UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 (Mark
One)
 x   ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
fiscal year ended: April 30,
2010
   ̈   TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the
transition period from ________ to ________
 
 Commission
File No.: 000-49884
 
 NEW
MEDIA LOTTERY SERVICES, INC.
 (Exact
name of Company as specified in its charter)
 
 Delaware
                
                87-0705063(State or other jurisdiction of incorporation or organization)
                
                I.R.S. Employer Identification No.)
 
 1400 Technology Drive,
Harrisonburg, Virginia 22802
 (Address
of principal executive offices)
 
 540-437-1688
 
 Issuer’s
telephone number
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common Stock, par value
$0.0001 per share
 (Title
of Class)
 
 Indicate
by check mark if the Company is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
  ̈
  Yes    x
  No
 Indicate
by check mark if the Company is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
  ̈
  Yes    x
  No
 
 Indicate
by check mark whether the Company (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
 x
  Yes     ̈
  No
 
 Indicate
by check mark whether the Company has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the Company was
required to submit and post such files).
 
  ̈
  Yes     ̈
  No
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of Company’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
 
  ̈ Yes   
x
  No
 
 Indicate
by check mark whether the Company is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer     ̈
                Accelerated
      filer       ̈Non-accelerated
      filer       ̈
                Smaller
      reporting company      x(Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the Company is a shell company (as defined in Rule 12b-2
of the Exchange Act).  ̈
  Yes   x No
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the Company’s most recently completed second fiscal
quarter. $159,182.74
 
 APPLICABLE
ONLY TO COMPANYS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
 
 Indicate
by check mark whether the Company has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a
court.           ̈
  Yes      ̈
  No
 
 (APPLICABLE
ONLY TO CORPORATE COMPANYS)
 
 Indicate
the number of shares outstanding of each of the Company’s classes of common
stock, as of the latest practicable date.  At August 30, 2010 there were
33,897,843 shares of common stock outstanding.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 None
 TABLE
OF CONTENTS
 
 FORWARD-LOOKING
      STATEMENTSPART
      IItem
      1. Description of Business
                  1Item
      1A. Risk Factors.
                  3Item
      2. Properties.
                  6Item
      3. Legal Proceedings.
                  6Item
      4. Submission of Matters to a Vote of Security Holders.
                  6PART
      IIItem
      5. Market for Company’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities.
                  6Item
      6. Selected Financial Data.
                  7Item
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                  7Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk.
                  11Item
      8. Financial Statements and Supplementary Data.
                  11Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure.
                  11Item
      9A. Controls and Procedures.
                  12Item
      9B. Other Information.
                  13PART
      IIIItem
      10. Directors, Executive Officers and Corporate
Governance.
                  15Item
      11. Executive Compensation.
                  16Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.
                  18Item
      13. Certain Relationships and Related Transactions, and Director
      Independence.
                  18Item
      14. Principal Accounting Fees and Services.
                  20PART
      IVItem
      15. Exhibits, Financial Statement Schedules.
                  21Financial
      Statements
                  F-1
      - F-16SIGNATURES
                  26
  
  FORWARD-LOOKING
STATEMENTS
 
 This
Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, which we refer to as the Exchange Act, and information relating to
us that are based on beliefs of our management as well as assumptions made by us
and information currently available to us, in particular under the headings
“Item 1. Business” and “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” When used in this document,
words such as “believe,” “intend,” “anticipate,” “estimate,” “project,”
“forecast,” “plan,” “potential,” “will,” “may,” “should,” and “expect” and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.  All statements in
this document that are not statements of historical fact are forward-looking
statements.  Forward-looking statements are subject to a number of risks,
uncertainties and assumptions and include, but are not limited to, such matters
as
 
 ·
              Our
      outstanding debt and economic condition, in
  general;
 ·
              our
      ability to obtain capital to repay our debt and fund ongoing
      operations;
 ·
              our
      ability to fully implement our business
plan;
 ·
              our
      ability to take advantage of new business opportunities as they
      arise;
 ·
              general
      economic and business conditions, both nationally and in our
      markets;
 
 ·
              the
      effect of government regulation on our industry in each country in which
      we conduct business;
 ·
              our
      expectations and estimates concerning future financial performance,
      financing plans and the impact of
competition;
 ·
              anticipated
      trends in our business; and
 ·
              other
      risk factors set forth under "Risk Factors" in this
  report.
 
 By their
nature, forward-looking statements involve risks and uncertainties because they
relate to events and depend on circumstances that may or may not occur in the
future.  We caution you that forward-looking statements are not guarantees
of future performance and that our actual results of operations, financial
condition and liquidity, and developments in the industry in which we operate
may differ materially from those made in or suggested by the forward-looking
statements contained in this Annual Report on Form 10-K.  In addition, even
if our results of operations, financial condition and liquidity, and
developments in the industry in which we operate are consistent with the
forward-looking statements contained in this Annual Report on Form 10-K, those
results or developments may not be indicative of results or developments in
subsequent periods.
  These
forward-looking statements are subject to numerous risks, uncertainties and
assumptions about us described in “Risk Factors.”  The forward-looking
events we discuss in this Annual Report on Form 10-K speak only as of the date
of such statement and might not occur in light of these risks, uncertainties and
assumptions.  Except as required by applicable law, we undertake no
obligation and disclaim any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
  ii
  PART
I
 
 Item
1. Description of Business
 
 General
 
 Through
March 11, 2010 New Media Lottery Services, Inc. (the “NM-US”), through its
direct and indirect subsidiaries, New Media Lottery Services plc (“NM-PLC”) and
New Media Lottery Services (International), Ltd. (“NM-LTD”)(collectively, “we”,
“us” the “Company” or like terms), designed, built, implemented, managed, hosted
and supported Internet and wireless device based lottery programs operated by
governments and their licensees, such as charitable organizations, outside of
the United States.  All of our operations were conducted through our
subsidiary NM-PLC, an Irish corporation of which we own 80.23% of the
outstanding stock, and through NM-PLC’s wholly owned Irish subsidiary, NM-LTD.
As is further discussed below, the Company no longer engages in these lottery
based programs and is currently seeking new lottery license opportunities
outside of the business of its former subsidiaries.
 
 Changes
in Principal Stockholders and Loss of Subsidiaries
 
 Joseph
Dresner and Milton Dresner had been the holders of a majority of the outstanding
shares of NM-US's common stock since 2004 and had funded the company's
operations, as necessary through the second quarter of fiscal 2009.  During
the first and third quarters of fiscal 2009, the Company received loans from
Trafalgar Capital Specialized Investment Fund-FIS (Trafalgar) in the aggregate
principal amount of €2.45 million.  The Company was in default under the
terms of the documents governing these loans as of January 1, 2009 and in March
2009, entered into a series of agreements with Trafalgar to restructure the
terms of the loans.  Under the agreements, Milton Dresner and Joseph
Dresner, the principal stockholders of NM-US as of the date thereof, agreed to
transfer an aggregate of 9,005,700 shares of common stock they owned in NM-US to
Trafalgar, representing approximately 42% of the outstanding shares of common
stock of NM-US.  As a result, the Dresners no longer controlled the
Company.
 
 In
July 2009, NM-US, NM-PLC, NM-LTD, Milton Dresner, Joseph Dresner and Trafalgar
entered into an agreement to restructure all of the Company's debt.  Under
the agreement, among other things, the Dresners agreed to convert the principal
amount of the debt owed to them by the Company, amounting to $6,112,633, which
included the amount of principal paid by the Dresners on behalf of the Company
to satisfy amounts due to Comerica Bank under certain promissory notes dated
June 1, 2008 in the aggregate amount of $2.1 million and to relieve the Company
from any liability under remaining debt owed to Comerica Bank ($4 million), into
9,005,700 shares of common stock of NM-US.  The Dresners also agreed to
forgive all interest accrued on their debt (approximately $233,697).
 
 On March
11, 2010, New Media Lottery Services, Inc. (the “Company”), New Media Lottery
Services plc, (“NM-PLC”), New Media Lottery Services (International), Ltd.
(“NM-LTD,” and, together with the Company and NM-PLC, “we”, “us” the “Company”
or like terms); John Carson, a director and the chief executive officer of each
entity; and Trafalgar Capital Specialized Investment Fund-FIS (“Trafalgar”),
lenders to the Company, entered into an agreement that resulted in a global
restructuring of the Company (the “Agreement”).  Under the Agreement, among
other things, Trafalgar exercised its rights under a certain Share Pledge
Agreement dated March 24, 2009 (“Share Pledge Agreement”), under which the
Company pledged all of the shares it owned in NM-PLC to Trafalgar as security
for amounts due under various loans made by Trafalgar to the Company.  The
Company’s failure to pay sums owed by NM-PLC under a Guaranty Agreement made in
favor of Trafalgar triggered a default under the Share Pledge Agreement,
requiring the Company to convey the shares of NM-PLC to Trafalgar.
 
 Prior to the Agreement, the Company
conducted all of its commercial operations through NM-PLC and NM-LTD. 
Prior to the Agreement, the Company owned 80.23% of the outstanding common
shares of NM-PLC, which owns all of the outstanding common shares of
NM-LTD.  Upon the consummation of the transactions among the parties to the
Agreement, the Company no longer engages in these operations, but continues to
seek lottery licenses
 
 Delisting
of NM-PLC's Ordinary Shares From Trading on the AIM Market
 
 On April
12, 2009, the AIM Market delisted the ordinary shares of NM-PLC from
trading.  The suspension is a result of the resignation of NM-PLC's
nominated advisor, Zimmerman Adams International Limited, and the resignation of
NM-PLC's last non-executive director on March 12, 2009. As a result, NM-PLC no
longer satisfied the listing requirements of the AIM Market.  NM-PLC
elected not to retain replacements in light of the cost involved. Management
also believed that the AIM listing was expensive to maintain and no longer
advantageous and decided to focus on the NM-US listing.
  1
  Operations
During the Year Ended April 30, 2010
 
 During
the annual period ended April 30, 2010 we managed a lottery for Rehab Net Games
Limited ("Rehab-Ireland") and developed games for Inspired Gaming Group. 
We have allowed contracts to manage lotteries for other organizations to lapse,
given our financial condition and lack of capital. Additionally, as previously
stated, as at March 11, 2010 our subsidiaries were taken over by Trafalgar due
to our defaults on obligations owed to them. The discussion below concerns the
business of our subsidiaries that we no longer operate. We currently generate no
revenue as we pursue lottery licenses and other lottery related
opportunities.
 Rehab-Ireland
Lottery.
 
 In
September 2001, we entered into an agreement with Rehab-Ireland, an Irish
corporation, as amended in January 2004, April 2004 and November 2005, to
develop, manage and operate lottery games for the Internet and wireless
telephones within the Republic of Ireland for a period of 10 years from November
2005.  This agreement was subject to automatic extensions for five-year
periods in the event that Rehab-Ireland earns certain agreed upon minimum
proceeds during the fifth through tenth years of the term of the agreement and
the eleventh through fifteenth years of the term of the agreement.  The
agreement may be terminated by Rehab-Ireland in the event that we fail to pay
the fees provided for in the agreement or, after the ninth year of the agreement
upon twelve months notice of a party’s intention to terminate.  Under the
agreement we were responsible generally for all manner of implementation and
operation of the lottery, including that we: (i) provide games for the lottery;
(ii) undertake all accounting functions; (iii) undertake all administrative
aspects of the operation of the lottery; (iv) undertake all marketing,
advertising and promotion of the lottery; (v) provide cash management systems;
(vi) distribute lottery proceeds to the lottery licensee; and (vii) ensure
compliance with all applicable gaming laws.
 
 We
completed implementation of the Internet portion of the lottery program in
August 2003 and were managing and operating the lottery until the seizure of our
subsidiaries by Trafalgar on March 11, 2010.
 
 Game
Development Services.
 
 By
agreement dated October 12, 2005, Inspired retained us to provide a range of
services, including developing content for its server based gaming terminals in
the UK; facilitating prize payouts; providing and maintaining all systems,
software, servers and technical support; designing and implementing a game
strategy focused on sales growth; proposing and designing co-branding game
opportunities; assisting in the design and implementation of all advertising,
promotional marketing and sales programs for the lottery games on the Inspired
terminals and its Web site; and managing the process from selection,
registration, regulatory reporting, accounting statement preparation and charity
payment processing.  Inspired paid us of a percentage of the net proceeds
generated by these terminals.
 
 In
consideration for its services, the Company was entitled to receive a portion of
the net proceeds derived from the use of the lottery games on Inspired’s server
based terminals.  For purposes of the agreement, net proceeds meant gross
proceeds after deduction of prize payouts, charity proceeds, retailer fees, cash
management costs and value added tax, if applicable.
 
 New Business Opportunities
 
 Since the loss of our subsidiaries on
March 11, 2010 the Company has been seeking new business opportunities. These
opportunities may be unrelated to our previous business and it is unknown when
the Company will find an appropriate opportunity.
 
 Competition.
 
 The
government-licensed lottery market can be divided into four distinctive
categories: large government operated lotteries; small national operated
lotteries; small state-operated lotteries; and independently operated charitable
lotteries. We believe that present lottery service suppliers concentrate their
marketing efforts on the large government operated lotteries. Government
operated lotteries have the financial wherewithal to install substantial
dedicated lottery systems and equipment. Competition for this clientele is
competitive; however, this segment of the market is supported by only a few
known companies. Competition for small and mid-sized government- and charity-
operated lotteries has become more competitive as service providers explore new
revenue streams. To date, we believe that neither the charitable lottery market
place nor the Internet/wireless lottery marketplace has been significantly
penetrated and that these markets currently are under-serviced. We believe that
by being the among the first companies dedicated to serving this market we can
develop a competitive advantage over future industry participants.
 
 Of
important note is that the core business of all major lottery suppliers is
entrenched in land-based games and dedicated terminal systems.  Substantial
capital is invested in these systems, including print facilities to produce
instant “scratch” tickets, sales terminals to sell on-line lottery games, or
video lottery terminals.  It is this required substantial capital
investment that drives these companies to compete for the large lottery
projects.  Small lottery operations do not generate the volume required to
justify the capital expenditure on their part.  Their products and
solutions are too expensive to be competitive in the smaller lottery
market.
  2
  The
Internet-based solutions previously offered by the Company do not rely on the
products or services that the large lottery service organizations currently
market.  Any larger lottery service provider entering this market and
encouraging clients to explore this technology would do so at the peril of
substantial capital loss, as it would decrease the industry’s reliance on its
current products.  Additionally, Internet technology creates a client
conflict for these companies.  Currently, most of their clients protect
their sales borders by offering land-based games only.  The development of
Internet/wireless gaming formats may adversely affect the technology hold they
have on their existing client base.
 
 Since the
loss of our subsidiaries we are currently evaluating business opportunities.
However, there is intense competition for new business opportunities and there
is no guarantee that we will find a suitable opportunity in the near term.
Additionally, there are larger better capitalized companies competing for these
same opportunities.
 
 Government
Regulation.
 
 Lotteries
may be lawfully conducted only in jurisdictions in which they are expressly
permitted by law and are subject to extensive government regulation. 
Regulation typically includes some form of licensing of applicants and their
subsidiaries.  Applicants for, or holders of, a license may be subject to a
broad examination including, among other items, financial stability, integrity
and business experience.  Although certain of the features of a lottery,
such as the percentage of gross revenues that must be paid back to players in
prize money, are sometimes fixed by legislation, lottery regulatory authorities
generally exercise significant discretion, including the determination of the
types of games played, the price of each wager, the manner in which the lottery
is marketed, the selection of the vendors of equipment and services and the
retailers of lottery products.  Laws and regulations applicable to
lotteries in the jurisdictions in which we operate and will seek to operate are
evolving and are subject to change, and the effect of such changes on our
ongoing and potential operations cannot be predicted with certainty.  In
many jurisdictions existing regulations have not kept pace with current
electronic gaming technology and governments are taking a closer look at their
laws pertaining to electronic gaming.  Evolving regulations in the UK have
delayed the launch of products and lotteries we have developed for these
markets.  In some cases, most notably in Brazil and Venezuela, where we
were party to agreements under which we were to build lottery systems,
regulatory actions taken by the national governments have prompted us to abandon
our efforts.
 
 Item
1A. Risk Factors.
 
 An
investment in our securities is speculative and involves a high degree of
risk.  Potential investors should carefully consider the risks described
below and elsewhere herein, including the financial statements and related notes
before purchasing our securities.  The risks set forth below are not the
only ones our Company will face.  Additional risks and uncertainties may
also adversely impair our business operations.  If any of these risks
actually occur, our business, financial condition, and/or results of operations
would likely suffer significantly.
 
 Our
substantial debt combined with the absence of operations raises substantial
doubt about our ability to continue as a going concern.
  The
report of our independent auditor and Note 11 to the financial statements
included in our Annual Report on Form 10-K for the fiscal year ended April 30,
2010 indicates that, historically, the Company’s negative cash flows from
operations, recurring negative working capital deficiencies and recurring
operating losses raise substantial doubt about the Company’s ability to continue
as a going concern.  As of the date of this report, after giving effect to
the Agreement, we are not engaged in any substantive operations and have no
means of generating revenue.  Moreover, we are burdened by substantial
debt, have only limited cash on hand and have not identified any sources of
capital.  We will continue to incur costs and expenses in connection with
being a public company and for other general and administrative purposes. 
Our operating and financial condition renders it unlikely that we would be able
to obtain third-party financing to sustain operations, if necessary. 
 In light of our limited resources, we cannot assure you that we will be
able to continue operations, in which case you could lose the entire amount of
your entire investment in us.
  Our
sole director will devote most of his time to other businesses which may have a
negative impact on our ability to identify other operating entities with which
to become involved.
 
 As of the
date hereof, we have no executive officers to manage our business.  Our
sole director engages in other businesses and is not required to devote any
specific amount of time to our affairs.  We do not have and do not expect
to have any full time employees for the foreseeable future.  If our
director’s other business affairs require him to devote more substantial amounts
of time to such affairs, it could limit his ability to devote time to our
affairs and could have a negative impact on our business.
  3
  The
Company has a potential income tax liability related to positions taken on the
2005 tax return for which it has not set aside a reserve and may be unable to
pay.
 
 In
connection with the reorganization of the Company prior to the AIM Offering,
NM-US transferred all of the stock it owned in New Media International (our
indirect operating subsidiary) to NM-PLC in consideration of the issuance of
stock of NM-PLC, and licensed all of its technology and other intellectual
property to New Media International, both of which were taxable transactions
under the Internal Revenue Code of 1986, as amended.  In filing its federal
tax return for 2005, management ascribed what it believed to be reasonable
values to such assets, but several tax positions taken on such tax return could
be subject to challenge by the Internal Revenue Service (IRS).  If the IRS
ultimately determines that NM-US should have ascribed a higher value to these
assets than it did on the 2005 tax return, it may incur an additional tax
thereon and penalties and interest on the unpaid amount.  Moreover, the IRS
could challenge the method used to determine the tax basis associated with the
New Media International stock transferred to NM-PLC.  The amount of any
additional taxation (and penalties and interest thereon) presently can not be
determined.  The Company has not set aside a reserve to pay any additional
tax which the IRS might impose based upon the value it ascribes to the assets
transferred, but if such amount is significant, the Company may not be able to
make such payment.  Accordingly, the Company could be subject to litigation
by the IRS and assessment.  To the extent these assessments remained unpaid
the Company could expect the IRS to levy all Company assets and pursue
collection upon these assets.
  Our
future success is dependent on the ability of management to identify and obtain
an interest in a business that operates profitably.
 
 Our
future success will depend on the ability of management to identify and
negotiate a transaction that affords us an interest in an entity that is
operating profitably.  Our current director has limited experience in such
activities.
 
 Our
company will be subject to all of the risks of any operating company with which
we enter into a transaction.
 
 To the
extent we enter into a transaction that affords us an interest in an operating
entity, we will be subject to all of the risks to which such operating entity is
subject, the nature and extent of which cannot now be known to us.
 
 There
will be significant competition to identify and enter into a transaction with an
attractive operating business.
 
 We will
encounter intense competition from other entities seeking to acquire attractive
operating businesses, including blank check companies, finance companies, banks,
venture capital funds, leveraged buyout funds, operating businesses and other
financial buyers competing for acquisitions.  Many of these entities are
well established and have extensive experience in identifying and completing
transactions with attractive operating companies.  Nearly all of these
competitors possess greater financial, technical, human and other resources than
we do and our resources will be negligible when contrasted with those of many of
these competitors.
 
 If
we consummate a transaction with an operating entity by way of an acquisition,
stockholders may not have an opportunity to vote on the
transaction.
 
 If we
consummate a transaction with an operating entity  by
way of an acquisition of the capital stock or assets of the operating entity,
the transaction may be accomplished in the sole determination of management
without any vote or approval by our securityholders.
 
 If
Trafalgar were to convert the shares of preferred stock it owns into common
stock, it would own a majority of the outstanding shares of our capital stock
and have the ability to exercise control of the Company.
 
 Trafalgar
owns 27% of the outstanding shares of our common stock and all of the
outstanding shares of preferred stock, which are convertible into 40 million
shares of common stock.  If Trafalgar were to convert its preferred stock
into common stock, it would own 66% of the outstanding shares of our voting
stock and have the ability to exercise unfettered control of the
Registrant.
 
 Our
existing stockholders would suffer substantial dilution if we issue a
significant number of new shares of capital stock in connection with any
transaction with an operating entity or upon the conversion of outstanding
shares of preferred stock.
 
 As of the
date of this report, Trafalgar owns two million shares of Series A Convertible
Preferred Stock that are convertible into 40 million shares of common
stock.  Our certificate of incorporation authorizes the issuance of 150
million shares of common stock and 5 million shares of preferred stock.
  4
  Our board
has the power to issue any or all of our authorized but unissued shares without
stockholder approval.  To the extent that Trafalgar converts its shares of
Series A Preferred Stock into common stock or we issue additional securities in
connection with any transaction that we affect with an operating entity,
existing stockholders would experience substantial dilution in the percentage of
our common stock they then hold.
  We
may issue preferred stock in connection with any transaction with an operating
entity or for any other purpose, which may have greater rights than our common
stock.
  Our
certificate of incorporation authorizes the issuance of up to 5 million shares
of preferred stock.  The outstanding Series A Convertible Preferred Stock
has a preference over the common stock as to amounts payable on any liquidation
or deemed liquidation of the Registrant.  In addition, our board can create
new series of preferred stock having such terms as it deems advisable and issue
shares of such series without seeking any further approval from our common
stockholders.  We may issue preferred stock in connection with any
transaction with an operating entity or for any other purposes our board
desires, which such series of preferred stock may rank ahead of our common stock
in terms of dividend priority or liquidation premiums and may have greater
voting rights than our common stock.  In addition, such preferred stock may
contain provisions allowing those shares to be converted into shares of common
stock, which could dilute the value of common stock to current stockholders and
could adversely affect the market price, if any, of our common
stock.
  Limitations
on liability and indemnification matters.
  As
permitted by the corporate laws of the State of Delaware, we have included in
our Certificate of Incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions.  In addition,
our By-Laws provide that we are required to indemnify our officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we will be required to
advance expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.
 
 Because
we will not pay dividends, stockholders will only benefit from owning common
stock if it appreciates.
  We have
never paid dividends on our common stock and we do not intend to do so in the
foreseeable future. We intend to retain any future earnings to finance our
growth.  Accordingly, any potential investor who anticipates the need for
current dividends from his investment should not purchase our common
stock.
  You
may not be able to sell your shares of common stock due to the absence of a
liquid trading market and thus you may never realize any monies from holding
these securities.
  Our stock
is admitted to quotation on the Over-the-Counter Bulletin Board, however, there
has been little trading to date.  Consequently, we do not consider there to
be an established trading market for our common stock.  If no active
trading market develops for our common stock, holders of our common stock will
have to rely on the appreciation thereof to realize any monies from holding
these securities.
 
 Our
common stock may be considered a “Penny Stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.
  Our
common stock may be considered to be a “penny stock” if it does not qualify for
one of the exemptions from the definition of “penny stock” under
Section 3a51-1 of the Securities Exchange Act for 1934, as amended (the
“Exchange Act”).  Our common stock may be a “penny stock” if it meets one
or more of the following conditions (i) the stock trades at a price less than
$5.00 per share; (ii) it is not traded on a “recognized” national exchange;
(iii) it is not quoted on the Nasdaq Capital Market, or even if so, has a price
less than $5.00 per share; or (iv) is issued by a company that has been in
business less than three years with net tangible assets less than
$5 million.
 
 The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers participating in sales of our common stock will be
subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
promulgated under the Exchange Act. For example, Rule 15g-2 requires
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document at least two business days before
effecting any transaction in a penny stock for the investor’s account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock
to that investor. This procedure requires the broker-dealer to (i) obtain from
the investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.
  5
  Item
2. Properties.
 
 The
Company formerly leases approximately 500 square feet of office space at 1400
Technology Drive, Harrisonburg, Virginia.  The Company leased the space on
a month to month basis at a monthly rent of $1,000, which includes electric,
local telephone and internet access.  There is no lease agreement between
the parties.  The office building at which the Company leased the space is
owned by an entity in which Nathan Miller is a principal.  Mr. Miller is a
former affiliate of the Group by virtue of having been an officer and director
of the Company and NMLS-LTD.
 
 Item
3. Legal Proceedings.
 
 The
Company presently is not a party to, nor is management aware of, any pending,
legal proceedings.
 
 Item
4. Submission of Matters to a Vote of Security Holders.
 
 None
 
 PART
II
 
 Item
5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
 
 Market
Information
 
 The
Company’s common stock was admitted for quotation on the OTC Bulletin Board in
July 2005 under the symbol NWMD. It has been trading under the symbol NWMD
since August 4, 2010 due to our failure to timely file this report on Form 10-K.
However, we believe that our symbol will return to NWMD after this report has
been filed. Since the commencement of trading through the end of the fiscal
year ended April 30, 2010, there has been only de minimus trading in our
stock.   Consequently, we do not consider there to be an established
trading market for our common stock.
 
 Holders
 
 At
September 2, 2010, there were 47 record holders of the Company's common
stock.  The number of holders of record does not include beneficial owners
of our common stock whose shares are held in the names of various security
holders, brokers and clearing agencies.
 
 Dividends
 
 We have
not paid any dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future.  We intend to retain any earnings to
finance the growth of our business.  We cannot assure you that we will ever
pay cash dividends.  Whether we pay cash dividends in the future will be at
the discretion of our Board of Directors and will depend upon our financial
condition, results of operations, capital requirements and any other factors
that the Board of Directors decides are relevant.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 The
following table sets forth information as of April 30, 2010, concerning shares
of our common stock that may be issued upon the exercise of options and other
rights under our existing equity compensation plans and arrangements, divided
between plans approved by our stockholders and plans or arrangements not
submitted to our stockholders for approval. The information includes the number
of shares covered by and the weighted average exercise price of, outstanding
options and other rights and the number of shares remaining available for future
grants excluding the shares to be issued upon exercise of outstanding options,
warrants, and other rights.
  6
 
 Plan Category
                        
                        (a)
                          Number of
                          Securities to be
                          Issued Upon
                          Exercise of
                          Outstanding
                          Options
                        
                        
                        (b)
                          Weighted-
                          Average
                          Exercise Price of
                          Outstanding
                          Options
                        
                        
                        (c)
                          Number of Securities
                          Remaining Available for
                          Future Issuance Under Equity
                          Compensation Plans (excluding
                          securities reflected in column
                          (a)Equity compensation plans approved by security
      holders
                        
                        
                        3,475,000
                        
                        
                        $
                        0.10
                        
                        
                        
                        0Equity
      compensation plans not approved by security holders
                        
                        
                        0
                        
                        
                        $
                        
                        
                        
                        
                        -Total
                        
                        
                        3,475,000
                        
                        
                        $
                        0.10
                        
                        
                        
                        0
 
 Repurchases
of Equity Securities.
 
 None.
 
 Recent
Sales of Unregistered Securities.
 
 On August
13, 2009, New Media Lottery Services, Inc. entered into a Securities Purchase
Agreement with Trafalgar Capital Specialized Investment Fund-FIS ("Trafalgar"),
which was described in the Registrant's annual report on Form 10-K as filed with
the Securities and Exchange Commission on August 13, 2009 (the "2009
10-K").  Under the Purchase Agreement, Trafalgar agreed to purchase, in its
sole discretion, upon the Registrant's request, up to $1 million in principal
amount of convertible redeemable debentures from the Registrant.  As
additional consideration therefor, the Registrant agreed to issue 2 million
shares of convertible, redeemable preferred stock to Trafalgar.  On August
21, 2009, the parties agreed on the terms of the preferred stock and on that
date, the Registrant filed a certificate of designation with the State of
Delaware setting forth the terms and restrictions of the Series A Convertible
Preferred Stock ("Series A Preferred Stock") to be issued to
Trafalgar.
 
 On August
24, 2009, the Registrant issued 2 million shares of Series A Preferred Stock to
Trafalgar pursuant to the exemption from the registration requirements of the
Securities Act of 1933, as amended, afforded by Section 4(2)
thereof.
 
 Item
6. Selected Financial Data.
 
 The
information to be furnished under this Item 6 is not required of small reporting
issuers.
 
 Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
 
 Overview
..
 
 The
Company designed, built, implemented, managed, hosted and supported Internet and
wireless device based lottery programs operated by governments and their
licensees, such as charitable organizations, outside of the United States. 
All of our operations were conducted through our subsidiary NM-PLC, an Irish
corporation of which we own 80.23% of the outstanding stock, and through
NM-PLC’s wholly owned Irish subsidiary, NM-LTD. The Company no longer engages in
lottery based programs and is currently seeking new business
opportunities.
 
 Review of Annual
Operations .
 
 Key
Events
 
 During
the first and second fiscal quarters of 2009, we received loans from Trafalgar
Capital Specialized Investment Fund-FIS (Trafalgar) in the aggregate principal
amount of approximately €2.45 million (the "Loans"). This funding allowed us to
move beyond reliance on the financial support of our principal stockholders, who
had provided, directly or indirectly, or guaranteed the majority of our capital
since our inception.
  7
  Default
on Loans and Debt Restructuring
 
 On
December 31, 2008, the Company defaulted under the various agreements governing
the Loans (collectively, the "Loan Documents") for failing to make payments when
due.  Each of the Loans bears interest at the rate of 8% per annum and each
payment of principal and interest is subject to a redemption premium of
12.5%.  The first loan, by its terms, reached maturity in May 2010 and the
second loan in April 2010.  As security for the Loans, various constituents
of the Company granted to Trafalgar (i) security interests in all of their
assets, (ii) pledged all of the shares owned in NM-LTD and (iii) entered into
guarantees in favor of Trafalgar.  The default under the security
documents triggered Trafalgar's right as a secured creditor.
 
 In March
2009, each constituent of the Company entered into a Loan Facility Restructuring
Agreement in favor of Trafalgar (and other agreements amending the terms of the
existing Loan Documents) under which payments during the period December 30,
2008 through June 30, 2009 would be deferred and resume as of July 31, 2009 in
the amounts provided for in the agreement.  In addition, Trafalgar extended
the maturity date of the October 2008 loan from April 30, 2010 to October 31,
2010.  In consideration of the indulgence granted by Trafalgar, the Company
agreed (i) to pay Trafalgar a restructuring fee of €150,000, half of which was
to be added to the principal amounts outstanding principal balance of each loan,
(ii) NM-US guaranteed the entire amount due under the Loans agreement and (iii)
NM-US pledged all of the shares it owns in NM-PLC to Trafalgar.  In
addition, Milton Dresner and Joseph Dresner agreed to transfer an aggregate of
9,005,700 shares of NM-US common stock registered in their names to
Trafalgar.
 
 We did
not make the payments required under the restructured Loan Documents on July 31,
2009.  We had advised Trafalgar of our inability to make such payment prior
thereto and Trafalgar did not call a default under the Restructuring Agreement
or amended Loan Documents.  Rather, by letter dated August 11, 2009,
Trafalgar agreed to further defer and also restructure the payments due under
the May 2008 and October 2008 loan documents.
 
 On July 20, 2009, the
Company entered into a letter agreement under which Trafalgar agreed to make
available $1 million working capital line of credit whereby it agreed to
purchase convertible debentures from the Company up to such amount for a period
of up to two years ending on July 20, 2011, subject to the execution of
definitive agreements that are described in the following paragraph (the "July
20 Letter Agreement").  As a material inducement for Trafalgar to enter
into this agreement, the Company agreed to issue to Trafalgar 2,000,000
shares of preferred stock having a stated value of
$1.00.
 
 On July
23, 2009, each constituent entity comprising the Company, Milton Dresner, Joseph
Dresner and Trafalgar entered into an agreement to restructure all of the
Company's debt, a description of which is provided under “Item 13. Certain
Relationships and Related Transactions, and Director Independence – Related
Party Transactions."  Under this agreement, Milton Dresner and Joseph
Dresner agreed to convert an aggregate of approximately $6,112,633 of principal
owed to them by the Company into shares of the common stock of NM-US. 
 The debt converted included (i) the amounts owed to them under a series of
promissory notes made by the Company during the period March 2006 through March
2008, (ii) the amount of principal paid by the Dresners on behalf of the Company
to satisfy amounts due to Comerica Bank under certain promissory notes dated
June 1, 2008 in the aggregate amount of $2.1 million and (iii) the amount of
principal assumed by the Dresners under a promissory note made by the Company in
favor of Comerica Bank in the amount of $1.9 million dated February 20, 2009
(the "Comerica Note").  In consideration of the benefits conferred upon the
Company as a result of the actions taken by the Dresners in (i), (ii) and (iii),
above, the Company issued an aggregate of 9,005,700 shares of Common Stock to
them.  The elimination of the debt described above significantly improved
our balance sheet.
 
 Also
pursuant to this agreement, among other things, Trafalgar agreed to make
available to the Company a $1,000,000 credit facility for a period of two years
ending on July 20, 2011 under the terms of a Securities Purchase
Agreement.  The credit would be made available upon the request of the
Company, which request could be accepted or rejected by Trafalgar in its sole
discretion.  In consideration of the funds provided, the Company would
issue to Trafalgar a debenture in the principal amount of the loan that bears
interest at the rate of 10% per year and that matures on July 20, 2011, provided
that upon the completion of any capital raise in excess of $1,000,000, all
unpaid principal and accrued but unpaid interest under outstanding debentures
would be due and payable.   The Company received the first draw down
in the gross amount of $300,000, which the Company received on July 22,
2009.  The Company received a second draw down in the amount of $275,000 in
September 2009. The credit was to be available to the Company through a period
ending on July 20, 2011.
 
 On March
11, 2010, New Media Lottery Services, Inc. (the “Company”), New Media Lottery
Services plc, (“NM-PLC”), New Media Lottery Services (International), Ltd.
(“NM-LTD,” and, together with the Company and NM-PLC, “we”, “us” the “Company”
or like terms); John Carson, a director and the chief executive officer of each
entity; and Trafalgar Capital Specialized Investment Fund-FIS (“Trafalgar”),
lenders to the Company, entered into an agreement that resulted in a global
restructuring of the Company (the “Agreement”).  Under the Agreement, among
other things, Trafalgar exercised its rights under a certain Share Pledge
Agreement dated March 24, 2009 (“Share Pledge Agreement”), under which the
Company pledged all of the shares it owned in NM-PLC to Trafalgar as security
for amounts due under various loans made by Trafalgar to the Company.  The
Company’s failure to pay sums owed by NM-PLC under a Guaranty Agreement made in
favor of Trafalgar triggered a default under the Share Pledge Agreement,
requiring the Company to convey the shares of NM-PLC to
Trafalgar.
  8
  Prior to the Agreement, the Company
conducted all of its commercial operations through NM-PLC and NM-LTD. 
Prior to the Agreement, the Company owned 80.23% of the outstanding common
shares of NM-PLC, which owns all of the outstanding common shares of
NM-LTD.  Upon the consummation of the transactions among the parties to the
Agreement, the Company no longer engages in any operations.
 
 Results of Operations
..
 
 Comparison of the Fiscal
Years Ended April 30, 2010 and 2009
 
 For the
year ended April 30, 2010, the Company reported a net loss of from operations of
$2,881,269 compared to a net loss of operations of  $2,963,588 for the
year ended April 30, 2009..  Net loss after interest expense and minority
interest was $5,551,273 For the year ended April 30, 2010, and $3,111,500 for
the year ended April 30, 2010. The difference is attributable to an increase in
the expense for the beneficial conversion feature of our convertible debt and a
loss on minority interest in our subsidiaries compared to a gain in
2009.
 
 Net
revenues decreased decreased to $765,753 from $1,120,833.
 
 General
and administrative expense decreased to 933,375 from approximately $1.1
million.  This was because of lower salary expenses.
 
 Liquidity and Capital
Resources .
 
 During
fiscal 2010, we used approximately $1.565 million in our operating
activities.   We have historically supported our operations from cash
provided from the sale of securities by NM-PLC and from third party loans
extended to NM-PLC as well as from loans provided or guaranteed by our principal
stockholders. As discussed elsewhere in this filing we defaulted on certain
obligations owed to Trafalgar and they seized our operating
subsidiaries.
 
 We are
not certain we will have or identify capital sufficient for all the purposes we
require.  We expect to incur losses for the 2011 fiscal year.  In
light of our financial performance and condition and debt structure, as depicted
in the table above, it will be difficult to access capital.  Affiliates who
had loaned funds to our Company or guaranteed third party loans made to our
Company have indicated that they will no longer make funds available to us or
guarantee any further loans.
 
 Contractual
Obligations .
 
 The
following table presents our contractual obligations and commercial commitments
as of April 30, 2010:
 
 Payments Due By Period(all amounts in $)Contractual
                        Cash Obligations
                      
                      Total
                      
                      
                      Less than
                        One Year
                      
                      
                      1-3
                        Years
                      
                      3-5
                        Years
                      
                      After 5
                        YearsLoans Payable – Trafalgar (1)
                      
                      
                      3,544,644
                      
                      
                      
                      3,394,649
                      
                      
                      
                      149,995Loan
      Payable – Third Party
                      
                      
                      183,177
                      
                      
                      
                      183,177Total
      Contractual Cash Obligations
                      
                      
                      3,727,821
                      
                      
                      
                      3,577,826
                      
                      
                      
                      149,995
 
 (1) Net
of discounts (see footnotes)
 
 Recent Accounting
Developments .
 
 We
refer readers to the footnote tilted "Recent Accounting Developments" appearing
on page F-9 of our audited financial statements accompanying this
report.
 
 Critical Accounting
Policies .
 
 We refer
readers to the footnote tilted "Critical Accounting Policies" appearing on page
F-8 of our audited financial statements accompanying this
report.
  9
  Foreign Currency
Translation .
 
 The
Company’s foreign currency translation policy is that for all significant
non-U.S. operations, the functional currency is the local currency.  Assets
and liabilities of those operations are translated into U.S. Dollars using
period-end, historical exchange rates; income and expenses are translated using
the average exchange rates for the reporting period.  Translation
adjustments are reported in accumulated other comprehensive loss, a separate
component of stockholders' deficit.  Currently, we generate all of our
revenues in euros.
 
 Revenue Recognition
..
 
 We
formerly generated the majority of our revenue from gross sales of lottery
tickets by our client’s lotteries.  For accounting purposes, our net
revenue, which is calculated after settlement of all discounts, refunds, and
adjustments, in accordance with the provisions of the contracts with our clients
and which varies from client to client, is deemed to be a
"commission."
 
 Presently,
the Company is not generating any revenue.
 
 Financing Activities During
the Last Fiscal Year .
 
 During
the 2010 fiscal year, we received financing from the following
sources:
 
 ·
              Trafalgar
      loaned the Company the aggregate principal amount of
    $685,000;
 
 Trafalgar
Loans
 
 In June
2008, the Company borrowed the sum of €1.3 million from Trafalgar and in
November 2008, we borrowed an additional €1.15 million.  We realized net
proceeds from the Loans of €2,079,908 after paying direct fees and expenses
payable in connection with the Loans, consisting principally of facility
commitment fees, structuring fees, due diligence fees and professional fees
payable to the lender and finder's fees in each instance payable to a third
party, which aggregated approximately €370,092 (this amount does not include
expenses associated with the issuance of warrants or shares in NM-PLC to
Trafalgar and a third party, nor does it include a €150,000 restructuring fee
levied in March 2009 as described above).
 
 The
documents governing the Loans are alike in all material respects and provide
that the amounts outstanding bear interest at the rate of 8% per year, are
payable in equal monthly installments of principal and accrued interest and that
each payment of principal and interest is subject to a redemption premium of
12.5%.  The Company may redeem any and all outstanding amounts of the Loan
at a premium of 12.5% at any time on three days advance notice.  The
November loan originally matured in April 2010, though said date was deferred to
October 2010 under the Restructuring Agreement described above, and the June
loan matures in May 2010.  As security for the Loans, various constituents
of the Company granted to Trafalgar (i) security interests in all of their
assets, (ii) pledged all of the shares owned in NM-LTD and (iii) entered into
guarantees in favor Trafalgar.
 
 The
amounts outstanding under the loan are convertible at the option of Trafalgar
into ordinary shares of NM-PLC, provided that such shares are eligible to trade
on the AIM market operated by London Stock Exchange plc. At the date of this
report, such shares were suspended from trading on the AIM Market. The Loans are
convertible at a conversion price equal to the lower of (i) the 120% of the VWAP
(as defined below) on certain dates or if no VWAP is available on such dates,
the closing bid price on such dates and (ii) 85% of the lowest daily closing
VWAP for the five consecutive trading days prior to the date on which Trafalgar
gives notice of its intention to convert. For purposes of the loan documents,
"VWAP" is defined as the volume weighted average price (as reported by
Bloomberg) of the ordinary shares on AIM for that trading day.
 
 As
additional consideration for the Loans, NM-PLC issued to Trafalgar warrants to
purchase up to 4.5 million ordinary shares at a price 5 pence per share at
various times through October 2010.   If the warrants are not
exercised, New Media PLC is required to pay the lender a total of
£180,000.
 
 In
connection with the Loans, certain existing lenders to the Company and a
subsidiary of NM-PLC, including Milton Dresner and Joseph Dresner, who are
affiliates of the Company, agreed to subordinate loans due to them and Milton
Dresner agreed to guarantee all amounts due to Comerica Bank under various
promissory notes in the aggregate principal amount of $4 million.
 
 We used
the proceeds of the loans for working capital and, as required, to pay amounts
due under the loan agreements.
  10
  As
described elsewhere herein, in March 2009, we entered into a series of
restructuring agreements with Trafalgar to cure the continuing defaults and
materially modified the November 2008 loan documents.  On March 11, 2010,
Trafalgar declared a default and seized our operating subsidiaries.
 
 As a
result of the above described transactions with Trafalgar Capital, the Company
has debt with conversion options that provide for a rate of conversion that is
below market value. This feature is normally characterized as a beneficial
conversion feature ("BCF"), which is recorded by the Company pursuant to
Emerging Issues Task Force (“EITF”) Issue No. 98-5 ("EITF 98-5"), Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios , and EITF Issue No. 00-27, Application of EITF Issue No. 98-5
to Certain Convertible Instruments .  The value of the beneficial
conversion feature was determined using the intrinsic value method.  In
accordance with EITF 00-27 paragraph 6, when detachable warrants are associated
with the issuance of convertible debt, the ratios of the relative fair values of
the convertible debt and detached warrants are allocated to the proceeds
received, with those amounts being recorded in the paid-in-capital accounts of
the balance sheets of the Company. The amount recorded as a discount to the
convertible debt was $1,210,793. This amount consists of $1,141,679 related to
the beneficial conversion features of the convertible debt and $69,114 related
to the allocation to the value of the detachable warrants associated with the
issuance of the debt. The discount is being amortized over the 2 year term of
the convertible debt; accordingly, the Company recorded $439,582in expense for
the accretion of the discount during the year ended April 30, 2009.
 
 Off-Balance Sheet
Arrangements .
 
 We do not
have any off-balance sheet arrangements or commitments.
 
 Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
 
 The
information to be furnished under this Item 7A is not required of small
reporting issuers.
 
 Item
8. Financial Statements and Supplementary Data.
 
 The
Company submits with this report the financial statements and related
information listed in the Index to Financial Statements on page
F-1.
 
 Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
 
 Previous
independent registered public accounting firm
 
 On August
31, 2010 (the “Dismissal Date”), New Media Lottery Services Inc. (the “Company”)
dismissed Chisholm, Bierwolf, Nilson & Morrill LLC, as its independent
certifying accountant.  The Company’s Board of Directors approved of the
dismissal on August 30, 2010. There were no disputes or disagreements between
Chisholm, Bierwolf, Nilson & Morrill LLC and the Company during the previous
two fiscal years. Except for the provision of a “Going Concern” opinion, the
reports of Chisholm, Bierwolf, Nilson & Morrill LLC on the Company’s
financial statements for the years ended March 31, 2010 and 2009 did not contain
an adverse opinion or disclaimer of opinion, and such reports were not qualified
or modified as to uncertainty, audit scope, or accounting
principle.
 
 During
the years ended April 30, 2010 and 2009, and through the Dismissal Date, the
Company has not had any disagreements with Chisholm, Bierwolf, Nilson &
Morrill LLC on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved Chisholm, Bierwolf, Nilson & Morrill LLC’s satisfaction, would have
caused them to make reference thereto in their reports on the Company’s
financial statements for such years.
 
 During
the years ended April 30, 2010 and 2009, and through the Dismissal Date, there
were no reportable events, as defined in Item 304(a)(1)(v) of Regulation
S-K.
 
 The
Company provided Chisholm, Bierwolf, Nilson & Morrill LLC with a copy of
this Current Report on Form 8-K prior to its filing with the Securities and
Exchange Commission (“SEC”) and requested that Chisholm, Bierwolf, Nilson &
Morrill LLC furnish the Company with a letter addressed to the SEC stating
whether it agrees with the above statements and, if it does not agree, the
respects in which it does not agree, a copy of which is filed as Exhibit 16.1
herewith.
  11
  New
independent registered public accounting firm
 
 On August
31, 2010, the Company engaged Larry O’Donnell CPA, PC (“O’Donnell”), as its
independent registered public accounting firm, to audit the Company’s financial
statements. The decision to engage O’Donnell was approved by the Company’s Board
of Directors at a Board meeting called for such purpose.
 
 During
the Company’s two most recent fiscal years and through the date of the
engagement of O’Donnell, the Company did not consult with O’Donnell regarding
either (1) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company’s financial statements, or (2) any matter that was
either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of
Regulation S-K).
 
 Prior to
the engagement of O’Donnell, O’Donnell did not provide the Company with any
written or oral advice that O’Donnell concluded was an important factor
considered by the Company in reaching any decision as to any accounting,
auditing or financial reporting issue.
 
 Item
9A. Controls and Procedures.
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information we are required to disclose in the reports we file pursuant to the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),  is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s ("SEC") rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer, who is also our principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. 
 In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can only provide reasonable assurance of achieving the
desired control objectives, and in reaching a reasonable level of assurance,
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
  As
required by Rule 13a-15(b) under the Exchange Act, we carried out an
evaluation, under the supervision of our Chief Executive Officer, who is also
our principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the year
covered by this report.  Based on this evaluation, because of the Company’s
limited resources and limited number of employees, our management concluded
that, as of April 30, 2010, our disclosure controls and procedures were not
effective to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms and to provide reasonable assurance that such
information is accumulated and communicated to our management, including our
Chief Executive Officer, as appropriate to allow timely decisions regarding
required disclosures.
  Management’s
Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, our principal executive and principal financial officers and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
 
 -
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;
 
 -
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America and that our
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and
 
 -
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.
 
 All internal control systems, no matter
how well designed, have inherent limitations and may not prevent or detect all
misstatements or instances of fraud.   Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.  However, these inherent
limitations are known features of the financial reporting process. 
Therefore, it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.  Moreover, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
  12
  As of
April 30, 2010, our management assessed the effectiveness of our internal
control over financial reporting.  Based on that evaluation, management
concluded that, during the period covered by this report, our internal control
over financial reporting was not effective to detect the inappropriate
application of US GAAP rules, as more fully described below.  This flaw in
the design or operation of our internal control over financial reporting
adversely affected our internal controls and may be considered to be
a significant deficiency.
  The
elements of our internal controls and procedures and internal control over
financial reporting that our management considered to be deficient under the
standards of the Public Company Accounting Oversight Board were: (1) a lack of a
functioning audit committee (arising from the fact that we have no
independent/outside directors on our board of directors), which resulted in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures; (2) an inadequate segregation of duties consistent with
control objectives; (3) the lack of documented risk assessment policies and
procedures and (4) a Company-wide lack of familiarity with technical accounting
issues arising from insufficient resources to retain personnel that possess the
expertise to have detected the accounting issues related to the proper
accounting of convertible debt.
 
 Our
management believes that the deficiencies enumerated in items (2) and (3) above
did not have a material effect on our financial results. However, our management
believes that the lack of sufficient resources to identify and properly address
technical accounting and reporting issues related to the accounting for
convertible debt is a significant deficiency that resulted in a material
misstatement in our financial statements as detected by our auditors and
subsequently corrected. Additionally, the lack of a functioning audit committee
comprised of a majority of outside directors results in ineffective oversight in
the establishment and monitoring of required internal controls and procedures,
which also could result in a material misstatement in our financial statements
in future periods.
 
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only our management’s report in this annual
report.
 
 Management’s
Remediation Initiatives
  In an
effort to remediate the identified deficiencies and enhance our internal
controls, we have initiated, or plan to initiate upon the receipt of sufficient
funds and increase in operations, the following series of measures:
  ·
              We
      will create a position to segregate duties consistent with control
      objectives and will increase our personnel resources and technical
      accounting expertise within the accounting
  function;
 
 ·
              We
      plan to appoint one or more outside directors to our board of directors
      who shall be appointed to an audit committee resulting in a fully
      functioning audit committee who will undertake the oversight in the
      establishment and monitoring of required internal controls and procedures
      such as reviewing and approving estimates and assumptions made by
      management.
 
 We
anticipate that these initiatives will be at least partially, if not fully,
implemented by April 30, 2010, pending the availability of resources to
accomplish this goal.  Additionally, we plan to test our updated controls
and remediate our deficiencies by April 30, 2010.
 
 Changes
in Internal Control over Financial Reporting
  There
were no changes in our internal control over financial reporting during the
quarter ended April 30, 2009 that materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
  Item
9B. Other Information.
  For
certain additional information relating to transactions with related parties
that occurred after the end of the period covered by this report, we refer
readers to "Item 13. Certain Relationships and Related Transactions, and
Director Independence."
  13
  On July
20, 2009, the Company entered into a letter agreement under which Trafalgar
agreed to make available $1 million working capital line of credit whereby it
agreed to purchase convertible debentures from the Company up to such amount,
subject to the execution of definitive agreements that are described in the
ensuing paragraph (the "July 20 Letter Agreement").  As a material
inducement for Trafalgar to enter into the letter agreement, the Company agreed
to issue 2,000,000 of preferred stock having a stated value of $1.00.  The
July 20 Letter Agreement makes reference to certain preliminary terms with
respect to the preferred stock to be issued to Trafalgar, subject to the
negotiation of more definitive terms and the filing of an amendment to the
Company's certificate of incorporation.  As contemplated in the July 20
Letter Agreement, the preferred stock (i) would rank senior to any and all other
capital stock of the Company with respect to rights upon liquidation, winding up
and dissolution; (ii) would be convertible, at the option of the holder thereof
into shares of common stock at a conversion price equal to the lower of (a)
$0.05 (the "Fixed Conversion Price") and (b) a 15% discount to the lowest daily
closing Volume Weighted Average Price of the common stock as reported by
Bloomberg, LP during the five trading days after the conversion date; (iii) the
holders of the preferred stock would have the right to vote upon any matter
submitted to a vote of the holders of common stock with the holders of all other
classes and series of capital stock of the Company entitled to vote on such
matter, taken together as a single class, and would be entitled to cast votes
equal to the number of shares of common stock into which the preferred stock is
then convertible if it were to be converted at the Fixed Conversion Price, and
(iv) the holders of the preferred stock would be entitled to receive dividends
in an amount equal to the amount of dividends such holders would have received
if each share of preferred stock had been converted into common stock at the
Fixed Conversion Price.  The parties expect to negotiate the definitive
terms of the preferred stock promptly.
  On August
13, 2009, the Company entered into a series of agreements with Trafalgar with
respect to a credit facility that it agreed to extend to the Company in the
agreement executed on July 20, 2009.  The various documents, including a
Securities Purchase Agreement, a Secured Convertible Redeemable Debenture and
Security Agreement, are deemed to be effective as of July 20, 2009.
 
 Under the
Securities Purchase Agreement, or Purchase Agreement, Trafalgar agreed to make
available to the Company credit in the amount of up to $1 million for a period
of two years ending on July 20, 2011, which credit is and shall be evidenced by
Secured Convertible Redeemable Debentures, or Debentures.  The Company
received an initial draw down of $300,000, for which it issued a Debenture to
Trafalgar in said amount on August 13, 2009 (effective as of July 20,
2009).  The Company may exercise future draw downs under the Purchase
Agreement by delivering a Draw Down Notice to Trafalgar, which shall be subject
to acceptance or rejection by Trafalgar, in its sole discretion, within five
calendar days (a "Settlement Date").  Once accepted, Trafalgar is obligated
to deposit the amount of the funding into an escrow account to be released upon
the issuance of a Debenture in the principal sum of the Draw Down, which must be
within five calendar days of acceptance of a Draw Down Notice.  If a
Debenture is not timely delivered by the Company, the Company shall pay to
Trafalgar, as liquidated damages for such failure to deliver and not as a
penalty, 2% of the amount of the Draw Down for each seven calendar day period,
or part thereof, following such failure, in cash, until the Debentures have been
delivered.  Such amount may be subtracted by Trafalgar from the amount of
the Draw Down for which the Debenture is being delivered.
 
 In
connection with the sale of the Debentures, the Company agreed to issue shares
of preferred stock to Trafalgar under the Purchase Agreement.  The Company
and Trafalgar are negotiating the rights designations, preferences and the
qualifications, limitations and restrictions terms of the preferred stock but
have not yet concluded such negotiations.  It is likely that the preferred
stock we issue to Trafalgar will have preferences over the common stock upon a
liquidation of our assets, upon any merger of our Company with another entity
and upon any distributions or dividends (or other assets) paid to stockholders
which would restrict cash or assets available for us to distribute or pay to
holders of common stock upon any such event.  Moreover, the preferred stock
likely will be convertible into common stock on terms favorable to the holder
such that the preferred stock would be convertible into common stock at some
discount to an established independent price or value for the stock, such as the
trading price on the OTCBB.
 
 The
Debentures bear interest at the rate of 10% per annum and mature on July 20,
2011.  In addition, upon the completion of any capital raise in excess of
$1,000,000, all unpaid principal and accrued but unpaid interest under
outstanding Debentures plus the applicable redemption premium (as described
below) on the amount redeemed will become immediately due and payable. The
principal amount of the Debenture, plus accrued interest thereon, is
convertible, in whole or in part of the, into shares of common stock in an
amount equal to the quotient obtained by dividing the outstanding amount of the
Debenture to be converted by the Conversion Price.  “Conversion Price”
means the lower of (a) 100% of the Volume Weighted Average Price (“VWAP”)
of the common stock on the day prior to July 20, 2009 and (b) a fifteen percent
(15%) discount to the lowest daily closing VWAP of the common stock during the
five trading days after the date set forth in the conversion
notice.
 
 The
holder of the Debentures will not have the right to convert more than $50,000 of
the principal amount of the Debenture plus accrued interest per week.  In
addition the Company may not affect any conversions of Debentures and the holder
shall not have the right to convert any portion of its Debenture or receive
shares of common stock as payment of interest hereunder to the extent that after
giving effect to such conversion or receipt of such interest payment the holder
(when aggregated with any its affiliates) would beneficially own in excess of
4.99% of the number of shares of common stock outstanding immediately after
giving effect to such conversion or receipt of shares as payment of
interest.
 
 The
Company may redeem the Debentures, in whole or in part, at any time by providing
the holder with three days advance notice and by paying the unpaid principal and
interest accrued to the date of a redemption and a 12.5% redemption premium on
the amount redeemed so long as our common stock is trading below the fixed
conversion price (as defined in the Debenture) at the time it receives the
redemption notice.
  14
 
 In
connection with the $300,000 Debenture issued on August 13, 2009, commencing on
October 30, 2009 and in each month thereafter through July 20, 2011, the Company
is required to pay Trafalgar (i) $13,864.58 of outstanding principal, plus (ii)
applicable accrued interest on the outstanding balance as of such payment date,
plus (iii) the redemption premium on the principal amount
redeemed.  In addition, if the Company successfully completes a
capital raise in excess of $1,000,000, all unpaid principal and accrued but
unpaid interest under the Debentures plus a redemption premium on the amount
redeemed shall be immediately due and payable.
 
 The
Debentures are subject to provisions to protect a holder in the event that the
Euro strengthens against the U.S. Dollar during the life of a Debenture, in
which case, the holder will be afforded an adjustment to compensate for any such
rise in the exchange rate.
  The
Company will be in default under a Debenture: (a) if it fails to pay amounts due
within two calendar days of the required payment date; (b) if it fails to
issue freely tradable common stock within five calendar days of a conversion
date; (c) if it fails for ten calendar days after notice to comply
with any of its other agreements in the Debentures; (d) upon any event of
bankruptcy or insolvency of the Company; (e) if it breaches its obligations
under any of the transaction documents (as such term is defined in the Purchase
Agreement) which is not cured within ten calendar days after receipt of written
notice thereof.  Upon the occurrence of an event of default, the
holder may, in its sole discretion, accelerate full repayment of all Debentures
outstanding and accrued interest thereon or may, notwithstanding any limitations
contained in this Debenture, the Purchase Agreement or any other document
governing the transaction ("Transaction Documents"), convert all Debentures
outstanding and accrued interest thereon into shares of common
stock.
 
 Under the
terms of a Security Agreement, the Company pledged to Trafalgar and granted a
security interest in and to all of its property (broadly defined) during such
time as any of its obligations under the Transaction Documents are paid in
full.  Trafalgar is entitled to all of the benefits typically granted
to a secured party under such agreement, provided that while there was no
default under the Transaction Documents, the Company could operate its business
in the ordinary course.
 
 The
Company will be in default under the Security Agreement if  (i) it
fails to pay any amount of principal, interest or other item comprising the
obligations under any Transaction Document; (ii) it fails to observe or perform
any of its obligations or other covenants, terms or provisions to be performed
under the Transaction Documents; (iii) if any representation or warranty made or
furnished in connection with any of the Transaction Document proves to have been
incorrect or misleading in any material respect when made or furnished; (iv) if
Trafalgar, reasonably and in good faith, deems itself to be insecure; (v) if the
Company (1) makes a general assignment for the benefit of its creditors;
(2) applies for or consents to the appointment of a receiver, trustee or
similar official for itself or any of its assets and properties;
(3) commences a voluntary case for relief as a debtor under the US
Bankruptcy Code; (4) files with or otherwise submits to any governmental
authority any petition, answer or other document seeking:
(A) reorganization, (B) an arrangement with creditors or
(C) seeks to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) files or otherwise submit any
answer or other document admitting or failing to contest the material
allegations of a petition or other document filed or otherwise submitted against
it in any of the proceedings described in the Security Agreement, or (6) is
adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or any
case, proceeding or other action shall be commenced against the Company for the
purpose of effecting, or an order, judgment or decree shall be entered by any
court of competent jurisdiction approving anything specified above, or any
receiver, trustee, liquidator or other official shall be appointed with respect
to the Company, is appointed to take or otherwise acquires possession or control
of all or a substantial part of the Company's assets and properties and any of
the foregoing shall continue unstayed and in effect for any period of
thirty calendar days.
 
 Upon the
occurrence and during the continuance of an event of default under the Security
Agreement Trafalgar is entitled to act as the Company's attorney-in-fact to do
such things as the Company could do with its property, including collect its
debts or sell its properties and exercise all of its other rights as a secured
creditor.  In the event that the Company receives any asset during the
pendency of the security interest, it is required to hold such asset for the
benefit of Trafalgar.
 
 Under the
terms of the Agreement dated March 11, 2010, Trafalgar exercised its rights
under the Share Pledge Agreement dated March 24, 2009, under which the
Registrant pledged all of the shares it owned in NM-PLC to Trafalgar as security
for amounts due under various loans made by Trafalgar to the
Company.  The Registrant’s failure to pay sums owed by NM-PLC under a
Guaranty Agreement made in favor of Trafalgar resulted in a default of the Share
Pledge Agreement, requiring the Registrant to convey the shares of NM-PLC to
Trafalgar.
 
 PART
III
 
 Item
10. Directors, Executive Officers and Corporate Governance.
 
 The table
below sets forth, as of September 1, 2010, the officers and directors of the
Company.
  15
 
 Name
                        
                        Age
                        
                        TitleJeffrey
      Sternberg
                        
                        64
                        
                        Director
 
 Jeffrey
Sternberg has served as a director of the Company since May
2009.  Since 2007, Mr. Sternberg has served as an analyst for
Trafalgar, tracking and evaluating potential transactions and monitoring the
company's expenditures.  Trafalgar is principal stockholder of our
Company but does Mr. Sternberg does not own any interest in
Trafalgar.  From 2004 to 2006, he served as the president of Advantage
Capital Development Corporation, a small business development company, where he
was responsible primarily for eliminating debt of client companies and managing
that company's general operations.
 
 Item
11. Executive Compensation.
 
 During
the fiscal year ended April 30, 2010, all of our employees were remunerated by
our indirect subsidiary, NM-LTD for all services rendered to our
group.  NM-US did not pay or otherwise remunerate directly any
employee during the last fiscal year.
 
 Compensation
of Directors.
 
 NM-US
does not compensate our directors for serving in such capacity.  We
reimburse outside directors for all costs and expenses incurred in connection
with attending or participating in any board meeting.
 
 Executive
Compensation.
 
 The table
below provides information about compensation paid to our principal executive
officer and principal financial officer (the "named executive officers"), who
were the only persons to receive compensation in excess of $100,000 during the
periods covered.
 SUMMARY
COMPENSATION TABLE
 
 Name and Principal
                                      Position
                                    
                                    Year
                                    
                                    Salary
                                      ($)
                                    
                                    
                                    All
                                      Other Compensation
                                      ($)
                                    
                                    
                                    TotalJohn
      T. Carson,
                                    
                                    2010
                                    
                                    $
                                    71,000
                                    
                                    
                                    
                                    1,039
                                    (1)
                                    
                                    
                                    72,039Former
      Chief Executive
                                      Officer
      (former principal
                                      executive
      officer)
                                    
                                    2009
                                    
                                    $
                                    167,000
                                    
                                    
                                    
                                    13,361
                                    (1)
                                    
                                    
                                    180,361
 Certain
columnar information required by Item 402(n)(2) of Regulation S-K has been
omitted for categories where there has been no compensation awarded to, or paid
to, the named executive officer required to be reported in the table during
fiscal years ended April 30, 2010 and April 30, 2009.
 
 All compensation was paid
in US Dollars
 (1)
Represents car allowance.
 
 Employment
Agreements.
 
 NM-US has
not entered into written employment agreements with any member of our
management.  NM-PLC and NM-LTD compensated all of the Company’s
employees.  Disclosure relating to all management employment contracts
issued by NM-PLC is set forth below.
 
 NM-PLC
Employment Agreements
 
 Pursuant
to an employment agreement dated March 13, 2008, NM-PLC engaged John Carson to
serve as the chief executive officer of NM-PLC at a salary of $192,000 per annum
(excluding bonuses and benefits including a payment equal to 10% of his total
annual emoluments by way of pension contribution).  The term of the
agreement is for a period of twenty-four months and thereafter the agreement is
terminable by either party on the giving of two month’s written
notice.  John Carson was appointed a director of the NM-PLC on
November 14, 2005. Mr. Carson resigned as of March 11, 2010.
 
 Milton
Dresner has been engaged to serve as a non-executive director of NM-PLC under
the terms of a letter of appointment dated March 13, 2006.  Mr.
Dresner has waived the payment of any fees which may be due him under this
agreement.  Mr. Dresner resigned as a director in July
2009.
  16
  Compensation
Plans.
 
 2004
Stock Plan
 
 In 2004,
the Company adopted and approved a stock option plan (the "2004 Plan"), the
purpose of which is to enable the Company to provide its officers, directors,
employees and consultants and advisors performance-based incentives and other
equity interests in the Company, and afford us the ability to attract, retain
and reward such personnel.  There is reserved for issuance under the
Plan an aggregate of 2,000,000 shares of Common Stock.  All of such
shares may, but need not, be issued pursuant to the exercise of incentive stock
options.  Options granted under the Plan may be either "incentive
stock options," as defined in Section 422 of the Internal Revenue Code of 1986,
as amended, or non-statutory stock options.  In addition, awards of or
rights to purchase shares of the common stock ("Stock Rights") may be granted
under the Plan.
 
 As of April 30, 2010,
there were outstanding qualified options to purchase an aggregate of 2,875,000
shares of common stock and non-qualified options to purchase an aggregate of
600,000 shares of common stock.
 
 Currently,
the Plan is administered by the board of directors.  The board has
broad discretion with respect to the Plan and has authority to, among other
things:
 
 ·
              select
      the persons to whom options and Stock Rights are to be
      granted;
 ·
              determine
      the number of shares of common stock to be covered by each option and
      Stock Right granted;
 ·
              determine
      the terms and conditions of any option or Stock
  Right;
 ·
              interpret
      the Plan and awards granted under the
Plan;
 ·
              prescribe,
      amend and rescind rules and regulations relating to the Plan or sub-plans
      established for the purpose of qualifying for preferred tax treatment
      under foreign tax laws;
 
 All
decisions, interpretations and other actions of the board are final and binding
on all holders of options and Stock Rights.
 
 Non-statutory
stock options and Stock Rights may be granted under the Plan to employees,
directors and consultants of the Company or any parent or subsidiary of the
Company.  Incentive stock options may be granted only to
employees.  The Plan provides that no employee may be granted, in any
fiscal year of the Company, options to purchase more than 1,000,000 shares of
Common Stock plus options to purchase up to an additional 1,000,000 shares of
Common Stock in connection with such employee's initial commencement of service
to the Company.
 
 Options
granted under the Plan are subject to additional terms and conditions under the
individual option agreement, including the exercise price, exercise of options
and the term of options.  Options granted under the Plan generally are
not transferable other than by will or the laws of descent and distribution, and
may be exercised during the optionee's lifetime only by the
optionee.
 
 The board
may amend, alter, suspend or terminate the Plan at any time and for any
reason.
 
 Option
Grants in the Last Fiscal Year.
 
 NM-US
granted  3,475,000 options to purchase securities during the fiscal
year ended April 30, 2010. They had an exercise price of $.10 per
share.
 
 Outstanding
Equity Awards at Fiscal Year End
 
 Below is
information relating to unexercised options held by John T. Carson, our former
Chief Executive Officer, as of April 30, 2009.  No other executive
officer held any unexercised options or unvested stock as of such
date.
 
 OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAROPTION
      AWARDSName
                          
                          Number of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Exercisable
                          
                          
                          Number of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Unexercisable
                          
                          
                          Number of
                            Securities
                            Underlying
                            Unexercised
                            Unearned
                            Options
                            (#)
                          
                          
                          Option
                            Exercise
                            Price
                            ($)
                          
                          Option
                            Expiration
                            DateJohn
      Carson
                          
                          
                          2,500,000
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          $
                          .10
                          
                          May
      28,
2019
  17
 
 Certain
columnar information required by Item 402(p)(2) of Regulation S-K has been
omitted because there were not unvested options to report in the table for the
fiscal year ended April 30, 2010.
 
 Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
 
 The
following table sets forth, as of August 30, 2010, certain information regarding
beneficial ownership of our common stock by each person who is known by us to
beneficially own more than 5% of our common stock. The table also identifies the
stock ownership of each of our directors, each of our named executive officers,
and all directors and officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
  Shares of
common stock which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
 
 The
applicable percentage of ownership is based on 33,897,843 shares outstanding as
of August 31, 2010.
  Name
      of
                      Beneficial
      Owner (1)
                    
                    Amount of
                      Beneficial
                      Ownership
                    
                    
                    Percent of Outstanding
                      Class OwnedJohn
      Carson (2)
                    
                    
                    3,387,714
                    
                    
                    
                    8.63
                    %Jeffrey
      Sternberg
                    
                    
                    -0-
                    
                    
                    
                    -0-Sterling
      Herbst (3)
                    
                    
                    396,429
                    
                    
                    
                    1.01
                    %Milton
      Dresner (4)
                    
                    
                    7,750,000
                    
                    
                    
                    19.73
                    %Joseph
      Dresner (5)
                    
                    
                    7,750,000
                    
                    
                    
                    19.73
                    %Trafalgar
      Capital Specialized Investment Fund-FIS (6)
                    
                    
                    9,005,700
                    
                    
                    
                    22.93
                    %All
      officers and directors as a group (2 persons) (7)
                    
                    
                    3,784,143
                    
                    
                    
                    9.64
                    %
 * Less
than 1%.
 (1)
              The
      address for each of the persons identified in the foregoing table is care
      of the Company.
 (2)
              Includes
      600,000 shares of common Stock held by The John C. Carson Revocable Trust
      for which Mr. Carson is the trustee and options to purchase 2,500,000
      shares of common stock.
 (3)
              Includes
      21,429 shares of common stock and options to purchase 375,000 shares of
      common stock.
 (4)
              Includes
      7 million shares of common stock and warrants to purchase 750,000 shares
      of common stock.
 (5)
              Includes
      7 million shares of common stock and warrants to purchase 750,000 shares
      of common stock.
 
 (6)
              Includes
      9,005,700 shares of common stock.  Does not include shares of
      common stock issuable upon the conversion of outstanding shares of
      preferred stock to be issued to Trafalgar or shares issuable upon
      conversion of an outstanding debenture held by Trafalgar, which cannot be
      calculated as of the date hereof.
 (7)
              Includes
      options to purchase an aggregate of 2,875,000 shares of common
      stock.
 
 Item
13. Certain Relationships and Related Transactions, and Director
Independence.
 
 Related
Party Transactions
 
 During
the period 2004 through 2009, Milton Dresner and Joseph Dresner, former
directors of the Company and the holders of in excess of 10% of the outstanding
shares of the common stock of NM-US, made significant loans to the Company and
as of April 30 the outstanding aggregate of these loans $2.1
million.  The loans were evidenced by a series of instruments bearing
interest at rates varying from prime plus 2% to prime plus 3% and
5.25%.  The disposition of theses loans is described
below:
 
 ·
              On
      March 17, 2006, the closing date of the AIM Offering, all amounts owed to
      each of Milton Dresner and Joseph Dresner then outstanding were repaid by
      each company, excluding $150,000 owed to Milton Dresner by NM-LTD which is
      payable on demand.  As of March 17, 2006: $1,539,561 of debt,
      including interest, owed to Milton Dresner was converted into 5,000,000
      shares of our common stock at a price of $0.307912 per share and
      $1,547,137 of debt, including interest, owed to Joseph Dresner was
      converted into 5,000,000 shares of our common stock at a price of
      $0.309427 per share.  As of March 17, 2006, NM-PLC owed Milton
      Dresner the sum of $250,000, which was converted into 286,139 ordinary
      shares of NM-PLC at a price of $0.875 per share, the offering price of the
      ordinary shares in the AIM Offering.  As of March 17, 2006,
      NM-PLC owed Joseph Dresner the sum of $250,000, which was converted into
      286,139 ordinary shares of NM-PLC at a price of $0.875 per share, the
      offering price of the ordinary shares in the AIM
  Offering.
  18
 
 ·
              On
      July 23, 2009, Milton Dresner and Joseph Dresner agreed to convert an
      aggregate of approximately US$6,112,633 of principal owed to them by the
      Company into shares of the common stock of NM-US.   The
      debt converted included (i) the amounts owed to them under a series of
      promissory notes made by the Company during the period March 2006 through
      March 2008, (ii) the amount of principal paid by the Dresners on behalf of
      the Company to satisfy amounts due to Comerica Bank under certain
      promissory notes dated June 1, 2008 in the aggregate amount of $2.1
      million and (iii) the amount of principal assumed by the Dresners under a
      promissory note made by the Company in favor of Comerica Bank in the
      amount of $1.9 million dated February 20, 2009 (the "Comerica
      Note").  In consideration of the benefits conferred upon the
      Company as a result of the actions taken by the Dresners in (i), (ii) and
      (iii), above, the Company issued an aggregate of 9,005,700 shares of
      Common Stock to them.  Specifically, Milton Dresner converted
      $3,230,133 in principal amount of debt into 4,502,850 shares of Common
      Stock, at a price of $0.71735 per share, and Joseph Dresner converted
      $2,882,500 in principal amount of debt into 4,502,850 shares of Common
      Stock at a price of $0.64015 per share.  The conversion of debt
      by the Dresners described herein was completed in connection with a part
      of more encompassing agreement among the Dresners, the Company and
      Trafalgar, described below.
 
 During the period October
2005 through July 2007, the Company borrowed the sum of $4.0 million from
Comerica Bank, the payment of all of which was guaranteed by Joseph Dresner and
Milton Dresner.   During June 2009, the Dresners repaid an
aggregate of $2.1 million of the principal amount and accrued interest to
Comerica on behalf of the Company.  In addition, the Dresners agreed
to relieve and discharge the Company from any liability for any amounts due or
to become due under the remaining promissory note made by the Company in favor
of Comerica in the amount of $1.9 million.  These sums were converted
into common stock of NM-US as described in the foregoing paragraph.
 
 On
July 23, 2009, NM-US, NM-PLC, NM-LTD, Milton Dresner, Joseph Dresner and
Trafalgar entered into an agreement to restructure all of the Company's debt,
pursuant to which, among other things:
 
 ·
              The
      Dresners agreed to convert the principal amount of the debt owed them by
      the Company, as described above;
 ·
              The
      Company issued warrants to purchase 750,000 shares of common stock to each
      of Milton Dresner and Joseph Dresner that are exercisable for a period of
      three years at a price of $.05 per
share;
 ·
              NM-US,
      NM-PLC, NM-LTD agreed not to issue any shares of common stock, other than
      in connection with a capital raising transaction, without first obtaining
      the written approval of the Dresners, who are entitled to customary
      anti-dilution protection as to such issuances for a period of one
      year;
 ·
              Milton
      Dresner agreed to resign from the boards of directors of each board of
      directors of the Company;
 ·
              Trafalgar
      agreed to make available to the Company a $1,000,000 credit facility for a
      period of one year commencing as of the date of the agreement, with the
      first draw down in the gross amount of $300,000, which the Company
      received on July 22, 2009.
 ·
              During
      the one-year period after the date of the agreement, Trafalgar agreed not
      to (i) issue any shares of the common stock to itself for any purposes (if
      it acquired the power to do so), (ii) convert any outstanding debt owed to
      it by any member of the Group into securities of any member of the Group
      or to exercise any outstanding securities it held in any member of the
      Group or (iii) convert any convertible securities into shares of common
      stock of any member of the Group.
 
 On May
12, 2009, NM-US and NM-PLC each appointed Jeffrey Sternberg to serve as a member
of its board of directors at the request of management of Trafalgar, the holder
of 9,005,700 shares of the NM-US's common stock, or approximately 42% of the
class as of such date.  There are no written or oral agreements in
place to nominate or vote for Mr. Sternberg or any representative of Trafalgar
to serve on the board of directors in the future.  The Company and Mr.
Sternberg have not discussed compensation arrangements or his appointment to any
committees of the board of directors.
 
 As of
December 31, 2008, the Company was in default under the terms of loan agreements
with Trafalgar, as more fully described under the heading " Management
Discussion and Analysis of Financial Condition and Results of Operations – Default on Loans and Debt
Restructuring. "  In order to cure the defaults, on March 24,
2009, NM-US and NM-PLC entered into a Restructuring Agreement in favor of
Trafalgar under which payments during the period beginning on December 30, 2008
through June 30, 2009 would be deferred and resume as of July 31, 2009 in the
amounts provided for in the agreement.  In addition, Trafalgar
extended the maturity date of the October 2008 loan from April 30, 2010 to
October 31, 2010.  In consideration of the indulgence granted by
Trafalgar, the Company agreed (i) to pay Trafalgar a restructuring fee of
€150,000, half of which was to be added to the principal amounts outstanding
principal balance of each loan and (ii) NM-US agreed to enter into each of a
pledge agreement and corporate guaranty agreement in favor of
Trafalgar.  In addition, Milton Dresner and Joseph Dresner transferred
an aggregate of 9,005,700 shares of NM-US common stock to Trafalgar so that
after the transfer, Trafalgar would own approximately 42% of the outstanding
shares of NM-US.
 
 Under the Pledge Agreement
executed by NM-US in favor of Trafalgar, NM-US pledged all of the common shares
it owns in NM-PLC to Trafalgar and upon any default under any of the loan
documents (the loan agreements, the debenture or the guaranty) it would transfer
title to said shares to Trafalgar.  Under the Corporate Guaranty, upon
a default by NM-PLC in the payment of any amount due to Trafalgar under the loan
documents, NM-US would be required to pay any amount not paid when required to
be paid.
  19
  On July
20, 2009, the Company entered into a letter agreement under which Trafalgar
agreed to make available $1 million working capital line of credit whereby it
agreed to purchase convertible debentures from the Company up to such amount for
a period of up to two years ending on July 20, 2011, subject to the execution of
definitive agreements that are described in the following paragraph (the "July
20 Letter Agreement").  As a material inducement for Trafalgar to
enter into this agreement, the Company agreed to issue to Trafalgar 2,000,000 of
preferred stock having a stated value of $1.00.  The July 20 Letter
Agreement makes reference to preliminary terms with respect to the preferred
stock which are described under "Item 9B. Other Information," which section also
provides a more complete description of the terms of the debentures to be issued
and the other agreements executed by the parties in connection with the line of
credit and the purchase of the debentures.  The parties expect to
negotiate the definitive terms of the preferred stock promptly.
  We did
not make the payments required under the Trafalgar loan documents that had been
deferred until July 31, 2009 pursuant to the Restructuring Agreement described
above.  We had advised Trafalgar of our inability to make such payment
prior thereto and Trafalgar did not call a default under the Restructuring
Agreement or amended Loan Documents.  Rather, by letter dated August
11, 2009, Trafalgar agreed to further defer and also restructure the payments
due under the May 2008 and October 2008 loan documents which are to resume
commencing October 30, 2009.
  On August
13, 2009, the Company entered into a series of agreements with Trafalgar
evidencing the credit facility described above, which agreements were effective
as of July 20, 2009.  The various documents, including a Securities
Purchase Agreement, a Secured Convertible Redeemable Debenture and Security
Agreement, are deemed to be effective as of July 20, 2009.
 
 Under the
Securities Purchase Agreement, or Purchase Agreement, Trafalgar agreed to make
available to the Company credit in the amount of up to $1 million for a period
of two years ending on July 20, 2011 under the terms of a Securities Purchase
Agreement to be evidenced by Secured Convertible Redeemable Debentures, or
Debentures.  The Company may exercise future draw downs under the
Purchase Agreement by delivering a Draw Down Notice to Trafalgar, which shall be
subject to acceptance or rejection by Trafalgar, in its sole discretion, within
five calendar days (a "Settlement Date").  The Debentures bear
interest at the rate of 10% per annum and mature on July 20, 2011.  In
addition, upon the completion of any capital raise in excess of $1,000,000, all
unpaid principal and accrued but unpaid interest under outstanding Debentures
plus the applicable redemption premium on the amount redeemed will become
immediately due and payable.  The principal amount of the Debenture,
plus accrued interest thereon, is convertible, in whole or in part of the, into
shares of common stock in an amount equal to the quotient obtained by dividing
the outstanding amount of the Debenture to be converted by the conversion price
then in effect.  Under the terms of the Security Agreement, the
Company pledged to Trafalgar and granted a security interest in and to all of
its property (broadly defined) during such time as any of its obligations under
the transaction documents are paid in full.  Trafalgar is entitled to
all of the benefits typically granted to a secured party under such agreement,
provided that while there was no default under the Transaction Documents, the
Company could operate its business in the ordinary course.  A more
complete description of the Purchase Agreement, the Debentures and the Security
Agreement is provided under "Item 9B. Other Information."
 
 The
Company received an initial draw down of $300,000, for which it issued a
Debenture to Trafalgar in said amount.   After giving effect to
the above deductions, the Company received a net amount of $199,831.20 from this
draw down.
 
 Under the
terms of the Agreement dated March 11, 2010, Trafalgar exercised its rights
under the Share Pledge Agreement dated March 24, 2009, under which the
Registrant pledged all of the shares it owned in NM-PLC to Trafalgar as security
for amounts due under various loans made by Trafalgar to the
Company.  The Registrant’s failure to pay sums owed by NM-PLC under a
Guaranty Agreement made in favor of Trafalgar resulted in a default of the Share
Pledge Agreement, requiring the Registrant to convey the shares of NM-PLC to
Trafalgar.
 
 Director
Independence.
 
 The
Company has not established its own definition for determining whether its
directors and nominees for directors are “independent” nor has it adopted any
other standard of independence employed by any national securities exchange or
inter-dealer quotation system.
  Item
14. Principal Accounting Fees and Services.
 
 AUDIT
FEES. The aggregate fees billed for professional services rendered by Larry
O’Donnell CPA, BC for the audits of the Company's annual consolidated financial
statements for the 2010 fiscal year ending on April 30, 2010 is $0, as the
Company has not yet been billed.
  20
 
 AUDIT-RELATED
FEES.  The aggregate fees billed by Larry O’Donnel CPA, PC for
audit-related services rendered for the Company for the 2010 fiscal year were
$0.   Audit-related fees generally include fees in support of the
Company's filing of registration statements with the SEC and similar
matters.
 
 TAX
FEES.  The aggregate fees billed by Larry O’Donnel CPA, PC for
tax-related services rendered for the Company for the 2010 fiscal year were
$0.  The tax-related services were all in the nature of tax compliance
and tax planning.
 
 ALL OTHER
FEES. The aggregate fees billed for services rendered to the Company by Larry
O’Donnel CPA, PC , other than the audit services, audit-related services, and
tax services, were $0 for the 2009 fiscal year.
 
 PRE-APPROVAL
POLICY. The Board of Directors and managment are required to pre-approve all
auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent auditor or other
registered public accounting firm, subject to the de minimis exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934 that are approved by the Board of Directors prior to completion of
the audit.
  PART
IV
 
 Item
15. Exhibits, Financial Statement Schedules.
 
 (a)
              Financial
      Statements Documents filed as a part of this
  report:
 
 (1)          The
following financial statements are filed as part of this report:
  The
audited consolidated financial statements of New Media Lottery Services, Inc.
and the report of independent registered public accounting firm thereon are set
forth after the list of exhibits included under section (b) of this Item
15.
 
 (2)          The
Company is not required to file any financial statement schedules required by
Item 8 of Form 10-K.
 
 (3)          No
exhibits required by Item 601 of Regulation S-K are required to be filed with
this report.
 
 (b)          Exhibits
 
 The
following financial statements are filed as part of this report:
 
 The
following are filed as exhibits to this report:
 
 Exhibit No.
                                                        
                                                        Exhibit Title
                                                        
                                                        Location
                                                          Reference2.1
                                                        
                                                        Share
      Exchange Agreement dated March 19, 2004 by and among the Company, Lottery
      Network Services Ltd. and the holders of all of the outstanding shares of
      capital stock of Lottery Network Services Ltd.
                                                        
                                                        22.2
                                                        
                                                        Agreement
      and Plan of Merger dated June 14, 2004 by and between New Media Lottery
      Services, Inc. and Residential Resales, Inc.
                                                        
                                                        32.2
                                                        
                                                        Agreement
      and Plan of Merger dated January 25, 2005 by and between New Media Lottery
      Services, Inc., a Virginia corporation, and New Media Lottery Services,
      Inc., a Delaware corporation.
                                                        
                                                        63(i)(a)
                                                        
                                                        Articles
      of Incorporation of Media Acquisitions Group, Inc.
                                                        
                                                        13(i)(b)
                                                        
                                                        Certification
      of Reinstatement
                                                        
                                                        13(i)(c)
                                                        
                                                        Articles
      of Amendment to Articles of Incorporation to change the corporate name to
      Residential Resales, Inc.
                                                        
                                                        13(i)(d)
                                                        
                                                        Certification
      of status of Residential Resales, Inc.
                                                        
                                                        13(ii)
                                                        
                                                        Bylaws
      of Residential Resales, Inc.
                                                        
                                                        13(i)(e)*
                                                        
                                                        Articles
      of Association of Lottery Network Services Ltd.
                                                        
                                                        23(i)(f)*
                                                        
                                                        Memorandum
      of Association of Lottery Network Services Ltd.
                                                        
                                                        23(i)(g)
                                                        
                                                        Articles
      of Incorporation of New Media Lottery Services, Inc.
      (Virginia).
                                                        
                                                        33(i)(h)
                                                        
                                                        Certificate
      of Incorporation of New Media Lottery Services, Inc.
      (Delaware).
                                                        
                                                        63(i)(i)
                                                        
                                                        Certificate
      of Amendment to Certificate of Incorporation of New Media Lottery
      Services, Inc. (Delaware).
                                                        
                                                        153(i)(j)
                                                        
                                                        By-Laws
      of New Media Lottery Services, Inc. (Delaware).
                                                        
                                                        6
  21
 
 3(i)(k)
                                    
                                    Articles
      of Association of New Media Lottery Services plc
                                    
                                    93(i)(l)
                                    
                                    Memorandum
      of Association of New Media Lottery Services plc
                                    
                                    910.1
                                    
                                    Agreement
      dated September 13, 2001, as amended as of January 26, 2004 by and between
      Lottery Network Services Ltd. and Rehab Net Games Limited.
                                    
                                    210.2
                                    
                                    Agreement
      dated December 12, 2001 by and between Lottery Network Services Ltd. and
      Rehab Charities UK Limited.
                                    
                                    210.3
                                    
                                    Agreement
      dated November 27, 2001 by and between Lottery Network Services Ltd. and
      Tropical Gaming Ltd., Belize.
                                    
                                    210.4
                                    
                                    Agreement
      dated February 12, 2002 by and between Lottery Network Services Ltd. and
      Guatemalan Pediatric Foundation.
                                    
                                    210.5
                                    
                                    Agreement
      dated December 7, 2001 by and between Lottery Network Services Ltd. and
      Intellect Foundation.
                                    
                                    210.6
                                    
                                    Agreement
      dated February 3, 2004 by and between Lottery Network Services Ltd. and
      Carnegie Cooke & Company Inc.
                                    
                                    210.7
                                    
                                    Joint
      Venture Agreement dated October 28, 2004 by and between New Media Lottery
      Services, Inc. and Cybercyte Sistemas e Serviços Ltda.
                                    
                                    710.8
                                    
                                    Agreement
      dated May 6, 2005 by and between New Media Lottery Services, Inc. and
      Alladdin Lotteries Limited.
                                    
                                    7
  22
 
 10.9
                                                                      
                                                                      Quota
      Holders Agreement dated June 22, 2005 by and between New Media Lottery
      Services, Inc. and Cybercyte Sistemas e Serviços Ltda.
                                                                      
                                                                      710.10
                                                                      
                                                                      Agreement
      dated June 7, 2005 by and between New Media Lottery Services, Inc. and
      Parlay Entertainment Limited.
                                                                      
                                                                      810.11
                                                                      
                                                                      Floating
      Eurodollar Note dated October 7, 2005 in the principal amount of
      $1,000,000 made by New Media Lottery Services, Inc.  in favor of
      Comerica Bank.
                                                                      
                                                                      910.12
                                                                      
                                                                      Services
      Agreement dated November 25, 2005 by and among Lottery Network Services
      Ltd., and Friends of Rehab Society and Rehab Net Games
      Limited.
                                                                      
                                                                      910.13
                                                                      
                                                                      Letter
      agreement dated December 15, 2005, between Milton Dresner and the Company
      with respect to conversion of debt into 5,000,000 shares of common
      stock.
                                                                      
                                                                      910.14
                                                                      
                                                                      Letter
      agreement dated December 15, 2005, between Joseph Dresner and the Company
      with respect to conversion of debt into 5,000,000 shares of common
      stock.
                                                                      
                                                                      910.15
                                                                      
                                                                      Amended
      and Restated Floating Eurodollar Note (amending the Floating Eurodollar
      Note dated October 7, 2005) in the principal amount of $1,500,000, dated
      December 14, 2005 made by New Media Lottery Services, Inc. in favor of
      Comerica Bank.
                                                                      
                                                                      910.16
                                                                      
                                                                      Placing
      Agreement dated March 13, 2006 by and among, New Media Lottery Services
      plc, New Media Lottery Services, Inc., certain directors of the foregoing
      companies and Zimmerman Adams International Limited
                                                                      
                                                                      910.17
                                                                      
                                                                      Asset
      Purchase and Assumption of Liabilities Agreement dated March 13, 2006
      between New Media Lottery Services, Inc. and New Media Lottery Services
      (International) Limited.
                                                                      
                                                                      910.18
                                                                      
                                                                      Technology
      License Agreement dated March 13, 2006 between New Media Lottery Services,
      Inc. and New Media Lottery Services (International)
    Limited.
                                                                      
                                                                      910.19
                                                                      
                                                                      Sublicense
      Agreement dated March 13, 2006 between New Media Lottery Services, Inc.
      and New Media Lottery Services (International) Limited.
                                                                      
                                                                      910.20
                                                                      
                                                                      Employment
      Agreement, dated March 13, 2006 between New Media Lottery Services plc and
      John T. Carson.
                                                                      
                                                                      910.21
                                                                      
                                                                      Employment
      Agreement, dated March 13, 2006 between New Media Lottery Services plc and
      Randolph H. Brownell, III.
                                                                      
                                                                      910.22
                                                                      
                                                                      Supplemental
      Letter to Employment Agreement, dated March 13, 2006 between New Media
      Lottery Services plc and John T. Carson.
                                                                      
                                                                      910.23
                                                                      
                                                                      Relationship
      Deed dated March 13, 2006 between New Media Lottery Services, Inc. and New
      Media Lottery Services plc.
                                                                      
                                                                      910.24
                                                                      
                                                                      Financial
      Services Agreement dated March 13, 2006 by and among, New Media Lottery
      Services plc, New Media Lottery Services, Inc., certain directors of the
      foregoing companies and Zimmerman Adams International
    Limited
                                                                      
                                                                      910.25
                                                                      
                                                                      Broker’s
      Agreement dated March 13, 2006 by and among, New Media Lottery Services
      plc, New Media Lottery Services, Inc., certain directors of the foregoing
      companies and Zimmerman Adams International Limited
                                                                      
                                                                      910.26
                                                                      
                                                                      Promissory
      note dated March 17, 2006 in the principal amount of $1,500,529.86 made by
      New Media Lottery Services (International) Limited in favor of New Media
      Lottery Services, Inc.
                                                                      
                                                                      910.27
                                                                      
                                                                      Agreement
      dated October 12, 2005 by and between New Media Lottery Services
      International, Ltd. and Inspired Broadcast Networks
                                                                      
                                                                      1010.28
                                                                      
                                                                      Floating
      Eurodollar Note in the principal amount of $600,000, dated December 5,
      2006 made by New Media Lottery Services (International) Limited in favor
      of Comerica Bank.
                                                                      
                                                                      1110.29
                                                                      
                                                                      Floating
      Eurodollar Note in the principal amount of $1,900,000, dated February 20,
      2007 made by New Media Lottery Services (International) Limited in favor
      of Comerica Bank.
                                                                      
                                                                      1110.30
                                                                      
                                                                      Convertible
      Loan Agreement dated June 6, 2008 between Trafalgar Capital Specialized
      Investment Fund-FIS and New Media Lottery Services, plc
                                                                      
                                                                      1110.31
                                                                      
                                                                      Debenture
      made by New Media Lottery Services, plc in favor of Trafalgar Capital
      Specialized Investment Fund-FIS
                                                                      
                                                                      1110.32
                                                                      
                                                                      Convertible
      Loan Agreement dated June 6, 2008 between Trafalgar Capital Specialized
      Investment Fund-FIS and New Media Lottery Services, plc
                                                                      
                                                                      1210.33
                                                                      
                                                                      Debenture
      made by New Media Lottery Services, plc in favor of Trafalgar Capital
      Specialized Investment Fund-FIS
                                                                      
                                                                      1210.34
                                                                      
                                                                      Convertible
      Loan Agreement dated October 31, 2008 between Trafalgar Capital
      Specialized Investment Fund-FIS and New Media Lottery Services,
      plc
                                                                      
                                                                      14
  23
 
 10.35
                                            
                                            Amended
      and Restated Debenture made by New Media Lottery Services, plc in favor of
      Trafalgar Capital Specialized Investment Fund-FIS
                                            
                                            1410.36
                                            
                                            Cross
      Corporate Guarantee, dated January 26, 2009 between New Media Lottery
      Services (International), Ltd., and Trafalgar Capital Specialized
      Investment Fund-FIS
                                            
                                            1410.37
                                            
                                            Debenture
      made by New Media Lottery Services (International), Ltd. in favor of
      Trafalgar Capital Specialized Investment Fund-FIS
                                            
                                            1410.38
                                            
                                            Comerica
      Bank $1.9 million Amended & Restated Single Payment Note dated
      February 20, 2009
                                            
                                            1410.39
                                            
                                            Loan
      Facility Restructuring Agreement, dated March 24, 2009 between New Media
      Lottery Services, Inc., New Media Lottery Services, plc and Trafalgar
      Capital Specialized Investment Fund-FIS
                                            
                                            1410.40
                                            
                                            Share
      Pledge Agreement, dated March 24, 2009 between New Media Lottery Services,
      Inc., and Trafalgar Capital Specialized Investment
Fund-FIS
                                            
                                            1410.41
                                            
                                            Cross
      Corporate Guarantee, dated March 24, 2009 between New Media Lottery
      Services, Inc., and Trafalgar Capital Specialized Investment
      Fund-FIS
                                            
                                            1410.42
                                            
                                            Agreement
      dated July 20, 2009 by and among New Media Lottery Services, Inc., New
      Media Lottery Services plc (“NM-PLC”), New Media Lottery (International)
      Services Ltd., Milton Dresner and Joseph Dresner, on the one hand, and
      Trafalgar Capital Specialized Investment Fund-FIS.
                                            
                                            1610.43
                                            
                                            Letter
      Agreement dated July 20, 2009 by and among New Media Lottery Services,
      Inc., and Trafalgar Capital Specialized Investment Fund-FIS with respect
      to $1 million line of credit
                                            
                                            1714
                                            
                                            Code
      of Ethics
                                            
                                            516
      .1
                                            
                                            Letter
      of Earl M. Cohen, CPA, PA, on change in certifying
    accountant.
                                            
                                            416.2
                                            
                                            Letter
      from Bouwhuis, Morrill & Company, LLC regarding change in certifying
      accountant.
                                            
                                            1331.1
                                            
                                            Certification
      of the Company’s Principal Executive Officer and Principal Financial
      Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
                                            
                                            1832.1
                                            
                                            Section
      1350 Certification
                                            
                                            18
 
 1.
              Previously
      filed with the Annual Report on Form 10-KSB as filed with the Securities
      and Exchange Commission on April 24,
2002.
 2.
              Previously
      filed with the Current Report on Form 8-K dated March 31, 2004 as filed
      with the Securities and Exchange Commission on April 2,
    2004.
 3.
              Previously
      filed with the Information Statement pursuant to Rule 14C of the
      Securities Exchange Act of 1934 dated June 9,
  2004.
 4.
              Previously
      filed with Amendment No. 1 to the Current Report on Form 8-K dated March
      31, 2004 as filed with the Securities and Exchange Commission on April 8,
      2004.
 5.
              Previously
      filed with the Annual Report on Form 10-KSB for the fiscal year ended
      April 30, 2004 as filed with the Securities and Exchange Commission on
      August 10, 2004.
 6.
              Previously
      filed with the Information Statement pursuant to Rule 14C of the
      Securities Exchange Act of 1934 dated January 5,
  2004.
 7.
              Previously
      filed with the Annual Report on Form 10-KSB for the fiscal year ended
      April 30, 2005 as filed with the Securities and Exchange Commission on
      July 29, 2005.
 8.
              To
      be filed by amendment.
 9.
              Previously
      filed with the Quarterly Report on Form 10-QSB for the fiscal quarter
      ended January 31, 2006 as filed with the Securities and Exchange
      Commission on March 23, 2006.
 10.
              Previously
      filed with the Annual Report on Form 10-KSB for the fiscal year ended
      April 30, 2006 as filed with the Securities and Exchange Commission on
      August 15, 2006.
 11.
              Previously
      filed with the Current Report on Form 8-K as filed with the Securities and
      Exchange Commission on June 9,
2008.
 12.
              Previously
      filed with the Current Report on Form 8-K filed with the Securities and
      Exchange Commission on June 9,
2008.
 13.
              Previously
      filed with the Current Report on Form 8-K filed with the Securities and
      Exchange Commission on February 23,
2009.
 
 14.
              Previously
      filed with the Quarterly Report on Form 10-Q for the fiscal quarter ended
      January 31, 2009 as filed with the Securities and Exchange Commission on
      April 3, 2009.
 15.
              Previously
      filed as an exhibit to a Preliminary Information Statement on Schedule 14C
      filed with the Securities and Commission on June 3,
  2009
 16.
              Previously
      filed with the Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 23,
2009.
 17.
              Previously
      filed with the Annual Report on Form 10-K for the fiscal year ended April
      30, 2010
 18.
              Filed
      herewith
 
 (c)          No
exhibits required by this subsection (c) of Item 15 are required to be filed
with this report.
  24
  NEW
MEDIA LOTTERY SERVICES, INC.
 &
SUBSIDIARIES
 
 Financial
Statements for the Years
 Ended
April 30, 2010 and 2009
 and
Report of Independent Registered
 Public
Accounting Firm
  25
  CONTENTS
 
 Report
      of Independent Registered Public Accounting Firm
                  
                  F-2Consolidated
      Balance Sheet
                  
                  F-3Consolidated
      Statements of Operations
                  
                  F-4Consolidated
      Statements of Stockholders’ Deficit
                  
                  F-5Consolidated
      Statements of Cash Flows
                  
                  F-6Notes
      to the Consolidated Financial Statements
                  
                  F-7
  F-1
 
 Larry
O'Donnell, CPA, P.C.
 Telephone
      (303) 745-4545
                  2228
      South Fraser StreetFax
      (303) 369-9384
                  Unit
      IEmail
      larryodonnellcpa@comcast.net
                  Aurora,
      Colorado   80014www.larryodonnellcpa.com
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors
 New Media
Lottery Services, Inc.
 Harrisonburg,
Pennsylvania
 
 I have
audited the accompanying consolidated balance sheet of New Media Lottery
Services, Inc., and subsidiaries as of April 30, 2010, and the related
consolidated statements of operations, changes in stockholders deficit and cash
flows for the year then ended. These financial statements are the responsibility
of management. My responsibility is to express an opinion on these financial
statements based on my audit.
 
 I
conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that I plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  I believe that my audit provides a reasonable basis for
my opinion.
 
 In my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of New Media Lottery Services,
Inc. as of April 30, 2010, and the results of operations and its cash flows for
the year then, in conformity with accounting principles generally accepted in
the United States.
 
 These consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 11 to the consolidated financial statements,the Company has a working capital
deficiency of $4,052,838, has not yet achieved profitable operations, has
accumulated losses of $21,585,869. These factors, along with other
matters as set forth in Note 11, raise substantial doubt that the Company will
be able to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
 
 Larry
O’Donnell, CPA, PC
 September
2, 2010
  F-2
  NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
 
 April 30,
                            
                            
                            April 30,2010
                            
                            
                            2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                            
                            $
                            254
                            
                            
                            $
                            69,233Accounts
      receivable, net
                            
                            
                            -
                            
                            
                            
                            88,122Prepaid
      assets
                            
                            
                            -
                            
                            
                            
                            17,280Total
      Current Assets
                            
                            
                            254
                            
                            
                            
                            174,635PROPERTY
      AND EQUIPMENT, NET
                            
                            
                            -
                            
                            
                            
                            73,215DEFERRED
      LOAN FEES - NET
                            
                            
                            1,429,809
                            
                            
                            
                            743,075TOTAL
      ASSETS
                            
                            $
                            1,430,063
                            
                            
                            $
                            990,925LIABILITIES AND STOCKHOLDERS'
      DEFICITCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                            
                            $
                            424,297
                            
                            
                            $
                            1,004,612Other
      payable
                            
                            
                            -
                            
                            
                            
                            69,713Deferred
      compensation
                            
                            
                            -
                            
                            
                            
                            62,500Due
      to related parties
                            
                            
                            50,969
                            
                            
                            
                            202,465Notes
      payable, net
                            
                            
                            -
                            
                            
                            
                            5,406,628Notes
      payable - related party
                            
                            
                            221,589
                            
                            
                            
                            2,293,177Convertible
      notes - related party, net
                            
                            
                            3,356,237
                            
                            
                            
                            -Total
      Current Liabilities
                            
                            
                            4,053,092
                            
                            
                            
                            9,039,095NOTES
      PAYABLE – LONG-TERM PORTION, NET
                            
                            
                            149,995
                            
                            
                            
                            448,021TOTAL
      LIABILITIES
                            
                            
                            4,203,087
                            
                            
                            
                            9,487,116Convertible
      Redeemable Preferred Stock, Series A  ($2,000 stated value, 5 million
      shares authorized, 2
      million shares issued and outstanding at April 30, 2010) (redeemable in liquidation at an
      aggregate of $2 million at April 30, 2010)
                            
                            
                            2,000
                            
                            
                            
                            -Stockholder's
      Deficit:Common
      stock, $0.001 par value; 150,000,000 shares  authorized,
      33,897,843 shares issued and outstanding
                            
                            
                            33,898
                            
                            
                            
                            21,442Additional
      paid-in capital
                            
                            
                            18,538,370
                            
                            
                            
                            3,605,859Prepaid
      consulting equity
                            
                            
                            (26,052
                            )
                            
                            
                            -Accumulated
      deficit
                            
                            
                            (21,585,869
                            )
                            
                            
                            (16,034,596
                            )Accumulated
      other comprehensive income
                            
                            
                            264,629
                            
                            
                            
                            264,628Total
      Stockholders' Deficit
                            
                            
                            (2,775,024
                            )
                            
                            
                            (12,142,667
                            )Minority
      Interest
                            
                            
                            -
                            
                            
                            
                            3,646,476TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                            
                            $
                            1,430,063
                            
                            
                            $
                            990,925
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-3
  NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Operations
 
 For the Twelve Months EndedApril
      30,2010
                      
                      
                      2009NET
      REVENUES
                      
                      $
                      765,753
                      
                      
                      $
                      1,120,833OPERATING
      EXPENSESDepreciation
      and amortization expense
                      
                      
                      1,356,667
                      
                      
                      
                      404,613General
      and administrative
                      
                      
                      933,375
                      
                      
                      
                      1,112,712Management
      fees
                      
                      
                      27,500
                      
                      
                      
                      75,930Professional
      fees
                      
                      
                      411,030
                      
                      
                      
                      577,831Programming
      fees
                      
                      
                      381,160
                      
                      
                      
                      608,950Rent
      expense
                      
                      
                      91,498
                      
                      
                      
                      98,393Contract
      development
                      
                      
                      -
                      
                      
                      
                      39,129Website
      expense
                      
                      
                      445,792
                      
                      
                      
                      895,547Total
      Operating Expenses
                      
                      
                      3,647,022
                      
                      
                      
                      3,813,105LOSS
      FROM OPERATIONS
                      
                      
                      (2,881,269
                      )
                      
                      
                      (2,692,272
                      )OTHER
      INCOME (EXPENSES)Gain
      (loss) on sale of property and equipment
                      
                      
                      (52
                      )
                      
                      
                      400Interest
      income
                      
                      
                      1,601
                      
                      
                      
                      3,645Interest
      expense
                      
                      
                      (336,184
                      )
                      
                      
                      (568,768
                      )Interest
      expense - beneficial conversion feature
                      
                      
                      (930,839
                      )
                      
                      
                      (598,923
                      )Total
      Other Income (Expenses)
                      
                      
                      (1,265,474
                      )
                      
                      
                      (1,163,646
                      )NET
      LOSS BEFORE INCOME TAXES AND MINORITY INTEREST
                      
                      
                      (4,146,743
                      )
                      
                      
                      (3,855,918
                      )PROVISION
      FOR INCOME TAXES
                      
                      
                      -
                      
                      
                      
                      -MINORITY
      INTEREST IN SUBSIDIARIES LOSSES
                      
                      
                      (1,404,530
                      )
                      
                      
                      744,418NET
      LOSS
                      
                      $
                      (5,551,273
                      )
                      
                      $
                      (3,111,500
                      )PREFERRED
      STOCK DIVIDEND
                      
                      
                      -
                      
                      
                      
                      -LOSS
      ON REDEMPTION OF PREFERRED STOCK
                      
                      
                      -
                      
                      
                      
                      -NET
      LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                      
                      $
                      (5,551,273
                      )
                      
                      $
                      (3,111,500
                      )BASIC
      AND DILUTED NET LOSS PER SHARE
                      
                      $
                      (0.16
                      )
                      
                      $
                      (0.15
                      )WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
                      
                      
                      33,897,843
                      
                      
                      
                      21,442,143OTHER
      COMPREHENSIVE INCOMENET
      LOSS ATTRIBUTABLE TO COMMON STOCK HOLDERS
                      
                      $
                      (5,551,273
                      )
                      
                      $
                      (3,111,500
                      )Foreign
      currency translation adjustment
                      
                      
                      -
                      
                      
                      
                      159,670Unrealized
      gain (loss) on marketable securities
                      
                      
                      -
                      
                      
                      
                      (3,000
                      )COMPREHENSIVE
      LOSS
                      
                      $
                      (5,551,273
                      )
                      
                      $
                      (2,954,830
                      )
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-4


NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES


Consolidated
Statements of Stockholders' Deficit


For the
period May 1, 2008 through April 30, 2010





AccumulatedAdditional
                  
                  
                  
                  
                  
                  
                  
                  
                  OtherPreferred Stock
                  
                  
                  Common Stock
                  
                  
                  Paid-in
                  
                  
                  Prepaid
                  
                  
                  Accumulated
                  
                  
                  Comprehensive
                  
                  
                  MinorityShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Equity
                  
                  
                  Deficit
                  
                  
                  Income
                  
                  
                  InterestBalance,
      April 30, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  21,442,143
                  
                  
                  $
                  21,442
                  
                  
                  $
                  3,335,688
                  
                  
                  $
                  -
                  
                  
                  $
                  (12,923,096
                  )
                  
                  $
                  107,958
                  
                  
                  $
                  2,887,722Consolidation
      of subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  758,754Unrealized
      loss on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,000
                  )
                  
                  
                  -Transfer
      of related party shares for convertible note financing
cost
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  270,171
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Foreign
      currency translation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  159,670
                  
                  
                  
                  -Net
      loss for the year ended April 30, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,111,500
                  )
                  
                  
                  -
                  
                  
                  
                  -Balance,
      April 30, 2009
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  21,442,143
                  
                  
                  $
                  21,442
                  
                  
                  $
                  3,605,859
                  
                  
                  $
                  -
                  
                  
                  $
                  (16,034,596
                  )
                  
                  $
                  264,628
                  
                  
                  $
                  3,646,476Consolidation
      of subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,404,530
                  )Preferred
      stock issued for costs related to Convertible debt
                  
                  
                  2,000,000
                  
                  
                  
                  2,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,998,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Common
      stock issued for conversion of debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,005,700
                  
                  
                  
                  9,006
                  
                  
                  
                  6,103,627
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Common
      stock issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,450,000
                  
                  
                  
                  3,450
                  
                  
                  
                  177,550
                  
                  
                  
                  (98,500
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Valuation
      of options and warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  248,273
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Value
      attributed to beneficial conversion features
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  140,686
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Disposal
      of Subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,264,375
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,241,946
                  )Amortization
      of prepaid equity
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  72,448
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Foreign
      currency translation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss for the period ended April 30, 2010
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,551,273
                  )
                  
                  
                  -
                  
                  
                  
                  -Balance,
      April 30, 2010 - unaudited
                  
                  
                  2,000,000
                  
                  
                  $
                  2,000
                  
                  
                  
                  33,897,843
                  
                  
                  $
                  33,898
                  
                  
                  $
                  18,538,370
                  
                  
                  $
                  (26,052
                  )
                  
                  $
                  (21,585,869
                  )
                  
                  $
                  264,628
                  
                  
                  $
                  -





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


F-5


NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows





For the Twelve Months EndedApril 30,2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                          
                          $
                          (5,551,273
                          )
                          
                          $
                          (3,111,500
                          )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization expense
                          
                          
                          1,356,667
                          
                          
                          
                          404,613Loss
      (gain) on disposition of assets
                          
                          
                          52
                          
                          
                          
                          (400
                          )Common
      Stock issued for services
                          
                          
                          154,948
                          
                          
                          
                          598,923Warrants
      and Options granted for services
                          
                          
                          248,273
                          
                          
                          
                          -Forgiveness
      of related party interest
                          
                          
                          233,697
                          
                          
                          
                          -Accretion
      of beneficial conversion feature
                          
                          
                          930,839
                          
                          
                          
                          -Loss
      from disposition of subsidiary
                          
                          
                          202,500
                          
                          
                          
                          -Minority
      interest in subsidiaries losses
                          
                          
                          1,404,530
                          
                          
                          
                          (744,418
                          )Change
      in operating assets and liabilities:Accounts
      receivable
                          
                          
                          88,122
                          
                          
                          
                          245,655VAT
      receivable
                          
                          
                          (69,713
                          )
                          
                          
                          (22,712
                          )Accounts
      payable and accrued expenses
                          
                          
                          (580,312
                          )
                          
                          
                          178,749Prepaid
      assets
                          
                          
                          15,944
                          
                          
                          
                          65,228Net
      Cash Used by Operating Activities
                          
                          
                          (1,565,726
                          )
                          
                          
                          (2,385,862
                          )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                          
                          
                          -
                          
                          
                          
                          (39,460
                          )Proceeds
      from sale of property and equipment
                          
                          
                          2,200
                          
                          
                          
                          -Net
      Cash Used by Investing Activities
                          
                          
                          2,200
                          
                          
                          
                          (39,460
                          )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of notes payable
                          
                          
                          -
                          
                          
                          
                          3,721,671Loan
      fees paid
                          
                          
                          (92,500
                          )
                          
                          
                          (960,593
                          )Proceeds
      from issuance of convertiblenotes
      payable, related parties
                          
                          
                          575,000
                          
                          
                          
                          -Proceeds
      from issuance ofnotes
      payable, related parties
                          
                          
                          110,500
                          
                          
                          
                          610,000Payments
      on notes payable, related parties
                          
                          
                          (82,088
                          )
                          
                          
                          (500,000
                          )Payments
      on notes payable
                          
                          
                          -
                          
                          
                          
                          (516,250
                          )Net
      Cash Provided by Financing Activities
                          
                          
                          510,912
                          
                          
                          
                          2,354,828EFFECT
      OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT
                          
                          
                          983,635
                          
                          
                          
                          (76,020
                          )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                          
                          
                          (68,979
                          )
                          
                          
                          (146,513
                          )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                          
                          
                          69,233
                          
                          
                          
                          215,746CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                          
                          $
                          254
                          
                          
                          $
                          69,233SUPPLEMENTAL
      DISCLOSURES:Cash
      paid for interest
                          
                          $
                          988
                          
                          
                          $
                          318,685Cash
      paid for income taxes
                          
                          $
                          -
                          
                          
                          $
                          -NON-CASH
      INVESTING & FINANCING ACTIVITIES:Common
      stock issued for services
                          
                          $
                          154,948
                          
                          
                          $
                          -Common
      Stock issued to convert debt
                          
                          $
                          6,112,633
                          
                          
                          $
                          -Warrants
      and options granted for services
                          
                          $
                          248,273
                          
                          
                          $
                          -Forgiveness
      of related party interest
                          
                          $
                          233,697
                          
                          
                          $
                          -





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


F-6


NOTE
      1 -
            ORGANIZATION
      AND DESCRIPTION OF BUSINESS





New Media
Lottery Services, Inc. the (“Company” or “NMLS”) was organized under the laws of
the State of Florida on June 29, 1998.  The Company was originally
organized to provide media consulting services.  The Company’s
headquarters is currently located in Harrisonburg, Virginia.





On June
17, 2004, the Company changed its State of Incorporation from Florida to
Virginia with authorized common stock of 50,000,000 shares with par value of
$0.001 per share.  All references to shares issued and outstanding in
the consolidated financial statements have been retroactively restated to
reflect the effects of this change in capital structure.





On March
18, 2004, the Company reorganized by entering into a stock purchase agreement
with Lottery Network Services Limited (“LNS”) whereby the Company issued
10,000,000 shares of its common stock in exchange for all of the outstanding
common stock of LNS.  Immediately prior to executing the stock
purchase agreement the Company had 1,000,000 shares of common stock issued and
outstanding.  The reorganization was accounted for as a
recapitalization of LNS because the shareholders of LNS controlled the Company
immediately after the acquisition.  Therefore, LNS is treated as the
acquiring entity.  Accordingly there was no adjustment to the carrying
value of the assets or liabilities of LNS. The Company is the acquiring entity
for legal purposes and LNS is the surviving entity for accounting
purposes.





Lottery
Network Services Limited was organized under the laws of the Republic of Ireland
on July 11, 2000 for the purpose of designing, building, implementing, managing,
hosting and supporting internet and wireless based lottery
programs.





New Media
Lottery Services, Inc. (“NMLS-C”) was organized as an extra-provincial
corporation in Alberta, Canada on July 27, 2004.  NMLS-C is a wholly
owned foreign subsidiary of NMLS.  NMLS-C provides software
development and technical expertise for NMLS.





In
February 2005, the Virginia corporation merged with and into New Media Lottery
Services, Inc., a corporation organized under the laws of the State of Delaware,
which succeeded to the Virginia corporation’s reporting requirements under the
Securities Exchange Act of 1934, as amended.  Under the terms of the
merger agreement, each outstanding share of the Virginia corporation
automatically was changed and converted into one share of the common stock of
the Delaware corporation





In
November 2005, New Media Lottery Services, Inc. organized New Media Lottery
Services, Plc. and exchanged all of the outstanding shares of New Media Lottery
Services (International), Ltd. it owned for 20,205,129 common shares of New
Media Lottery Services, Plc., representing the only outstanding shares of that
corporation as of said date.





During
March 2006, our Irish subsidiary, NM-PLC concluded an Offering of 4,244,850
ordinary shares (the “AIM Offering”) wherein it raised an aggregate $3,750,338
using the March 17, 2006 exchange rate.  The AIM Offering associated
costs were $1,617,644 using a March 17, 2006 exchange rate.  This
yielded $2,132,694 to the Company.  After giving effect to the
issuance of the ordinary shares sold in the Offering and the other ordinary
shares issued for debt, we owned approximately 82.3% of New Media Lottery
Services, Plc’s outstanding capital stock.  On March 13, 2009 our
shares were removed from trading on the AIM market.  Currently the
Company owns 80.23% of the outstanding share capital of NM-PLC.





On May
29, 2009, our board of directors and stockholders holding approximately 70% of
our outstanding common stock executed written consents in lieu of a meeting to
approve an amendment to our certificate of incorporation (the “Amendment”) to
increase the number of authorized shares of common stock we may issue from
50,000,000 shares to 150,000,000 shares (the "Share Increase").  The
consents constituted the only stockholder approval required for the Amendment
under Delaware corporate law and our certificate of incorporation and
bylaws.





On March
11, 2010, NMLS, NM-PLC, LNS and John Carson, a director and the chief executive
officer of each entity; and Trafalgar Capital Specialized Investment Fund-FIS
("Trafalgar"), lenders to the Company, entered into an agreement that resulted
in a global restructuring of the Company.  Upon the consummation of
the transactions among the parties to this agreement, the Company no longer
engages in any operations.


F-7


NOTE 2
-               SIGNIFICANT
ACCOUNTING POLICIES





This
summary of significant accounting policies of the Company is presented to assist
in understanding the Company’s consolidated financial statements.  The
consolidated financial statements and notes are representations of the Company’s
management who are responsible for their integrity and
objectivity.  These accounting policies conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the consolidated financial
statements.  The following policies are considered to be
significant:





a.     Nature
of Operations





New Media
Lottery Services, Inc., through its direct and indirect subsidiaries, designed,
built, implemented, managed, hosted and supported internet and wireless device
based lottery programs operated by governments and charitable organizations
outside of the United States.  The Company also designed and
distributed games for use on video lottery terminals and other electronic
kiosks. Since March 11, 2010 the Company has ceased those activities and is
actively seeking lottery licenses and other lottery related business
opportuntities.





b.
            Accounting
      Method





The
Company recognizes income and expenses based on the accrual method of
accounting. The Company has elected an April 30 year-end.





c.     Cash
and Cash Equivalents





Cash
equivalents are generally comprised of certain highly liquid investments with
original maturities of less than three months.





d.     Use
of Estimates in the Preparation of Consolidated Financial
Statements





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





e.     Property
and Equipment





Property
and equipment are stated at cost and depreciated using the straight-line method
over their estimated useful lives.  Computer software acquired for
internal use is capitalized and amortized using the straight-line method over
the software’s expected useful life. When assets are disposed of, the cost and
accumulated depreciation (net book value of the assets) are eliminated and any
resultant gain or loss reflected accordingly.  Betterments and
improvements are capitalized over their estimated useful lives whereas repairs
and maintenance expenditures on the assets are charged to expense as
incurred.





Asset Class
                      
                      Life
                      
                      2010
                      
                      
                      2009Computer
      Equipment
                      
                      3
      Years
                      
                      $
                      -
                      
                      
                      
                      106,476Furniture
      & Equipment
                      
                      7
      Years
                      
                      
                      -
                      
                      
                      
                      7,805Computer
      Software
                      
                      3
      Years
                      
                      
                      -
                      
                      
                      
                      297,589Less
      - Accumulated Depreciation & Amortization
                      
                      
                      
                      
                      -
                      
                      
                      
                      (318,583
                      )Net
      Property and Equipment
                      
                      
                      
                      $
                      -
                      
                      
                      
                      93,287





Depreciation
and amortization expense for the years ended April 30, 2010 and 2009 was
$0  and $97,492, respectively.


F-8


NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)





f.     Basic
Net Loss per Share of Common Stock





In
accordance with Financial Accounting Standards No. 128, “Earnings per Share,”
basic net loss per common share is based on the weighted average number of
shares outstanding during the periods presented.  Diluted earnings per
share is computed using weighted average number of common shares plus dilutive
common share equivalents outstanding during the period as follows:


April 30,
                  
                  
                  April 30,2010
                  
                  
                  2009Net
      loss (numerator)
                  
                  $
                  (5,551,273
                  )
                  
                  $
                  (3,111,500
                  )Weighted
      average shares outstanding (denominator)
                  
                  
                  33,897,843
                  
                  
                  
                  21,442,143Loss
      per share amount
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.15
                  )





The
Company has issued the following securities that could potentially dilute basic
earnings per share in the future that are not included in the computation of
diluted earnings per share because to do so would have been anti-dilutive for
the period ended April 30, 2010 and 2009.





Options
              3,475,000
              sharesWarrants
              1,900,000
              shares





g.    Recent
Accounting Pronouncements





In May
2009, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Codification Topic No. 855, Subsequent Events. This guidance
establishes general standards of accounting for and, disclosure of, events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. It sets forth (i) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The guidance
is effective for interim or annual financial periods ending after June 15, 2009
and was adopted with no material effect on the Company's statement of financial
condition or results of operations.





In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles a replacement of
FASB Statement No. 162" (“SFAS 168").  Under SFAS 168, the FASB
Accounting Standards Codification (Codification) will become the sole source of
authoritative U.S. GAAP to be applied by non-governmental
entities.  SFAS 168 is effective for the financial statements issued
for interim and annual periods ending after September 15, 2009.  The
adoption will have no material impact on the Company’s financial statements but
will require that interim and annual filings include references to the
Codification.





In June
2009, the FASB issued Accounting Standards Codification Topic No. 105-10, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles ("ASC 105-10"). This guidance establishes the FASB
Accounting Standards Codification (the "Codification") as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in  the preparation of financial statements
in conformity with U.S. GAAP.  Rules and interpretive releases of the
SEC under authority of federal  securities laws are also sources of
authoritative U.S. GAAP for SEC  registrants. All guidance contained
in the Codification carries an equal level of authority. The Codification
superseded all existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates ("ASUs"). The
FASB will not consider ASUs as authoritative in their own right. ASUs will serve
only to update the Codification, provide background information about the
guidance and provide the basis for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.





In
October 2009, the FASB issued Accounting Standards Codification Topic No. 605,
Multiple-Deliverable Revenue Arrangements. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable and expands
the disclosures required for multiple-deliverable revenue arrangements. This
guidance is effective for revenue arrangements that are entered into or are
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The adoption will have no material impact on the
Company’s financial statements.




h.     Income
Taxes





The Financial Accounting Standards
Board (FASB) has issued Financial Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with FASB Statement No.
109, Accounting for Income Taxes. FIN 48 requires a company to determine whether
it is more likely than not that a tax position will be sustained upon
examination based upon the technical merits of the position. If the
more-likely-than-not threshold is met, a company must measure the tax position
to determine the amount to recognize in the financial statements. As a result of
the implementation of FIN 48, the Company performed a review of its material tax
positions. At the adoption date of May 1, 2007, the Company had no unrecognized
tax benefit which would affect the effective tax rate.  As of April
30, 2009 and 2008, the Company had no accrued interest and penalties related to
uncertain tax positions.


F-9


The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards Board (SFAS) No. 109, “Accounting for Income Taxes.” 
Under this method, deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which differences are expected to
reverse.  In accordance with the provisions of SFAS No. 109, a valuation
allowance would be established to reduce deferred tax assets if it were more
likely than not that all or some portion, of such deferred tax assets would not
be realized.  A full allowance against deferred tax assets was provided as
of April 30, 2009 and 2008.





At April
30, 2010, the Company has an approximately $600,000 net operating loss
carryforward.  The Company’s subsidiary, New Media Lottery Services
(International), Ltd., has capitalized $4,952,923 as Code Section 195 start up
expenditures.  With the January 2006 inception of operating revenues by the
Company’s foreign subsidiary, the Company has deemed that operations have begun,
as defined by Section 195. These cumulative startup costs will be amortized over
sixty months for income tax accounting purposes.  The Company and its
subsidiaries will not file a consolidated income tax return. Neither the
domestic parent nor the foreign subsidiaries expect any income tax expense for
the year ended April 30, 2010.





The
Company was informed by letter from their tax accountants on January 12, 2007
along with their 2005 US tax return that several tax positions taken on the 2005
return could potentially be challenged by the Internal Revenue Service
(IRS).  The two most significant tax positions in question were disclosed
on a form 8275, Disclosure Statement, within the 2005 tax return.  One, the
technology licensed to New Media Lottery Services (International), Ltd was
valued at $100,000 based on management’s assessment of value.  Two, the
Company’s transfer of its stock in New Media Lottery Services (International),
Ltd for stock in New Media Lottery Services, Plc was a taxable
transaction.  Management determined the transferred stock value to be
$1,900,000. Both valuations could be challenged by the IRS and if ultimately
determined to be significantly higher result in US taxation.  Additionally,
the IRS could challenge the method used to determine the tax basis associated
with the New Media Lottery Services (International), Ltd stock.  The extent
of this taxation cannot be determined.





Due to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carryforwards for Federal income tax reporting purposes are subject to
annual limitations.  Should a change in ownership occur, any  net
operating loss carry forward may be limited as to future use.





i.     Reclassifications





Certain
amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year presentation.  These
reclassifications had no material effect on our consolidated financial
statements.





j.     Principles
of Consolidation





The
consolidated financial statements include the accounts of New Media Lottery
Services, Inc., and its subsidiaries New Media Lottery Services,
Plc,  New Media Lottery Services (International) Limited, and New
Media Lottery Services (International) Limited (Canada).  All
significant intercompany accounts and transactions have been eliminated in the
consolidation.





NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)





k.   Trade
Accounts Receivable





Trade
accounts receivable are carried at original invoice amount less an estimate made
for doubtful receivables based on a review of all outstanding amounts on a
periodic basis.  Management determines the allowance for doubtful accounts
by regularly evaluating individual customer receivables and considering a
customer's financial condition, credit history, and current economic conditions.
 Trade accounts receivable are written off when deemed uncollectible by
management.  The allowance at April 30, 2010 and 2009 was $0 and $0,
respectively.





l.     Concentrations
of Credit Risk (Cash balances at a single financial institution)





The
Company maintains its cash balances in secured financial
institutions.  Two of these institutions are in the United States and
are insured by the Federal Deposit Insurance Corporation up to
$250,000.  As of April 30, 2010 the Company had uninsured cash
balances of $0 in the United States.





m.  Advertising





The
Company expenses advertising costs as they are incurred.  Advertising
expenses for the years ended April 30, 2010 and 2009 were $295,472 and $685,713,
respectively.


F-10


NOTE
      2 -
            SIGNIFICANT
      ACCOUNTING POLICIES (Continued)





n.     Revenue
Recognition





The
Company recognizes a contracted monthly commission based on each lottery’s
financial performance.  All discounts, refunds, adjustments are
settled inclusive in the commission.





o.     Foreign
Currency Translation





For all
significant non-U.S. operations, the functional currency is the local
currency.  Assets and liabilities of those operations are translated
into U.S. dollars using year-end or historical exchange rates; income and
expenses are translated using the average exchange rates for the reporting
period.  Translation adjustments are reported in accumulated other
comprehensive loss, a separate component of stockholders' deficit.





p.  Beneficial
Conversion Feature





From time
to time, the Company has debt with conversion options that provide for a rate of
conversion that is below market value. This feature is normally characterized as
a beneficial conversion feature ("BCF"), which is recorded by the Company
pursuant to Emerging Issues Task Force (“EITF”) Issue No. 98-5 ("EITF 98-5"),
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5
to Certain Convertible Instruments.   If a BCF exists, the
Company records it as a debt discount.  Debt discounts are amortized
to interest expense over the life of the debt on a straight-line basis, which
approximates the effective interest method.  Expense recorded on the
Company's financial statements during the years ended April 30, 2010 and 2009 as
a result of adoption of EITF issues No. 98-5 and 00-27 totaled $930,839 and
$598,923, respectively.





q.  
Long-Lived Assets





The
Company applies the provisions of Statement of Financial Accounting Standards
No. 144,  “Accounting for the Impairment or Disposal of Long-Lived
Assets” (‘SFAS 144”), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The Company periodically evaluates
the carrying value of long-lived assets to be held and used in accordance with
SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset’s carrying amounts. In that event a loss is recognized based on the
amount by which the carrying value exceeds the fair value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Based on its review, the Company has not recorded an impairment of long-lived
assets as of April 30, 2010 and 2009.




NOTE 3
-     AVAILABLE FOR SALE SECURITIES





Marketable
securities at April 30, 2009 are classified and disclosed as available-for-sale
under the requirements of SFAS No. 115.  The Company did not have
proceeds from the sale of any available for sale securities.  Under
such statement, the Company’s securities are required to be reflected at their
fair value as follows:





April 30,
                  
                  
                  April 30,2010
                  
                  
                  2009Fair
      value of marketable securities at beginning of year
                  
                  $
                  -
                  
                  
                  
                  3,000Realized
      gain (loss) on marketable securities
                  
                  
                  -
                  
                  
                  
                  -Proceeds
      from the sale of marketable securities
                  
                  
                  -
                  
                  
                  
                  -Unrealized
      gain (loss) on marketable securities
                  
                  
                  -
                  
                  
                  
                  (3,000
                  )Fair
      value of marketable securities at end of year
                  
                  $
                  -
                  
                  
                  
                  -





Unrealized
holding gains and losses are reported in accumulated other comprehensive income
on the balance sheets of the company, at April 30, 2010 and 2009.





NOTE
      4 -
            RELATED
      PARTY TRANSACTIONS





The
Company has been dependent upon certain individuals, stockholders and other
related parties to provide capital, management services, assistance in finding
new sources for debt and equity financing, and guidance in the development of
the Company’s business.  The related parties have generally provided
services and incurred expenses on behalf of the Company in exchange for shares
of the Company’s common stock or have provided the necessary operating capital
to continue pursuing its business.





In
addition to operating capital, the Company engages in business with companies
which are under common ownership and/or management as follows:


F-11


Miller & Earle,
PLLC


The
Company has utilized the services of a law firm named Miller & Earle, PLLC
(ME) where one of the partners is a major shareholder of the
Company.  The Company paid ME $0 and $0 during the years ending April
30, 2010 and 2009.  The Company owed ME $50,969 at April 30, 2010 and
$202,465 at April 30, 2009 (see Note 9).





Nathan
Miller


As of
April 30, 2010, New Media Lottery Services, Inc. was indebted to Nathan Miller,
a former officer and director of the company and current major shareholder, in
the amount of $183,177, plus $81,650 in accrued interest  ($9,617 in
2010 and $11,334 of accrued interest in 2009), which is repayable on terms to be
determined.





Milton
Dresner


During
fiscal years 2009, 2008 and 2006, Milton Dresner, a principal shareholder and
director of the New Media Lottery Services, Inc., loaned New Media Lottery
Services International an aggregate of $100,000, $967,500 and $150,000,
respectively.  New Media Lottery Services International executed a
demand note in favor of Mr. Dresner with respect to such amount that bears
interest at variable interest rates.  During the fiscal year ended
April 30, 2010, Mr. Dresner converted all debt into stock





Joseph
Dresner


During
fiscal year 2008, Joseph Dresner, a principal shareholder and director of the
New Media Lottery Services, Inc., loaned New Media Lottery Services
International $882,500.  New Media Lottery Services International
executed a demand note in favor of Mr. Dresner with respect to such amount that
bears interest at variable interest rates.  During the fiscal year
ended April 30, 2010, Mr. Dresner converted all debt into stock





John
Carson


During
fiscal year 2009, John Carson, a shareholder, officer and director of the New
Media Lottery Services, Inc., loaned New Media Lottery Services International
$10,000.  New Media Lottery Services International has executed a
demand note in favor of Mr. Carson with respect to such amount that bears
interest at the Prime Rate plus 3%.  During the fiscal year ended
April 30, 2010 the note to Mr. Carson was paid in full.





Trafalgar


During
fiscal year 2010, Trafalgar Capital, a principal shareholder, loaned the company
$60,000 which was repaid and $50,500 of which $38,412 is outstanding at April
30, 2010.





NOTE
      5 -
            LOANS
      PAYABLE – RELATED PARTIES





The
Company has been relying to a great extent on certain related parties for
operating capital.  Due to these transactions the Company had
considerable loans payable due to related parties consisting of the
following:





April 30,
                  
                  
                  April 30,2010
                  
                  
                  2009Loan
      payable to an individual, interest at prime plus 2%, due on demand,
      unsecured
                  
                  $
                  183,177
                  
                  
                  $
                  183,177Loan
      payable to an individual, interest at prime plus 2%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  525,000Loan
      payable to an individual, interest at prime plus 2%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  260,000Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  392,000Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  622,500Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  10,000Loan
      payable to Trafalgar, unsecured
                  
                  
                  38,412
                  
                  
                  
                  -Loan
      payable to an individual, interest at 5.25%, due on demand,
      unsecured
                  
                  
                  -
                  
                  
                  
                  200,000Total
      Loans Payable
                  
                  
                  221,589
                  
                  
                  
                  2,193,177Less:
      Current Portion
                  
                  
                  (221,589
                  )
                  
                  
                  (2,193,177
                  )Long-Term
      Loans Payable
                  
                  $
                  -
                  
                  
                  
                  -





Interest
expense on loans payable to related parties for the years ended April 30, 2010
and 2009 was $30,976 and $132,936 respectively.  Note that this does
not include accrued interest on convertible notes due to Trafalgar (See Note
7)


F-12


NOTE
      6 –
            NOTES
      PAYABLE





Notes
payable consisted of the following:





April 30,
                  
                  
                  April 30,2010
                  
                  
                  2009Comerica
      Bank note with interest approximately equal to the Euro dollar prime rate
      Plus 2.5%, due June 1, 2009
                  
                  
                  -
                  
                  
                  
                  1,500,000Comerica
      Bank note with interest approximately equal to the Euro dollar prime rate
      Plus 2.5%, due June 1, 2009
                  
                  
                  -
                  
                  
                  
                  600,000Comerica
      Bank note with interest approximately equal to the daily adjusted
      LIBOR  rate Plus 2.5%, due February 20, 2010
                  
                  
                  -
                  
                  
                  
                  1,900,000Trafalgar
      Capital Note with interest equal to 8%,
                  
                  
                  3,019,714
                  
                  
                  
                  2,140,740Trafalgar
      Capital Convertible Note with interest equal to 10%, due July 31, 2011,
      secured by all assets of the company (less discount of $88,482 - See note
      7)
                  
                  
                  486,518
                  
                  
                  
                  -Total
      Notes Payable
                  
                  
                  3,506,232
                  
                  
                  
                  6,140,740Less:
      Current Portion
                  
                  
                  (3,356,237
                  )
                  
                  
                  (5,625,120
                  )Long-Term
      Notes Payable
                  
                  $
                  149,995
                  
                  
                  
                  515,620





Interest
on the Trafalgar Capital notes has not  been paid on a monthly basis;
hence, accrued interest expense on notes payable for the years ended April 30,
2010 and 2009 was $282,641 and $0 respectively.





The
following is a schedule of future principle payments required under the above
notes as of April 30, 2009:





Year EndingApril 30
                  
                  Amount2010
                  
                  $
                  3,538,1292011
                  
                  
                  63,8982012
                  
                  
                  -2013
                  
                  
                  -2014
                  
                  
                  -Thereafter
                  
                  
                  -





NOTE 7
-     CONVERTIBLE DEBT





From time
to time, the Company has debt with conversion options that provide for a rate of
conversion that is below market value. This feature is normally characterized as
a beneficial conversion feature ("BCF"), which is recorded by the Company
pursuant to Emerging Issues Task Force (“EITF”) Issue No. 98-5 ("EITF 98-5"),
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5
to Certain Convertible Instruments.   If a BCF exists, the
Company records it as a debt discount.  Debt discounts are amortized
to interest expense over the life of the debt on a straight-line basis, which
approximates the effective interest method.





During
2009, the Company raised €1,300,000 ($1,725,750) through the issuance of 8%
unsecured convertible debt and €1,150,000 ($1,526,625) from the issuance of 8%
unsecured convertible debt. The €1,300,000 debt is due on May 31, 2010 and the
€1,150,000, by extension, on October 31, 2010.  The Company was unable
to repay the debt under the original terms; accordingly the lender modified the
terms of the unsecured convertible debt.  All stock and warrants
referenced in this convertible debt, is stock in the subsidiary
NM-PLC.





The
lender shall have the right to convert the convertible debt, at its sole option
and at any time, the NM-PLC stock is trading above 120% of the volume weighted
average price (VWAP) on the day prior to close and if no VWAP is available, the
closing bid price on the day prior to close.  Should the monthly
mandatory redemption amount not be paid within 5 days of due date, the lender
shall have the option but not the obligation to take the payment in shares at
the lower of the fixed conversion price or a 15 % discount to the lowest daily
VWAP (or if there is not reported VWAP on such days, the lowest closing bid
price) of the securities during the five (5) consecutive trading days after the
issue of a conversion notice by the lender.  The lender may state the
sterling amount to be converted or the number of shares to be issued at the
conversion price.  Provided the Company is not in default, the lender
shall not be able to convert the convertible debt into an amount that would
result in the lender beneficially owning in excess of 2.99% of the outstanding
ordinary shares of the Company without the prior approval of the
Company.





On the
convertible debt’s closing dates, the Company issued to the lender warrants to
purchase 4,500,000 shares at an exercise price of 5 pence
($0.0743).  The warrants shall have a 2 year term from the date of
issuance.  In the event the warrants remain unexercised by the lender
at maturity, the Company shall repurchase the warrants from the lender for a
cash consideration of £180,000 ($267,480).


F-13


NOTE 7
-     CONVERTIBLE DEBT (Continued)





The value
of the beneficial conversion feature was determined using the intrinsic value
method.  In accordance with EITF 00-27 paragraph 6, when detachable
warrants are associated with the issuance of convertible debt, the ratios of the
relative fair values of the convertible debt and detached warrants are allocated
to the proceeds received, with those amounts being recorded in the
paid-in-capital accounts of the balance sheets of the Company. The amount
recorded as a discount to the convertible debt was $1,210,793. This amount
consists of $1,141,679 related to the beneficial conversion features of the
convertible debt and $69,114 related to the allocation to the value of the
detachable warrants associated with the issuance of the debt. The discount is
being amortized over the 2 year term of the convertible debt; accordingly, the
Company recorded $620,632 in expense for the accretion of the discount during
the year ended April 30, 2010.





NOTE
      8 -
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.SFAS
No. 157 defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure requirements for
fair value measures. The three levels are defined as follows:


·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.


·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.


·
            Level
      3 inputs to valuation methodology are unobservable and significant to the
      fair measurement.





The
carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
notes payable approximates fair value because negotiated terms and conditions
are consistent with current market rates as of April 30, 2010 and
2009





NOTE
      9 -
            COMMITMENTS
      AND CONTINGENCIES





Compensation
Agreements


The
Company has compensation agreements with one key management person in the amount
of $192,000 per year.  This agreement, dated March 13, 2008 is through
New Media Lottery Services, PLC for an initial term of twenty-four
months.





Legal Fee
Dispute


The
Company is engaged in a fee dispute with one of its former law
firms.  The Company has accrued $202,465 in legal fees billed by a law
firm named Miller & Earle, PLLC (ME) where one of the law firm partners is a
major shareholder and former director of the Company.  In addition to
the $202,465, ME has billed an additional $43,808 during fiscal year
2005.  The Company believes that these additional billings were
incorrect.  Due to uncertainties in the settlement process with ME, no
provision has been made in the accompanying financial statements to reflect the
additional $43,808 in 2005 fees.





Leasing Arrangements and
Commitments





- The
Company, as of April 30, 2010, has no leasing arrangements or
commitments.





Rental
expense was $91,498 in 2009 and $98,393 in 2009.





NOTE
      10 -
            STOCK
      OPTIONS AND WARRANTS





The
Company has adopted FASB Statement 123(R), "Share-Based Payments" ("SFAS No.
123R") to account for its stock options and warrants.  The Company
estimates the fair value of each stock award at the grant date by using the
Black-Scholes pricing model.  The assumptions used to calculate the
fair value of options and warrants granted are evaluated and revised, as
necessary, to reflect market conditions and our
experience.  Compensation expense is recognized only for those options
expected to vest, with forfeitures estimated at the date of grant based on our
historical experience and future expectations.  The Company granted
stock options or warrants during the fiscal year ended 2010 as listed in the
tables below.  The Company’s 80.23% subsidiary, NM-PLC, did not issue
warrants and stock options during the fiscal year ended 2010.


F-14


EMPLOYEE STOCK
OPTIONS





The
following tables summarize the information regarding employee stock options at
April 30, 2009 and 2008:


Outstanding,
      April 30, 2008
                  
                  
                  1,625,000Granted
                  
                  
                  -Canceled
                  
                  
                  -Exercised
                  
                  
                  -Outstanding,
      April 30, 2009
                  
                  
                  1,625,000Granted
                  
                  
                  3,475,000Canceled
                  
                  
                  1,625,000Exercised
                  
                  
                  -Outstanding,
      April 30, 2010
                  
                  
                  3,475,000Weighted
      average exercise price of options outstanding at April 30,
      2010
                  
                  $
                  0.34




Outstanding
                                            
                                            
                                            ExercisableWeightedAverage
                                            
                                            
                                            Weighted
                                            
                                            
                                            
                                            
                                            
                                            WeightedNumber
                                            
                                            
                                            Remaining
                                            
                                            
                                            Average
                                            
                                            
                                            Number
                                            
                                            
                                            AverageOutstanding
                                            
                                            
                                            Contractual
                                            
                                            
                                            Exercise
                                            
                                            
                                            Exercisable
                                            
                                            
                                            ExerciseExercise Prices
                                            
                                            at 4/30/10
                                            
                                            
                                            Life (years)
                                            
                                            
                                            Price
                                            
                                            
                                            at 4/30/10
                                            
                                            
                                            Price$
                                            0.10
                                            
                                            
                                            3,475,000
                                            
                                            
                                            
                                            9.90
                                            
                                            
                                            $
                                            0.10
                                            
                                            
                                            
                                            3,475,000
                                            
                                            
                                            $
                                            0.10





WARRANTS





The
following tables summarize the information regarding warrants at April 30, 2009
and 2008:





Outstanding,
      April 30, 2008
                  
                  
                  200,000Granted
                  
                  
                  -Canceled
                  
                  
                  -Exercised
                  
                  
                  -Outstanding,
      April 30, 2009
                  
                  
                  200,000Granted
                  
                  
                  1,700,000Canceled
                  
                  
                  -Exercised
                  
                  
                  -Outstanding,
      April 30, 2010
                  
                  
                  1,900,000Weighted
      average exercise price of warrants outstanding at April 30,
      2010
                  
                  $
                  0.10


NOTE
      10 -
            STOCK
      OPTIONS AND WARRANTS (Continued)





Outstanding
                                        
                                        
                                        ExercisableWeightedAverage
                                        
                                        
                                        Weighted
                                        
                                        
                                        
                                        
                                        
                                        WeightedNumber
                                        
                                        
                                        Remaining
                                        
                                        
                                        Average
                                        
                                        
                                        Number
                                        
                                        
                                        AverageOutstanding
                                        
                                        
                                        Contractual
                                        
                                        
                                        Exercise
                                        
                                        
                                        Exercisable
                                        
                                        
                                        ExerciseExercise Price
                                        
                                        
                                        at 4/30/10
                                        
                                        
                                        Life (years)
                                        
                                        
                                        Price
                                        
                                        
                                        at 4/30/10
                                        
                                        
                                        Price$
                                        0.25
                                        
                                        
                                        
                                        200,000
                                        
                                        
                                        
                                        5.00
                                        
                                        
                                        $
                                        0.25
                                        
                                        
                                        
                                        200,000
                                        
                                        
                                        $
                                        0.25$
                                        0.30
                                        
                                        
                                        
                                        200,000
                                        
                                        
                                        
                                        1.0
                                        
                                        
                                        $
                                        0.30
                                        
                                        
                                        
                                        200,000
                                        
                                        
                                        $
                                        0.30$
                                        0.05
                                        
                                        
                                        
                                        1,500,000
                                        
                                        
                                        
                                        2.3
                                        
                                        
                                        $
                                        0.05
                                        
                                        
                                        
                                        1,500,000
                                        
                                        
                                        $
                                        0.05


F-15


NOTE 11
-    GOING CONCERN CONSIDERATIONS





The
accompanying condensed consolidated financial statements have been prepared
using generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business.  As reported in the consolidated
financial statements, the Company has incurred $21,585,869 losses from inception
of the Company through April 30, 2010.  The Company’s stockholders’
deficit at April 30, 2010 was $2,775,024.   Additionally, the
Company has sustained additional operating losses for the year ended April 30,
2010 of $2,881,269, has a working capital deficit of $4,052,838, negative cash
flows from operations, and no known borrowing capacity and has ceased all
operations.  These factors combined, raise substantial doubt about the
Company’s ability to continue as a going concern.  The Company no
longer engages in lottery based programs and is currently seeking new business
opportunities.





The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually attain profitable operations.  The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.





NOTE 12
-    SUBSIDIARY CAPITAL STOCK OFFERING





On March
17, 2006, the Company’s subsidiary, New Media Lottery Services, Plc, sold and
issued 4,244,850 ordinary shares in a public Offering on the Alternative
Investment Market on the London Stock Exchange.  The subsidiary
derived gross proceeds of $3,750,338 from the sale of the
securities.  Proceeds to the subsidiary after giving effect to the
payment of sales commissions of $331,190 and other Offering costs and expenses
of $1,286,454, were $2,132,694.





NOTE 13 –
 OTHER ASSETS





The
Company follows SFAS 142 for the loan fees and other intangible assets which
requires other intangible assets to be amortized only if they have defined
useful lives.  The useful lives of the intangible assets that are being
amortized are evaluated each reporting period as to whether events and
circumstances warrant a revision to the remaining period of
amortization.





On May
31, 2008, the Company entered into a convertible debenture agreement (See Note
7) whereby the Company paid fees of $271,636 in cash and 249,350 common shares
of NM-PLC stock valued at $57,356.  On March 24, 2009, the Company
restructured this convertible debenture agreement whereby the Company paid fees
of $105,135.  These loan fees, a total of $434,127, were capitalized
and are being amortized on a straight line basis over a 24 month
period.  During the fiscal years ended April 30, 2009 and April 30,
2010, the Company expensed $198,974 and $221,193 of these fees,
respectively.





On
October 31, 2008, the Company entered into a convertible debenture agreement
(See Note 7) whereby the Company paid fees of $247,158.   On March 24,
2009, the Company restructured this convertible debenture agreement whereby the
Company paid fees of $105,135.  These loan fees, a total of $352,293,
were capitalized and are being amortized on a straight line basis over a 24
month period.  During the fiscal years ended April 30, 2009 and April
30, 2010, the Company expensed $88,074 and $178,768 of these
fees.


F-16


SIGNATURES





In
accordance with the Exchange Act, the Company caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.





Dated:  September
      2, 2010
            
            By:
            /s/   Jeffrey
      SternbergName:  Jeffrey
      SternbergTitle:  Director(Principal
      Executive Officer andPrincipal
      Financial Officer)





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





Person
            
            Capacity
            
            Date/s/ Jeffrey Sternberg
            
            Director
            
            September
      2, 2010Jeffrey
      Sternberg
            
            (Principal
      Executive Officer andPrincipal
      Financial Officer)





26