**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





**FORM
10KSB**





[X]
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year endedDecember
      31, 2004[ 
       ]
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor the transition period from _________ to ________Commission
      file number:000-30375





**LAS
      VEGAS GAMING, INC.**(Name
      of small business issuer in its charter)**Nevada**
    **88-0392994**(State or other jurisdiction of incorporation or
    organization)
    (I.R.S.
      Employer Identification No.)4000
      West Ali Baba, Suite D
      Las
      Vegas, Nevada
    89118(Address
      of principal executive offices)
    (Zip
      Code)Issuer’s
      telephone number:(702)
      871-7111Securities
      registered under Section 12(b) of the Exchange Act:Title
      of each class
    Name
      of each exchange on which registeredNone
    Not
      ApplicableSecurities
      registered under Section 12(g) of the Exchange Act:Common
      Stock(Title
      of class)





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





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





State
issuer’s revenue for its most recent fiscal year: $4,807,028





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity, as of a specified date within the past 60 days. $5,849,345
as of December 31, 2004 .





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date.


7,123,955
Common Shares as of March 31, 2005





Transitional
Small Business Disclosure Format (Check One): Yes: __; No X





1
 ***Table of
Contents***





**Table of Contents**









PagePART
      IItem
      1:
    Description of Business
    3Item
      2:
    Description of Property
    12Item
      3:
    Legal Proceedings
    12Item
      4:
    Submission of Matters to a Vote of Security
      Holders
    13PART
      IIItem
      5:
    Market for Common Equity and Related Stockholder
      Matters
    14Item
      6:
    Management’s Discussion and Analysis or Plan of
      Operation
    15Item
      7:
    Financial Statements
    20Item
      8:
    Changes In and Disagreements With Accountants on
      Accounting and Financial Disclosure
    21Item
      8A:
    Controls and Procedures
    21Item
      8B:
    Other Information
    21PART
      IIIItem
      9:
    Directors, Executive Officers, Promoters and Control
      Persons; Compliance With Section 16(a) of the Exchange
    Act
    22Item
      10:
    Executive Compensation
    24Item
      11:
    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
    25Item
      12:
    Certain Relationships and Related
      Transactions
    26Item
      13:
    Exhibits
    27Item
      14:
    Principal Accountant Fees and
      Services
    27








2
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**PART I**





**ITEM
1.**  **DESCRIPTION OF BUSINESS**





Las Vegas
Gaming, Inc. and subsidiaries (the “Company” or “LVGI”) is in the business of
developing, marketing and distributing casino games, selling gaming supplies and
keno equipment, and providing various related services to the gaming industry.
Currently, LVGI has the rights to a number of games, including, among others,
“Nevada Numbers Ô ”, “The
Million Dollar TicketTM”, “Nevada Bingo Ô ”,
“Nevada Combo Ô ”, “Super
Bonanza” and “4-Play Amore Ô ”.





LVGI has
developed keno and bingo style casino games. Its keno style games include Nevada
Numbers Ô , Nevada
Keno, and a linked, progressive 10-spot game known as The Million Dollar
TicketTM. Its bingo style games include Super Bonanza and, in Native American
Casinos, American Numbers and Super Bonanza. During 2005 resources will be
directed at developing and implementing a promotional version of The Million
Dollar TicketTM (referred to in previous filings as Gamblers Bonus Lottery) and
Pop-up Nevada NumbersTM. The promotional version of The Million Dollar TicketTM
will be operated in cooperation with the largest slot route operator in Nevada.
Slot customers of the slot route operator/establishment owner will be awarded
drawing tickets to a promotional jackpot based on predetermined winning slot
payout combinations. The slot operator/establishment owner will compensate LVGI
for each ticket that is issued. Pop-up Nevada NumbersTM is another distribution
method for Nevada NumbersTM where slot customers in larger casinos (with
unrestricted licenses where keno is approved) can purchase a ticket at any touch
screen video slot machine with “ticket in ticket out” (cashless)
technology.





LVGI
recently completed the engineering of a state-of-the-art keno system (Optima).
Initial customer interest has been encouraging and it is anticipated that the
sale of keno systems will increase over the next couple of years. Additionally,
our bingo electronics supplier is introducing some new products that should
allow our electronic bingo revenue to grow as well.





The vast
majority of our sales are generated in Nevada, with the majority coming from the
southern part of the state. Looking forward over the next several years, we
expect this concentration to increase, as a result of the launch of Pop-up
Nevada NumbersTM and the promotional version of The Million Dollar TicketTM. Keno
equipment sales are expected to occur to a greater extent outside of
Nevada.





In order
to supply gaming industry products and services, many states require suppliers
to obtain special licenses. Such licenses have been awarded to LVGI in Nevada,
Oregon, Nebraska, Mississippi, Washington, Montana and Arizona. Efforts are
being made to secure a license in New Jersey.





**Corporate
Organization and History**





LVGI was
incorporated pursuant to the laws of the State of Nevada on April 28, 1998, and
has two largely inactive subsidiaries;100% owned Imagineering Gaming, Inc. and
85% owned Las Vegas Keno, Inc.





**Casino
Games Unit**





The
Casino Games Unit derives most of its revenue from royalties earned on games
played in Nevada casinos.





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**Nevada
NumbersTM** . Nevada
NumbersTM is a variation of classic keno currently played in approximately 34
casinos in Nevada. Classic 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 the 80 numbered balls in a selection hopper. A player marks a ticket to play
between two and twenty 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 are affected by the amount wagered.





Nevada
NumbersTM differs from the classic form of keno in that fewer numbers (5 rather
than 20) are drawn. In addition, as LVGI plays the game, it is “linked” and
“progressive”. Linking is the process of tying together otherwise separate games
held at different unassociated casinos (locations not under common ownership)
into one. In other words, players at several different locations all choose
numbers that are matched to the same five-number draw. A game is “progressive”
when the jackpot grows each time a ticket is purchased. After a progressive
jackpot is won, the winning player may be paid the jackpot in the form of an
annuity for 20 years or more, or a present-value lump sum amount. The jackpot
resets to a base amount from which it will increase until it is won again. The
process of linking games and creating a progressive jackpot provides an
enticement to players because of the potential for a life-changing
event.





Currently
Nevada NumbersTM suffers from a lack of volume. LVGI believes the lack of volume
is due to the limited distribution the game currently enjoys. During 2006, we
hope to dramatically increase distribution by making the game available on slot
machines (this version of the game will be known as Pop-up Nevada NumbersTM).
There are many hurdles to pass for this event happen, but management believes we
can achieve this and if we do, the impact on sales could be
significant.





**The
Million Dollar TicketTM.** The
Million Dollar TicketTM is a classic keno game, except the progressive jackpot is
currently linked among 15 unrelated casinos in Nevada. Four non-Nevada casinos
play an unlinked version of the game. A player must pick 10 numbers correctly
out of 20 drawn from a pool of 80. If he does, he wins $1,000,000 plus the
progressive. This game is currently rather small, but it is quite possible that
2005 could see significant growth as our chief competitor has withdrawn from the
business. A promotional version of the game (referred to in previous filings as
Gamblers Bonus Lottery) will be free to video poker players with specified
winning jackpots at certain locations associated with Nevada’s largest slot
route operator, a company that has approximately 12,000 video poker machines in
operation as of December 31, 2004, many of which will be linked to this
promotional game. We expect the beta test and roll out to occur within the
second quarter of 2005. We anticipate this game to be a significant contributor
to our profits over the coming years.





**Super
Bonanza** . Super
Bonanza is a linked, progressive, $100,000-base jackpot bingo game launched in
July 2003. It is currently being played in 11 Nevada casinos and four non-Nevada
casinos. So far, while volume has been very good for a start, our earnings have
been less than expected because of mathematically high winnings from players. At
some point, we expect Super Bonanza to come into balance and earnings to
increase. Management expects that during 2005  it will
be operating in two to four additional Nevada casinos and selling more tickets
per casino. We also expect to grow the non-Nevada portion significantly over the
next few quarters.








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**Product
Sales Unit**





**Product
sales include keno and bingo equipment and supplies.**





**Sales
of keno and bingo equipment.** The
worldwide keno equipment market is a small one and has been shrinking for
several years. There is one serious competitor and we have been dividing the
business evenly with them for several years. They have won most of the new
business in Nevada and we have won most of the new business elsewhere. With the
release of our Optima keno system, we expect to reinvigorate the entire market
and begin to get a larger share of the new equipment sales in
Nevada.





**Distribution
of keno and bingo supplies.** This line
of products contributes significantly to our revenue but is comprised of low
margin items including crayons, various paper products, and ink. However, we
expect volume and margins to increase because a couple of our competitors
recently discontinued operations and we are beginning to provide supplies to new
market areas.





**Other
Sales Business Component**





In
addition to the games and products described above, we also generate revenue
through maintenance of our equipment, operation of a keno route, and
distribution of bingo electronics.





**Nevada
Keno and related participation agreements.** Through
agreements with participating casinos, LVGI offers (beginning in May 2004)
Nevada Keno, a “satellited-linked” traditional keno game. That is, it is one
keno game played in multiple casinos. All casinos participating in Nevada Keno
are “bankrolled” by LVGI. The term “bankroll” comes from a Nevada Gaming
requirement to have available a certain amount of money for each game offered
that is intended to cover the maximum exposure of the casino at any point in
time. When a casino becomes part of the Nevada Keno “route”, it no longer has a
bankroll requirement because LVGI is responsible for payouts. LVGI also usually
provides all materials, equipment, and labor to accept and settle wagers.
However, some casinos have their own equipment and/or provide the labor. While a
minor portion of our business currently, we expect the number of these types of
participation agreements to increase in the future. The substance of the
agreement is that LVGI is the licensed operator of the game and is effectively
leasing equipment, employees and space within the participating casinos to
conduct the game. The effective rent is determined based on the expected volume
of the location and the varying levels of equipment and/or personnel provided by
the parties.





**Service
contracts.** Nearly
all our customers that purchase keno and bingo equipment from us, also
separately purchase a service contract from us to provide on-going maintenance
for the equipment. Service is an important strategic component for our Company.
While the revenue is fairly significant and expected to grow as our new Optima
system captures more market share, service contracts only contribute marginally
to our bottom line, a circumstance that is expected to continue.





**Distribution
of bingo electronics.** Distribution
of “hand-held” **** electronic
bingo devices is a growing revenue source. Currently, LVGI is a distributor for
the largest electronic bingo manufacturer in the world but only provides
placement services in Nevada. However, we are committed to expanding beyond
Nevada and expect to make significant progress during 2005.




5
 ***Table of
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**Government
Regulation**





**1.
Potential Legal, Regulatory and/or Compliance Risk.** LVGI is
required to obtain (and maintain) licenses and product approvals in all
jurisdictions in which it distributes its gaming products. The licensing and
approval process will generally involve extensive investigations into: (i) the
gaming products produced; (ii) LVGI itself; and, (iii) LVGI’s officers,
directors, and principal shareholders, and can require significant expenditures
of time and resources. In addition, gaming regulatory authorities have broad
discretionary powers and may deny applications or revoke approvals on any basis
they deem reasonable. There is no guarantee that LVGI, its products or its
personnel, will be able to maintain all required approvals.





Potential
shareholders should note that any beneficial holder of an equity interest in
LVGI might be subject to investigation by any gaming authority in any or all
jurisdictions in which LVGI does business, if such authorities have reason to
believe that such ownership may be inconsistent with the state's gaming
policies. Persons who acquire beneficial ownership of more than a certain
designated percentage of LVGI’s common shares may be subject to certain
reporting and qualification procedures. In addition, changes in control of LVGI
and certain other corporate transactions may not be effectuated without the
prior approval of the gaming authorities in those jurisdictions in which LVGI
does, or anticipates doing, business. Such regulatory provisions could adversely
affect the marketability, if any develops, of the common shares and could
prevent certain corporate transactions, including mergers or other business
combinations.





**2.
Gaming Regulations and Licensing - Overview.** LVGI and
its products are subject to strict governmental regulations in most
jurisdictions in which its products are sold or are used by persons or entities
licensed to conduct gaming activities. Such gaming regulations vary from
jurisdiction to jurisdiction and the classification and level of the regulatory
licensing, approvals and compliance to which LVGI and its products must conform
also vary by jurisdiction.





In the
event gaming authorities determine that an officer, director, key employee,
stockholder or other person of LVGI is unsuitable to act in such a capacity,
LVGI will be required to terminate its relationship with such person or lose its
operating rights and privileges in that jurisdiction. This may have a material
adverse effect on LVGI. Such a finding of unsuitability could have a material
adverse effect on LVGI’s future. There can be no assurance that LVGI will obtain
all the necessary licenses and approvals or that its officers, directors, key
employees, their affiliates and certain other stockholders will satisfy the
suitability requirements in each jurisdiction in which its products are sold or
used by persons licensed to conduct gaming activities. The failure to obtain
such licenses and approvals in one jurisdiction may affect LVGI's licensure
and/or approvals in other jurisdictions. In addition, a significant delay in
obtaining such licenses and approvals could have a material adverse effect on
the business prospects of LVGI.





LVGI's
products are generally classified as "associated equipment”. Associated
equipment is equipment that is not classified as a "gaming device”, but which
has such an integral relationship to the conduct of licensed gaming that
regulatory authorities have discretion to require suppliers of such systems to
meet licensing suitability requirements prior to or concurrent with the use of
such equipment in the respective jurisdiction. Regulatory authorities generally
must approve associated equipment in advance.





LVGI
intends to seek the necessary registrations, licenses, approvals and findings of
suitability for LVGI, its products and its personnel in those jurisdictions
throughout the world where it anticipates making significant sales. However,
there can be no assurance that such registrations, licenses, approvals or
findings of suitability will be obtained or will not be revoked, suspended or
conditioned, or that LVGI will be able to obtain the necessary approvals for its
future products as they are developed in a timely manner, or at all. If a
registration,





6
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license,
approval or finding of suitability is required by a regulatory authority and
LVGI fails to seek or does not receive the necessary registration, license,
approval or finding of suitability, LVGI may be prohibited from selling its
products for use in the respective jurisdiction or may be required to sell its
products through other licensed entities at a reduced profit to
LVGI.





**3.
Regulation and Licensing - Nevada.** The
manufacturing and distributing of gaming devices and the operation of
inter-casino linked systems in Nevada are subject to: (i) the Nevada Gaming
Control Act and the regulations promulgated there under (collectively, “Nevada
Act”); and, (ii) various local regulations and ordinances. The Company’s
manufacturing, distributing and gaming operations (collectively, “Gaming
Operations”) are subject to the licensing and regulatory control of the Nevada
Gaming Commission (“Nevada Gaming Commission”), the Nevada State Gaming Control
Board (“Nevada Gaming Board”) and various county and city licensing agencies.
The Nevada Gaming Commission, the Nevada Gaming Board and the various county and
city licensing agencies are collectively referred to as the “Nevada Gaming
Authorities”.





The laws,
regulations and supervisory procedures of the Nevada Gaming Authorities are
based upon declarations of public policy which are concerned with, among other
things: (i) the prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in any capacity; (ii)
the establishment and maintenance of responsible accounting practices and
procedures; (iii) the maintenance of effective controls over the financial
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and, (v) to provide a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company’s Gaming Operations.





The
Company is registered by the Nevada Gaming Commission as a publicly traded
corporation (“Registered Corporation”) and, as such, it is required periodically
to submit detailed financial and operating reports to the Nevada Gaming
Commission and furnish any other information that the Nevada Gaming Commission
may require. The Company is also licensed by the Nevada Gaming Commission as a
manufacturer and distributor of gaming devices, and as an operator of an
inter-casino linked system (“OILS”). The Company has obtained from the Nevada
Gaming Commission the various registrations, approvals, permits and licenses
(individually a “Gaming License” and collectively, “Gaming Licenses”) required
in order to engage in Gaming Operations in Nevada. The Company’s Gaming Licenses
are also conditioned to allow the Chairman of the Nevada Gaming Board or his
designee to order the Company to cease any gaming activities if he or she
determines that the minimum bankroll requirements set forth in the Nevada Act
are not being met.





All
gaming devices and cashless wagering systems 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 or 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 approval process for gaming devices includes rigorous testing by
the Nevada Gaming Board, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set forth in the
regulations of the Nevada Gaming Commission. The Chairman of the Nevada Gaming
Board must administratively approve associated equipment before it is
distributed for use in Nevada. Inter-casino linked systems (“ICLS”) must also be
approved by the Nevada Gaming Commission. The approval process for an ICLS
includes rigorous testing by the Nevada Gaming Board, a field trial and a
determination as to whether the ICLS meets standards that are set forth in the
regulations of the Nevada Gaming Commission. On November 19, 2001, the Company
received the





7
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final
approval of the Nevada Gaming Commission for its Nevada Numbers ICLS. There can
be no assurances that future games will be approved by the Nevada Gaming
Commission.





The
Nevada Act requires any person, including an OILS, such as the Company, who is
authorized to receive a share of the revenue from any slot machine or 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 revenues (the difference between amounts wagered by casino patrons and
payments made to casino patrons). Significant increases in the fixed fees or
taxes currently levied per machine or the fees currently levied on gross
revenues could have a material adverse effect on the Company.





The
Nevada Gaming Authorities may investigate an individual who has a material
relationship to, or material involvement with, the Company in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors and certain key employees of
the Company must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable, by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in gaming activities of the Company 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, and both
require submission of detailed personal and financial information 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 and in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a 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
the Company, the Company would have to sever all relationships with such person.
In addition, the Nevada Gaming Commission may require the Company 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.





The
Company is required to submit detailed financial and operating reports to the
Nevada Gaming Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported
to, or approved by, the Nevada Gaming Commission.





If it
were determined that the Nevada Act was violated by the Company, the Gaming
Licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition, the
Company and the persons involved could be subject to substantial fines for each
separate violation of the Nevada Act at the discretion of the Nevada Gaming
Commission. Limitation, conditioning or suspension of any Gaming License could
(and revocation of any Gaming License would) materially adversely affect the
Company’s Gaming Operations.





Any
beneficial holder of the Company’s voting securities, regardless of the number
of shares owned, may be required to file an application, be investigated, and
have his suitability as a beneficial holder of the Company’s voting securities
determined if the Nevada Gaming Commission has 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.





8
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The
Nevada Act requires any person who acquires beneficial ownership of more than 5%
of the Company’s voting securities to report the acquisition to the Nevada
Gaming Commission. The Nevada Act requires that beneficial owners of more than
10% of the Company’s voting securities apply to the Nevada Gaming Commission for
a finding of suitability within 30 days after the Chairman of the Nevada Gaming
Board mails the written notice requiring such filing. Under certain
circumstances, an institutional investor, as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company’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. In certain circumstances, an
institutional investor that has obtained a waiver may hold up to 19% of the
Company’s voting securities for a limited period of time and maintain the
waiver. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company’s
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Gaming
Commission finds to be inconsistent with holding the Company’s voting securities
for investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) 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 its management, policies or
operations; and, (iii) such other activities as the Nevada Gaming Commission may
determine to be consistent with such investment intent. A beneficial holder of
voting securities, who must be found suitable in a corporation, partnership or
trust, 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 Gaming 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 found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Gaming Commission may be guilty of a criminal offense. The Company is
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
Company, it: (i) pays that person any dividend or interest upon voting
securities of the Company; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or, (iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities, including, if necessary,
the immediate purchase of the voting securities for cash at fair market
value.





The
Nevada Gaming Commission may, in its discretion, investigate a holder of any
debt security and require the holder of any debt security of a Registered
Corporation to file an application. If the Nevada Gaming Commission determines
that a person is unsuitable to own such security, then pursuant to the Nevada
act, the Registered Corporation can be sanctioned, including 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 any distribution
whatsoever; (ii) recognizes any voting right by 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.





The
Company is required to maintain a current stock ledger 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 holder





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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 holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Gaming Commission has the power to require the Company’s stock certificates to
bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Gaming Commission has not imposed such a
requirement on the Company.





The
Company may not make a public offering of its securities without the prior
approval of the Nevada Gaming Commission if the securities or the proceeds there
from are intended 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 Gaming Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities offered.
Any representation to the contrary is unlawful.





Changes
in control of the Company through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Gaming Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Gaming Board and Nevada Gaming
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Gaming Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.





The
Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada 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 ameliorate the potentially adverse effects of these business practices
upon Nevada’s gaming industry and to further Nevada’s policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and, (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Gaming Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company’s
Board of Directors in response to a tender offer made directly to the Registered
Corporation’s stockholders for the purposes of acquiring of the Registered
Corporation.





License
fees and taxes, computed in various ways depending on the type of gaming or
activity involved, are payable to the State of Nevada and to the counties and
cities in which the Nevada licensee’s respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable monthly, quarterly or annually and are based upon either: (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or, (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling of food, refreshments or merchandise. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer’s or distributor’s license, also pay certain fees and taxes to the
State of Nevada.





Any
person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively
“Licensees”), and who proposes to become involved in a gaming venture




10
 ***Table of
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outside
of Nevada is required to deposit with the Nevada Gaming Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Gaming Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the discretion
of the Nevada Gaming Commission. Thereafter, Licensees are required to comply
with certain reporting requirements imposed by the Nevada Act. Licensees are
also subject to disciplinary action by the Nevada Gaming Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada gaming
operations, engages in activities or associations that are harmful to the State
of Nevada or its ability to collect gaming taxes and fees, or employs, contracts
or associates with a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the grounds of
unsuitability.





**Marketing
of Casino Games**





LVGI
licenses its games directly to casinos or slot route operators. Initial contact
with Casinos is made either from 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 plasma screens, table
tents, flyers, “slot toppers” and show cards to stimulate curiosity and game
play.





**Marketing
of Other Products and Services**





There are
very few keno equipment suppliers in the world. When a new installation is
desired, which happens infrequently, LVGI will almost certainly be contacted for
a quote. In the more likely event of an update to a current installation, the
supplier of the initial installation will almost certainly be contacted for the
update. With the advent of Optima, we have an opportunity to change the current
approach and we plan to do just that. Now that the upgrade is complete and
approved in several jurisdictions (it is currently on trial in Nevada), we will
contact all current keno operators and attempt to sell them our new
Windows-based, touch-screen system (Optima). Initial customer acceptance has
been encouraging and we expect to sell more systems in the near future than we
have sold in the recent past. Since the average system selling price is
approximately $100,000 with a gross margin of approximately 50%, even a small
increase in system sales will have a significant impact on revenues and profits.
We expect most sales to result from direct solicitation of the customers by our
sales staff.





The
marketplace for bingo equipment and the placement of “hand-held” electronics in
Nevada is also very small, probably no more than 30 potential customers. Contact
by our sales people is always taking place. The marketplace for gaming supplies
is much larger and geographically dispersed. Our primary marketing tool is a
catalog that we periodically send out to our customers and potential
customers.





**Competition**





Competition
among gaming equipment and supply companies and among developers and
distributors of individual games is strong and presents a significant barrier to
entry as well as growth. LVGI faces competition from developer companies and
individual casino operators that offer several progressive slot and table games,
including MegaBucks Ô , Quarter
Mania Ô , Nevada
Nickels Ô , and
Caribbean Stud Ô , all of
which feature a growing jackpot like LVGI’s progressive keno and bingo
games.





11
 ***Table of
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While the
market has not been dominated by any single entity, some of LVGI's existing
competitors have significantly greater financial and technical resources.
Moreover, because LVGI is a relatively new and under capitalized enterprise, it
may be more vulnerable than its existing competitors to the impact of new or
more intense competition. It is
always possible that existing or new competitors could develop games that prove
more attractive to casino operators and the gaming public and which could have a
material adverse effect on the future success of LVGI.





We also
face a significant amount of competition from a broad range of casino games in
the play of our games, such as Nevada NumbersTM. These games are typically better
known by patrons, as well as more extensively marketed, by Casinos and the game
owners. This underlying competition for patron dollars in bets and ticket sales
has and will continue to have an effect on our profits as our revenues are based
on a percentage of ticket sales for our games.





**Employees**





As of
December 31, 2004, LVGI had 51 employees (compared to 32 at December 31, 2003),
only one of whom is an officer of the Company. LVGI plans to hire additional
financial and compliance employees in the near future including a Chief
Financial Officer and a Compliance Officer, who may be one in the same.
Additional management and marketing personnel are also required. However, new
employees will be hired subject to LVGI’s ability to pay them out of operating
cash flow.





LVGI’s
only officer is Mr. Russell R. Roth, President, CEO, CFO, Chairman, Secretary
and Treasurer.





**Intellectual
Property and Other Proprietary Rights**





Mr. Mark
Valenti, former director and officer of LVGI and inventor of LVGI’s progressive
keno games, applied for and recently received a patent for the games. Mr.
Valenti assigned his patent rights to LVGI. No assurance can be given that the
patent will withstand a challenge as to its validity. LVGI has also applied for,
and received, certain trademarks and copyrights associated with its casino
games. LVGI also owns several other trademarks filed with the State of Nevada
and the U.S. Patent and Trademark Office and other intellectual property that is
protected by federal copyright and trade secret laws.





LVGI
intends to protect any future products it develops through a combination of
patents, trademarks, copyrights and trade secrets.





**Research
and Development Expenditures**





LVGI
spent $293,651 on research and development during the fiscal year end December
31, 2004.





**ITEM
2.**  **DESCRIPTION OF PROPERTIES**





LVGI owns
no real property. LVGI is headquartered in leased premises at 4000 West Ali Baba
Lane, Suite D, Las Vegas, Nevada, 89118.





**ITEM
3.**  **LEGAL PROCEEDINGS**





At year
end, LVGI was owed 1.0 million by American Wagering, Inc. (AWI) as part of a
judgment. AWI is an operator of race and sports books and manufacturer of race
and sports book systems. AWI has recently emerged





12
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from the
protection of the US Bankruptcy Court for the District of Nevada. The rights to
this claim were purchased for $150,000 contemporaneously with LVGI’s acquisition
of Imagineering Systems, Inc. (ISI). Proceeds to be realized from the claim in
excess of LVGI’s initial $150,000 investment plus related legal costs are
generally payable to others, primarily the former creditors and shareholders of
ISI. Receipt of proceeds from the claim became effective upon, Bankruptcy Court
approval of AWI’s plan of reorganization on March 11, 2005. During 2004, a
subsidiary of AWI, not in bankruptcy, loaned LVGI $320,000, interest free, to be
repaid from the proceeds LVGI received when the AWI bankruptcy was settled. In
early 2005, the same subsidiary paid LVGI an additional $340,000 to gain the
release of a security interest LVGI had in a building owned by the AWI
subsidiary. LVGI intends to apply the amounts received from the AWI subsidiary
against the balance due under the claim and has agreed to accept the remaining
balance (approximately $340,000 plus interest) in  installments
over two years. LVGI received a check on March 11, 2005 in the amount of
$320,000. This payment was used to repay the AWI subsidiary (CBS) the $320,000
loaned to LVGI in 2004. The repayment of the underlying debt will be made by
equal monthly payments of $14,200 beginning on April 1, 2005 and continuing,
through March of 2007 .





**ITEM
4.**  **SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**





LVGI held
its annual meeting of shareholders on November 16, 2004. Business conducted at
the meeting included the following proposals:





(1)
    To
      elect three directors to serve until the next annual meeting or until
      their successors are elected and qualified;





(2)
    To
      confirm the appointment of Piercy, Bowler, Taylor and Kern, Certified
      Public Accountants and Business Advisors as independent auditors for the
      Company;





(3)
    To
      transact any other business that may properly come before the meeting or
      any adjournment of the meeting.





Each
share of Common Stock was entitled to one vote. Only shareholders of record at
the close of business on September 17, 2004, were entitled to vote. The number
of outstanding shares at that time was 7,088,955 held by approximately 425
shareholders. The required quorum of shareholders was present at this
meeting.





With
respect to the first matter, the stockholders present at the meeting and in
attendance by proxy voted to reelect Messrs. Roth, Irvine and Ms. Cane to the
Board of Directors.





With
respect to the second matter, the stockholders present at the meeting and in
attendance by proxy voted unanimously to confirm the appointment of Piercy,
Bowler, Taylor and Kern as auditors for the Company.





13
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**PART II**





**ITEM
5.**  **MARKET FOR REGISTRANT’SCOMMON EQUITY AND RELATED
STOCKHOLDER MATTERS**





**Market
Information**





Currently,
there is no public market for the Company's common stock, and there can be no
assurance that an active public market for this stock will develop or will be
sustained.





As of
December 31, 2004, there were approximately 425 shareholders of record of LVGI’s
Common Stock.





LVGI has
not previously declared or paid any dividends on its Common Stock and does not
anticipate declaring any dividends in the foreseeable future.





**Recent
Sales of Unregistered Securities**





The
following is a list of equity securities issued by LVGI during the past three
years that were not registered under the Securities Act.





During
2002:





1. We
converted 2,200 shares of our preferred stock into 2,420 shares of common stock
under an agreement with certain of our preferred shareholders. These shares were
issued pursuant to the general exemption from registration provided by Section
4(2) of the Securities Act of 1933 and are restricted shares as defined in the
Act.





2. We
issued warrants to purchase 40,000 shares of our common stock at an exercise
price of $4.55 per share in exchange for certain game rights. These shares were
issued pursuant to the general exemption from registration provided by Section
4(2) of the Securities Act of 1933 and are restricted shares as defined in the
Act.





3. During
2002, we also issued 44,087 shares of our common stock upon the exercise of
stock options.





During
2003:





1. We
issued 316,540 shares of our preferred series B shares to investors. These
shares were issued pursuant to an offering exempt from registration under rule
506 of Regulation D of the Securities Act of 1933 and are restricted shares as
defined in the Act.





2. We
issued 580,000 shares of common stock in connection with the acquisition of
TWIN. These shares were issued pursuant to the general exemption from
registration provided by Section 4(2) of the Securities Act of 1933 and are
restricted shares as defined in the Act.





3. We
issued 263,500 shares of common stock in connection with the acquisition of ISI.
These shares were issued pursuant to the general exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and are restricted shares
as defined in the Act.





14
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4. We
issued 257,000 options at an exercise price of $4.55 and 50,000 at an exercise
price of $3.00. Most of these options were issued in connection with the
acquisitions of TWIN and ISI. These options were issued pursuant to the general
exemption from registration provided by Section 4(2) of the Securities Act of
1933 and are restricted shares as defined in the Act.





5. We
issued 64,827 warrants and 10,000 warrants expired. These warrants were issued
pursuant to the general exemption from registration provided by Section 4(2) of
the Securities Act of 1933 and are restricted shares as defined in the Act.





During
2004:





1. We
issued 76,000 shares of our preferred series C shares to investors. These shares
were issued pursuant to an offering exempt from registration under rule 506 of
Regulation D of the Securities Act of 1933 and are restricted shares as defined
in the Act.





2. We
issued 15,000 common shares in connection with our planned offerings in 2005.
These shares were issued pursuant to the general exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and are restricted shares
as defined in the Act.





3. We
issued 20,000 common shares in connection with an exercise of a stock option.
These shares were issued pursuant to the S8 registration filed with the
Securities and Exchange Commission.





4. We
issued 29,000 shares of our preferred series B shares to investors. These shares
were issued pursuant to an offering exempt from registration under rule 506 of
Regulation D of the Securities Act of 1933 and are restricted shares as defined
in the Act.





5. We
issued 929,500 warrants at exercise prices ranging from $1.00 to $4.55. Most
were issued in connection with the hiring of new employees or consultants. These
warrants were issued pursuant to the general exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and are restricted shares
as defined in the Act.





6. We
issued 553,000 options at a strike price of $1.00. These options were issued
pursuant to the S8 registration filed with the Securities and Exchange
Commission.





**ITEM
6.**  **MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OR PLAN OF OPERATIONS**





**Overview
of 2004 and Business Strategy for 2005**





Our
primary mission continues to be the worldwide delivery of linked, progressive
games with mega (“life-changing”) jackpots. New delivery systems including a
promotional version of our games entitled The Million Dollar TicketTM and Pop-up
Nevada NumbersTM are expected in 2005 and should produce a significant increase
in revenues.





In 2004,
our revenues increase 65% from the prior year. The increase was due to the full
year impact of two acquisitions, Imagineering Systems, Inc (ISI) and Triple Win
in Nevada (TWIN), consummated in mid-2003,





15
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the
launching of Nevada Keno and the expansion of Super Bonanza. These increases
were partially offset by a decline in Nevada NumbersTM sales.





Our net
loss for 2004 was nearly $344,000 less than 2003, primarily as a result of the
increased revenue. Further improvement is expected in 2005 as a result of the
introduction of our new game, the expansion of Super Bonanza, and increased keno
equipment sales as a result of the recent introduction of our new Optima keno
system.





Strategically,
LVGI is positioned to provide a broad range of services for both the bingo and
keno segments of the gaming industry. This broader base of products and services
should allow us to take a more complete business model and practices to other
states and to other countries. We expect new ventures will be undertaken slowly
and carefully as a result of capital and human resource constraints. Once
stabilized and profitable operations are achieved and adequate funding is in
place, we plan to add employees and undertake more opportunities in existing and
new markets.





Management
plans to expand distribution of its Nevada NumbersTM game over the coming years,
not only by increasing the number of casinos offering the game, but also by
expanding the points of distribution in each casino **.** Slot
machines, race and sports books, hand held devices and kiosks are all potential
incremental distribution points within the casinos. Additionally, management
believes that Nevada NumbersTM would make an excellent promotional game and is
pursuing several avenues to increase this application for the game. Should a
state lottery come up again, we believe Nevada NumbersTM would make an excellent
substitute for such an idea. It would be especially attractive because Nevada
NumbersTM could begin generating revenue for the State much quicker than could a
lottery. We are also looking at re-configuring Nevada NumbersTM to lower the base
jackpot and raise the intermediate payouts. This would have the benefit of
providing for more significant prize winners and reducing the amount of cash we
have to maintain in reserve.




The sale
of keno and bingo supplies is expected to remain a steady source of low-margin
revenue for LVGI. The acquisition of TWIN makes LVGI a major player in this
segment. While significant growth is unlikely, slow and steady growth may be
possible as we benefit from our growing success in the bingo and keno equipment
markets and withdrawal of some key suppliers during 2004. While these product
lines produce significant profits currently, their percentage contribution to
the Company’s profits should decrease over time as the Casino Games segment
becomes more established. However, these products provide us with another point
of contact with our casino customers. Given the trend of mergers within the
casino industry, one would also expect a similar contraction in the supply base.
We believe that being a full service provider of gaming alternatives provides us
with a better chance to be one of the niche survivors in the
industry.




The sale
of keno equipment has not been a focus in the past. However, with the completion
of Optima in late 2004, we believe we can now aggressively pursue the relatively
few, but high dollar value, sales opportunities in this product line. In
addition to a few opportunities in Nevada, there are several overseas
opportunities (principally South Africa , Aruba and
Canada) and some in other states, primarily Nebraska, New Jersey, Mississippi,
Washington, Arizona, Oregon and Montana.




Placement
of bingo “hand-held” electronics should continue to be a significant source of
revenue and profit for the Company in 2005. Our technology supplier’s products
are about to gain a significant technological advantage over the competition.
This combined with leveraging our bingo game and keno synergies should allow us
to grow this segment significantly in 2005.




16
 ***Table of
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Maintenance
contracts and other equipment maintenance services should also remain a steady
source of low-margin revenue for LVGI. In addition, these customers are also
candidates for future equipment, supplies and game sales.





**Critical
Accounting Estimates and Policies**





Although
our financial statements necessarily make use of certain accounting estimates by
management, except as described below, we believe no matters that are the
subject of such estimates are so highly uncertain or susceptible to change as to
present a significant risk of a material impact on our financial condition or
operating performance. Moreover the Company does not employ any critical
accounting policies that are selected from among available alternatives or
require the exercise of significant management judgment to apply.





**Goodwill.** The
Company is organized into reporting units as reflected in the segment
information described in Note 1 to the Consolidated Financial Statements which
organization, among other things, enables appropriate goodwill impairment
analysis. Since the recorded goodwill relates to recently acquired segments
(TWIN and ISI) of our business, and since the operations of such segments are
producing significant positive cash flow and operating results, management
believes that the fair value of the reporting units exceeds their carrying
amounts and, therefore, there is no impairment and no need to compare the
carrying value to an “implied fair value” calculation. However, goodwill will
continue to be evaluated periodically for impairment as events or circumstances
warrant. Such evaluations may include, among other analysis, cash flow and
profitability forecasts, including the impact on other operations of the
Company. Numerous estimations are required in predicting the future
profitability of the related businesses and the marketability of their products
within the competitive market; in other words, the businesses’ competitive
position and estimated ability to compete. Although operating results continue
to improve for the recently acquired segments, the conservative assumption that
past profitability levels will continue negates, in management’s opinion, the
need for further impairment consideration at this time. Management further
believes that the synergy of the acquisitions have had positive effects as
well.





**Recent
Accounting Pronouncements** **.**





In
December 2004, the Financial Accounting Standards Board issued Statement No.
153, *Exchanges of Non* *-* *monetary
Assets, an Amendment of APB Opinion No. 29, Accounting for Non* *-* *monetary
Transactions.*  The
amendments made by Statement No. 153 are based on the principle that exchanges
of non - monetary
assets should be measured based on the fair value of the assets exchanged.  Further,
the amendments eliminate the narrow exception in APB Opinion No. 29 ** for
non - monetary
exchanges of similar productive assets and replace it with a broader exception
for exchanges of non - monetary
assets that do not have commercial substance.  The
Statement is effective for non - monetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.  We do not
presently expect to enter into any transactions that would be affected by
adopting Statement No. 153.





**Results
of Operations**





**Revenues.** Casino
games revenue consists of revenue from the licensing of the games, Nevada
NumbersTM, The Million Dollar TicketTM, and Super Bonanza. Product sales include
primarily the sale of bingo paper and ink, keno supplies and keno and bingo
equipment. Other revenues consist primarily of service contracts, royalties
related to the placement and service of electronic bingo devices, and, to a
lesser extent, keno route (participation) agreements.





17
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Contents***





In 2004,
LVGI generated an increase of $1.9 million in revenues over 2003. Approximately
$1 million of the increase was due to the full year impact of the acquisitions
of TWIN and ISI, partially offset by the mid-year loss of TWIN’s then largest
customer. The rest of the increase is due primarily to approximately equal $.5
million increases in revenue from the game, Super Bonanza, which began in July
2003, and keno route operations, which began in May 2004.





**Costs
and Expenses.** During
the same period, direct operating costs and expenses increased approximately $1
million over 2003. This increase is attributable to the full year impact of the
two acquisitions and the launch of the game, Nevada Keno. Margins in the Casino
games and Product segments also increased. The Casino games segment increased
its margins due to a lower level of LVGI contributions to various jackpots, and
we played luckier in our Super Bonanza game. The Products segment increased its
margins because, as competitors dropped out of the business during 2004, LVGI
took a more aggressive stance on product pricing.




**Selling,
general, and administrative.** The
selling, general and administrative expenses increased approximately $230,000 in
2004 over 2003. The increase was primarily due to increases in salaries (over
$300,000), which was partially offset by a decrease in advertising (over
$67,000). A large part of the salary increase was due to an expansion in our
Business Development department and the full year impact of the 2003
acquisitions.





**Research
and development.** The
increase in research and development costs of almost $100,000 in 2004 is due to
the full year impact of the acquisition of ISI and the development of a
windows-based product.





**Depreciation
and Amortization.** The
Company reported an increase of approximately $42,000 in depreciation and
amortization expense in 2004 as compared to 2003 as a result of the full year
impact of acquiring ISI. Control over capital spending was a major reason for
the smaller than expected increase in depreciation .





**Liquidity
and Capital Resources**





As of
December 31, 2004, the Company maintained approximately $.6 million in cash
versus $1.0 million in the prior year (excluding jackpot reserve deposits
available and believed adequate to pay out any jackpots). Current assets
remained constant at $5.6 million as cash was converted to jackpot deposits,
inventory and receivables. The jackpot deposits increased $0.2 million, $60,000
due to lower interest rates and the remainder due to incremental ticket sales
without the jackpot being hit. Inventory rose nearly $0.1 million due to the
buildup in keno equipment inventory in front of the expanding demand for Optima
keno systems. The nearly $0.2 million increase in receivables is partly volume
related and partly slow pay by a few customers. Most of the over due balances
have been collected in January and February of 2005.





Other
than any jackpots that might be won by gaming patrons, our most significant
capital resource requirement will be associated with the planned acquisition of
500 LCD monitors ($1.0 million) associated with the operation of a promotional
version of The Million Dollar TicketTM game. Operation  of the
game is expected to commence in the second quarter of 2005. It is also expected
that most of the $1.0 million requirement would be financed through an operating
lease.





LVGI
raised additional capital in 2004 to fund its operating losses and business
expansion. During 2004, we raised $420,000 through preferred stock offerings and
received as an advance $320,000 pursuant to the AWI settlement. We also received
as an additional advance of $340,000 shortly after year end; however, most of
this amount will ultimately be due others.





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During
the early part of 2005 we acquired 100% of the outstanding common stock of
AdLine Gaming, Inc. (AdLine) in a transaction valued at $1,188,000, including
$500,000 in cash, $288,000 in assumed liabilities, 400,000 shares of common
stock (valued at $1.00 per share), and warrants to purchase 100,000 shares of
LVGI’s common stock (without value). AdLine has significant technology and
engineering talent that supports our promotional version of The Million Dollar
TicketTM game. We also believe that its engineers will contribute greatly to the
finalization of our long planned Pop-up Nevada NumbersTM game. AdLine monthly
cash flow requirement is approximately $50,000, effectively doubling LVGI’s cash
flow needs pre-acquisition. We expect the combined companies, absent any other
changes, once the promotional version of The Million Dollar TicketTM game is half
deployed, will substantially increase our cash flow. We also expect to be 50%
deployed by the fall of 2005. In the meantime, increased revenues from the sale
of the Optima systems and the expansion of our Super Bonanza game should help
reduce the operating cash flow deficiency to a level that can be funded by
existing resources. However, to provide for an adequate margin of error in our
expectations, we plan to pursue additional equity financing. To the extent that
such financing is not needed to support existing operations, the funds will be
available to fund strategic business expansion opportunities that may arise. To
the extent this funding is not received and some of the foregoing operational
issues don’t occur or are delayed, our financial resources would become severely
strained. We can provide no assurance that such funding will be raised in an
amount adequate to meet our cash flow and operational needs.





Improving
operating results, the proceeds from the projected offering, and the anticipated
operating lease in connection with the promotional version of The Million Dollar
TicketTM game should provide LVGI with sufficient financial resources to fund its
operations and business expansion plans through the end of 2005. Cash flow from
operations is expected to be the primary long-term source of working capital and
capital asset requirements.





**Forward
Looking Statements**





Many
statements made in this report are forward-looking statements that are not based
on historical facts. Because these forward-looking statements involve risks and
uncertainties, there are a number of factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements. The forward-looking statements made in this report relate only to
events as of the date on which the statements are made.





19
 ***Table of
Contents***





**ITEM
7.**  **FINANCIAL STATEMENTS**





Index to
Audited Consolidated Financial Statements:





F-1   Independent
Auditor’s Report





F-2   Balance
Sheet





F-3   Statements
of Operations





F-4   Statements
of Stockholders’ Equity





F-5   Statements
of Cash Flows





F-6   Notes to
Financial Statements




20
 ***Table of
Contents***




**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Shareholders
and 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, 2004 and 2003, 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 audit.





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, 2004 and 2003, 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.








PIERCY,
BOWLER, TAYLOR, & KERN,


Certified
Public Accountants & Business Advisors


A
Professional Corporation








March 1,
2005


LAS
VEGAS, NEVADA





F -
1
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**BALANCE
SHEETS**


**DECEMBER
31, 2004 AND 2003**





**ASSETS**
    **2004**
    
    2003**Current
      assets**Cash
    **$**
    **586,169**
    
    $
    1,005,561Accounts
      receivable, net of allowance of $ 27,516 and $ 121,219
    
    **643,768**
    
    
    454,679Inventories
    
    **383,545**
    
    
    349,604Jackpot
      reserve deposits
    
    **3,992,680**
    
    
    3,812,963**5,606,162**
    
    
    5,622,807**Equipment
      and software, net of accumulated depreciation**
    
    **585,995**
    
    
    724,832**Other
      assets**Goodwill
    
    **955,277**
    
    
    955,277Trademarks,
      copyrights, patents and other intangibles, net of accumulated
      amortization
      of $23,046 and $258,100
    
    **30,137**
    
    
    108,227Due
      from officers, including accrued interest
    
    **58,149**
    
    
    50,392Deposits
      and other
    
    **243,034**
    
    
    234,595**$**
    **7,478,754**
    
    $
    7,696,130**LIABILITIES
      AND STOCKHOLDERS’ EQUITY****Current
      liabilities**Accounts
      payable
    **$**
    **506,771**
    
    $
    466,116Notes
      payable
    
    **320,000**Progressive
      jackpot liability
    
    **981,636**
    
    
    850,988**1,808,407**
    
    
    1,317,104Temporary
      equity - 75,000 shares of common stock conditionally redeemable
    
    **25,000**
    
    
    25,000**Total
      liabilities**
    
    **1,833,407**
    
    
    1.342,104**Stockholders’
      equity**Series
      A convertible preferred stock, $.001 par, 5,000,000 shares authorized,
      541,400
      shares issued and outstanding
    
    **541**
    
    
    541Series
      B convertible preferred stock, $.001 par, 5,000,000 shares authorized,
      346,140
      and 316,540 shares issued and outstanding
    
    **346**
    
    
    317Series
      C convertible preferred stock, $.001 par, 5,000,000 shares
      authorized,
      76,000
      shares issued and outstanding in 2004
    
    **76**Common
      stock $.001 par, 25,000,000 shares authorized, 7,048,955 and 6,613,955
      shares
      issued and outstanding
    
    **7,049**
    
    
    6,614Additional
      paid-in capital
    
    **15,582,672**
    
    
    14,806,050Less
      due from officers/stockholders
    
    **(320,000**
    **)**
    
    (420,000)Deficit
    
    **(9,625,337**
    **)**
    
    (8,039,496)**5,645,347**
    
    
    6,354,026**$**
    **7,478,754**
    
    $
    7,696,130





See notes
to financial statements.





F -
2
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**STATEMENTS
OF OPERATIONS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**





**2004**
    
    2003**Revenues**Casino
      games
    **$**
    **1,350,840**
    
    $
    936,772Product
      sales
    
    **1,604,568**
    
    
    1,155,774Other
    
    **1,851,620**
    
    
    820,444**4,807,028**
    
    
    2,912,990**Costs
      and expenses**Casino
      games - net of progressive liability changes of $36,762 in
      2004
      attributable to interest rate fluctuations
    
    **1,102,090**
    
    
    1,138,731Product
      costs
    
    **1,099,868**
    
    
    740,099Other
    
    **1,350,558**
    
    
    526,514Selling,
      general, and administrative
    
    **2,303,078**
    
    
    2,070,121Research
      and development
    
    **293,651**
    
    
    196,834Depreciation
      and amortization
    
    **245,303**
    
    
    203,643Loss
      on assetdisposal
    
    **55,829**
    
    
    25,833**6,450,377**
    
    
    4,901,775**Operating
      loss**
    
    **(1,643,349**
    **)**
    
    (1,988,785)**Other
      income/(expense)**Interest,
      officers
    
    **19,784**
    
    
    25,602Interest,
      others
    
    **37,724**
    
    
    33,886**57,508**
    
    
    59,488**Net
      loss**
    **$**
    **(1,585,841**
    **)**
    $
    (1,929,297)**Net
      loss per share, basic and diluted**
    $
    (0.23
    )
    $
    (0.31)**Weighted
      average shares outstanding, basic and diluted**
    
    7,001,455
    
    
    6,323,532




See notes
to financial statements.





F -
3
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**STATEMENTS
OF STOCKHOLDERS' EQUITY**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**





Series
      A
    
    Series
      B
    
    Series
      CPreferred
    
    Preferred
    
    Preferred
    
    Common
    
    Additional
    
    Due
      FromStock
    
    Stock
    
    Stock
    
    Stock
    
    Paid-In
    
    Officer/Par
      Value
    
    Par
      Value
    
    Par
      Value
    
    Par
      Value
    
    Capital
    
    Shareholder
    
    DeficitBalances,
      January 1, 2004
    $
    541
    
    $
    317
    
    $
    0
    
    $
    6,614
    
    $
    14,806,050
    
    $
    (420,000
    )
    $
    (8,039,496)Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,585,841)Sale
      of 105,000 shares
    
    
    
    
    29
    
    
    76
    
    
    
    
    
    537,460Stock-based
      compensation
    
    
    
    
    
    
    
    
    
    
    435
    
    
    239,162Collection
      of loans to officers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Balances,
      December 31, 2004
    $
    541
    
    $
    346
    
    $
    76
    
    $
    7,049
    
    $
    15,582,672
    
    $
    (320,000
    )
    $
    (9,625,337)Balances,
      January 1, 2003
    $
    541
    
    
    
    
    
    
    
    $
    5,845
    
    $
    12,214,173
    
    $
    (420,000
    )
    $
    (6,110,199)Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,929,297)580,000
      shares issuedincident
      to acquisition ofTriple
      Win in Nevada, Inc.
    
    
    
    
    
    
    
    
    
    
    580
    
    
    579,420263,500
      shares issuedincident
      to acquisition ofImagineering
      Systems, Inc.
    
    
    
    
    
    
    
    
    
    
    264
    
    
    263,236Sale
      of 316,540 shares
    
    
    
    $
    317
    
    
    
    
    
    
    
    
    1,582,383Warrants
      issued to purchasegame
      rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,145Stock-based
      compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,006Settlement
      of vacation liabilitywith
      stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,612Retroactive
      reclassification oftemporary
      equity to a liability
    
    
    
    
    
    
    
    
    
    
    (75
    )
    
    (24,925
    )Balances,
      December 31, 2004
    $
    541
    
    $
    317
    
    
    0
    
    $
    6,614
    
    $
    14,806,050
    
    $
    (420,000
    )
    $
    (8,039,496)





See notes
to financial statements.





F -
4
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**STATEMENTS
OF CASH FLOW**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**





**2004**
    
    2003**Operating
      activities**Net
      cash (used in) operating activities
    **$**
    **(1,283,502**
    **)**
    $
    (1,340,958)**Investing
      activities**Purchase
      of property and equipment
    
    **(84,204**
    **)**
    
    (219,144)Investment
      in outcome of a lawsuit
    
    **0**
    
    
    (150,000)Collection
      of other receivables
    
    **0**
    
    
    54,442Acquisition
      of intangible assets
    
    **0**
    
    
    (117,500)Net
      cash used in investing activities
    
    **(84,204**
    **)**
    
    (432,202)**Financing
      activities**Repayment
      of borrowings
    
    
    
    
    (300,000)Proceeds
      from borrowings
    
    **320,000**
    
    
    0Proceeds
      from sale of Series B and C preferred stock
    
    **527,879**
    
    
    1,582,700Sale
      of common stock
    
    **435**Collection
      of receivables fromofficer/shareholder
    
    **100,000**
    
    
    0Other
    
    **0**
    
    
    (173)Net
      cash provided by financing activities
    
    ******948,314**
    
    
    1,282,527**Net
      decrease in cash**
    
    **(419,392**
    **)**
    
    (490,633)**Cash,
      beginning of year**
    
    ******1,005,561**
    
    
    1,496,194**Cash,
      end of year**
    **$**
    **586,169**
    
    $
    1,005,561**Reconciliation
      of net loss to net cash used in operating
    activities**Net
      loss
    **$**
    **(1,585,841**
    **)**
    $
    (1,929,297)Depreciation
      and amortization
    
    **245,303**
    
    
    203,659Loss
      on asset disposals
    
    **55,828**
    
    
    25,833Stock-based
      compensation
    
    **248,847**
    
    
    131,995Increases
      in operating (assets) / liabilities and decreasesAccounts
      receivable
    
    **(162,326**
    **)**
    
    71,970Inventories
    
    **(33,941**
    **)**
    
    36,893Prepaid
      expenses
    
    
    
    
    127,062Jackpot
      reserve deposits
    
    **(179,717**
    **)**
    
    (178,741)Other
    
    **(8,439**
    **)**
    
    (30,888)Accounts
      payable
    
    **6,136**
    
    
    (113,017)Jackpot liability
    
    **130,648**
    
    
    313,573**Net
      cash used in operating activities**
    **$**
    **(1,283,502**
    **)**
    $
    (1,340,958)**Non-cash
      investing and financing activities**Note
      issued in connection with business acquisition
    
    
    
    $
    300,000Common
      stock issued in connection with business acquisitions
    
    
    
    $
    843,500Settlement
      of vacation liability with stock warrants
    
    
    
    $
    56,611Warrants
      issued to acquire game rights
    
    
    
    $
    3,145





See notes
to financial statements.





F -
5
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**





**1.
Nature of operations and background information**





Las Vegas
Gaming, Inc. (the Company or LVGI), is in the business of providing equipment,
supplies and casino games for use by its customers in the keno and bingo
segments of the gaming industry. Recently, the Company also hired an executive
to apply and market our keno technology to sweepstakes and lotteries. During
2003, the Company completed two acquisitions (Note 8) thereby expanding its
business model to include the sale of keno and bingo equipment, systems and
supplies as product lines and related services in addition to charging a royalty
to casinos that utilize the Company’s casino games, and giving the Company
control over the software and systems used by its casino games. The expansion of
its product lines and gaining control over the software and systems used by its
games were the primary purposes of these acquisitions. The results of the
operations of the acquired entities are included in the statement of operations
of the Company beginning on the effective dates of the
acquisitions.





Notwithstanding
these significant changes in the Company’s operations, the Company’s primary
mission continues to be the delivery of new, linked-progressive, mega jackpot
games to the worldwide gaming industry. Our current offering of these types of
games, includes Nevada NumbersTM (NN), Super Bonanza Bingo (SB) and The Million
Dollar TicketTM (TMDT). During the second quarter of 2005 we expect to add a
promotional version of The Million Dollar TicketTM in cooperation with the
largest slot route operator in Nevada. By the end of 2005, these four games are
expected to provide the majority of LVGI revenues.





In early
2005, LVGI completed another acquisition (Note 9) that provides additional
engineering capability and control of the technology behind the promotional
version of the game, The Million Dollar TicketTM. The additional engineering
capability should also allow us to complete a version of the game, Nevada
NumbersTM, which may be played from any touch screen video slot machine that
operates with ticket in ticket out (“cashless”) technology.





**Segment
information.** LVGI
conducts its operations through three primary business segments, “Casino Games,”
“Products” and “Other.” The “Casino Games” segment generates income from three
games with a fourth one nearly ready to launch. The three games are played in 37
casinos in Nevada and another seven outside Nevada. LVGI’s games consist of keno
style games (Nevada NumbersTM and The Million Dollar TicketTM), and Super Bonanza
- a bingo style game. The composition of LVGI’s casino games revenue is about
50% bingo and 50% keno in 2004 compared to approximately 13% and 83% in
2003.





The
“Products” segment generates revenues through the sale of keno and bingo
equipment and supplies. Bingo supplies include bingo paper and ink. Bingo
products comprised about 60% and 71% of our Product sales in 2004 and 2003. Keno
supplies consist of various paper items, including inside/outside tickets and
certain promotional products. Keno products made up about 8% and 7% of our
Product sales in 2004 and 2003. Bingo equipment sales made up 2% and 1% of our
product sales in 2004 and 2003 while keno equipment sales comprised 30% and 21%
respectively. The Company’s keno equipment is installed in over 70 casinos
worldwide.





The
“Other” segment includes revenue from equipment maintenance contracts (42% in
2004 compared to 49% in 2003); operation of a keno route (29% of revenue in 2004
and none in 2003); the distribution of “hand-held” bingo electronics (22% in
2004 compared to 49% in 2003); and, keno route participation agreements (7% in
2004 compared to 8% in 2003). Results for these segments and certain unallocated
expenditures for 2003 and 2004 are set forth below:





2004
    
    2003RevenuesCasino
      Games
    $
    1,350,840
    
    $
    936,772Product
      Sales
    
    1,604,568
    
    
    1,151,623Other
    
    1,851,620
    
    
    821,424$
    4,807,028
    
    $
    2,909,819Operating
      income (loss)Casino
      Games
    $
    133,457
    
    $
    (327,256)Product
      Sales
    
    201,237
    
    
    121,241Other
    
    478,985
    
    
    267,570Unallocated
    
    (2,457,028
    )
    
    (2,049,965)$
    (1,643,349
    )
    $
    (1,988,410)












F -
6
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**








Identifiable
      assetsCasino
      Games
    $
    5,013,896
    
    $
    5,267,218Product
      Sales
    
    502,983
    
    
    313,432Other
    
    580,841
    
    
    419,080Unallocated
    
    1,381,034
    
    
    1,696,402$
    7,478,754
    
    $
    7,696,132





Identifiable
assets of $7,478,754 and $7,696,132 at December 31, 2004 and 2003 includes
recorded goodwill of $955,277 (Note 8) that has not been allocated between
Products Sales and Other.





Capital
      expenditures
    2004
    
    2003Casino
      Games
    $
    5,432
    
    $
    159,978Product
      Sales
    
    14,154
    
    
    24,815Other
    
    63,069
    
    
    19,195Unallocated
    
    1,549
    
    
    21,693$
    84,204
    
    $
    225,681





****


**Concentrations.** The
Company currently generates revenue from approximately 50 different customers,
the largest of which constitutes slightly less than 10% of our total revenue.
When our promotional version of The Million Dollar TicketTM is launched in 2005,
the Company will acquire another customer of similar magnitude (Nevada’s largest
slot route operator).




In
establishing an allowance for doubtful collection, the Company considers the
customer, the relative strength of the Company’s legal position, the related
cost of any proceedings, and general economic conditions. The Company’s
receivables are uncollateralized. The maximum losses that the Company would
incur if a customer failed to pay would be limited to the amount due after any
allowances provided.




Historically,
the Company has depended on relatively few suppliers for components and
programming for certain of its games. However, this dependence has been
substantially mitigated as a result of its recent acquisitions (Notes 8 and 9),
and management believes that such other suppliers are sufficiently available so
that any disruption of service would be brief and not have a material adverse
effect on the Company’s business, financial condition and results of
operations.





**2.
Summary of significant accounting policies**




**Principles
of consolidation.** The
consolidated financial statements include the accounts of Las Vegas Gaming,
Inc., its inactive 85%-owned subsidiary, LV Keno, Inc., and its inactive
100%-owned subsidiary, Imagineering Gaming, Inc. TWIN and ISI were integrated
into the operations of the Company and dissolved upon acquisition **.** All
significant inter-company transactions and balances have been eliminated in
consolidation.





**Revenue
and cost recognition.** As wagers
are made within the Company’s casino inter-linked system s , a
percentage of the wagers representing the Company’s royalty is recognized as
revenue and a portion is used to purchase insurance and to fund the base
progressive jackpot. The Company also recognizes a liability and a cost for the
present value of the progressive jackpots not yet won, as measured by a meter,
and to be paid out over time and any uninsured base jackpot.





The
winner of the Nevada NumbersTM progressive jackpot will be paid the amount of the
progressive meter in equal installments over a period of 20 years. The Company,
at its sole discretion, may offer the winner an option to receive a discounted
value immediately. Once an inter-linked progressive jackpot is won (none as of
December 31, 2004), in the event a discounted value is not paid immediately at
the option of the winner, the Company intends to purchase discounted U.S.
Treasury securities to meet the obligation for the annual payments. The Company
also expects to classify these investments as “held-to-maturity”, to be stated
at cost adjusted for the amortization or accretion of any premiums or discounts
over the term of the security using the interest method.





F -
7
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**




In
connection with other casino games, the Company collects a royalty for each
ticket sold. At the discretion of the Company’s management, i nsurance
to fund jackpots may or may not be purchased. Costs associated with progressive
jackpots are recognized as the meter increases. Costs associated with uninsured
base jackpots are recognized over time based on “hit” probabilities dictated by
the odds of the game and the volume of play. As of December 31, 2004, other
games included Super Bonanza Bingo, and The Million Dollar TicketTM. Super
Bonanza Bingo is a coverall bingo game with many potential small jackpots and a
$100,000 maximum jackpot. The Million Dollar TicketTM is a regular keno game with
a large progressive jackpot.




Sales of
bingo and keno equipment and supplies are generally recognized when the products
are shipped. When a customer also contracts with the Company for installation of
equipment, the sale of the equipment and the installation fee are recognized
concurrently when the equipment is installed and operational at the customer’s
facility. Distribution royalties from the placement of “hand-held” bingo
technology are recognized over time, based on customer usage. Warranty costs and
related liabilities associated with product sales are not material. Fees from
equipment maintenance contracts that are sold separately (there are no bundled
deliverables) are recognized evenly over the term of the contract. Prior to
shipment, equipment and supplies are included in inventories and stated at the
lower of cost, as determined on a “first in first out” basis, or
market.




Keno
revenue from the operation of a keno route subject to multiple participation
agreements is included in other revenues and is the net win from such gaming
activities, the difference between gaming wins and losses. Amounts due to the
owners of the facilities in which the keno games are conducted (effectively
contingent rent) is reflected as an expense.




**Use
of estimates.** Timely
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect reported
amounts, some of which may require revision in future periods.




**Jackpot
reserve deposits.** For
financial statement presentation purposes, jackpot reserve deposits (Note 3) are
excluded from cash and presented as other current assets.





**Equipment
and software.** Equipment and software (Note 4) are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
(3-10 years).





**Goodwill
and other intangible assets.** As of the
most recent balance sheet date, goodwill consists of the excess of the purchase
price over fair value of net assets acquired in connection with the acquisition
of ISI and TWIN. Goodwill is evaluated periodically for impairment as events or
circumstances warrant. Such evaluations include, among others, cash flow and
profitability forecasts, including the impact on other operations of the
Company.





Other
intangible assets consist principally of trademarks, copyrights, and patents
(some of which are pending). Other intangibles are amortized on a straight-line
basis over the estimated economic life of the asset, usually less than 10
years.





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





**Stock
compensation.** The
Company utilizes Financial Accounting Standard Board (FASB) Statement No. 123, *Accounting
for Stock-Based Compensation* , for
valuing compensatory stock and option awards (Note 5) and uses the Black-Scholes
pricing methodology to estimate the fair value of stock and amounts to be
expensed as it relates to employee and non-employee stock-based
compensation.





**Advertising.** Advertising costs are expensed as incurred and totaled $117,913 and $55,430 for
2003 and 2004, respectively.





**Gaming
Licenses** - Most
state gaming licensing agencies require LVGI to deposit varying amounts to fund
the agencies’ expenses associated with their investigative licensing procedures.
LVGI records these initial transactions as deposits (listed in other assets) on
the balance sheet and when notified by the agencies that the funds have been
used, the deposit is expensed as a cost of casino games.





F -
8
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**








**Financial
instruments.** The
Company’s financial instruments consist of cash, jackpot reserve deposits,
accounts receivable, accounts payable, and progressive jackpot liability and
other accrued expenses. The fair values of these financial instruments, which
are either short-term and have little or no risk, are considered to have a fair
value equal to book value.





**Reclassifications.** Certain
amounts, as previously reported, have been reclassified to conform to the
current year presentation.





**3.**  **Jackpot
reserve deposits:**





At
December 31, 2004 and 2003, $3,992,680 and $3,812,963 of the Company’s cash is
set aside, placed on deposit and restricted for funding the Company's various
jackpot oriented games. Because these funds are to be used to support
operations, they are classified as current assets.





**4.**  **Equipment
and software:**





As of the
balance sheet dates presented, equipment and software consist of the
following:







2004
    
    2003Software
    $
    218,990
    
    $
    218,990Production
      equipment
    
    951,553
    
    
    1,062,155Equipment,
      furniture, and fixtures
    
    177,942
    
    
    176,3931,348,485
    
    
    1,457,538Less
      accumulated depreciation
    
    762,490
    
    
    732,705$
    585,995
    
    $
    724,833





**5.**  **Stockholders' equity:**





**Convertible
preferred stock.** From
time to time, pursuant to the registration exemption provided by Section 4(2) of
the United States Securities Act of 1933 and Rule 506 of Regulation D, the
Company offers for sale on a registration exempt and best efforts basis share of
preferred convertible stock. During 2004, the Company completed its Series B
convertible preferred offering by selling 29,600 preferred shares in exchange
for $148,000. In 2003, 316,540 preferred shares were issued in exchange for
$1,582,700. The Company also issued 400,000 shares of its common stock to the
group that provided capital raising services in connection with this offering.
An employee of the Company is also a principal in the service provider.
Additionally, in 2004, the Company sold 76,000 shares of its Series C
convertible preferred stock for $380,000. There were no fees associated with
this offering.





**Stock
warrants and options.** The
Company has both a qualified and a non-qualified option plan. Since 2000,
options have been granted only pursuant to the qualified plan. The plan is
administered by the Compensation Committee, which is appointed by the Board of
Directors. The exercise price of these options must be no less than the fair
market value at the time of the grant and vesting is at the discretion of the
plan administrator (appointed by the Compensation Committee), though limited to
10 years. Only employees are qualified to receive options and options cannot
exceed 15% of the outstanding common shares.





The
Company has, from time to time, granted warrants and/or options to employees and
others in exchange for employment incentives, capital-raising, other services,
and/or in conjunction with the initial capitalization of the Company and product
acquisitions. Under a plan adopted in 2000, options to purchase 180,000 and
10,000 common shares were issued to officers and directors in 2004 and 2003,
respectively.





F -
9
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**





Since
there has been no public market for the Company's stock, no volatility factor
has been considered in estimating the value of the options and warrants granted
to employees and others for services and compensation. The principal assumptions
selected to value the options and warrants, using the Black-Scholes
option-pricing model for calculating the "minimum value," included a "risk-free"
interest rate of 5%, expected option life of 4 to 10 years and no expected
dividends. Total compensation cost recognized in operations from grants of
options and warrants amounted to $250,181 in 2004 and $135,153 in
2003.





A summary
of option and warrant activity follows:





Shares
      Reserved for Options and Warrants and Weighted Average Exercise Price Per
      Share2004
    
    2003
    Grant
      date fair valueBeginning
      balance
    
    2,104,466
    
    
    1,742,639$
    3.55
    
    $
    3.71Granted
    
    1,486,623
    
    
    371,827$
    1.29
    
    $
    4.34
    
    $1.00        
      $4.21Exercised
    
    (20,000
    )
    
    0.50
    
    
    0Forfeited
    
    (13,500
    )
    
    (10,000
    )$
    2.61
    
    $
    3.00Ending
      balance
    
    3,557,589
    
    
    2,104,466$
    2.10
    
    $
    3.43





The
weighted average exercise prices at December 31, 2004 and 2003 were $2.10 and
$3.43 respectively.


The
following table summarizes stock options and warrants outstanding at December
31, 2004:





Exercise Price
    Number
      Outstanding
    
    Average
      Remaining
      Life
      in years
    
    Number
      Exercisable
    
    Average
      Remaining
      Life
      in yearsNon-qualified
      options$0.50
    
    180,000
    
    
    3.3
    
    
    180,000
    
    
    3.3Qualified
      options$1.00
    
    557,123
    
    
    3.5
    
    
    215,714
    
    
    3.8$3.00
    
    125,900
    
    
    5.2
    
    
    109,234
    
    
    5.2$4.55
    
    269,500
    
    
    4.3
    
    
    146,333
    
    
    4.1Warrants$1.00
    
    1,568,500
    
    
    3.0
    
    
    1,065,490
    
    
    2.9$2.00
    
    38,000
    
    
    1.3
    
    
    38,000
    
    
    1.3$2.50
    
    260,000
    
    
    2.6
    
    
    86,580
    
    
    2.6$3.00
    
    317,509
    
    
    1.8
    
    
    248,305
    
    
    1.5$4.55
    
    117,327
    
    
    2.2
    
    
    105,718
    
    
    2.3$5.00
    
    71,476
    
    
    1.1
    
    
    59,476
    
    
    1.0$6.00
    
    52,255
    
    
    3.1
    
    
    31,352
    
    
    3.13,557,589
    
    
    
    
    
    2,286,202
    
    
    2.8











F -
10
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**





**Due
from officers/stockholders.** During
2004, $100,000 of the amount due from officers/stockholders was collected. The
amounts due from officers/stockholders arose during 2001 from the exercise of
their non-qualified stock options for the purchase of 630,000 shares of the
Company’s common stock. Also, during 2001, a former officer was loaned $180,000
to exercise options to acquire 280,000 common shares and the Company later
reacquired from the former officer 39,560 shares in satisfaction of the loan.
These receivables that are deducted from stockholders’ equity are due in 2006
and bear interest at 5% annually. In addition, the amount due from officers
included in other assets relates to a pre-Sarbanes-Oxley Act advance that is due
in 2006, plus related accrued interest that is payable annually.





**Redeemable
preferred stock** : In 2003,
the Company entered into a separation agreement with one of the
officer/stockholders. The terms of the agreement included cash payments to the
officer/stockholder of $60,000 and the right of the stockholder, under certain
conditions, to require the Company to repurchase from him up to 75,000 common
shares at prices ranging up to $3.00 per share through June 15, 2005. The value
of this option was not material, and therefore, no compensation expense was
recorded. The conditions that remain relevant as of December 31, 2004, are: the
former officer could require the Company to repurchase up to 75,000 shares at $3
per share or the per share price used to raise the funds if less than $3; the
stockholder must apply the entire proceeds to his outstanding note; and, if the
Company’s stock is listed on a public exchange, the agreement becomes null and
void. As a result of the “put” provision, maximum redemption value of the 75,000
shares, which approximates fair value, net of the related note balance already
deducted from stockholders’ equity, has been treated as temporary equity,
classified as a liability, pursuant to Emerging Issue Task Force, Topic D-98,
and FASB Statement No.150, *Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity* , and the
shares are excluded from the loss per share calculation.





**6.**  **Commitments
and contingencies:**





**Gaming
regulations and licensing.** The
Company is licensed with the State of Nevada as an operator of
inter-casino-linked systems, supplier and distributor of keno and bingo
products, parts, and services, and as a keno route operator. From time to time,
the Company will seek licensure in other gaming jurisdictions so that the
Company may similarly participate in the gaming revenues produced by its
customers from its products in those jurisdictions. Failure to retain its Nevada
licenses and to obtain and retain the necessary licenses in other jurisdictions
would prevent the Company from fully implementing its business plans and could
have a material adverse effect on the Company.





**Progressive
jackpots.** The
Company directly and/or indirectly purchases insurance to fund the base
progressive jackpots for Nevada NumbersTM and The Million Dollar TicketTM. Any
uninsured portion plus increases to the progressive jackpot are funded through
operations. The Company is ultimately liable for the entire jackpot once it is
won. The following table illustrates the relationship between the Company’s
liability for progressive jackpots and its gross commitment at December 31,
2004, and related assumptions:





**Nevada NumbersTM**
    Progressive
      Jackpot
      Liability
    
    Gross
      CommitmentPresent value of $5,000,000 base progressive
      jackpot, payable in 20 equal annual installments
      using a 4.91% discount rate, the prevailing 20-year
      Treasury Bond rate
    $
    3,293,613
    
    $
    3,293,613Less portion insured through:
      Conventional insurance providers
    
    (2,900,000
    )Other participants
    
    (
      196,807
    )Uninsured portion of base progressive jackpot
    
    196,807Present value at 4.91% of the $1,061,246 increase to
      the progressive jackpot meter
    
    699,067
    
    
    699,067**Other Games**
    
    23,722
    
    
    1,023,722$
    919,596
    
    $
    5,016,402





The
effect of any change in the prevailing 20-year Treasury Bond rate is recognized
in the period of the change.




F -
11
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**








**Litigation.** In
connection with the acquisition of ISI (Note 8), the Company, in effect,
purchased for $150,000 (included in other assets) an interest in a judgment that
ISI and its shareholders had against American Wagering, Inc. (AWI), currently
operating under the protection of the bankruptcy code. The amount of the
judgment has been negotiated to be $1 million. During 2004 and subsequently, the
Company received an interest-free advance of $320,000 and a payment of $340,000
for the release of a lien from a subsidiary of AWI. This subsidiary is not in
bankruptcy. The Company expects to repay the advance when AWI’s plan of
reorganization is confirmed which is expected in 2005. However, no assurance is
given as to such outcome. Assuming AWI’s reorganization plan is approved, the
Company has agreed to receive the balance of the $1.0 million judgment
($340,000) in installments over two years, plus interest.





To the
extent the Company recovers more than its initial $150,000 investment in the
judgment, plus legal expenses in pursuing collection (approximately $200,000 so
far), substantially all of the excess will be payable to the prior shareholders
of ISI and/or their creditors under the terms of its acquisition.





**Lease
commitments.** The
Company leases office and warehouse space under various non-cancelable operating
leases expiring through 2008. The lease agreements require the Company to pay
monthly base rent in varying amounts plus common area maintenance charges.
Future minimum lease payments under





2005
    $229,2182006
    $238,9582007
    $249,1332008
    $259,493Thereafter
    None





Rent
expense for 2004 and 2003 was $221,936 and $171,915 respectively.





**7.
Income taxes:**





Because
the Company has 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, it has been effectively reduced by a 100% valuation allowance. Net
operating loss carryovers for federal income tax reporting purposes total
approximately $8,500,000 and expire in 2023.





**8.
Acquisitions:**




Effective
May 1, 2003, the Company acquired Triple Win in Nevada (TWIN), a bingo supply
distributor, in a transaction valued at $880,000, including 580,000 shares of
LVGI’s restricted common stock plus $300,000 of notes and cash paid to the
former stockholders of TWIN. Effective July 1, 2003, the Company acquired
Imagineering Systems, Inc. (ISI), a manufacturer of keno equipment and provider
of the operating system used by the Company’s keno games, in primarily a stock
for stock transaction valued at $381,000. The Company issued 263,500 shares in
connection with the ISI transaction. These transactions were accounted for in
accordance with FASB Statement No. 141, *Business
Combinations* , and
resulted in recorded goodwill of $630,335 and $324,942 related to the TWIN and
ISI transactions, respectively, none of which is expected to be deductible for
tax purposes.





In
accounting for the acquisition of TWIN and ISI, management considered whether
there were identifiable intangible assets other than goodwill requiring
accounting recognition at the dates of acquisition and concluded that there were
none that were material. Basically, the Company consummated the mergers to
acquire cash flow and to gain critical mass and believes that there were no
material other intangibles (such as trademarks, patents, customer lists,
customer relations, contracts or agreements) that, in management’s opinion, had
value and met the contractual and/or separability tests that would have required
value to be assigned to other intangibles. For





F -
12
 ***Table of
Contents***





**LAS
VEGAS GAMING, INC. AND SUBSIDIARY**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
ENDED DECEMBER 31, 2004 AND 2003**


**(CONTINUED)**





example,
there are only a limited number of potential customers in the gaming industry.
The customer (or contact list) of LVGI was effectively identical to that of TWIN
and ISI and therefore had no separate value. Relationships with the customers
associated with the business segments acquired were based on price, not
relationship intangibles that might significantly influence the customers’
buying decisions and therefore had no separate value. Legal and contractual
arrangements were either cancelable on notice or considered not to be material
or significant to future plans and operations of the Company and therefore had
no separate value.





For each
acquisition, the purchase price was determined based on the cash (and cash
equivalent) consideration exchanged plus the estimated $1 per share value of the
Company’s common shares issued, which was based on the conversion feature of the
Series B convertible preferred stock that was being sold contemporaneously with
the consummation of the acquisitions, since there was not contemporaneous
trading in the Company’s common stock. The Series B convertible preferred shares
were sold for $5 per share and convertible into five (5) common
shares.





**9.
Subsequent event:**




Effective
February 18, 2005, the Company acquired AdLine Gaming Inc. (AdLine), a developer
of digital video technology for the gaming industry. The transaction is valued
at $1,188,000 including $500,000 cash, assumption of $288,000 in liabilities,
400,000 shares of the Company’s common stock and warrants to purchase 100,000
shares of LVGI common stock for $4 a share.





The value
of the acquisition was based on the cash consideration exchanged plus the
liabilities assumed and the per-share value of the Company’s common shares
issued which was estimated at $1.





The
unaudited condensed balance sheet of AdLine immediately prior to the acquisition
is summarized as follows:





Parts
      inventory
    $
    144,000Software
      patents
    
    28,000Furniture
      and fixtures
    
    41,000$
    213,000Accounts
      payable
    
    217,000Non-current
      related party payables
    
    71,000Deficit
    
    (75,000)$
    213,000








AdLine’s
unaudited net loss for the year ended December 31, 2004 was approximately
$87,000 consisting of general and administrative expenses with no
revenues.





The
Company’s management preliminarily estimates that the recorded cost of AdLine’s
inventory and furniture and fixtures approximates fair value and that the
Company’s excess purchase price will be substantially all assigned to the
software patents.




F -
13
 ***Table of Contents***


**ITEM
8.**  **CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNING** **AND
FINANCIAL DISCLOSURE**





LVGI has
had no disagreements with its independent auditors on matters of accounting,
auditing or financial disclosures.





**ITEM
8A: CONTROLS AND PROCEDURES**





The
Company carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2004. This
evaluation was carried out under the supervision and with the participation of
the Company's management, specifically Mr. Russell Roth, the Company's Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There have been no
significant changes in the Company's internal controls or in other factors,
which could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in Company reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.





Limitations
on the Effectiveness of Internal Controls





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting necessarily prevent all fraud and
material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.





**ITEM
8B: OTHER INFORMATION**





None





21
 ***Table of
Contents***







PART
III





**ITEM
9.**  **DIRECTORSAND EXECUTIVE OFFICERS OF THE
REGISTRANT**





The
following are the names of our officers and directors, their present positions,
and some brief information about their background. The Company does not have a
written employment agreement with any of its officers or directors.





**Name**
    **Age**
    **Offices
      Held**Russell
      R. Roth
    58
    CEO,
      President, CFO, & DirectorRich
      Irvine
    62
    DirectorKyleen
      E. Cane
    50
    Director





**Russell
R. Roth.** Mr. Roth
has been President, Chief Executive Officer, Chief Financial Officer and
Chairman of the Company since April 1998. From January 1995 until December 1999,
Mr. Roth was the feature writer, editor and co-owner of the Las Vegas Investment
Report and has managed portfolios for a few select individuals. From September
1994 to April 1996, he served as President of National Investment & Tax
Managers, Inc. From January 1987 to April 1993, Mr. Roth was Chief Financial
Officer of Sotheby's Holdings, Inc., an art auction company. At Sotheby's
Holdings, Inc., he spearheaded the Company's initial public offering in 1988.
From 1983 to 1986, Mr. Roth served as Chief Financial Officer of Cessna Aircraft
Company where he coordinated a successful merger of the Company with General
Dynamics Corp. From 1974 to 1983, he served in various financial capacities for
Rockwell International and the Bendix Corporation. Mr. Roth received his
Bachelors of Science in Economics from the University of Kansas in 1968 and his
Masters of Business Administration from the University of Michigan in
1973.





**Rich
Irvine** . Mr.
Irvine has been a director of Las Vegas Gaming since January 14, 2001. Mr.
Irvine is currently Vice President of Sales for Alliance Gaming, a gaming
company headquartered in Las Vegas, Nevada. From January 2002 through January
2003 Mr. Irvine was Vice President of Sales for A. C. Coin, a gaming company
headquartered in Atlantic City, New Jersey. Mr. Irvine was Executive Vice
President of Planning and Development for GameTech from February 1999 through
November 2001. Mr. Irvine was President and Chief Operating Officer of Mikohn
Gaming Corporation from July 1995 until September 1998. He had served on the
Mikohn’s corporate Board of Directors since it became a publicly traded company
in late 1993. From 1993 to 1995 Mr. Irvine was Senior Vice President - Marketing
and Entertainment for Boomtown, Inc., a Reno-based owner and operator of casino
properties in Verdi, Nevada; Las Vegas, Nevada; Biloxi, Mississippi; and New
Orleans, Louisiana. From 1991 to 1993 he was Vice President of Marketing for
worldwide Walt Disney attractions. His first entry into the gaming industry came
as Executive Vice President Worldwide Sales and Marketing for International Game
Technology (IGT), a leading manufacturer of gaming machines. During his
four-year tenure, IGT’s revenues tripled. Mr. Irvine was co-founder of Aurora
Productions. During an eight-year stint there, he was Executive Producer of such
films as *Heart
Like a Wheel* , *Secret
of Nihm* and *Eddie
and the Cruisers,* and also
the Broadway show *The
Suicide* . He also
served as President and Chief Operating Officer of Straight Arrow Publishing,
owners of *Rolling
Stone Magazine* and as
Executive Vice President of Unicorn/ Sovaminco, a U.S. - (former) U.S.S.R. joint
venture. He began his career in media sales for Time, Inc. (now Time Warner)
after attending the University of Southern California.





**Kyleen
Cane.** Ms. Cane
became a director of Las Vegas Gaming on July 5, 2001. From May of 1989 to June
of 2001, Ms. Cane was the President and Chief Executive Officer of Tele-Lawyer,
Inc., a Nevada Corporation that was acquired in an exchange agreement with Legal
Access Technologies, Inc., a publicly reporting company, headquartered in Las
Vegas, Nevada. At that time, Ms. Cane became the Chairman of the Board and





22
 ***Table of
Contents***





CEO of
Legal Access Technologies and continued in that capacity until December 2004.
Ms. Cane also maintains a law practice limited to Securities Law in Las Vegas,
Nevada, under the name Cane Clark LLP. Ms. Cane
attended the University of California, Irvine where she graduated top in her
class and received a B.A. degree in Economics (June 1975). She then went on to
receive her Jurist Doctor degree from the University of Southern California
School Of Law in May of 1978, also receiving high honors. Among these honors
were Order of the Coif, Phi Beta Kappa, Summa Cum Laude, Dean's Honor List,
Who's Who in American Colleges and Universities, Recipient of Three University
of Southern California Scholarships, The American Jurisprudence Award in
Constitutional Law and member of the University of Southern California Law
Review. She is a licensed member of the Nevada, Washington, California and
Hawaii State Bars, the U.S. Tax Court and maintains Real Estate Broker licenses
in Nevada, California and Hawaii. During the past three decades, Ms. Cane has
been a Partner with the Newport Beach Law firm of Wellman and Cane, an Associate
Professor of Business Law at the University of Hawaii, Chairman of the
Department of Financial Economics and Institutions at the University of Hawaii,
College of Business, a Professor of law at Whittier College School of Law and
Western State University School of Law and has published articles on a broad
range of legal topics, including Corporate Takeovers, Tax Sheltered Investments,
The Tax and Economic Benefits Of Structured Personal Injury Settlements, Equity
And Forfeitures In Contracts For The Sale Of Land, Default Under An Agreement Of
Sale, The Flat Tax System, and Restrictive Practices In Accreditation Of Medical
Schools. She is also the author of four books (Divorce, Taxes, Bankruptcy and
Estate Planning) in the Five
Minute Lawyer books
series published by Dell in May of 1995.





**Terms
of Office**





Company
directors are elected for one-year terms until the next annual general meeting
of the shareholders or until removed from office in accordance with company
by-laws. Officers are appointed by the Board of Directors and hold office until
removed by the Board.





**Significant
Employees**





The
Company has three employees, Zak Khal, John English and Sam Johnson who are not
executive officers that are expected to make significant contributions to the
business.





**Code
of Ethics Disclosure Compliance**





The
Company has a Code of Ethics that applies to the principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, as described in sections 406 and 407 of
the Sarbanes-Oxley Act of 2002. The code of ethics is attached hereto as Exhibit
14.




23
 ***Table of
Contents***





**Section
16(a) Beneficial Ownership Reporting Compliance**





The
following persons have failed to file, on a timely basis, the identified reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year:





Name
      and principal position
    Number
      of
      late
      reports
    Transactions
      not
      timely
      reported
    Known
      failures to
      file
      a required formRuss
      Roth, CEO
    0
    0
    0Richard
      Irvine, Director
    0
    0
    0Kyleen
      E. Cane, Director
    0
    0
    0





**Item
10:**  **Executive
Compensation**





The table
below summarizes all compensation awarded to, earned by, or paid to our
executive officers for each of the last three completed fiscal
years.





Annual
      Compensation
    Long
      Term CompensationName
    Title
    Year
    Salary
      ($)
    Bonus
      ($)
    Other
      AnnualCompensation
      ($)
    Restricted
      Stock
      Awarded
      ($)
    Options/
      SARs
      (#)
    LTIP
      Payouts
      ($)
    All
      Other
      Compensation
      ($)Russell
      R. Roth
    Director,
      Secretary, Treasurer, CEO, CFO and President
    2004
      2003
      2002
    125,030
      96,000
      96,000
    0
      50,000
      0
    0
      0
      0
    0
      0
      0
    160,000
      0
      0
    0
      0
      0
    0
      0
      0Gary
      G. Baldwin
    Former
      Director
    2004
      2003
      2002
    0
      30,000
      71,750
    0
      0
      0
    0
      0
      20,340
    0
      0
      0
    0
      0
      0
    0
      0
      0
    0
      0
      0Rich
      Irvine
    Director
    2004
      2003
      2002
    0
      0
      0
    0
      0
      0
    0
      0
      0
    0
      0
      0
    10,000
      5,000
      0
    0
      0
      0
    0
      0
      0








24
 ***Table of
Contents***


****


**ITEM
11.**  **SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT**





The table
below provides the beneficial ownership of LVGI’s common stock by each person
known by management to beneficially own more than 5% of the Company’s common
stock outstanding as of December 31, 2004, and by the officers and directors of
LVGI as a group. Except as otherwise indicated, all shares are owned
directly.





**Title
      of class**
    **Name
      and address of beneficial owner**
    **Amount
      of**
      **beneficial
      ownership**
    **Percent
      of class**Common
    Gary
      Baldwin
      305
      La Plata Place
      Boulder
      City, Nevada 89005
    See
      table below





Other
than management listed below, LVGI knows of no other person who is the
beneficial owner of more than five percent of LVGI’s common stock.





**Management**





**Title
      of class**
    **Name
      and address of beneficial owner**
    **Amount
      of beneficial ownership**
    **Percent
      of class**Common
    Russell
      R. Roth
      4000
      West Ali Baba Lane, Suite D
      Las
      Vegas, Nevada 89118
    See
      table belowCommon
    Rich
      Irvine
      1055
      Silver Fox Circle
      Reno,
      Nevada 89439
    See
      table belowCommon
    Kyleen
      Cane
      3273
      East Warm Springs Road
      Las
      Vegas, Nevada 89120
    See
      table belowCommon
    All
      Officers and Directors as a Group (3 persons)
    See
      table below





Stock
ownership of officers, directors and shareholders holding more than 5% of the
outstanding shares of common stock follows:





12/31/2004
    Partially
      diluted
    Fully
      dilutedCOMMON
    OPTION
    WARRANT
    TOTAL
    %
      (1)
    %
      (2)RUSS
      ROTH
    789,177
    181,500
    25,000
    995,677
    13.58%
    7.47%GARY
      BALDWIN
    481,933
    4,400
    0
    486,333
    6.82%
    3.65%KYLEEN
      CANE
    3,500
    40,000
    0
    43,500
    0.61%
    0.33%RICH
      IRVINE
    0
    40,000
    0
    40,000
    0.56%
    0.30%TOTAL
    1,274,610
    265,900
    25,000
    1,565,510
    21.57%
    11.74%




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(1)
    Based
      on a denominator of 7,123,955 shares of common stock outstanding as of
      December 31, 2004, plus the particular beneficial owner’s issued preferred
      stock, options and warrants that were exercisable within 60
      days.


(2)
    Based
      on a denominator of 12,055,590 shares, which include all the common stock
      outstanding as of December 31, 2004, plus all the issued preferred stock,
      options, and warrants that were exercisable within 60
  days.





**ITEM
12.**  **CERTAIN RELATIONSHIPSAND RELATED
TRANSACTIONS**





Except as
disclosed below, none of the following parties in the past two years has had any
material interest, direct or indirect, in any transaction with the Company or in
any presently proposed transaction that, in either case, has or will materially
affect the Company.





·
    Director
      or officer of LVGI;


·
    Proposed
      nominee for election as a director of LVGI;


·
    Person
      who beneficially owns, directly or indirectly, shares carrying more than
      10% of the voting rights attached to all outstanding shares of
      LVGI;


·
    Promoter
      of LVGI;


·
    Relative
      or spouse of any of the foregoing persons.





1.
    In
      2001and 2002, the Company loaned Messrs. Roth, Maul and Baldwin sufficient
      funds to exercise all their non-qualified stock options ($610,000) and pay
      the federal income tax due upon exercise ($38,000). The primary intent of
      these loans was to allow the Company to increase the number of its issued
      and outstanding common stock, thereby reducing the percentage ownership of
      certain shareholders and facilitating and streamlining the license
      application process in jurisdictions requiring all 5% or greater
      shareholders to apply. Interest is due on the loans for the first four
      years. At the end of the fifth year the full amount of the loan is due and
      payable. In September of 2001 the Company accepted 39,560 shares of LVGI
      common stock in exchange for the cancellation of the $180,000 debt Mr.
      Maul incurred pursuant to the above loan agreement. The Company also paid
      Mr. Maul $36,000 in exchange for the cancellation of his option to
      purchase 12,250 shares of our common stock. During 2004, Mr. Roth paid
      $100,000 toward his debt.





2.
    In
      2003, the Company entered into a separation agreement with Mr. Baldwin
      wherein Mr. Baldwin received a cash payment of $30,000, contingent future
      consideration of $30,000 and the right, under certain conditions, to have
      the Company repurchase up to 75,000 common shares at prices up to $3.00
      per share (see Notes to the Consolidated Financial Statements, Note 5,
      Stockholders’ equity, Due from
officer/stockholder).





3.
    Incentive
      Stock Options. In 2000, Russell Roth received options to purchase 21,500
      shares of common stock at $3 per share. In 2004 he received another
      160,000 at $1 per share. Kyleen Cane and Rich Irvine each received options
      to purchase 25,000 shares of common stock in 2001 at $3, 5,000 shares of
      common stock in 2003 at $4.55 and 10,000 shares of common stock in 2004 at
      $1.00 per share.








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**ITEM
13.**  **EXHIBITS**





**Exhibit
      Number**
    **Description**14.1
    Code of Ethics31.1
    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
    200231.2
    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
    200232.1
    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





**ITEM
14.**  **PRINCIPAL ACCOUNTANTFEES AND
SERVICES**





**Audit
Fees**





The
aggregate fees billed by our auditors for professional services rendered in
connection with the audit of our annual consolidated financial statements for
the fiscal years ended December 31, 2004 and 2003 as well as fees paid to our
auditors for the review of our 10QSBs filed during the same periods, were
$57,565 and $72,042 respectively.





**Audit-Related
Fees**





The
aggregate fees that our auditors billed for assurance and related services that
are reasonably related to the performance of the audit or review of our
financial statements were $1,999 and $5,074 for 2004 and 2003,
respectively.





**Tax
Fees**





The
aggregate fees billed by our auditors for professional services for tax
compliance, tax advice, and tax planning were $15,036 and $4,365 for the fiscal
years ended December 31, 2004 and 2003.





**Other
Non-Audit Fees**





The
aggregate fees billed by our auditors for all other non-audit services, such as
attending meetings and other miscellaneous financial consulting, for the fiscal
years ended December 31, 2004 and 2003 were $1,913 and $2,331
respectively.




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**SIGNATURES**





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





Las Vegas
Gaming, Inc.





/s/ Russell Roth


By: Russell
Roth, President, CFO, CEO, Principal Executive


and
Principal Financial Officer, Secretary, Treasurer and Director


Date:  April 14,
2005





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








/s/
Russell Roth


By: Russell
Roth, President, CFO, CEO, Secretary, Treasurer and Director


Date:  April 14,
2005








/s/
Rich Irvine By:      
Rich Irvine, Director


Date:  April 14,
2005







/s/
Kyleen Cane


By: Kyleen
Cane, Director


Date:  April 14,
2005








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