,015Changes
      in operating assets and liabilitiesAccounts
      receivable
            
            
            (20,358
            )
            
            
            123,365Inventories
            
            
            46,907
            
            
            
            57,145Prepaid
      expenses, deposits and other
            
            
            124,415
            
            
            
            45,569Accounts
      payable
            
            
            135,312
            
            
            
            (171,506
            )Accrued
      salaries
            
            
            22,458
            
            
            
            368,664Other
      payables and accrued expenses
            
            
            183,196
            
            
            
            (6,320
            )Progressive
      jackpot liability
            
            
            1,179,852
            
            
            
            57,586Deferred
      gain on the sale of bingo business
            
            
            -
            
            
            
            68,991Net
      cash used in operating activities
            
            
            (7,318,459
            )
            
            
            (3,324,327
            )Investing
      activitiesPurchase
      of property and equipment
            
            
            (327,303
            )
            
            
            (193,566
            )Proceeds
      from sale of equipment
            
            
            55,250
            
            
            
            6,950Proceeds
      from sale of bingo business
            
            
            -
            
            
            
            930,927Decrease
      in jackpot reserve deposits
            
            
            1,096,468
            
            
            
            1,240,319Increase
      in jackpot reserve deposits
            
            
            (2,051,217
            )
            
            
            (228,186
            )Net
      cash provided by (used in) investing activities
            
            
            (1,226,802
            )
            
            
            1,756,444Financing
      activitiesDividends
      paid on Series F Convertible Preferred Stock
            
            
            (97,233
            )
            
            
            (32,877
            )Redemption
      of Series F Convertible Preferred Stock
            
            
            -
            
            
            
            (2,000,000
            )Re-issuance
      of Series F Convertible Preferred Stock
            
            
            -
            
            
            
            1,000,000Redemption
      of Series B Convertible Preferred Stock
            
            
            (137,500
            )
            
            
            -Repayment
      of debt
            
            
            (6,122,549
            )
            
            
            (9,318
            )Sale
      of Series E Convertible Preferred Stock
            
            
            335,000
            
            
            
            -Sale
      of Series F Convertible Preferred Stock
            
            
            640,072
            
            
            
            -Sale
      of Series G Convertible Preferred Stock
            
            
            480,054
            
            
            
            -Sale
      of Series H Convertible Preferred Stock
            
            
            492,501
            
            
            
            -Sale
      of Series I Preferred Stock
            
            
            11,500,000
            
            
            
            -Advances
      from stockholders
            
            
            2,435,000
            
            
            
            300,000Repayment
      of advances from stockholders
            
            
            (1,835,000
            )
            
            
            (845,000
            )Increase
      in notes payable
            
            
            -
            
            
            
            1,500,000Advances
      from buyer of bingo business assets
            
            
            -
            
            
            
            494,342Exercise
      of warrants and options for Common Stock Series A
            
            
            110,387
            
            
            
            -Collection
      of stock subscriptions receivable
            
            
            12,000
            
            
            
            6,000Sale
      of Common Stock Series A
            
            
            740,796
            
            
            
            662,500Net
      cash provided by financing activities
            
            
            8,553,528
            
            
            
            1,075,647Net
      increase (decrease) in cash and cash equivalents
            
            
            8,267
            
            
            
            (492,236
            )Cash
      and cash equivalents, beginning of period
            
            
            489,262
            
            
            
            497,529Cash
      and cash equivalents, end of period
            
            $
            497,529
            
            
            $
            5,293Non-cash
      investing and financing activitiesConversion
      of Series B Convertible Preferred Stock to Common Stock Series
      A
            
            $
            264,250
            
            
            $
            -Exercise
      of stock warrants and options increasing subscriptions
      receivable
            
            
            8,412
            
            
            
            -Conversion
      of Series C Convertible Preferred Stock to Common Stock Series
      A
            
            
            35
            
            
            
            -Conversion
      of Series D Convertible Preferred Stock to Common Stock Series
      A
            
            
            125
            
            
            
            -Equipment
      acquired directly with proceeds of borrowing
            
            
            34,025
            
            
            
            -Debt
      retired through issuance of Common Stock Series A
            
            
            107,500
            
            
            
            -Prepayment
      of lease costs with Common Stock Series A
            
            
            106,000
            
            
            
            -Accrued
      and prepaid interest added to face amount of note due to debt
      modification
            
            
            801,250
            
            
            
            -Unpaid
      dividends declared on Series F, and Series G Convertible Preferred Stock
      and I Preferred Stock
            
            
            276,192
            
            
            
            856,415Forgiveness
      of debt and related issuance of warrant
            
            
            614,027
            
            
            
            -Acquisition
      of business for common stock Series A
            
            
            1,495,882
            
            
            
            -Exchange
      of automobile for notes receivable
            
            
            
            
            
            
            16,500Write-off
      of subscriptions receivable due to non-collectability
            
            
            
            
            
            
            169,912Dividends
      paid on Series F Preferred Stock through issuance of Common Stock Series
      A
            
            
            
            
            
            
            7,890





The
accompanying notes are an integral part of these financial
statements.


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LAS
VEGAS GAMING, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.  Nature
of operations:




Our current principal business is the
delivery of new, linked-progressive, mega jackpot games to the worldwide gaming
industry.  Our offering of these types of games includes Nevada
Numbers, Super Bonanza Bingo, and Million Dollar Ticket.  On March 31,
2009, because of the expiration of our contract with Treasure Island whereby
Treasure Island had agreed to maintain the $3.9 million base jackpot bankroll,
we shut down Nevada Numbers and Million Dollar Ticket.  We expect to
restart the games as soon as we find funding for the $3.9 million base
jackpot.  During the second quarter of 2008, we launched Gamblers
Bonus Million Dollar Ticket in cooperation with one of the larger slot route
operators in Nevada, which was subsequently shut down on January 31,
2009.  Although we have recently focused our business on the
development of our proprietary multimedia delivery system, known as
PlayerVision, we have not generated significant revenues to date.  We
continue to provide equipment, supplies and casino games for use by our
customers in the keno and bingo segments of the gaming industry.  In
large part because of our focus on the development of our PlayerVision system,
in addition to recent economic developments, we have incurred expenses in excess
of our revenue and have generated losses for 2008 and 2009 (Note
6).





2.  Summary
of significant accounting policies:




Principles of consolidation and basis
of accounting.The consolidated financial statements include
the accounts of the parent company, Las Vegas Gaming, Inc. (“LVGI”),
Imagineering Gaming, Inc. and Las Vegas Gaming Acquisition Corp., our wholly
owned subsidiaries, and Las Vegas Keno Incorporated, an inactive 85%-owned
subsidiary (collectively, the “Company” or “we”).  All significant
intercompany transactions and balances have been eliminated in
consolidation.





The Company has elected not to adopt
the fair value to measure any of its eligible financial instruments or other
items.  Accordingly, it continues to measure all of its assets and
liabilities on the historical cost basis of accounting except as required by
generally accepted accounting principles and otherwise disclosed
herein.





Revenue and cost
recognition.





Casino Games.  As
wagers are made within our inter-linked systems, we recognize our share of each
wager made as revenue.  Based on the revenue proceeds, we purchase
insurance to fund the base jackpot.  We also estimate the cost for any
uninsured base jackpot and the expense for any progressive jackpot and,
accordingly, establish a liability on our balance sheet as a progressive jackpot
liability (Note 3).      For our other casino
games, we recognize our share of revenue upon the sale of each
ticket.  We have the discretion to purchase insurance to fund
jackpots.  We recognize costs associated with uninsured jackpots as
each ticket is sold based on mathematical probabilities dictated by the odds of
the game.





Winners of the Nevada Numbers
progressive jackpot are to be paid the amount of the progressive meter in equal
installments over 20 years (Notes 3 and 8).  However, we may, at our
discretion, offer the winner an option to receive a discounted value immediately
using a designated prime rate of interest as a discount rate.  Once an
inter-linked progressive jackpot is won, in the event a discounted value is not
paid immediately at the option of the winner, management would become obligated
to purchase discounted U.S. Treasury securities to meet the obligation for the
annual payments.  We expect to classify these investments as
“held-to-maturity,” included as noncurrent assets initially at cost and adjusted
over the term of the security for the amortization or accretion of any premiums
or discounts using the interest method.






- 35
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On March 18, 2010, the Financial
Accounting Standards Board (FASB) issued FASB Accounting Standards Codification
924-405, Casino Jackpot
Liabilities, which states that jackpots on which the Company can avoid
payment do not meet the definition of a liability until the jackpot is
won.  This is effective for years beginning on or after December 15,
2010 and may have a significant effect on the financial statements of the
Company which has not yet been determined.





Products.  We
generally recognize sales of bingo and keno equipment when installed (since we
are responsible for installation) and sales of supplies when the products are
shipped since title to the products has passed when they leave our shipping
dock.  Sales and similar revenue-based taxes collected from customers
are excluded from revenue but rather are recorded as a liability payable to the
appropriate taxing authority and included in accrued
expenses.  Shipping and handling charges to customers and related
costs are included respectively in sales revenues and cost of
sales.  For keno system installations, we require a 50% deposit in
advance as a good faith down payment for, and recorded as a liability until
completion and customer acceptance of, the system
installation.  Warranty costs and related liabilities associated with
product sales have not been material.  We recognize fees from
equipment maintenance contracts sold separately (rather than as bundled
deliverables) evenly over the term of the contract.  Prior to
shipment, we include equipment and supplies in inventories (see
below).  We had a market write-down of our PlayerVision 2 inventory of
$678,000 for obsolescence in 2008 as it has been replaced by a more robust
PlayerVision 3 platform, which is the product we will soon offer.





Other. We include keno
revenue from the operation of a keno route subject to multiple participation
agreements in other revenue in an amount equal to the net win from such gaming
activities, which is the difference between gaming wins and
losses.  We reflect amounts due to the owners of the facilities in
which the keno games are conducted (effectively contingent rent) as an
expense.





Cash and cash equivalents and jackpot
reserve deposits. We consider all highly liquid investments with an
original maturity of three months or less at the date of purchase to be cash
equivalents. For financial statement purposes, jackpot reserve deposits (Notes 3
and 8), a form of restricted cash, is excluded from cash and cash
equivalents.  Changes in the funds set aside for such purposes are
treated as investing activities and reported net in the statement of cash
flows.  We classify these funds as current assets because we use these
restricted funds to support current operations.





Receivables.  We
write off accounts receivables after all reasonable collection efforts have been
exhausted.





Inventories.  Inventories
consist primarily of bingo and keno finished goods, including keno equipment and
spare parts, and are stated at the lower of cost or market, with cost determined
using the first-in, first-out (“FIFO”) cost method.  Appropriate
markdowns are made when necessary to reduce the cost of excess and obsolete
inventories to their estimated net realizable value.





Intangible
assets.  Intangible assets other than goodwill consist
primarily of the costs of patents, (some of which are pending (Note
5)).  Other intangible assets are amortized on a straight line basis
over the estimated economic life of the asset, usually less than 10
years.  We review goodwill and other intangible assets for impairment
annually and whenever events or circumstances indicate the carrying values are
not likely to be recoverable or warrant a revision to the estimated remaining
useful life.





Use of
estimates.  The preparation of these financial statements
requires the use of estimates and judgments and the reported actual results may
differ from these estimates under different assumptions or conditions, and these
differences may be material.  Management’s estimates related to the
recoverability of the carrying values of the intangible assets and goodwill are
particularly vulnerable to material changes in the next year.




- 36
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Our forecasted future cash flow used to
test the recoverability or estimate the fair value of intangibles are based on
assumptions that we believe are objective and consistent with our expectations
and the plan used to manage the underlying business (primarily level 3 inputs as
defined in U.S. generally accepted accounting principles).  Factors
used in the evaluations of potential impairment and fair value estimates require
significant judgments and respective estimated useful lives, risk rates,
expected market growth rates, brand history, competitive environment, market
share, future business prospects and success of our products.  Changes
in these expectations and related estimates and assumptions, for example,
resulting from the economic conditions and uncertainties such as those discussed
in Note 8, could materially affect the estimated recoverability and/or estimated
fair value. While we believe that our estimates of future revenues and cash
flows are reasonable, different assumptions could materially affect our
assessments of useful lives, recoverability and fair values. Application of the
goodwill impairment test also requires judgment regarding such factors as the
identification of reporting units, allocation of related goodwill, assignment of
corporate shared assets and liabilities to reporting units, and determination of
estimated fair value of each reporting unit.  We estimate the fair
value of our operating components using the discounted cash flow method, and
compare the implied valuation multiples to guidelines for public companies under
the market approach to test the reasonableness of the discounted cash flow
results.  In addition, since our keno business is now incurring
monthly losses, since our keno liabilities far exceed our keno assets, and we
recently agreed to sell this business for $100,000 (Note 13), we recorded an
impairment charge for our keno business goodwill of $327,000 during the year
ended December 31, 2009.  Our recorded goodwill relates to our
unallocated sales omponent and to our recent acquisition of Adline
Network Holdings, Inc. (Note 7).  Losses during 2008 and 2009 resulted
from significant cash resources expensed on the development, regulatory
approval, administrative infrastructure, and marketing of
PlayerVision.





Based on the circumstances and the
related uncertainties as to the success of management’s plans to continue as a
going concern, as of December 31, 2009, described in Note 8, impairment
evaluations relative to these assets were based on our expectation of
recoverability of at least their carrying values through a possible sale thereof
using fair value estimates based on level 3 inputs.  It is possible
based on future developments, even in the near term, that asset impairment
writedowns may become necessary and that they may be significant.





Marketable securities.Investments in
marketable securities are classified as “trading securities” and carried in the
financial statements as current assets valued at fair value based on current
market quotes (level 1 inputs).  Unrealized and realized gains and
losses are included in earnings currently.





Equipment and
depreciation.Equipment is stated at cost. Depreciation is
provided using the straight-line method over the useful lives of the assets
(three to ten years).





Certain issuances of our Common Stock
Series A.Our Common Stock Series A does not trade in the
market and, therefore, quoted stock prices are not available.  A
limited number of sales between stockholders and third parties interested in
buying our Common Stock Series A have predominately occurred at $2.00 per share
in 2008.  We used this price as the best indication of the fair value
of Common Stock Series A until the International Game Technology (“IGT”)
investment transaction on October 24, 2008, at which time we performed a
reevaluation of the price given the strategic nature of IGT’s investment and
established a new fair value of $2.50 per share.  In January 2009,
this price was further validated as the fair value as we raised $562,500 by
selling 225,000 shares of Common Stock Series A at $2.50 per
share.  We also sold 40,000 shares at $2.50 per share in early October
2009.





Net loss per
share.  Basic net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
year.  Potentially dilutive securities such as convertible preferred
stock, options and warrants for a total of 29,250,730 shares were not considered
outstanding because the effect would have been anti-dilutive.




- 37
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Stock-based
compensation.  We use the Black-Scholes option pricing model to
estimate the fair value of options and warrants and the amounts to be expensed
as it relates to employee and non-employee stock-based compensation. In using
the Black-Scholes option-pricing model, the principal assumptions selected to
value the options and warrants for calculating the “minimum value,” included a
“risk-free” interest rate of approximately 2%, expected option life of four to
10 years, estimated volatility of 30% and no expected dividends.





Advertising.  Advertising
costs are expensed as incurred and totaled $83,770 and $20,528 for 2008 and
2009, respectively.





Income taxes.Our
policy is to treat any income tax-related interest or penalties as a component
of income tax expense (benefit).





Reclassifications.  Certain
minor reclassifications to previously reported amounts have been made to conform
to the current year presentation.





3.  Jackpot
reserve deposits and related obligations:




At
December 31, 2008 and 2009, as required by gaming regulators, we held aside cash
on deposit of $1,230,761 and $218,628, respectively, that is restricted for
funding our various regulatory obligations for jackpot-oriented games (Note
8).




On March
18, 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification 924-405, Casino Jackpot Liabilities,
which states that jackpots on which the Company can avoid payment do not meet
the definition of a liability until the jackpot is won.  This is
effective for years beginning on or after December 15, 2010 and will have a
significant effect on the financial statements of the Company.




4.  Equipment:




Equipment
consists of the following:




December
      31, 2008
            
            
            December
      31, 2009Production
      equipment
            
            $
            1,561,513
            
            
            $
            1,166,383Office
      equipment, furniture, and fixtures
            
            
            557,855
            
            
            
            317,888Leasehold
      improvements
            
            
            43,627
            
            
            
            -2,162,995
            
            
            
            1,484,271Less
      accumulated depreciation and amortization
            
            
            1,238,739
            
            
            
            978,785$
            924,256
            
            
            $
            505,486





As
previously mentioned in Note 2, since our keno business is now incurring monthly
losses, our keno liabilities far exceed our keno assets, and we recently agreed
to sell this business for $100,000 (Note 13), we recorded an impairment charge
for our keno production equipment of $50,000 during the year ended December 31,
2009.




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5.
Other intangible assets:





Patents and other intangible assets
consist of the following:





December
      31, 2008
            
            
            December
      31, 2009PlayerVision
      technology patents
            
            $
            1,016,236
            
            
            $
            1,016,236Software
            
            
            427,836
            
            
            
            432,775Capitalized
      engineering
      costs
            
            
            -
            
            
            
            724,1601,444,072
            
            
            
            2,173,171Less
      accumulated amortization
            
            
            1,165,742
            
            
            
            1,415,904$
            278,330
            
            
            $
            757,267





Intangible assets are amortized over
their estimated useful lives, which are currently 5 years.  Total
amortization for other intangible assets amounted to $541,474 and $250,161 for
the years ended December 31, 2008 and 2009, respectively.  Since we
are not proceeding with “at home” wagering as part of our strategic product plan
in the future, we expensed $606,667 of then remaining unamortized asset value in
the fourth quarter of 2008, which was included in depreciation and amortization
in our consolidated statement of operations.  Estimated aggregate
future amortization assuming we begin amortizing PlayerVision engineering costs
in July 2010 is as follows:





2010
            
            $
            148,2602011
            
            
            246,2662012
            
            
            242,0482013
            
            
            120,693$
            757,267





6.  Debt:




On May 1, 2008, we amended our
financing with CAMOFI Master LOC (“CAMOFI”) and entered into an Amended and
Restated Senior Secured Convertible Note due January 1, 2010 (the “CAMOFI
Note”), and an Amended and Restated Registration Rights Agreement (the
“Registration Rights Agreement”) with CAMOFI.  The commitment fees due
under the original CAMOFI note on April 1, 2008, July 1, 2008, October 1, 2008,
and January 1, 2009 of $131,250 and prior accrued commitment fees were added to
the face amount of the CAMOFI Note which increased from $5,250,000 to
$6,051,250.  We were also to pay commitment fees of $403,417 on
January 1, 2009, and $302,563 on July 1, 2009 and January 1,
2010.  The Registration Rights Agreement required us to file a
registration statement with the Securities and Exchange Commission on the
earlier of the closing of a Qualified Financing (as defined in the Registration
Rights Agreement) or April 30, 2009 with the effectiveness date remaining 120
calendar days after the filing date.  The maturity date of the CAMOFI
Note was changed from January 1, 2009 to January 1, 2010.





Because of the Registration Rights
Agreement with CAMOFI, the registration of CAMOFI’s converted shares and
warrants were outside of our control.  The Registration Rights
Agreement with CAMOFI stated that if 125% of the registered securities for
CAMOFI were not effective by the 120th calendar day following the filing date of
September 30, 2008, we would have to pay cash liquidating damages equal to 1.5%
of the outstanding principal of the bridge financing and an additional 1.5% for
any subsequent 30-day period thereafter.  If we failed to pay any
partial liquidating damages within seven days from the date payable, we were to
accrue 20% annual interest on any amount in arrears.  Settlement of
the warrants with unregistered shares and the payment of a penalty would have
been an uneconomic settlement alternative and thereby would not have been
considered a realistic alternative for us.  Consequently, the initial
value of the warrants was recorded as a derivative liability and changes to the
fair value of those warrants were included in the statement of
operations.




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On October 24, 2008, the CAMOFI note
for $6,051,250, a prepayment penalty of $1,210,250 and accrued interest of
$357,022 were paid off with the proceeds of the IGT investment (Note
7).  This early extinguishment of debt resulted in a loss of
$640,882.  After the payoff, CAMOFI has 2,675,000 warrants at $1.48
and incidental registration rights which allows CAMOFI to join a registration
statement after the Company’s and IGT’s shares have been registered if there is
availability in any future registration statement.




Long term debt at December 31, is as
follows:





2008
            
            
            2009Notes
      payable
            
            $
            35,076
            
            
            $
            22,977Less
      amounts due within one year
            
            
            11,957
            
            
            
            6,711$
            23,119
            
            
            $
            16,266





Scheduled
debt maturities are as follows:





2010
            
            $
            6,7112011
            
            
            7,4172012
            
            
            8,1962013
            
            
            653$
            22,977




During 2008, we received five
stockholder advances totaling $2,435,000 and paid back all but $600,000 of those
advances by December 31, 2008, and $600,000 in January 2009.  During
2009, an additional $300,000 was advanced from three principal
stockholders.  Of this amount, $245,000 has been paid back as of
December 31, 2009.  The buyer of our bingo business assets advanced us
$494,342 for working capital purposes (Note 12).





We have received all monies due from a
settlement with a customer of our wholly-owned subsidiary, Imagineering, and
have distributed all monies due except for $107,500 which is due to the prior
owners of Imagineering who agreed to convert their debt into Common Stock Series
A at $2.00 per share or 53,750 shares in March 2008.  As part of the
IGT investment on October 24, 2008 (Note 7), the $614,027 due IGT above under
settlement was forgiven and has been included, along with the $11,500,000 cash
investment by IGT, in the allocation between the Series I Preferred Stock
(valued at $11,294,901) and the 1,500,000 warrant (valued at
$819,126).





On February 13, 2009, we signed a
binding term sheet with IGT whereby IGT advanced $1.5 million to the
Company.  We signed a note effective June 1, 2009, for this advance,
which carries an interest rate of 10% per annum and is due on January 29,
2010.  We granted a security interest in all of our present and future
assets as security for such obligation (Note 14).






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The Company and IGT amended the
License and Application Support Agreement dated September 30, 2008 between the
Company and IGT (the “LASA”), and the Intellectual Property Access Agreement
dated September 30, 2008 between the Company and IGT (the
“IPAA”).  The amendments to the LASA include:  (1) a
requirement that the Company use its best efforts to utilize IGT’s sb
(server-based) Media Manager as the default infrastructure for the delivery of
the Company’s PlayerVision applications, where feasible, (2) a requirement that
the Company provide development support for IGT sb (server-based) applications
requested by IGT, (3) an amendment to the amount of distribution fees, (4) a
granting to IGT of a “most favored distributor” status so that IGT is granted
the most favorable terms on the Company’s software distributor rates for its
server-based applications, and (5) a requirement that the Company escrow the
source code for the applications that connect to IGT systems.  IGT
will have the right to access the source code only if the Company becomes
insolvent, and IGT’s rights to utilize such software (if released) will be
unlimited.  The amendments to the IPAA include the Company’s agreement
that IGT will have the right to initiate, coordinate, finance and assist in the
prosecution, defense and enforcement of all Company owned intellectual property
to which the Company has granted a right of first refusal to IGT.





7.  Stockholders'
equity:




From time to time, we issue shares of
common stock and preferred stock through transactions that are exempt from
registration under the Securities Act of 1933 (the “Securities Act”), or
pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation
D.





During the year ended December 31,
2008, we issued 260,917 shares of Common Stock Series A for salaries, bonuses,
consulting services, and board of directors fees, 500,000 shares of Common Stock
Series A as an incentive for our sale of Series F and Series G Convertible
Preferred Stock, and 102,659 shares of Common Stock Series A pursuant to the
exercise of options and warrants.  Additionally, if our Common Stock
Series A, as a result of a qualified financing, commences trading at less than
$5 per share, the holders of our Series F and G Convertible Preferred Stock will
also receive additional shares of Common Stock Series A prorated for the
percentage shortfall from $5 per share measured against the 500,000 shares,
where a “qualified financing” is a capital raise of $10 million or more or a
transaction at less than $5 per share resulting in a change in control of the
Company.  We also issued 53,750 shares of Common Stock Series A to
retire $107,500 of long-term debt.  In addition, we sold 55,361 shares
of Common Stock Series A to employees and 10,100 shares to present
stockholders.  On October 24, 2008, we declared a cash dividend of
$97,233 on our Series F and G Convertible Preferred Stock in total.




On October 1, 2008, we acquired the
tangible and intangible assets of AdLine Network Holdings Inc. (“AdLine”),
AdLine Media LLC, AdLine Network LLC and Freeview Network LLC for 750,000 shares
of our Common Stock Series A.  The intent of the transaction was to
reacquire and consolidate all of the rights associated with various technologies
and intellectual property licenses held by AdLine, including the license
previously granted to AdLine.  The transaction was structured as an asset
purchase to ensure the complete reacquisition of the licenses and
technologies.  Any other assets acquired were immaterial and
incidental.  The purchase price of $1,500,000 was allocated as
follows: $80,000 to fixed assets, $4,117 to miscellaneous expense and $1,415,883
to goodwill.  In addition, one of the owners of AdLine received a
one-year consulting agreement with LVGI for $17,200 per month.





Also on October 1, 2008 (effective as
of September 30, 2008), IGT signed an investment agreement with us to purchase
4,693,878 shares of our Series I Preferred Stock at $2.45 per share, or a total
investment of $11.5 million.  (The transaction closed on October 24,
2008.) The Series I Preferred Stock is convertible into shares of Common Stock
Series A on a one-for-one basis.  IGT had previously advanced $1.5
million of this total investment pursuant to an agreement dated July 17, 2008,
as amended, so the net proceeds received by the Company on October 24, 2008 was
$10 million.  IGT also received a warrant to purchase 1.5 million
shares of Common Stock Series A at an exercise price of $2.45 per
share.  The warrant has a three-year term and is fully
vested.  The shares of Series I Preferred Stock carry a dividend rate
of 6.5% that was payable initially on January 1, 2010, and the right to vote on
an as converted basis, on all matters submitted to the Company’s
stockholders.  Based on what amounts to pro forma fully diluted
outstanding shares of the Company, IGT is entitled to one seat on the Company’s
Board of Directors, which to date they have not chosen to fill.  In
addition, in connection with this investment agreement, IGT forgave a receivable
due from the Company from a prior legal settlement for $614,027 (Note
6).  Also on October 1, 2008, we signed three agreements with IGT,
which became part of the legal settlement with IGT called:  (1) the
Retrofit License Agreement; (2) the LASA; and (3) the IPAA.  On
October 14, 2008, the legal case with IGT was dismissed by the Court with
prejudice.




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With the additional $10 million of
funding from IGT, we paid in full the CAMOFI note for $6,051,250, together with
accrued interest and a payment penalty amounting to $1,567,272.  We
were released from any and all liens and claims that CAMOFI may have had against
us and a related registration rights agreement was terminated.  CAMOFI
now has 2,675,000 warrants, with “piggy back” registration rights for its
300,000 shares of our common stock and underlying shares of common stock
underlying its warrants, which registration rights are junior to the
registration rights granted to IGT as part of the Series I Convertible Preferred
Stock transaction.





In connection with the foregoing IGT
transaction, we filed Amended and Restated Certificates of Designation with
Nevada Secretary of State with respect to our Series B, Series E, Series F,
Series G and Series H Convertible Preferred Stock on October 22,
2008.  We also filed Certificates of Withdrawal of Certificate of
Designation with the Nevada Secretary of State with respect to our Series A,
Series C, and Series D Convertible Preferred Stock on October 3, 2008, as no
shares of such series were then issued or outstanding.





During 2009, we issued 272,156 shares
of Common Stock Series A to two investors in return for cash of $662,500 used
for working capital and for payment of Series F dividends in lieu of cash and
reimbursement of legal fees (one of these investors who purchased 232,156 of
these shares is the same investor who invested $1,000,000 in Series E
Convertible Preferred Stock, $1,000,000 in Series F Convertible Preferred Stock,
and $750,000 in Series G Convertible Preferred Stock).




In 2009, we closed the Gamblers Bonus
Million Dollar game as a result of a lack of ticket
sales.  Accordingly, we redeemed the $1,000,000 of Series F
Convertible Preferred Stock from our investor.  We also closed our
Million Dollar Ticket Game for the same reason and temporarily suspended our
Nevada Numbers game to change the draw to hourly rather than
daily.  We restarted the Nevada Numbers game on March 1, 2009 but
again suspended it on March 31, 2009 due to a lack of funds to meet our Nevada
Gaming bankroll requirements.  This suspension resulted from the
change in ownership at Treasure Island Casino (in Las Vegas) and the new
ownership’s decision to not continue bankrolling our game.  The game
will remain suspended until we can find approximately $4 million for the
bankroll.  When we restarted Nevada Numbers on March 1, 2009, we
restored Series F Convertible Preferred Stock for $1,000,000 to be used as
additional bankroll needed for Nevada Numbers.  Due to the March 31
shutdown, the Nevada Numbers bankroll funds associated with Series F Convertible
Preferred Stock were no longer needed.  Therefore, in April 2009, we
again redeemed the Series F Convertible Preferred Stock and the $1,000,000 was
returned to the investor.  In addition, in April 2009, the investor
received another 7,156 shares of Common Stock Series A.  These shares
were awarded in lieu of cash dividends and as a reimbursement of legal fees for
the restoration of Series F Convertible Preferred Stock for $1,000,000 to
support the restarting of Nevada Numbers.





Series B Convertible Preferred
Stock.Each share of Series B Convertible Preferred Stock is
convertible at any time into Common Stock Series A at the election of the
holders of the Series B Convertible Preferred Stock on a one-to-five
basis.  Holders of Series B Convertible Preferred Stock have a
liquidation preference of $5 per share.  The Series B liquidation
preference is over holders of Series E, Series G, and Series H Convertible
Preferred Stock.





On January 28, 2008, because Treasure
Island Casino (in Las Vegas) had begun maintaining the required base jackpot
bankroll for Million Dollar Ticket, the holders of Series B Convertible
Preferred Stock were notified pursuant to the terms and conditions of our Series
B Convertible Preferred Stock of the ability to exchange their shares of Series
B Convertible Preferred Stock for either (1) their original investment in the
shares exchanged, i.e., $5 per share, or (2) shares of Common Stock Series A at
the rate of five shares of Common Stock Series A for each share of Series B
Convertible Preferred Stock.  The holders of Series B Convertible
Preferred Stock had until April 28, 2008 to make their decision.  At
December 31, 2008 holders of 52,850 shares of Series B Convertible Preferred
Stock had converted their shares on a one-to-five basis for 264,250 shares of
Common Stock Series A.  We also redeemed 27,500 shares of Series B
Convertible Preferred Stock at $5 per share for a total redemption of $137,500
during the year ended December 31, 2008.




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Series E Convertible Preferred
Stock.Holders of Series E Convertible Preferred Stock are
entitled to receive $5 per share as a liquidation preference after payment of
all existing and future indebtedness and the liquidation preference of Series F,
I, and B Convertible Preferred Stock.  Series E and Series G
Convertible Preferred Stock are pari passu in liquidation
preference.  Series E Convertible Preferred Stock has a liquidation
preference over Series H Convertible Preferred Stock.  During the year
ended December 31, 2008, we issued 67,000 shares of our Series E Convertible
Preferred Stock raising $335,000.  In February 2008, we closed our
Series E Convertible Preferred Stock offering with a total of 810,800 shares
issued and $4,054,000 raised.  During the year ended December 31,
2007, we issued 392,800 shares of Series E Convertible Preferred Stock and
raised $1,964,000.





Series F Convertible Preferred
Stock.The holder of Series F Convertible Preferred Stock is
entitled to receive $5 per share as a liquidation preference after payment of
all existing and future indebtedness and before Series I, Series B, Series E,
Series G and Series H Convertible Preferred Stock as to the $1,000,000 jackpot
bankroll reserve for our Gamblers Bonus Million Dollar Ticket
game.  On January 31, 2009, we discontinued the Gamblers Bonus Million
Dollar Ticket game and the jackpot bankroll reserve of $1,000,000 was
transferred to our Nevada Numbers game.  On May 9, 2008, we issued
200,000 shares of Series F Convertible Preferred Stock which carries a
cumulative 12% dividend rate payable on January 1, 2010 immediately after paying
IGT their 6.5% dividend on Series I Preferred Stock.  Series F
Convertible Preferred Stock is convertible into Common Stock Series A at the
lower of $3.50 or 30% off of the IPO price, where “IPO price” means the per
share price to the public of any common shares offered by us that in the
aggregate results in capital in excess of $10.0 million being raised and the
shares of a class of our common stock being listed and traded on a national
stock exchange.





Series G Convertible Preferred
Stock.The holder of Series G Convertible Preferred Stock is
entitled to receive $5 per share as a liquidation preference pari passu with the
liquidation preference of Series E Convertible Preferred Stock and after payment
of all existing and future indebtedness and the liquidation preference of Series
F, I, and B Convertible Preferred Stock.  Series G Convertible
Preferred Stock has a liquidation preference over Series H Convertible Preferred
Stock.  On May 9, 2008, we issued 150,000 shares of Series G
Convertible Preferred Stock, which carries a cumulative 12% dividend rate
payable on January 1, 2010 immediately after paying IGT their 6.5% dividend on
Series I Preferred Stock.  Series G Convertible Preferred stock is
convertible into Common Stock Series A at the lower of $3.50 or 30% off of the
IPO price, where “IPO price” means the per share price to the public of any
common shares offered by us that in the aggregate results in capital in excess
of $10.0 million being raised and the shares of a class of our common stock
being listed and traded on a national stock exchange.





Series HConvertible Preferred
Stock.The holders of Series H Convertible Preferred
Stock are entitled to receive $5 per share as a liquidation preference after
payment of all existing and future indebtedness and the liquidation preference
of Series F, Series I, Series B, Series E, and Series G Convertible Preferred
Stock.  During the year ended December 31, 2008, we issued 98,500
shares of Series H Convertible Preferred Stock at a price of $5 per share for a
total capital raise of $492,500.  The Series H Convertible Preferred
offering closed June 21, 2008.  Series H Convertible Preferred stock
is convertible into Common Stock Series A at the lower of $2.50 or 30% off of
the IPO price, where “IPO price” means the per share price to the public of any
common shares offered by us that in the aggregate results in capital in excess
of $10.0 million being raised and the shares of a class of our common stock
being listed and traded on a national stock exchange.





Series I Preferred
Stock.  On October 1, 2008, IGT signed an investment agreement
as of September 30, 2008, with us for 4,693,878 shares of our Series I Preferred
Stock at $2.45 per share, or a total investment of $11.5 million.  The
Series I Preferred Stock is convertible into shares of Common Stock Series A on
a one-for-one basis. The transaction closed on October 24, 2008.  IGT
had previously advanced $1.5 million of this total investment pursuant to an
agreement dated July 17, 2008, as amended, so the net proceeds received by the
Company on October 24, 2008 was $10 million.  IGT also received a
warrant to purchase 1.5 million shares of Common Stock Series A at an exercise
price of $2.45 per share.  The warrant has a three-year term and is
fully vested.  The shares of Series I Preferred Stock carry a dividend
rate of 6.5% payable initially on January 1, 2010 and vote on an as converted
basis, on all matters submitted to the Company’s stockholders.  Based
on the fully diluted outstanding shares of the Company, IGT is entitled to two
seats on the Company’s Board of Directors, which to date they have not chosen to
fill.  In addition, IGT forgave a receivable from the Company from a
prior legal settlement for $614,027.  Also on October 1, 2008, we
signed three agreements with IGT which became part of the legal settlement with
IGT: 1) the Retrofit License Agreement, 2) the License and Application Support
Agreement and 3) the Intellectual Property Access Agreement.  On
October 14, 2008, the legal case with IGT was dismissed by the Court with
prejudice.




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With the additional $10 million of
funding from IGT, we paid in full the CAMOFI note for $6,051,250, together with
accrued interest and a payment penalty amounting to $1,567,272.  We
were released from any and all liens and claims that CAMOFI may have against us
and the Registration Rights Agreement was terminated.  CAMOFI has
2,675,000 warrants, with “piggy back” registration rights for its 300,000 shares
of our common stock and underlying shares of common stock underlying its
warrants, which registration rights are junior to the registration rights
granted to IGT as part of the Series I Preferred Stock transaction.





In connection with the IGT transaction,
we filed Amended and Restated Certificates of Designation with the Nevada
Secretary of State with respect to our Series B, Series E, Series F, Series G
and Series H Convertible Preferred Stock on October 22, 2008.  We also
filed Certificates of Withdrawal of Certificate of Designation with the Nevada
Secretary of State with respect to our Series A, Series C, and Series D
Convertible Preferred Stock on October 3, 2008, as no shares of such series were
then issued or outstanding.





Stock Warrants and
Options.  We have both a qualified and a non-qualified stock
option plan.  There are 1,810,642 qualified options presently
outstanding under the qualified plan, with another 641,500 non-qualified options
also outstanding.  The exercise price of options issued pursuant to
either plan cannot be less than the fair market value at the time of the grant
and vesting is at the discretion of the Stock Option Committee, though limited
to ten years.  Only employees and consultants are able to receive
qualified options.  The stock subject to the 2009 Stock Option Plan is
limited to 20% of the issued and outstanding shares of Common Stock Series A at
the beginning of the most recent quarter.





We have, from time to time,
granted common stock, warrants to others in addition to options granted to
employees as employment incentives, in return for successful capital-raising
efforts or as an inducement to invest in our common or preferred securities, in
return for other services, and in conjunction with the initial capitalization of
our company and business acquisitions.  Warrants and options to
purchase 960,000 and 566,367 shares of Common Stock Series A were issued to
officers and directors during the years ended December 31, 2008 and 2009,
respectively.  Total compensation cost recognized in operations from
grants of options and warrants amounted to $742,398 and $574,693 for the years
ended December 31, 2008 and 2009, respectively.  Unrecognized costs
related to employee stock options and warrants outstanding at December 31, 2009
totaled $389,897 and are expected to be amortized over a weighted average period
of 33 months.





The weighted average exercise price of
our outstanding options and warrants at December 31, 2009, was
$2.46.  The following table summarizes our stock option and warrant
activity followed by the applicable weighted average prices during the year
ended December 31, 2009:





Options/Warrants
            
            
            Weighted
              Average
      PriceBalance,
      January 1, 2009
            
            
            8,656,209
            
            
            $
            2.46Granted
            
            
            1,122,440
            
            
            
            2.50Forfeited
            
            
            (1,668,031
            )
            
            
            (2.50
            )Balance,
      December 31, 2009
            
            
            8,110,618
            
            
            
            2.46






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As of
December 31, 2009, 737,858 options and warrants are outstanding, but have not
vested. The aggregate estimated intrinsic value of options and warrants at
December 31, 2009, is $389,897.




Non-vested
              Options
            
            
            Weighted
      Average PriceBalance,
      January 1, 2009
            
            
            1,393,210
            
            
            $
            3.45Granted
            
            
            650,080
            
            
            
            2.50Vested/Forfeited
            
            
            (1,320,932
            )
            
            
            (3.22
            )Balance,
      December 31, 2009
            
            
            722,358
            
            
            
            3.02Non-vested
              Warrants
            
            
            Weighted
      Average PriceBalance,
      January 1, 2009
            
            
            110,417
            
            
            $
            2.52Granted
            
            
            15,500
            
            
            
            2.50Vested
            
            
            (110,417
            )
            
            
            (2.52
            )Balance,
      December 31, 2009
            
            
            15,500
            
            
            
            2.50





The
following table summarizes stock options and warrants outstanding at December
31, 2009, as to number exercisable and average remaining life in
years:




Exercise
      Price
            
            
            Number
              Outstanding
            
            
            Weighted
      Average Remaining
              Life
      in years
            
            
            Number
              Exercisable
            
            
            Weighted
      Average
              Remaining
              Life
      in yearsOptions
            
            $
            2.00
            
            
            
            310,000
            
            
            
            3.3
            
            
            
            310,000
            
            
            
            3.3$
            2.50
            
            
            
            1,290,642
            
            
            
            4.0
            
            
            
            718,284
            
            
            
            4.0$
            3.00
            
            
            
            46,500
            
            
            
            .3
            
            
            
            46,500
            
            
            
            .3$
            5.00
            
            
            
            805,000
            
            
            
            2.6
            
            
            
            655,000
            
            
            
            2.7Warrants
            
            $
            1.00
            
            
            
            110,000
            
            
            
            2.5
            
            
            
            110,000
            
            
            
            2.5$
            1.48
            
            
            
            2,675,000
            
            
            
            1.3
            
            
            
            2,675,000
            
            
            
            1.3$
            1.50
            
            
            
            30,000
            
            
            
            3.3
            
            
            
            30,000
            
            
            
            3.3$
            2.00
            
            
            
            185,000
            
            
            
            .6
            
            
            
            185,000
            
            
            
            .6$
            2.10
            
            
            
            23,809
            
            
            
            .9
            
            
            
            23,809
            
            
            
            .9$
            2.45
            
            
            
            1,500,000
            
            
            
            1.8
            
            
            
            1,500,000
            
            
            
            1.8$
            2.50
            
            
            
            30,667
            
            
            
            4.4
            
            
            
            15,167
            
            
            
            4.3$
            3.00
            
            
            
            854,000
            
            
            
            1.1
            
            
            
            854,000
            
            
            
            1.1$
            4.00
            
            
            
            100,000
            
            
            
            .1
            
            
            
            100,000
            
            
            
            .1$
            5.00
            
            
            
            150,000
            
            
            
            1.3
            
            
            
            150,000
            
            
            
            1.38,110,618
            
            
            
            2.0
            
            
            
            7,372,760
            
            
            
            1.8




There are
737,858 options and warrants that have been issued but have not
vested.  Of these options and warrants 371,869 will vest in 2010,
261,869 in 2011, and 104,120 in 2012.




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8.  Concentrations,
commitments, economic risks, uncertainties and contingencies:




We often carry cash and cash
equivalents, and restricted jackpot reserves on deposit with financial
institutions substantially in excess of federally-insured limits, and the risk
of losses related to such concentrations may be increasing as a result of recent
economic developments and uncertainties discussed in the foregoing
paragraph.  The extent of a future loss as a result of uninsured
deposits in the event of a future failure of a bank or other financial
institution, if any, is not subject to estimation at this time.





There are no significant concentrations
of credit risk among our receivables.  Our receivables are
uncollaterized.  The maximum losses that we would incur if a customer
or customers failed to pay would be limited to the amount due after any
allowances provided.  In managing credit risk and establishing any
allowance necessary for doubtful collection, we consider the customer’s credit
history and our relationship, the relative strength of our legal position, the
related cost of any proceedings, and general economic
conditions.  Historically, we have depended on relatively few
suppliers for components and programming for certain of our
games.  However, we believe that other suppliers are sufficiently
available so that any disruption of service would be brief and not have a
material adverse effect on our business, financial condition, cash flows or
results of operations.





The United States is currently
experiencing a severe and widespread recession accompanied by, among other
things, weakness in the commercial and investment banking systems resulting in
reduced credit and capital financing availability, and highly curtailed gaming,
other recreational activities and general discretionary consumer spending, and
is also engaged in war, all of which are likely to continue to have far-reaching
effects on economic conditions in the country for an indeterminate
period.  The effects and duration of these developments and related
risks and uncertainties on our future operations collections and other and cash
flows, including our access to capital or credit financing, cannot be estimated
at this time but may likely be significant.





We are presently unable to satisfy our
obligations as they come due and do not have enough cash to sustain our expected
working capital requirements for the remainder of 2010.  Accordingly,
unless we obtain third-party debt or equity financing or otherwise raise
capital, for example, through the possible sale of assets, in the near future,
we will not be able to continue as a going concern.  We are presently
negotiating term sheets with several possible investors.  We are also
in negotiations with several casinos to deploy our technology (see next
paragraph).  In addition, our plan is to ramp up our PlayerVision 3
sales using the new capital invested and be profitable by the end of the
calendar year 2010 through PlayerVision revenue growth and by keeping our fixed
costs low so we may begin to significantly expand our operations and experience
positive net cash flows and profits.





To address the going concern
uncertainty, we have also engaged an investment banking firm to assist us in
raising capital and are presently in discussion with possible strategic partners
in the gaming industry for an equity investment.  We are also creating
a sales deployment pipeline which should provide momentum to our capital raising
efforts. We have initiated some major cost cutting measurements and have sold
our bingo and keno businesses.  (See Note 12)





Severance
arrangements.  We have agreed to severance arrangements with
all executive officers that provide for the payment of thirty-five months of
base salary (except one year for our CEO) following termination of employment
for other than cause, for an aggregate $1,553,333 of contingent financial
commitment.  These employment agreements include covenants not to
compete.




Gaming regulations and
licensing.  We are licensed with the State of Nevada as an
operator of inter-casino-linked systems, supplier and distributor of keno and
bingo products, parts, and service, and as a keno route
operator.  From time to time, we seek licensure in other gaming
jurisdictions so that we may similarly participate in the gaming revenue
produced by customers for our products in those
jurisdictions.  Failure to retain our Nevada licenses or to obtain and
retain the necessary licenses in other jurisdictions would likely have a
material adverse effect on us.






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We
purchase insurance to fund the base progressive jackpots for Nevada Numbers,
Super Bonanza Bingo (in some circumstances), and The Million Dollar
Ticket.  Nevada Numbers and the Million Dollar Ticket were suspended
on March 31, 2009 and replaced by Nevada Numbers Lite, a nine spot keno game
which began with the progressive jackpots of Nevada Numbers and the Million
Dollar Ticket of $218,000 in October, 2009.  We fund any uninsured
portion plus increases to the progressive jackpot through
operations.  We are ultimately liable for the entire
jackpot.  The following tables illustrate our liability for
progressive jackpots at December 31, and related assumptions:




Progressive
      jackpot liability:
            
            2008
            
            
            2009Nevada
      Numbers
            
            $
            932,467
            
            
            $
            852,969Nevada
      Numbers Lite
            
            
            0
            
            
            
            219,005Million
      Dollar Ticket
            
            
            151,263
            
            
            
            50,000Super
      Bonanza
            
            
            471,630
            
            
            
            490,972$
            1,555,360
            
            
            $
            1,612,946




Noncompliance.Regulation 5.115 of the
Nevada Gaming Commission, as amended on November 18, 1999, allows licensees to
use the “reserve method” to fund periodic payments of any game, including a race
book or sports pool, tournament, contest, or promotional activity provided that
the licensee complies with certain financial monitoring and reporting
requirements as follows: (1) current ratio of 2:1 and (2) interest coverage
ratio of 3:1.  We have frequently found it impossible, primarily due
to the absence of earnings, to be in compliance with these ratios and in the
past have been successful in presenting an alternative plan acceptable to the
Nevada Gaming Commission to satisfactorily meet the objectives of the Regulation
if not cure the situation prospectively through expected future raises of
capital.  In our ten-year history, all of our jackpot liabilities have
been paid by us or through insurance coverage, and we have no reason to believe
that it will not continue to be the case in the future.  The Nevada
Gaming Commission has the right to demand that a one-year letter of credit be
posted when a company is not in compliance with the foregoing financial ratios
but has not made any such demand to date.




The
forgoing notwithstanding, in July 2008, we received two “Orders to Show Cause”
from the Nevada Gaming Control Board (NGCB).  One order dealt with
deficiencies in meeting the financial requirements of Regulation 5.115 as to (1)
resources in restricted accounts; (2) current ratio or working capital; (3)
interest coverage ratio or debt to EBITDA ratio; and (4)
bankroll.  For this matter we paid a fine of $10,000 in full
settlement and satisfaction of the allegations.  However, we can give
no assurance that we will be in compliance with these financial requirements in
the future.  The second order dealt with deficiencies in filing timely
reports with the NGCB as to new hires and termination of
personnel.  Our response set forth some remedial action taken by us,
which was deemed adequate and no further disciplinary action was taken in such
regard.




Lease commitments.We lease office and
warehouse space under various non-cancellable operating leases expiring through
2014.  The lease agreements require us to pay fixed monthly base rent
plus variable common area maintenance charges.  Future minimum lease
payments under the leases are:




2010
            
            $
            397,0942011
            
            
            287,9542012
            
            
            154,6772013
            
            
            59,6562014
            
            
            3,840$
            903,221




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Rent
expense on all operating leases for 2008 and 2009 was $419,650 and $512,117
respectively.




Legal matters.  On
September 12, 2007, IGT filed a lawsuit against us alleging copyright
infringement, trademark infringement, trade dress infringement and false
designation of origin relating to the operation of our PlayerVision system on
IGT’s Game King® gaming machines.  IGT was seeking injunctive and
monetary relief in the case, including treble damages and profits, claiming that
IGT would be irreparably harmed by us if our PlayerVision system was deployed in
the marketplace.  On June 12, 2008, IGT and LVGI jointly filed a
“stay” of the lawsuit and began settlement negotiations.  On October
14, 2008, pursuant to the settlement effective September 30, 2008 (Note 7), the
case was dismissed with prejudice.




On
September 15, 2008, a lawsuit was filed against us, among other defendants
regarding a non-disclosure agreement executed in 2002 pertaining to the
plaintiffs’ gaming concepts.  In August, 2009, a Motion of Summary
Judgment was granted and the case was dismissed.




On August
26, 2009, a lawsuit was filed by Adline Network Holdings, LLC, a Georgia
Corporation, Adline Media LLC, a Georgia Limited liability company, Adline
Network LLC, a Georgia limited liability company, and Sam Johnson, a former
officer and employee, alleging breach of an Acquisition Agreement, breach of a
Consulting Agreement, breach of a covenant of good faith and fair dealing,
negligent misrepresentation, common law fraud (fraud in the
inducement/fraudulent misrepresentation), 10b-5 securities violations and
declaratory relief.  In response to our Motion to Dismiss on October
16, 2009, the plaintiffs filed a first amended complaint.  Since then,
then plaintiffs have filed a second amended complaint with essentially the same
allegations as the first amended complaint, but naming the Chairman of the
Board, the Chief Executive Officer, and Chief Financial Officer individually in
the lawsuit also.  We are unable to estimate minimum costs, if any, to
be incurred by us upon the ultimate disposition of this matter and, accordingly,
no provision has been made.




On
December 22, 2009, a lawsuit was filed by a former officer and employee of the
Company alleging a severance benefit of $100,000 and unused vacation time of
$29,135 are owed him and damages in excess of $10,000 to be specifically
determined at trial.  We are vigorously defending this lawsuit and are
unable to estimate minimum costs, if any, to be incurred by us upon the ultimate
disposition of this matter and, accordingly, no provision has been
made.




9.
Income taxes:




As of
December 31, 2009, net operating loss carryovers for federal income tax
reporting purposes were approximately $40 million and expire between 2013 and
2027. However, because we have not achieved a satisfactory level of operations,
realization of any future income tax benefit of the net operating loss
carryovers accumulated to date is not yet viewed by management at this time as
more likely than not.  Therefore, the related deferred tax asset of
$14 million has been effectively reduced by a 100% valuation
allowance.  In addition, we could be limited in our ability to utilize
our net operating loss carryforwards and realize any benefit therefrom in the
event of any of certain ownership changes described in Internal Revenue Code
Section 382.  Tax years that are still subject to IRS examination
are 2006 through 2008.




10.
Financial instruments:




Our financial instruments consist of
cash, accounts receivable and debt.  The estimated fair values of
these financial instruments (based on level 2 inputs) are approximately equal to
book value because of their short-term nature and/or interest rates
approximating current market interest rates.




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11.
Segment information:




We conduct our operations in three
primary business segments: “Casino Games,” Products” and “Other.” The “Casino
Games” segment generates income from four games which are played in 11 casinos
and 100 bars and convenience stores in Nevada and another 10 casinos outside
Nevada.





Our Casino Games activities consist of
keno style games (Nevada Numbers and The Million Dollar Ticket), and Super
Bonanza, a bingo style game and Gamblers Bonus Million Dollar Ticket, a
promotional sweepstakes game, which was launched on April 14, 2008 and
discontinued on January 31, 2009.  The composition of our casino games
revenue was approximately 69.6% bingo, 16.7% keno and 13.7% promotional
sweepstakes during the year ended December 31, 2008 and approximately 91.4%
bingo, 7.6% keno and 1% promotional sweepstakes for 2009.





The “Products” segment generates
revenue essentially through the sale of keno and bingo supplies and keno
equipment.  Supplies include paper products, inside/outside tickets,
promotional items and ink for bingo daubers.  Supplies accounted for
73% and 89% of our products sales during 2008 and 2009,
respectively.  Keno system sales accounted for 27% and 18% of products
sales for 2008 and 2009, respectively.





The “Other” segment includes revenue
from equipment maintenance contracts which accounted for 64% and 51% of other
revenue during the 2008 and 2009, respectively; operation of a keno route (16%
and 29% for the 2008 and 2009, respectively), and keno route participation
agreements (20% and 18% for 2008 and 2009, respectively).




Operating results, certain unallocated
expenditures, and identifiable assets for these segments are set forth
below.




2008
            
            
            2009RevenueCasino
      Games
            
            $
            2,525,884
            
            
            $
            1,747,571Product
      Sales
            
            
            1,255,428
            
            
            
            1,008,202Other
            
            
            997,680
            
            
            
            1,063,481$
            4,778,992
            
            
            $
            3,819,254Operating
      income (loss)Casino
      Games
            
            $
            (428,089
            )
            
            $
            288,335Product
      Sales
            
            
            (51,777
            )
            
            
            397,591Other
            
            
            (234,140
            )
            
            
            188,110Unallocated
            
            
            (9,499,296
            )
            
            
            (5,610,464
            )$
            (10,213,302
            )
            
            $
            (4,736,428
            )Identifiable
      assetsCasino
      Games
            
            $
            2,668,200
            
            
            $
            1,422,438Product
      Sales
            
            
            381,176
            
            
            
            265,833Other
            
            
            386,004
            
            
            
            201,321Unallocated
            
            
            3,038,947
            
            
            
            1,647,145$
            6,474,327
            
            
            $
            3,536,737





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Identifiable
assets of $6,474,327 and $3,536,737 at December 31, 2008 and 2009, respectively,
included recorded goodwill of $2,371,178 and $1,413,901 at December 31, 2008 and
2009, respectively, that relates to the Unallocated Sales segment.




Capital
      expenditures
            
            2008
            
            
            2009Casino
      Games
            
            $
            197,790
            
            
            $
            15,053Product
      Sales
            
            
            -
            
            
            
            -Other
            
            
            109,034
            
            
            
            43,823Unallocated
            
            
            134,504
            
            
            
            35,474$
            441,328
            
            
            $
            94,350




12.
Related party transactions:




Our Board Chairman and CFO, were each
granted 30,000 stock options respectively for personal guarantees of stockholder
advances and personal loans made to the Company during 2009.  They
were also granted 30,000 and 35,000 stock options, respectively, for personal
guarantees of stockholder advances, and the CFO was granted 5,000 shares for
advances personally made to the Company during 2008.





13.  Sale
of assets





We completed the sale of our
bingo business, keno intellectual property, and our route promo business assets
with United Coin to Gaming Arts, LLC (GA) on August 19, 2009, for
$1,050,000.  GA also executed a Nevada Numbers License Agreement for
$50,000 for an exclusive license to operate, grant sublicenses and enforce the
Nevada Numbers intellectual property in any non-slot application.  In
addition, GA received a non-exclusive license to operate, grant one sublicense,
and enforce the Nevada Numbers intellectual property in any slot machine
application for 50% of the net profits after GA or its sub-licensee receives the
first $100,000 in net profits.  However, since GA has not received the
necessary regulatory approval to be a gaming operator, the Company continues to
maintain control of these assets and manage them on a day-to-day basis for an
indefinite period pending such approvals.  The gain on the sale of these
assets has been deferred pending such approvals.  As a result of
significant uncertainty as to the achievement and timing of such
regulatory approvals, we are unable to conclude that the disposition of these
business assets and activities within one year is
probable.  Therefore, pursuant to accounting principles generally
accepted in the United States, we have not classified the related assets as held
for sale nor the operations of these businesses as discontinued.





We also
executed an agreement for the sale of our keno business to Session Gaming, Inc.
for $100,000 on November 4, 2009.  This transaction likewise will not
close until Session Gaming, LLC, has been approved for licensing by the
appropriate gaming authorities in various jurisdictions.






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14.  Subsequent
events:





On January 29, 2010, the Company
defaulted on its $1.5 million note payable due to IGT, its largest stockholder,
which is carried among current liabilities.  The default totaled
$1,587,945 including accrued interest since June 1, 2009.  Thus far,
IGT has cooperated with the Company and not foreclosed on the note due to
potential funding sources the Company is in discussions with to pay off the
defaulted amount owed IGT and to inject new working capital into the
Company.  Due to the default, the interest rate increased to 18% on
January 30, 2010.





The Company is also in default on
dividends payable to IGT of $886,760 which is included in accounts payable and
accrued expenses on its Series I Preferred Stock and is in default with Triangle
Holdings VI LLC (Triangle), a shareholder who has invested in Series E Preferred
Stock and Common Stock, on its Series G Convertible Preferred Stock of $107,847
at December 31, 2009.  The Company executed a Stock Repurchase
Agreement with Triangle Holdings VI LLC on March 23, 2010, for its $750,000 of
Series G Preferred Stock and its $107,847 of accrued
dividends.  Triangle Holdings VI LLC also loaned the Company $150,000
for current working capital purposes and the Company committted to a $100,000
loan fee for the loan.  To securitize the stock redemption, the
accrued dividends, the loan and the loan fee, the Company signed a Secured
Second Position Promissory Note for $1,107,847 with Triangle, which will be due
if IGT is paid off their defaulted note, interest, and dividends.





The above represents all subsequent
events necessary for disclosure through the date of our filing our annual form
10-K which is May 12, 2010.








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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.




Not
applicable.




ITEM 9A. CONTROLS AND PROCEDURES.




We
maintain disclosure controls and procedures that are intended to ensure
that information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and the Chief Financial
Officer.




Our
management, including the Chief Executive Officer and the Chief Financial
Officer, has conducted an evaluation of the effectiveness of disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15(c) as of December 31,
2009.  Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the disclosure controls and procedures
were not effective given the material weakness in the internal control over
financial reporting discussed below.




Management’s
Report on Internal Control over Financial Reporting


Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was intended to
provide reasonable assurance to our management and board of directors regarding
the preparation and fair presentation of published financial
statements.
  Management
and the Company’s independent registered accounting firm have identified a group
of control deficiencies with regard to key business processes, which we believe,
in the aggregate, represents a material weakness in the Company’s internal
control over financial reporting as of December 31, 2009.
  Among the
most significant of these deficiencies were inadequate segregation of
duties, including the need for a corporate controller and additional
accounting personnel.  Many of these deficiencies had the effect of
causing undetected material misstatements in financial reporting to occur that
required correction with significant audit adjustments.  In addition,
such deficiencies had the potential for causing further misstatements to occur
and not be detected by the Company’s internal control.






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Management
assessed the effectiveness of our internal control over financial reporting (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) as
of December 31, 2009. In making this assessment, it used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control—Integrated Framework.  Based on the assessment
performed on the effectiveness of our internal controls, management believes
that, as of December 31, 2009, our internal controls were not effective based on
the above criteria.




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.




Changes
in Internal Control over Financial Reporting




Management
believes that the hiring of a controller and additional accounting personnel
will properly address segregation of duties issues and significant deficiencies
in its internal accounting control system.  We will hire these key
accounting personnel with the next round of capital that is raised by
us.




ITEM 9B.  OTHER INFORMATION.




None.




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PART
III




ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.




Code
of Ethics




Our Board
of Directors has adopted a code of conduct and ethics applicable to each of our
directors, officers and employees.  The full text of the code of
conduct and ethics and the code of ethics are available at our website at www.lvgi.com.





Audit
Committee




The
Company has an Audit Committee consisting of two members, Harlen Braaten and
Rich Irvine.  The Board determined that Harlan Braaten and Rich Irvine
are “independent directors” as that term is defined in NASDAQ National Stock
Market rules and Rule 10A-3 of the Securities Exchange Act of 1934 and that Mr.
Braaten is an “audit committee financial expert” as that term is defined in Item
407 of Regulation S-B promulgated by the SEC.  Mr. Braaten is the
chair of the Audit Committee.  The Board has also adopted an audit
committee charter.





The
remaining information required by this Item will be filed with the SEC either
through an amendment to this Report (the “Amendment”) or through the definitive
proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the
SEC (the “2010 Proxy Statement”).





ITEM 11. EXECUTIVE
COMPENSATION.




The
information required by this Item will be filed through either the Amendment or
the 2010 Proxy Statement.





ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   AND
RELATED STOCKHOLDER MATTERS.




The
information required by this Item will be filed through either the Amendment or
the 2010 Proxy Statement.




ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.




The
information required by this Item will be filed through either the Amendment or
the 2010 Proxy Statement.




ITEM 14. PRINCIPAL
ACCOUNTANTS’ FEES AND SERVICES.




The
information required by this Item will be filed through either the Amendment or
the 2010 Proxy Statement.






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PART
IV





ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.




(a)           Documents
Filed as Part of this Report:




(1)  Financial
Statements




Included
in Part II of this report:




Consolidated
Balance Sheets at December 31, 2008 and 2009.




Consolidated
Statements of Operations for the Years Ended December 31, 2008 and
2009.




Consolidated
Statements of Stockholders’ Equity for the Years Ended December 31, 2008
and 2009.




Consolidated
Statements of Cash Flow for the Years Ended December 31, 2008 and
2009.




Notes to
Consolidated Financial Statements




(2)  Financial Statement
Schedules




Not
required.




(3)  Exhibits




See response to (b) below




(b)           Exhibits




Included as Exhibits are the items
listed in the Exhibit Index.




(c)           Financial
Statement Schedules:




Not
required




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SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




Las Vegas Gaming,
      Inc. (Registrant)By:
            /s/
      Jon D. BerkleyJon
      D. Berkley
              President
      and Chief Executive Officer
              (Principal
      Executive Officer)Date:
            May
      12, 2010





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
      Jon D. Berkley
            
            Director,
      President and Chief Executive
            
            May
      12, 2010Jon
      D. Berkley
            
            Officer
      (Principal Executive Officer)/s/
      Bruce A. Shepard
            
            Chief
      Financial Officer and
            
            May
      12, 2010Bruce
      A. Shepard
            
            Treasurer
      (Principal Financial and Accounting Officer)/s/
      Russell R. Roth
            
            Director
            
            May
      12, 2010Russell
      R. Roth/s/
      Harlan D. Braaten
            
            Director
            
            May
      12, 2010Harlan
      D. Braaten/s/
      Richard H. Irvine
            
            Director
            
            May
      12, 2010Richard
      H. Irvine





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EXHIBIT
INDEX




Exhibit
            
            Document
      Description2.1
            
            Stock
      Purchase Agreement dated June 30, 2002, by and among registrant,
      Imagineering Systems, Inc., Ron Mach, and Alicia Mach and Bill Williams,
      incorporated by reference to registrant’s Annual Report, as amended, on
      Form 10-KSB/A, as filed with the SEC on July 19, 2006.2.2
            
            Agreement
      and Plan of Merger dated April 30, 2003 among registrant, Las Vegas Twin,
      Inc., Triple Win in Nevada, Inc. and Robert G. Ducaj, II, John Mulligan,
      Leta K. Mulligan, and Michael Cassidy, incorporated by reference to
      registrant’s Quarterly Report on Form 10-QSB, as filed with the SEC on May
      20, 2003.2.3
            
            Closing
      Agreement for Stock Purchase dated July 1, 2003 by and among the
      registrant, Imagineering Systems, Inc., Ron Mach and Alicia Mach and Bill
      Williams, incorporated by reference to registrant’s Quarterly Report on
      Form 10-QSB, as filed with the SEC on August 9, 2003.2.4
            
            Agreement
      and Plan of Merger dated January 14, 2005, among the registrant, AdLine
      Gaming, Inc. and AdLine Network, LLC, incorporated by reference to
      registrant’s Current Report on Form 8-K, as filed with the SEC on January
      24, 2005.3.1
            
            Articles
      of Incorporation, as filed with the Nevada Secretary of State on April 28,
      1998, incorporated by reference to registrant’s Registration Statement on
      Form 10-SB12G/A, as filed with the SEC on June 19,
2000.3.2
            
            Certificate
      of Amendment to Articles of Incorporation, as filed with the Nevada
      Secretary of State on June 7, 2000, incorporated by reference to
      registrant’s Annual Report of Form 10-KSB, as filed with the SEC on April
      12, 2001.3.3
            
            Certificate
      of Amendment to Articles of Incorporation, as filed with the Nevada
      Secretary of State on December 8, 2005, incorporated by reference to
      registrant’s Annual Report, as amended, on Form 10-KSB/A, as filed with
      the SEC on July 19, 2006.3.4
            
            Certificate
      of Correction, as filed with the Nevada Secretary of State on July 14,
      2006, incorporated by reference to registrant’s Current Report on Form
      8-K, as filed with the SEC on July 19, 2006.3.5
            
            Certificate
      of Designation for Common Stock, as filed with the Nevada Secretary of
      State on July 17, 2006, incorporated by reference to registrant’s Current
      Report on Form 8-K, as filed with the SEC on July 19,
  2006.3.6
            
            Certificate
      of Withdrawal of Certificate of Designation for Series A Convertible
      Preferred Stock, as filed with the Nevada Secretary of State on October 3,
      2008, incorporated by reference to registrant’s Current Report on Form
      8-K, as filed with the SEC on October 7, 2008.3.7
            
            Certificate
      of Withdrawal of Certificate of Designation for Series C Convertible
      Preferred Stock, as filed with the Nevada Secretary of State on October 3,
      2008, incorporated by reference to registrant’s Current Report on Form
      8-K, as filed with the SEC on October 7, 2008.3.8
            
            Certificate
      of Withdrawal of Certificate of Designation for Series D Convertible
      Preferred Stock, as filed with the Nevada Secretary of State on October 3,
      2008, incorporated by reference to registrant’s Current Report on Form
      8-K, as filed with the SEC on October 7, 2008.3.9
            
            Amended
      and Restated Certificate of Designation for Series B Convertible Preferred
      Stock, as filed with the Nevada Secretary of State on October 22, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.3.10
            
            Amended
      and Restated Certificate of Designation for Series E Convertible Preferred
      Stock, as filed with the Nevada Secretary of State on October 22, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.   - 57
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   Exhibit
            
            Document
      Description3.11
            
            Amended
      and Restated Certificate of Designation for Series F Convertible Preferred
      Stock, as filed with the Nevada Secretary of State on October 22, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.3.12
            
            Amended
      and Restated Certificate of Designation for Series G Convertible Preferred
      Stock, as filed with the Nevada Secretary of State on October 22, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.3.13
            
            Amended
      and Restated Certificate of Designation for Series H Convertible Preferred
      Stock, as filed with the Nevada Secretary of State on October 22, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.3.14
            
            Certificate
      of Designation for Series I Preferred Stock, as filed with the Nevada
      Secretary of State on October 22, 2008, incorporated by reference to
      registrant’s Current Report on Form 8-K, as filed with the SEC on October
      28, 2008.3.15
            
            Restated
      Bylaws of registrant, incorporated by reference to registrant’s
      Registration Statement on Form 8-A12G, as filed with the SEC on January
      26, 2009.3.16
            
            First
      Amendment to Restated Bylaws, incorporated by reference to registrant’s
      Current Report on Form 8-K, as filed with the SEC on April 24,
      2009.10.1
            
            Stock
      Option Plan (2000), incorporated by reference to Appendix A of
      registrant’s definitive proxy statement dated October 29, 2007, as filed
      with the SEC on October 29, 2007.(1)10.2
            
            First
      Amendment to the Stock Option Plan (2000), incorporated by reference to
      Appendix B of registrant’s definitive proxy statement dated October 29,
      2007, as filed with the SEC on October 29, 2007.(1)10.3
            
            Consulting
      Agreement dated March 31, 2005 by and between registrant and Michael
      Shillan/Shillan Co., LLC, incorporated by reference to registrant’s Annual
      Report, as amended, on Form 10-KSB/A, as filed with the SEC on July 19,
      2006.10.4
            
            Gamblers
      Bonus Sweepstakes Agreement dated March 31, 2005 between registrant and
      United Coin Machine Company, incorporated by reference to registrant’s
      Annual Report, as amended, on Form 10-KSB/A, as filed with the SEC on July
      19, 2006.10.5
            
            License
      Agreement dated July 8, 2005 between registrant and Leroy’s Sports and
      Horse Place, incorporated by reference to registrant’s Annual Report, as
      amended, on Form 10-KSB/A, as filed with the SEC on July 19,
      2006.10.6
            
            License
      Agreement dated July 11, 2005 between registrant and Leroy’s Sports and
      Horse Place, incorporated by reference to registrant’s Annual Report, as
      amended, on Form 10-KSB/A, as filed with the SEC on July 19,
      2006.10.7
            
            Memorandum
      of Understanding for the Use of PortalVision for Account Wagering between
      registrant and Computerized Bookmaking Systems, Inc., incorporated by
      reference to registrant’s Annual Report, as amended, on Form 10-KSB/A, as
      filed with the SEC on July 19, 2006.10.8
            
            Waiver
      and Release Agreement dated February 1, 2006 between registrant and AdLine
      Network, LLC incorporated by reference to registrant’s Annual Report on
      Form 10-KSB, as filed with the SEC on April 17, 2006.10.9
            
            Assignment
      Agreement dated February 1, 2006 between registrant and AdLine Network,
      LLC, incorporated by reference to registrant’s Annual Report, as amended,
      on Form 10-KSB/A, as filed with the SEC on July 19,
  2006.10.10
            
            Securities
      Purchase Agreement dated March 31, 2006 between registrant and CAMOFI
      Master LDC, incorporated by reference to registrant’s Current Report on
      Form 8-K, as filed with the SEC on April 7,
  2006.   - 58
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 Table of Contents
   Exhibit
            
            Document
      Description10.11
            
            Amended
      and Restated Senior Secured Convertible Note with Original Issue Date of
      March 31, 2006 in favor of CAMOFI Master LDC, incorporated by reference to
      registrant’s Quarterly Report on Form 10-Q, as filed with the SEC on
      August 19, 2008.10.12
            
            Amended
      and Restated Registration Rights Agreement dated April 30, 2008 between
      registrant and CAMOFI Master LDC, incorporated by reference to
      registrant’s Quarterly Report on Form 10-Q, as filed with the SEC on
      August 19, 2008.10.13
            
            Warrant
      Agreement dated March 31, 2006 between registrant and CAMOFI Master LDC,
      incorporated by reference to registrant’s Annual Report, as amended, on
      Form 10-KSB/A, as filed with the SEC on July 19, 2006.10.14
            
            Security
      Agreement dated March 31, 2006 between registrant and CAMOFI Master LDC,
      incorporated by reference to registrant’s Annual Report, as amended, on
      Form 10-KSB/A, as filed with the SEC on July 19, 2006.10.15
            
            First
      Amendment to Security Agreement dated April 30, 2008, incorporated by
      reference to registrant’s Quarterly Report on Form 10-Q, as filed with the
      SEC on August 19, 200810.16
            
            Subsidiary
      Guarantee dated March 31, 2006 between registrant and CAMOFI Master LDC,
      incorporated by reference to registrant’s Annual Report, as amended, on
      Form 10-KSB/A, as filed with the SEC on July 19, 2006.10.17
            
            First
      Amendment to Subsidiary Guarantee dated April 30, 2008, incorporated by
      reference to registrant’s Quarterly Report on Form 10-Q, as filed with the
      SEC on August 19, 2008.10.18
            
            Consulting
      Agreement dated April 1, 2006 between registrant and JMC Investments,
      L.L.C., incorporated by reference to registrant’s Annual Report, as
      amended, on Form 10-KSB/A, as filed with the SEC on July 19,
      2006.10.19
            
            Subcontractor
      Purchase Agreement dated May 20, 2006 between registrant and Spectral
      Response, Inc, incorporated by reference to registrant’s Current Report on
      Form 8-K, as filed with the SEC on July 28, 2006.10.20
            
            Form
      Offer of Employment, incorporated by reference to registrant’s Annual
      Report, as amended, on Form 10-KSB/A, as filed with the SEC on July 19,
      2006.10.21
            
            Executive
      Employment Agreement of Jon D. Berkley dated May 15, 2007, incorporated by
      reference to registrant’s Quarterly Report on Form 10-QSB, as filed with
      the SEC on August 14, 2007.(1)10.22
            
            Form
      of Non-Qualified Stock Option Agreement, incorporated by reference to
      registrant’s Quarterly Report on Form 10-QSB, as filed with the SEC on
      November 19, 2007.10.23
            
            Form
      of Warrant Agreement, incorporated by reference to registrant’s Quarterly
      Report on Form 10-QSB, as filed with the SEC on November 19,
      2007.10.24
            
            Asset
      Acquisition Agreement between registrant, Las Vegas Gaming Acquisition
      Corp., Adline Network Holdings, Inc., Adline Media, LLC, Adline Network,
      LLC, Freeview Network, LLC, Sam Johnson and Larry L. Enterline dated
      September 29, 2008 , incorporated by reference to registrant’s
      Current Report on Form 8-K, as filed with the SEC on October 3,
      2008.10.25
            
            Investment
      Agreement between registrant and IGT dated September 30, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 7, 2008.10.26
            
            Form
      of Warrant to purchase Common Stock and Common Stock Series A issuable to
      IGT, incorporated by reference to registrant’s Current Report on Form 8-K,
      as filed with the SEC on October 7, 2008.   - 59
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 Table of Contents
   Exhibit
            
            Document
      Description10.27
            
            Satisfaction
      and Termination Agreement between registrant, Imagineering Gaming, Inc.,
      Las Vegas Keno, Inc. and CAMOFI Master LDC dated October 24, 2008,
      incorporated by reference to registrant’s Current Report on Form 8-K, as
      filed with the SEC on October 28, 2008.10.28
            
            First
      Amendment to Warrants between registrant and CAMOFI Master LDC dated
      October 24, 2008, incorporated by reference to registrant’s Current Report
      on Form 8-K, as filed with the SEC on October 28, 2008.10.29
            
            License
      Application and Support Agreement between registrant and IGT dated
      September 30, 2008, incorporated by reference to registrant’s Quarterly
      Report on Form 10-Q, as filed with the SEC on November 19,
      2008.(2)10.30
            
            Intellectual
      Property Access Agreement between registrant and IGT dated September 30,
      2008, incorporated by reference to registrant’s Quarterly Report on Form
      10-Q, as filed with the SEC on November 19, 2008.10.31
            
            Retrofit
      License Agreement between registrant and IGT dated September 30, 2008,
      incorporated by reference to registrant’s Quarterly Report on Form 10-Q,
      as filed with the SEC on November 19, 2008.(2)10.32
            
            Binding
      Term Sheet between registrant and IGT dated February 13, 2009,
      incorporated by reference to registrant’s Annual Report on Form 10-K, as
      filed with the SEC on April 8, 2009.(3)10.33
            
            (*)
      Security Agreement dated May 22, 2009 between
      registrant and IGT.10.34
            
            (*)
      Patent Security Agreement dated May 22, 2009 between
      registrant and IGT.10.35
            
            (*)
      Trademark Security Agreement dated May 22, 2009
      between registrant and IGT.10.36
            
            Technology
      Royalty Agreement dated August 6, 2009 between registrant and Perfect
      Storm Software, LLC, incorporated by reference to registrant’s Quarterly
      Report on Form 10-Q, as filed with the SEC on August 19,
    2009.10.37
            
            Asset
      Purchase Agreement dated August 19, 2009 between registrant and Gaming
      Arts, LLC, incorporated by reference to registrant’s Current Report on
      Form 8-K/A, as filed with the SEC on August 27, 2009.10.38
            
            (*)
      Amended Security Agreement dated September 2, 2009
      between registrant and Gaming Arts, LLC.10.39
            
            Asset
      Purchase Agreement dated November 4, 2009 between registrant and Session
      Gaming, LLC, incorporated by reference to registrant’s Current Report on
      Form 8-K, as filed with the SEC on November 20, 2009.10.40
            
            Secured
      Promissory Note dated June 1, 2009 in favor of IGT, incorporated by
      reference to registrant’s Quarterly Report on Form 10-Q, as filed with the
      SEC on November 23, 2009.10.41
            
            First
      Addendum to Intellectual Property Access Agreement between registrant and
      IGT dated September 4, 2009 (to be effective June 1, 2009), incorporated
      by reference to registrant’s Quarterly Report on Form 10-Q, as filed with
      the SEC on November 23, 2009.10.42
            
            First
      Addendum to License and Application Support Agreement between registrant
      and IGT dated September 4, 2009 (to be effective June 1, 2009),
      incorporated by reference to registrant’s Quarterly Report on Form 10-Q,
      as filed with the SEC on November 23, 2009.(4)10.43
            
            (*)
      Security Agreement dated November 5, 2009 between
      registrant and Gaming Arts, LLC.10.44
            
            (*)
      Security Agreement dated December 18, 2009 between
      registrant and Gaming Arts, LLC.10.45
            
            (*)
      Security Agreement dated December 30, 2009 between
      registrant and Gaming Arts, LLC.10.46
            
            (*)
      Security Agreement dated March 11, 2010 between
      registrant and Gaming Arts, LLC.   - 60
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 Table of Contents
   Exhibit
            
            Document
      Description10.47
            
            (*)
      Stock Repurchase Agreement entered into as of January
      1, 2010 between registrant and Triangle Holdings VI
    LLC.21.1
            
            (*)
      List of Subsidiaries of
  Registrant.31.1
            
            (*)
      Certification of Chief Executive Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of
  2002.31.2
            
            (*)
      Certification of Chief Financial Officer pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of
  2002.32.1
            
            (*)
      Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.(*)
            
            Filed
      herewith.(1)
            
            Management
      contracts or compensatory plans or arrangements that were previously filed
      as exhibits pursuant to Item 601(b)(10)(iii) of
      Regulation S-K.(2)
            
            Confidential
      treatment has been granted by the SEC for portions of this
      exhibit.  These portions have been omitted from the exhibit as
      filed with the registrant’s Quarterly Report on Form 10-Q, as filed with
      the SEC on November 19, 2008.(3)
            
            Confidential
      treatment has been granted for portions of this exhibit.  These
      portions have been omitted from the exhibit as filed with the registrant’s
      Annual Report on Form 10-K, as filed with the SEC on April 8,
      2009.(4)
            
            Confidential
      treatment has been requested by the SEC for portions of this
      exhibit.  These portions have been omitted from the exhibit as
      filed with the registrant’s Quarterly Report on Form 10-Q, as filed with
      the SEC on November 23, 2009.





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