UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


(Mark
One)


xANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the
fiscal year ended: April 30,
2009




 ̈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 registrant 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 registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


 ̈Yes    x
No





Indicate
by check mark if the registrant 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 registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x  Yes    ̈  No





Indicate
by check mark whether the registrant 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
registrant 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 registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.


 ̈
Yes   x  No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer    ̈
            Accelerated
      filer      ̈Non-accelerated
      filer      ̈
            Smaller
      reporting company     x(Do
      not check if a smaller reporting company)





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


 ̈  Yes  xNo





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. $____





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant 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 REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  At August 13, 2009 there were
31,247,843 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.
                                13Item
      2. Properties.
                                20Item
      3. Legal Proceedings.
                                21Item
      4. Submission of Matters to a Vote of Security Holders.
                                21PART
      IIItem
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities.
                                21Item
      6. Selected Financial Data.
                                22Item
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                                22Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk.
                                32Item
      8. Financial Statements and Supplementary Data.
                                32Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure.
                                32Item
      9A. Controls and Procedures.
                                33Item
      9B. Other Information.
                                35PART
      IIIItem
      10. Directors, Executive Officers and Corporate
Governance.
                                37Item
      11. Executive Compensation.
                                38Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.
                                41Item
      13. Certain Relationships and Related Transactions, and Director
      Independence.
                                42Item
      14. Principal Accounting Fees and Services.
                                45PART
      IVItem
      15. Exhibits, Financial Statement Schedules.
                                45Financial
      Statements
                                F-1
      - F-19SIGNATURES
                                50





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





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), designs, builds, implements, manages, hosts and supports
Internet and wireless device based lottery programs operated by governments and
their licensees, such as charitable organizations, outside of the United
States.  We also design and distribute games for use on server based
video lottery terminals and other electronic kiosks owned and operated by third
parties.  We currently operate lottery systems for one customer for
which we currently offer one lottery website and one server based video lottery
program.  We enter into long-term agreements with our clients pursuant
to which we provide our services in return for a percentage of the lottery’s net
sales.  We are pursuing additional contracts for which we will seek
additional financing to implement.





All of our operations are 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.





Development
of Our Business During Fiscal 2009.





During the course of the 2009 fiscal
year (commencing as of May 1, 2008) through the date of this report, the Company
experienced significant changes, as follows.





Changes
in Principal Stockholders





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 ($1.9 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).  After giving
effect to these transactions, the Dresners now own an aggregate of 14 million
shares of common stock representing approximately 46% of the outstanding shares
of the class.  Accordingly, no single entity or affiliated entities
controls the Company.


1


Changes
in Boards of Directors





Since the
beginning of the 2009 fiscal year:





·
            Joseph
      Dresner, Milton Dresner and Sterling Herbst resigned as members of the
      board of directors of NM-US and all subsidiaries on which they
      served;





·
            Jeffrey
      Sternberg, an affiliate of Trafalgar, was appointed to serve on the board
      of directors of NM-US; and





·
            All
      of the non-executive directors of NM-PLC, including Paula Horan, Nigel
      Blythe-Tinker, Jane Dresner-Sadaka and Lord Benjamin Mancroft
      resigned.





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.





The
Lottery Industry.





The
discussion of and information relating to the lottery industry set forth below
has been compiled by us or derived from independent sources which we believe to
be reliable.  We cannot assure you, however, that such statements are
accurate and we caution you not to place undue reliance on such information or
statistics.  It has been management’s experience that there is less
public information available concerning the international lottery industry than
the lottery industry in the United States.





Lotteries
are official, government authorized/licensed fundraising
organizations.  Industry sources estimate that there are in excess of
400 lotteries world-wide.  Management believes that many more
lotteries exist but do not report their sales to trade organizations and are not
included in official tallies.  Approximately 20% of recognized
lotteries account for 85% of the estimated lottery sales volume of $224 billion
(as officially reported in 2007).  Many of the second tier lotteries
do not have the financial wherewithal to develop and implement the
infrastructure necessary to offer games and prizes that are attractive to
players.  In addition, they do not have the technical capability to
offer games utilizing the new media distribution methods available to
them.  However, the preponderance of existing lotteries, large and
small, subcontract all or part of their lottery operations and new product
development to professional lottery service providers, such as our
Company.  These providers supply technology, products, operations,
marketing and administrative support.





Some
jurisdictions sanction or license multiple lotteries which may include both
government-sponsored programs and programs promoted by charitable lottery
organizations (CLOs).  Many governments have authorized national
lottery programs primarily as a means of generating non-tax revenues intended to
support specific programs, many of which are humanitarian or social in
nature.  Proceeds generated by lotteries may be designated for
particular public purposes, such as education, sports, humanitarian services and
or economic development.  Numerous jurisdictions have become dependent
on the net proceeds generated from the sale of lottery tickets to support some
of those public purposes. Given the current economic climate management expects
governments to issue additional lottery licenses to support additional
government programs. Even the United States is now discussing online gaming as a
way to generate needed revenues.


2


In
general, lotteries can be categorized into two principal groups, terminal based
lotteries and off-line lotteries, each of which includes a variety of game
types.  Terminal based lotteries are conducted through a computerized
lottery system in which lottery terminals are connected to a central computer
system. Terminal based lottery systems generally are utilized to conduct games
such as lotto, keno and numbers, and permit a player to make his/her own
selection.  As of the end of 2005, approximately 120 international
jurisdictions had implemented terminal based lottery
systems.  Additional jurisdictions, principally in Europe, Asia and
Central America, currently are considering implementing terminal based
lotteries.  Off-line lotteries feature lottery games which are not
computerized, such as traditional paper based draw lottery games and
instant-ticket games.  Generally, traditional off-line lottery games,
in which players purchase tickets which have pre-printed numbers for a future
drawing, are conducted only in international
jurisdictions.  Instant-ticket games, in which players scratch-off a
coating from a printed ticket to determine if it is a winning ticket, are
conducted both internationally and in the United States.





Statistics
show that, typically, terminal based lotteries generate greater revenues than
both traditional off-line lottery games and instant-ticket
games.  There are several other advantages to online lotteries as
compared to traditional off-line lotteries.  Unlike traditional
off-line lottery games, terminal based lottery systems allow for wagers to be
accepted and processed until minutes before a drawing, thereby significantly
increasing the lottery's revenue in cases in which a large prize has attracted
substantial wagering interest.  Terminal based lottery systems also
provide greater reliability and security, allow a wider variety of games to be
offered and automate accounting and administrative procedures which are
otherwise manually performed at potentially high cost to the
sponsor.





Our
Opportunity.





We focus
our marketing efforts primarily on lotteries that are not currently serviced by
terminal based lottery service providers, such as small national and state
lotteries and lotteries operated by CLOs.  We seek to transform these
smaller lotteries from exclusively off-line, paper based operations into
comprehensive lotteries by applying our technology and expertise and to make the
games they offer available through new media channels, including the Internet,
cell phones, handheld wireless devices, such as smart phones, and interactive
television.   We have developed a lottery platform and content
for player activated server based terminals.  Server based gaming is
considered by many to be the leading new form of gaming device and allows for
the distribution of a wide selection of games to terminals that can be refreshed
with new content remotely.  We believe that these terminals will have
great appeal to the lottery industry as they will be more environmentally
friendly (no paper, all electronic), are easily adapted to lottery products and
are more compliant with lottery legislation.





Generally,
the smaller national and state-operated lotteries and CLOs, that constitute our
target market, are limited to offering traditional paper and instant ticket
games.  These games offer only small prizes and do not attract large
audiences.  Their operations have been constrained by personnel who
lack operational experience, technological limitations and adequate
funding.  In the case of CLOs, the causes they support, such as health
care, environmental conservation and nationally sponsored athletic activities,
generally enjoy wide public appeal that to some degree have been, and continue
to be, funded by governments.  However, financial pressure
attributable to rising costs for social programs and poor global economic
performance over the last several years have eroded the ability of national and
local governments to fund these important social and public projects from
revenues generated from taxes.  Many national and local governments
have sought to supplement funding for these essential programs through
alternative means such as issue-specific lotteries.  In many
jurisdictions, governments have granted broad licenses to charitable
organizations to operate lotteries to fund these important social programs. Not
surprisingly, governments and charities have a never ending need to raise funds
for humanitarian purposes.


3


Typically, small state-operated
lotteries, CLOs and the people who run them, do not have the capacity to fully
develop the lottery opportunity granted to them and consequently never realize
the full extent of the revenue generating potential of their mandate. In many
cases, they do not grasp the full range of gaming opportunities available to
them.  Specifically, neither these organizations nor their personnel
possess the experience, know-how or technology to develop new games or implement
online and wireless games nor do they possess the marketing resources and
expertise necessary to build prizes that will attract new
players.  These small organizations tend not to be competitive with
larger state operated lotteries because the games and prizes they offer are not
exciting to the average lottery participant.  Moreover, in many of the
geographic locations in which small government lotteries and CLOs operate, these
lotteries target an older generation utilizing paper-based games.  It
is these entities that require the assistance of a professional organization to
design, implement, manage and fund the development of their opportunity to
maximize net proceeds generated from ticket sales and, in many cases, to lend
credibility to the organization’s lottery.





We believe that small national and
state-operated lotteries and charitable lottery organizations have not garnered
the attention of lottery service providers and are
under-served.  Large providers of lottery services and products have
selectively overlooked this market because these clients do not yield the
financial return which can be derived from servicing the larger national and
state run lotteries and they do not warrant the significant capital investment
required to implement and operate a traditional land-based
lottery.  In addition, the smaller state-operated lotteries and CLOs
do not have the funding to implement the infrastructure necessary to build a
competitive operation. Moreover, these lotteries need a new type of product
offering and we believe that we will be well-served using non-traditional
distribution methods.  We continue to believe that these lotteries
will be eager to utilize our products and services.





Over the
past year, we allocated substantial resources to the continued development of
our lottery systems and content to allow us to rapidly expand our operations
into multiple markets as opportunities arise. We offer our clients the potential
to expand into modern electronic lottery and gaming markets, giving them the
capacity to compete with larger government-sponsored
lotteries.  Initially, we develop and implement an on-line lottery
presence offering traditional on-line game formats supplemented by new and
exciting games we have developed.  We target our on-line lotteries to
a younger adult and female audience that typically does not relate to the
traditional paper-based games their parents play and who incorporate computers
and new media devices such as cellular telephones and other wireless apparatus
into their daily lives.  We can implement the systems necessary to
commence on-line lottery operations relatively quickly and
inexpensively.  Thereafter, we expect to initiate lotteries and other
game formats delivered through new media devices.





Current
Operations





We
currently manage a lottery for Rehab Net Games Limited ("Rehab-Ireland") and
develop 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, as more fully described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."


4


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 is 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 are 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 are currently managing and operating the lottery.





Rehab
Ireland is party to an agreement with Inspired Gaming Group (Inspired), Europe's
leader in pay-to-play entertainment and broadband services in retail and public
spaces.  Inspired has an installed base of more than 20,000 networked
broadband enabled terminals throughout Europe.  Inspired has agreed to
install server based terminals on behalf of Rehab Ireland that are loaded with
gaming content developed by us.  Inspired contemplates that the
terminals will be placed in retail shops, pubs and other establishments
throughout Ireland.  In consideration for these services, the Company
is entitled to receive a portion of the net proceeds generated by the
terminals.  Inspired has informed us that it has retained independent
distributors throughout Ireland to expedite deployment of these
devices.  We are working closely with Inspired to identify additional
markets in Ireland and throughout Europe in which to deploy these
terminals.





We
continue to implement programs to expand the reach of Rehab Ireland's site,
within Ireland, the United Kingdom and beyond, to acquire new
players.  Our business is built upon the number of players that
deposit funds and play games on our client's site.  Our objective is
to acquire new players at the lowest cost per player.  The internet
provides an effective means of achieving this goal, both by way of sites we
maintain and through partnerships with high traffic sites maintained by third
parties.





We are
pursuing all available means to expand the player base of our client's lottery,
the basis for nearly all revenue we generate.  In addition to
traditional advertising channels, we are seeking to take advantage of all of the
electronic media available including:





·
            creating
      affiliate programs with third party websites that direct their customers
      to our lottery sites;


·
            establishing
      social networking/dating sites in Ireland & the UK to capitalize on
      the growing trend towards online
communications;


·
            developing
      a weblog (blog) site for our client’s lottery;
  and


·
            harnessing
      Facebook and Twitter to promote partner sites to a new
      audience.





Our
efforts have been directed at establishing partnerships with well-known brands
and organizations that operate Web sites with high user
traffic.  Partnerships either take the form of "white label" sites or
"affiliate programs."


5


A typical
"white label" program entails our partner's Web site linking to a Web page which
we develop, allowing its customers to play games offered by our lottery client.
The linked page retains the atmosphere of the partner's branded Web site,
allowing users to feel that they have not left the sponsor's home
site.  Essentially, our gaming site is rebranded to appear as the
partner’s offering.  Players enroll, deposit funds, wager and collect
winnings exactly as players on our client's Web site.  Players
directed to the white label site from our partner's Web site are playing the
same games being played by customers on our client's web site in the same "room"
(the Web page on which a particular game is played).  The more players
in the playing room, the larger and more attractive the potential
prizes.  Players from many white label sites may be playing in the
same room without being aware of that fact because they feel as if they have not
left the sponsor's Web site. Compensation arrangements typically comprise the
payment of a monthly fee to a partner as well as a percentage of the revenues
derived from players originating from a partner's white label site.





We
currently have established white label programs with such companies as The Irish
Post newspaper in the UK (the voice of the Irish in Britain) to service the
expansive Irish ex-patriot community in the UK; TV3, Ireland’s leading
independent television station, to provide our client's content to its popular
and award-winning web site; and Pigsback, Ireland’s leading consumer networking
site.  We expect to enter into several additional white label programs
with well-known Web sites over the coming months.





We enter
into affiliate programs with niche/vertical content driven web sites that have
similar target audience/customers whereby our affiliates create a hyperlink on
their page that points to our lottery client's Web page.  These links
have begun to drive traffic to our site and compete very competitively in the
market place.





White
label and affiliate programs in partnership with third parties allow us to
leverage our partners' customers and acquire players at a significantly lower
cost than direct advertising.  The programs offer our partners access
to our games and services, essentially our client’s government gaming license,
and allows them to widen their product offering and create a better
cross-selling platform for their own products or services without having to
invest in creating the technology and infrastructure itself.  The
program allows all parties to leverage and monetize the partner's existing
customer base for an additional revenue stream.





As
additional marketing tools, we have developed and grown social networking/dating
sites in Ireland and the UK to capitalize on the growing trend towards online
social networking and communications.  Both sites promote Rehab
Ireland's gaming sites to defined target markets.  These sites
represent an economical means of generating player acquisitions at very low cost
given that we do not have to share revenues.  Additionally, these
sites generate revenue for the Company by selling advertising space to other
parties.





We have
developed various blog sites, (a website that allows users to reflect,
share opinions, and discuss various topics in the form of an online journal
while readers may comment on posts). Blogs have become a popular means of
communicating and sharing ideas and a popular blogger can influence social and
recreational trends.  References to our client sites in blogs also
enhance search engine rankings.  Blogging represents a cost effective
means of driving new players to our client's sites.





We also
have harnessed Facebook and Twitter to promote partner sites to a new audience
in a low cost manner that allows for more social interactions with its players
which in turn can enhance play and product offerings.


6


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 will pay us of a percentage of the net
proceeds generated by these terminals.





In consideration for its services, the
Company is 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 means gross proceeds after deduction of
prize payouts, charity proceeds, retailer fees, cash management costs and value
added tax, if applicable.





As of the
date of this report, Inspired has not placed any terminals in the UK that offer
lottery content.  We are advised by Inspired that initially the delay
in deployment of the machines was a result of changes in gaming regulations with
respect to these devices, which necessitated a review of the laws and revision
to the release strategy.  Inspired advised us during the last year
that it will make a determination as to when to deploy machines in the UK upon a
review of operating results from the launch of the machines in
Ireland.  We can not be certain when, if ever, Inspired will undertake
a full-scale launch of its terminals in the UK.





Emerging
Opportunities.





The
Company has expended considerable time over the last several years developing
all aspects of our lottery based operating systems, including management
reporting, game development and security procedures for a wide range of
international markets.  It has taken considerably longer than we
expected to develop our products and business to the level necessary to gain the
trust and confidence of the lottery industry.  We believe that we have
built a reputation for quality and integrity and finally have achieved the
stature necessary to provide products to any electronic lottery with confidence.
We are prepared to deploy our product in locations throughout South America,
Asia and Eastern Europe. We believe that lotteries are dependent on a limited
universe of specialized vendors to supply products, technical support and
expertise.  We believe that we are well positioned to rapidly expand
our services to other clients based on our success in Ireland and the
UK.





In
addition to internet activities, a natural extension of our product offerings is
an expansion into mobile lottery programs.  Both smart phones and more
recently released mobile phones possess internet capabilities. Our games and
systems have been developed such that adapting them to mobile delivery systems
will be relatively seamless. Mobile carriers, like lotteries, are licensed by
the government and we believe that every mobile carrier is seeking gaming
opportunities and thus project that this market for our games could grow
rapidly. Management believes that lotteries will be the primary beneficiaries of
this new opportunity and it will be a major growth opportunity for them to raise
needed funds in this economic climate.





Interactive
television, or ITV, is gaining market space and popularity in Europe,
particularly in the UK. Our internet operating system is designed to handle ITV
offerings and we believe that this market will offer us significant
opportunities in the future.





Lottery
Development.





We offer our lottery clients an
integrated range of products and services to develop, build and host lotteries
for small national and state-operated lotteries and CLOs.  Our
management and personnel have strong lottery operations backgrounds, extensive
game development experience and the technological expertise required to create
and operate lottery systems.  We:


7


·
            analyze
      our client’s operations;


·
            analyze
      the gaming preferences of the indigenous
  population;


·
            design,
      install, operate, host and maintain lottery systems that support games
      that can be played via the Internet, wireless devices, such as cellular
      telephones and palm top computers, and interactive TV
    games;


·
            design
      and implement marketing programs to enhance ticket sales and increase the
      net proceeds an organization generates from its lottery;
    and


·
            design
      innovative games to attract local players and increase prize
      money.





An
affiliation with our organization increases the client’s technological
capabilities to operate a modern lottery program and to deploy proven
technologies that are in use worldwide.  We demonstrate to our clients
how to maximize the revenue generating potential of its government sanctioned
gaming opportunity.  We believe that the services we provide and the
end-product we deliver to our clients and, ultimately, the public, can transform
these lotteries into first-class operations with the capacity to achieve their
revenue goals.  Our clients benefit from access to a professional
lottery organization that affords them access to our lottery know-how and
expertise, allows them to offer new forms of distribution, offers them access to
state-of-the-art technologies and makes a wide variety of new entertaining
gaming formats available to them.  We seek to build organizations
founded on operational and financial integrity that inspire public
confidence.





We
believe that our business model can be replicated on varying scales in discrete
geographical areas.  The fundamental elements of the lottery
infrastructure, including the Web site and game concepts we have developed, can
be migrated from client to client, allowing us to re-brand our product
repeatedly for new clients.  This process, known as "changing the
skin", allows us to simultaneously meet the needs of numerous clients, while
reducing the set-up time and organizational costs associated with establishing
each client’s Internet/wireless presence.





In order to maximize net lottery
proceeds received by our clients, the lotteries we develop and implement for our
clients must attract large numbers of players who make purchases.  We
believe that as prize amounts escalate, interest in a lottery increases which
creates a cycle of growing prizes and more players.  We expect that we
can leverage the charity lottery concept to obtain discounts on advertising
packages and merchandise prize awards.  We anticipate offering co-op
games that are “sponsored” by various corporations in return for advertisements
on the lottery site.  These programs can reduce operational and
promotional costs.





Products
and Services.





We
consider many factors in developing a new technology presence for our client,
including the demographic composition and sociological character of the
geographic locality in which the lottery will operate, to ascertain the types of
games that will appeal to the local population and the nature of the marketing
strategy which we will employ.  Once retained by a client, we analyze
the local gaming environment, including the client’s existing operations,
business practices and the personal gaming preferences of the local
population.  We may compare one client’s circumstances with successful
lotteries operating in other jurisdictions to determine the most appropriate
games to offer and the most effective marketing techniques as they relate to
that population.  There is some degree of trial and error and we
constantly interchange games to determine what is most appealing to a particular
audience at a particular time.





In those
jurisdictions where gaming regulations require that lottery managers are
licensed with the local gaming commission, we will partner with licensed local
lottery managers who have secured the highest reputation for
integrity.  We expect that these entities may provide us with on-site
and other services after installation of the lottery system.


8


Our
objective is to create a comprehensive program that offers games which appeal to
the user, broaden the base of players and increase prizes.  This
benefits our clients in that it draws additional attention to the charitable
cause underlying the lottery and results in greater ticket sales and more
proceeds to distribute to the cause.





We
construct robust Web sites for our clients capable of handling a high volume of
traffic.  We host the Web sites for our current operating client on
servers located in Ireland.  Web sites are designed to facilitate the
registration process and promote playability while incorporating maximum
security.  Financial transactions are executed behind firewalls using
encryption software and all deposits and disbursements are confirmed by
independent, internationally reputable banks.





We
continually analyze our client's operations to devise and implement appropriate
marketing strategies and introduce new games which we believe will be appealing
to and attract local players.  The introduction of new games retains
loyal visitors to the site and attracts new ones.  We also have
developed a video lottery game platform.  Video lottery is defined as
casino slot/video machines which are managed and licensed by a lottery, and thus
have lottery compliant methodologies.  We expect that this product
line will compete directly with the casino marketplace and may be a substitute
for casino gaming in markets where casinos are not
legislated.  Management believes that these video lottery programs
will become prominent on a number of electronic devices currently existing in
many countries.





The base
Web site we have designed allows us to offer our clients the ability to develop
promotions with other organizations by offering "white label" sites and
"affiliate programs."  We create these sites and programs for
entities, a local television station or newspaper, for example, that desire to
offer their customers the ability to participate in on-line lottery
games.  These sites and programs benefit both parties in that a
sponsoring organization can offer new service to its customers and our client
receives new traffic without incurring additional advertising
expense.





Eventually,
as traffic and revenues warrant, we may seek to expand distribution of various
games to include access by way of wireless devices and mobile telephones, as our
resources permit.  At such time as a client’s lottery is operating
within our expected parameters, we will commence the process of identifying and
obtaining the services of local telephone/wireless companies and establish
working protocols to provide private and secure access to our client’s lottery
games via mobile telephones and other wireless devices.  Given the
increasing pervasiveness of these apparatus, extension of our operations to
include these modalities will allow us to tap into an as yet to be fully
exploited revenue stream.  Players will have access to a wide range of
games developed specifically for these devices and will be able to play anywhere
within their service coverage area.  We believe that these games will
be of particular appeal to young adult players who have integrated these
technologies into their every-day lives.





Marketing
of Our Clients’ Lotteries.





As
provided in our client agreements, marketing, advertising and promoting our
clients’ lotteries represents an integral component of the services we
provide.  We work with our clients to develop marketing programs that
account for and incorporate local cultural values.  We devise
marketing strategies that encompass traditional advertising media, public
relations and co-promotional campaigns.  We will seek to place
click-on banner advertisements on popular local Web sites as a means of
directing traffic to our clients’ online lotteries.  In addition, we
expect to advertise in national and regional newspapers and special interest
magazines.  We actively pursue co-promotion programs with local
companies for added exposure (white label programs).


9


Contract
Procurement.





To a large degree, second tier (CLOs)
lottery contracts are secured on the basis of a proven product and pre-existing
relationships between personnel of lottery management companies, such as
ourselves, and lottery license holders.  We are dependent upon the
relationships that our president has cultivated during the course of his
career.  Industry knowledge, personal integrity and credibility within
the world-wide lottery community are valuable resources which are gained after
years of operational and marketing experience.  Our president has many
years of experience in the industry and has fostered and maintains the types of
relationships that allow us to present our programs to existing and newly
organized lotteries.  Performance is also an important factor and our
management has been successful in demonstrating the positive results experienced
by his previous clients.





We market
our services to potential clients on the basis that we can provide them with (i)
lottery operations expertise, (ii) state-of-the-art technologies and Web site
design; (iii) the ability to grow and offer prizes far larger than they have as
off-line lotteries; (iv) a wide variety of new gaming formats; (v) secure
transaction processing and accurate accounting; and, perhaps most importantly,
(vi) greater credibility within their host jurisdiction resulting from an
affiliation with a professional lottery organization.





Contracts
with Clients.





Under a
typical client agreement, we are required to develop, install, operate and
maintain an Internet lottery system for a client, while retaining ownership of
the lottery system.  In addition, we are responsible for: implementing
all manner of accounting and auditing systems and maintaining financial records;
the collection of lottery monies; the selection of winners; and the financial
responsibility for the payment of prizes.  Most importantly, we are
required to maintain conformity with all local gaming laws and other applicable
regulations pertaining to our operation of lotteries on behalf of our
clients.  In some cases, we may agree to provide the funds required to
implement a client’s lottery, if they are available, that are repaid from
lottery proceeds on terms specified in our contract with a lottery.





In those
jurisdictions that have regulations which require that lottery managers are
licensed with the local gaming commission, we will retain or enter into
partnerships with duly licensed local entities and consultants.





We seek
to enter into long-term agreements with our clients that extend for a period of
at least five years.  Our agreements usually are subject to automatic
extensions for additional 5-year periods in the event we achieve certain
negotiated benchmarks relating to the proceeds generated by a lottery and paid
to the client.





We
generate the majority of our revenues under our client agreements from gross
sales of lottery tickets by our client’s lotteries.  Net revenue is
calculated after settlement of all prizes, discounts, refunds, and adjustments,
in accordance with the provisions of the contracts with our clients and which
varies from client to client, and is deemed to be a "commission."  The
level of lottery ticket sales within a given jurisdiction is determined by many
factors, including population density, the types of games played and the games'
design, the size and frequency of prizes, the nature of the lottery's marketing
efforts and the length of time the lottery system has been in
operation.


10


We
operate lottery systems for our clients through shared central computer systems
based on their geographic location.  We assign members of our staff to
interface with lottery personnel with respect to all matters of our operations,
including specialists dedicated to Web site operation, marketing, and product
offerings and customer service representatives who service and maintain the
system.





Our
Business Partners.





A key to
our success and the success of our clients is the underlying integrity of our
organization and the product we develop for them.  We market our
services and products to clients on the basis that their affiliation with us
will lend needed credibility to develop and support a thriving organization with
the potential to increase lottery revenues.  Toward that end, we have
been highly selective with respect to our industry partners and all transactions
are automated to avoid human error.





Games.





An
important factor in maintaining and increasing public interest in lotteries is
innovation in game design.  We design our games to attract the
interest of potential players and comply with local regulations.  We
work closely with our clients to design customized lottery games which are
intended to appeal to the populations in which our clients are
located.  We employ principles of demographics, sociology, psychology,
mathematics and computer technology in the development of our
games.  We also monitor games being designed and deployed by other
lottery service providers.  The principal characteristics of game
design include frequency of drawing, size of pool, cost per play and setting of
appropriate odds.





We
currently have a substantial number of variations of lottery games in our
software library and continually have new games under development.  We
believe that our game library and the "know how" and experience accumulated by
our professionals make it possible for us to meet the requirements of our
customers for specifically tailored games on a timely and comprehensive
basis.  In addition, we have engaged third parties to provide us with
specific games that we believe will attract players to our clients’
sites.





Technology.





The
Company provides technology systems that enable safe hosting of electronic
lotteries. We have developed software and methods that securely process and
transact game play and have integrated essential tools to monitor and notify
administrators of events.  These events include real-time reporting of
the usage and uptime which also serve as audit controls. This allows us to
supervise all aspects of the system maximizing availability and response
times.





The
infrastructure utilized for the wide area network consists of servers locally
placed in regions where systems are implemented.  The Company's
servers currently reside in Ireland and the UK. These servers are redundant
systems which automatically restore data in the event of failure. The data is
constantly backed-up and integrity of encryption is constantly
updated.





The
Company also has developed a game library which allows us to syndicate content
for different brands and the game engine can be migrated from client to client.
This makes possible customization of game content to partners as a means of
creating rapid delivery times and reducing development costs and expenses from
client to client. The game content has been pre-developed and tested so that
colors, logos, even characters and art can be changed specifically for a region,
including language and currency differences.  By design, the games can
be deployed on devices other than the Internet to expand our product offering
and to accommodate the growing needs of the client.


11


The
Company has developed its game content for use on other devices, such as server
based terminals for pubs, race tracks, and point of sale terminals for retailers
(such as those being distributed by Inspired), and to broadcast this content to
mobile telephones and interactive television.  Our suite of games is
specifically designed for easy incorporation into our clients’ offerings to
create a quick change of content and game management.





The
Company has an exclusive arrangement with Las Vegas Gaming Inc. to utilize
its approved and privileged gaming licensed lottery management system in
geographic areas outside of the U.S.  This system is a random number
generator which has satisfied all testing and casino license requirements to
work within certain governed bodies inside the U.S.  This game
management system currently has been used in several world class casino
properties in Las Vegas and has been for many years.





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.





The
Internet-based solutions we offer 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.





We are
not reliant on these large government lotteries for success.  We do
not have to make the large capital investment in equipment that would otherwise
deter us from this approach.


12


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.





The award
of lottery contracts and ongoing operations of lotteries in international
jurisdictions also are extensively regulated.  Restrictions may be
imposed on foreign corporations seeking to do business in such jurisdictions
and, as a consequence, we may have to partner with local companies when seeking
foreign lottery contracts.





Government regulation may impact the
operations of our Internet portals in some of the jurisdictions in which we may
operate lotteries for clients in the future.





We believe we are currently in
compliance with all regulatory requirements in the jurisdictions where we
operate.  Any failure to receive a material license or the loss of a
material license that we currently hold or our failure to remain in compliance
with local laws could have a material adverse effect on our overall operations
and financial condition.





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
current financial condition raises doubt about our ability to continue as a
going concern.





Our financial condition has continued
to decline over the last fiscal year.  At April 30, 2009, we had total
current liabilities in excess of $8.95 million dollars (not including the
conversion of more than $6.1 million of debt into equity after the fiscal year
end), a working capital deficit in excess of $8.7 million and total current
assets of $174,635.  As of the fiscal year end, we had a cumulative
deficit of $15,886,684 and a stockholders’ deficit of
$12,256,234.  During the next twelve months, we have obligations under
existing credit instruments totaling more than $2 million (after giving effect
to certain transactions and additional borrowing of $300,000 since the year
end).  We expect to incur losses during the 2010 fiscal
year.





As a result of the Company's negative
working capital position, negative cash flows from operations and recurring
operating losses, the report of our independent auditors to our audited
consolidated financial statements for the year ended April 30, 2009 includes a
paragraph that raises substantial doubt about our ability to continue as a going
concern.  If we are unable to increase revenues substantially or raise
significant capital, we may not be able to satisfy our obligations and we may
have to seek protection under federal bankruptcy laws, which would result in the
loss of all value which our stock now or at such time may have and result in
investors' losing the entire amount of their investment on our
Company.


13


We
have granted a security interest to Trafalgar in and to all of our assets and if
we default under the terms of any of our agreements with Trafalgar, it could
assume ownership of all of our assets.





Each of the constituents of the Company
has entered into security and/or pledge agreements with Trafalgar that grant to
it a security interest in all of our assets in the event of any default under
the various documents governing the loan transactions.  These security
agreements provide that in the event of any material default under these
agreements, including, a failure to make payments under the debentures when due
or to satisfy any material covenants or agreements thereunder, Trafalgar will
have the right to take ownership of all of our assets, in which case you would
lose the entire amount of your investment in the Company.





We
have generated limited revenues from operations and have incurred significant
losses since our inception.





Since our
inception, we have generated only limited revenues from operations, have
incurred losses of approximately $15.89 million and have not achieved
profitability.  We expect to continue to incur operating losses for
the foreseeable future.  For the year ended April 30, 2009, we
incurred net losses of $2,963,588 on revenues of $1,120,833.  Our
current revenue is insufficient for all of the purposes for which we require
capital.  At April 30, 2009, we had cash and cash equivalents of
$69,233 and we did not have any funds available to us under lines of
credit.





We cannot
assure you that we will be able to execute our business model on a wide-scale
basis for numerous reasons, including that we will not have sufficient capital
or that our products might never gain broad acceptance, or that we ever will
achieve profitability.





We
require substantial additional financing to sustain our current operations, pay
our debts as they become due and to take advantage of business opportunities in
the future.  Financing may not be available to us on acceptable terms,
if at all.  If we are unable to obtain financing as needed, our
business, financial condition and reputation could be negatively
impacted.





Implementing
and developing new media based lotteries is capital intensive.  In
addition to the capital we will require to develop new lotteries, we may require
capital to pay our outstanding debt.  To date, we have funded our
operations through loans made or guaranteed by affiliates, through the sale of
equity in our Irish subsidiary and from third-party loans.  The
affiliates who previously funded our operations or guaranteed our debt have
advised us that they will not continue doing so.  Further, the
majority of past investment or debt into our Company was made through NM-PLC
because that company's ordinary shares had been listed on the AIM
Market.  The delisting of NM-PLC's shares from the AIM Market likely
will render it more difficult to obtain capital through that
entity.





The
instruments governing our debt grant a security interest in all of our assets
and if we commit a material default under these instruments, our lender would be
entitled to take title to all of our assets.





Generally,
the ability to obtain or raise additional financing depends on many factors
beyond our control, including general economic conditions, the state of the
capital markets, the status of our business and the development or prospects for
development of competitive business operations by others.  Additional
financing may not be available or may be available only on unfavorable
terms.  If the Company is unable to obtain or raise additional funds
when needed, the Company may have to curtail operations and may lose valuable
business opportunities which could harm our reputation and negatively impact our
financial condition and results of operations.


14


Our
financial performance depends upon our ability to win new contracts to operate
lotteries.





We currently operate a lottery for one
client.  We had been party to numerous other contracts, several of
which we abandoned upon changes in government regulation relating to electronic
lotteries (Brazil and Venezuela) and others because we did not have the
financial resources to develop and implement the lottery.  In order to
achieve profitability, we will have to win contracts to develop electronic
lotteries in other jurisdictions and successfully implement and operate these
lotteries.  We will require substantial financing to achieve these
objectives, which we are not certain will be available to us. If we do not win
new contracts to develop and implement new lotteries or if we do not generate
meaningful revenue from any new contracts, our business will
suffer.





Government
regulations and other actions affecting the lottery industry could have a
negative effect on our business.





Lotteries
are official, government authorized/licensed fundraising
organizations.  Lotteries are subject to extensive and evolving
regulation that govern nearly every aspect of operation, including the nature of
the games that can be played, the percentage of prizes that must be paid and the
qualifications of the operators.  Changes in regulations could
materially and adversely impact our industry and business. For example, proceeds
generated by lotteries are dependent upon decisions made by lottery authorities
over which we have no control with respect to the operation of these games, such
as matters relating to the marketing and prize payout features of these lottery
games.  Because we are typically compensated in whole or in part based
on a gross lottery sales, lower than anticipated sales due to these factors
could have a material adverse effect on our revenues.





Our
prospective clients encompass, in large part, developing countries where the
Internet may only recently have become widely available and
accepted.  In some cases, the evolution of the Internet and electronic
media in developing countries has outpaced existing gaming and lottery
regulations.  New and evolving regulations pertaining to the Internet,
electronic media and online gaming may be enacted that negatively impact our
ability to gain contracts and operate in these jurisdictions.  New
regulations adopted in Brazil and Venezuela caused us to discontinue our
projects in these countries.





The
successful implementation of our growth strategy and our business could be
materially adversely affected if jurisdictions that currently authorize
lotteries do not continue to permit such activities, change existing laws or
take others action adverse to our business, which negatively impact our
operations and growth plans.  We may never develop lotteries for our
existing clients in developing countries and may encounter hurdles in other
developing countries in which we may seek to operate in the future that may
prevent us from implementing lotteries in these jurisdictions, even after we
have invested significant cash in these operations.





The
termination of or failure to renew or extend one or more lottery contracts, the
renewal or extension of one or more lottery contracts on materially altered
terms or the loss of our assets without compensation could, depending upon the
circumstances, have a material adverse effect on our business, financial
condition, results and prospects.


15


Slow
growth or declines in sales of Internet/wireless lottery devices and services
could adversely affect our future revenues and profitability.





Our
success will be predicated, in part, on the success of the lottery industry, as
a whole, in attracting and retaining players in the face of increased
competition for the consumers' entertainment dollar (which competition may well
increase further in the future), as well as our own success in developing
innovative products and systems to achieve this goal.  Our failure to
achieve these goals could have a material adverse effect on our business,
financial condition and results and prospects.





We
have significant foreign currency exposure.





All of
our clients are based outside the United States and our results of operations
could be significantly affected by foreign currency exchange rate
fluctuations.  Foreign currency exchange rate exposure arises from
current transactions and anticipated transactions denominated in currencies
other than United States Dollars and from the translation of foreign currency
balance sheet accounts into United States Dollar balance sheet
accounts.  We are exposed to currency exchange rate fluctuations
because all of our revenues are denominated in currencies other than the United
States dollar.  Exchange rate fluctuations may adversely affect our
operating results and our results of operations.





We
are subject to the economic, political and social instability risks of doing
business in foreign jurisdictions.





We expect
to derive all of our revenues from operations outside the United
States.  Accordingly, we are exposed to all of the risks of
international operations, including increased governmental regulation of the
lottery industry in the markets where we operate; exchange controls or other
currency restrictions; and significant political instability.  The
occurrence of any of these events in the markets where we operate could
jeopardize or limit our ability to transact business in those markets in the
manner we expect and could have a material adverse effect on our business,
financial condition, results and prospects.





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.


16


Our
quarterly operating results may fluctuate significantly.





We expect
to experience significant fluctuations in our operating results from quarter to
quarter due to such factors as the amount and timing of product sales, the
occurrence of large jackpots in lotteries (which increase the amount wagered and
our revenue) and expenses incurred in connection with lottery
start-ups.  Fluctuations in our operating results from quarter to
quarter may cause our operating results to be below the expectations of
investors.





We
operate in a competitive environment.





The
lottery services industry is dominated by a few large product and service
providers, all of which have greater financial and personnel resources than we
do, have greater name recognition than us and which may be more successful in
developing and implementing new games that attract customers.  New
competition could adversely affect our ability to win renewals of contracts from
our existing customers or to win contract awards from other lottery
authorities.  In addition, awards of contracts to us can be, from time
to time, challenged by our competitors.  Increased competition also
may have a material adverse effect on the profitability of contracts which we do
obtain.





We
may be subject to substantial penalties for failure to perform under our
contracts.





Our
lottery contracts typically permit termination of the contract at any time for
failure by us to perform and for other specified reasons and may contain
demanding implementation and performance schedules.  Failure to
perform under these contracts may result in substantial monetary liquidated
damages, as well as contract termination.  These provisions in our
lottery contracts present an ongoing potential for substantial
expense.





We
may not be able to deliver games that are appealing to players which may cause
them to seek alternatives to the lotteries operated by our clients, which would
negatively impact our business, financial condition, results and
prospects.





We
develop or acquire games that we believe will be appealing to the local
population in which our clients operate.  To the extent that we are
not able to offer games that players find appealing and they seek out other
lottery games at the expense of our clients, our revenues and results of
operations will materially suffer.





Our
business prospects and future success depend upon our ability to attract and
retain qualified employees.





To some
extent, our business is built upon relationships developed by our management
with lottery officials around the world.  Our business prospects and
future success depend, in part, upon our ability to retain and to attract
qualified managerial, marketing and technical employees.  Competition
for such employees is sometimes intense, and we may not succeed in hiring and
retaining the executives and other employees that we need.  If we are
not able to retain and attract qualified technical and management personnel, we
will suffer diminished chances of future success.





Our
reputation and, consequently, our business prospects are dependent on the
integrity of our personnel and the security of our systems.





The
integrity of a lottery, both real and perceived, is critical to its ability to
attract players. We seek to maintain the highest standards of personal integrity
for our personnel and system security for the Web sites we host for our
clients.  Allegations or findings of impropriety by any of our
personnel or actual or alleged security defects or failures attributable to us,
could have a material adverse effect upon our business, financial condition,
results and prospects, including our ability to retain existing contracts or
obtain new or renewal contracts.


17


None
of our intellectual property is protected by patents.  To the extent
that others are able to obtain access to our proprietary information, our
business may be materially harmed.





We have
not received patent protection for any of our proprietary
property.  We rely on trade secrets, proprietary know-how and
technology which we seek to protect, in part, by confidentiality agreements with
our prospective working partners and collaborators, employees and
consultants.  We can not assure you that these agreements will not be
breached, that we would have adequate remedies for any breach of these
agreements, or that the trade secrets and proprietary know-how embodied in the
technologies in which we have an interest will not otherwise become known or be
independently discovered by others.





We
have agreed to issue shares of preferred stock in connection with the credit
facility made available to us by Trafalgar.  It is likely that the
preferred stock we issue will have preferences over the common stock as to
matters such as liquidation and distribution and that it will be convertible
into common stock on terms favorable to the holders of the stock.





As additional consideration for the
credit facility made available to us by Trafalgar (subsequent to year end), we
agreed to issue to Trafalgar shares of our preferred stock.  We
currently are negotiating with Trafalgar to establish the rights designations,
preferences and the qualifications, limitations and restrictions 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 and upon the payment of any
distributions or dividends (or other assets) to stockholders which would
restrict cash or assets available for us to distribute or pay to holders of
common stock upon any such event.  The preferred stock may also grant
to the holders favorable redemption provisions or certain rights with respect to
proceeds received from the sale of our Company or upon any merger of our Company
with another entity.  These rights would adversely encroach upon the
rights of the holders of the Common Stock.  Moreover, the preferred
stock likely will be convertible into common stock on terms favorable to the
holder of the preferred stock 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 conversion
of the preferred stock into common stock could result in significant dilution to
the holders of the common stock.





We
have no independent audit committee.  Our full board of directors
functions as our audit committee and is comprised of two directors who are not
considered independent.  This may hinder our board of directors’
effectiveness in fulfilling the functions of the audit committee.





Currently,
we have no independent audit committee, though we are not required to have
one.  Our full board of directors functions as our audit committee and
is comprised of directors who are not considered to be “independent” in
accordance with the requirements of Rule 10A-3 under the Exchange
Act.  An independent audit committee plays a crucial role in the
corporate governance process, assessing a company’s processes relating to its
risks and control environment, overseeing financial reporting, and evaluating
internal and independent audit processes.  The lack of an independent
audit committee may prevent the board of directors from being independent from
management in its judgments and decisions and its ability to pursue the
committee’s responsibilities without undue influence.  If our board of
directors does not adequately satisfy its duties as an audit committee, our
Company may fail to notice issues relating to corporate governance matters, may
fail to implement and enforce processes relating to our risks and controls, may
be unsuccessful in its efforts to oversee financial reporting or otherwise fail
to adequately evaluate internal and independent audit processes.  Any
such failures could result in the emergence of or failure to detect material
weaknesses or deficiencies in our financial controls and procedures and which
could lead to misstatements in our financial statements or other materials that
we file with the SEC.


18


Failure
to achieve and maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a
material adverse effect on our business.




Commencing
with the filing of our annual report on Form 10-K with the Securities and
Exchange Commission, or SEC, for the year ending April 30, 2010, both we and our
independent registered public accounting firm will be required to attest to the
effectiveness of our internal control over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act.  While we anticipate being
compliant with the requirements of Section 404 for our fiscal year ending
April 30, 2010, we cannot be certain as to the impact negative conclusions
in our report or our auditor's report thereon may have on our
operations.





Our
failure to comply with the requirements of Section 404 on a timely basis
could:





·
            cause
      us to be unable to satisfy our reporting obligations under the Exchange
      Act on a timely basis and thereby subject us to adverse regulatory
      consequences, including sanctions by regulatory authorities, such as the
      Securities and Exchange Commission;





·
            cause
      our independent registered public accounting firm to report a material
      weakness in our internal control over financial
  reporting;





·
            result
      in the diversion of management time and attention from operating our
      business and require us to allocate substantial financial resources to
      compliance and remediation
measures;





·
            make
      it more difficult and costly to attract and retain independent board
      members;





·
            cause
      a negative reaction in the financial markets due to a loss of confidence
      in the reliability of our financial statements, which could make it more
      difficult to finance our operations through the sale of equity or debt and
      erode the price of our stock; and





·
            cause
      us to incur significant costs in order to improve our internal control
      over financial reporting and comply with Section 404, including
      increased auditing and legal fees and costs associated with hiring
      additional accounting and administrative staff, any of which would
      increase our operating expenses and would negatively affect our results of
      operations.





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.


19


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.





Item
2. Properties.





The
Company leases approximately 500 square feet of office space at 1400 Technology
Drive, Harrisonburg, Virginia.  The Company leases 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 leases 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.


20


The
Company also leases approximately 2,659 square feet of office space in Calgary,
Alberta, Canada at a monthly rent of $6,875.37 (Canadian) pursuant to a lease
that expires on December 31, 2011 .  We also lease an office in
Dublin, Ireland at a cost of 1,100 euros per month through March 30,
2010.





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.





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.





The
Company filed an information statement with the Securities and Exchange
Commission describing the merger and the action taken by written consent, a copy
of which was sent to each stockholder prior to the filing of the amendment to
the certificate of incorporation.





PART
II





Item
5. Market for Registrant’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.  Since the commencement of trading through the end of the fiscal
year ended April 30, 2009, there has been only de minimus trading in our stock
and that any activity to date represents cross trading of stock among existing
investors or their affiliates.   Consequently, we do not consider
there to be an established trading market for our common stock.





Holders





At August
13, 2009, 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.


21




Securities
Authorized for Issuance under Equity Compensation Plans





The
following table sets forth information as of April 30, 2009, 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.





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
                
                
                625,000
                
                
                $
                0.32
                
                
                
                1,375,000Equity
      compensation plans not approved by security holders
                
                
                1,000,000
                
                
                $
                0.35
                
                
                
                -Total
                
                
                1,625,000
                
                
                $
                0.34
                
                
                
                1,375,000





Repurchases
of Equity Securities.





None.





Recent
Sales of Unregistered Securities.





During
the year ended April 30, 2009, we did not issue any securities.





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 designs, builds, implements, manages, hosts and supports web, kiosk and
wireless device based lottery programs operated by governments and charitable
organizations outside of the United States.  We commenced providing
services to clients in August 2003 and began generating revenues from long-term
agreements with our clients during the 2006 fiscal year.  We also
develop and provide lottery products and content to Internet-based kiosks for
third parties.


22





Our
business is highly regulated and the competition to secure new contracts is
intense.  All of our clients are outside the United
States.  In addition, substantially all of our assets, primarily
consisting of equipment we use to operate online lottery systems for our
customers, are held outside of the United States.  Accordingly, we are
subject to all of the risks of international operations, including increased
governmental regulation of the online lottery industry in the markets where we
operate or propose to operate; exchange controls or other currency restrictions
and exchange rate risks; and political instability.  Unless we begin
recognizing substantially more revenue from operations or develop an additional
source of revenue, we will have difficulty repaying our outstanding
debt.





Review of Annual
Operations.





Key
Events





The last
fiscal year was a decidedly mixed one for the Company.





Though
our net revenues from operations declined during the last fiscal year, the
decrease was attributable entirely to a change in policy with respect to how we
account for royalty payments to the provider of our electronic bingo system, a
discussion of which is set forth in the results of operations section,
below.  During the 2009 period, Rehab Ireland experienced a 36%
increase in player deposits and an 8% increase in site sales over the previous
year.  It does not appear that the recession impacted our business to
the degree other industries were hit.  These increases cause us to
look forward with high expectations for a continuing improvements in our
business and operational revenue in light of the existing and anticipated
affiliate programs.





During
the first and second fiscal quarters, 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.





Over the
last year, we implemented programs to expand the reach of our lottery client's
site to acquire more players.  Our business is predicated on the
number of players that deposit funds with and play games on our client's
site.  An increase in player traffic results in higher
revenue.  Players are acquired either by direct advertising through
traditional media, the more expensive route, or through affiliate programs that
drive players to our client's site or allow them to play games offered by our
client.  We have successfully initiated affiliate programs with
well-known third parties to drive traffic, and wagering players, to our client's
site.  Affiliate programs in partnership with third parties allow us
to leverage our partners' customers and acquire players at a significantly lower
cost than traditional advertising media and are, typically calculated on the
basis of a monthly fee and the distribution of a percentage of the proceeds
generated from a partner's customers.  This program benefits our
partners because it allows them to generate an additional revenue stream from
existing customers.  In addition, we incorporated other electronic
media (blogging, Facebook and Twitter) into our marketing repertoire to increase
player base and reduce the cost of player acquisition.





In
contrast to the many positive advances made during the last year, projects that
we had been developing over the last several years and which factored
significantly into our revenue forecasts for fiscal 2009 and beyond have not
come to fruition.  In some cases, we have abandoned these projects
entirely and recognized the loss of our entire investment (lottery projects in
Brazil and Venezuela).  In other cases, the projects have not
progressed as quickly as we had been lead to believe or we had expected they
would (the wide-scale release of server based gaming terminals in Ireland and
England under our contract with Inspired Gaming
Network).


23





Though
the Loans came at a high cost, which was to be expected in view of the risks
that our financial condition presented to the lender, management believed that
we could leverage the funds to a significantly better
end.  Specifically, that the proceeds from the Loans would enable us
to generate significantly more revenue from our Irish client’s operations and
enable us to win a contract to develop and implement a national electronic
lottery for a mid-European country.





We were
not able to commit as much of the funding as we desired to market our Irish
client’s lottery, electing instead to focus our efforts on winning a large
national contract to develop and operate an electronic lottery for a new
client.  Accordingly, the temporary increase in cash allocated to
marketing our Irish client did not yield the long-term impact we had
hoped.





Our
efforts to win a contract to operate a national lottery for a mid-European
country has been delayed as a result of the downturn in the world economy over
the last twelve months.  During late 2008 and early 2009, this country
elected to defer spending on new ventures until financial conditions
improved.  We had been developing this prospect for over one year and
believed this business could represent a significant source of near-term
revenue, both because we could have implemented the program rapidly and that it
would have enjoyed the support of the national government.  We
continue to work closely with the country on this project and may find a mutual
way forward later this year.





Our
project with Inspired has not progressed as quickly as we had hoped. Inspired
enjoys an excellent reputation in Europe and we believed that as of this date
many more electronic gaming terminals would have deployed and that we would have
been recognizing material revenue from this project.  As of August 1,
2009, Inspired had placed approximately 100 terminals throughout Ireland but
committed to place up to an additional 400 machines by year
end.  Inspired has informed us that it has retained independent
distributors throughout Ireland to expedite deployment of these
devices.  The fees payable to these distributors may reduce revenue
available for distribution to us.





During
the last year, we abandoned projects to develop lotteries in Brazil and
Venezuela and recognized the loss of our entire investment.  In both
instances, we attribute the failure of the projects to the enactment of
governmental regulatory actions that directly impacted our industry and
frustrated the development of the projects.  We had invested
significant financial and personnel resources in these projects and the loss of
these opportunities detrimentally impacted our business in the short- and long-
term.  In connection with our Brazilian operations, the Company ceased
efforts to recover cash from its bank accounts in Brazil and the account balance
was written off as an expense.





Many of
the prospects discussed above had been under development for nearly three years
and we believe the aggregate of the business they represented would have
resulted in a significant near-term source of revenues.  We believe
that if our projects had reached operational maturity, we would be generating
revenue sufficient to support our administrative overhead, service our debt and
grow our business.  Specifically, by the date hereof, we had expected
Inspired to have placed its server based gaming terminals in significantly more
locations than its current circulation and that we would have been operating
profitable lotteries in Brazil and Venezuela.  Revenues from these
operations would have provided cash to further promote our Irish lotteries and
possibly would have been sufficient to allow us to pursue new
business.





In
anticipation of the projects referenced above coming into profitable operation,
in 2005, NM-PLC sold ordinary shares in London (from which it netted proceeds of
$2,132,694) and listed the shares on the AIM Market.  The shares were
suspended from trading on March 13, 2009.  The listing was achieved at
great initial and ongoing expense, the aggregate of which has exceeded $2.6
million.  We believe that we never derived the benefits we were lead
to believe we would accrue from the AIM listing, including exposure to a market
and investment community that understood and would be receptive to our business
model.


24





As
referred to earlier, the Loans came at a high cost.  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, aggregated approximately €370,092.  In addition, each payment
of principal made on the Loans is accompanied by a fee applicable to
the redemption of the instrument governing the loan in the amount of
12.5%.  The monthly payments have proven to be more than the Company
can manage.





The
confluence of the foregoing has resulted in considerable negative economic
repercussions to our Company over the last fifteen months and has left our
Company in a precarious financial condition.  In the third fiscal
quarter, the monthly costs and expenses associated with our debt and incurred in
connection with our operations exceeded our revenue and financial resources and
we succumbed to a default under the loan agreements with
Trafalgar.  Thereafter, the Company entered into various agreements
with its lenders to restructure all outstanding debt, as described
below.





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 which are to
resume commencing October 30, 2009.


25





Events Occurring after the Conclusion
of the Fiscal Year




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.  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.





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
credit shall be available to the Company through a period ending on July 20,
2011.  A description of the credit facility is provided under
"Item  9B. Other Information.”  We expect to use any credit
made available to us under this line for working capital.





Results of
Operations.





Comparison of the Fiscal
Years Ended April 30, 2009 and 2008





As
reported in our financial statements to this Annual Report on Form 10-K for the
year ended April 30, 2009, the Company reported a $2,963,588 net loss after
minority interest on $1,120,833 in net revenues.  The Company
decreased cash $146,513, leaving $69,233 in cash at April 30,
2009.  For fiscal year 2009, operations used $2,687,878 in
cash.





The
Company’s cash and accounts receivable equal $157,355 in available resources to
fund $702,595 in accounts payable and accrued expenses.  While Rehab
Bingo should continue to generate cash to partially fund operations, expenses
will exceed revenues for the foreseeable future.  Additional sources
of cash will be necessary in fiscal year 2010 to fund the cash shortfall,
particularly to pay amounts due under outstanding loans as they become
due.  As of April 30, 2009, current liabilities exceeded current
assets by $8,780,935.





Net
revenues decreased by $199,478 to $1,120,833, or about 15% over the last fiscal
year.  The decrease in Company revenue is directly affected by the
change in royalty payment policy discussed below in website
expenses.  The decrease in revenues associated with this policy change
is approximately $243,000.  Revenues are a significant item in the
financial statements and will continue to fund the Company’s operating expense
deficit.





General
and administrative expense decreased by $11,196 to approximately $1.1
million.  For 2009, professional fees decreased $62,412 to $577,831,
or 10%. This decrease resulted from management’s ability to handle additional
functions that previously had been contracted to professionals.


26





Website
expenses decreased by $390,824 to $895,547, or 30%.  In prior years,
the Company paid all Parlay royalties associated with the bingo
website.  This arrangement was renegotiated such that the royalties
are now paid by Rehab Bingo from the gross proceeds and before our
commission.  This change resulted in a decrease in expenses of
approximately $243,000





Comparison of the Fiscal
Years Ended April 30, 2008 and 2007





As
reported in our financial statements for the year ended April 30, 2008, the
Company reported a $2,599,557 net loss after minority interest on $1,320,311 in
net revenues.  The Company increased cash $19,489, leaving $215,746 in
cash at April 30, 2008.  For fiscal year 2008, operations used
$2,518,887 in cash.





The
Company’s cash and accounts receivable equaled $549,523 in available resources
to fund $826,260 in accounts payable and accrued expenses.  While
Rehab Bingo should continue to generate cash to partially fund operations,
expenses will exceed revenues for the foreseeable future.  Additional
sources of cash will be necessary in fiscal year 2009 to fund the cash
shortfall.  The Company must also refinance their $1,900,000 third
party debt in fiscal year 2009.  As of April 30, 2008, current
liabilities exceeded current assets by $6,731,796.





Net
revenues increased by $748,316 to $1,320,311, or about 131% over the last fiscal
year.  Revenues have now become a significant item in the financial
statements and will contribute to funding the Company’s operating expense
deficit.





General
and administrative expense decreased by $284,607 to approximately $1.1 million,
representing a 20% decrease from the previous fiscal year.  While
G&A expenses decreased in several areas, the most significant decrease
resulted from decreased travel expenses which decreased $100,850 to $101,862 or
nearly 50%.





For 2008,
professional fees decreased $287,968 to $640,243, or 31%. This decrease resulted
from management’s ability to handle more professional functions internally which
were previously contracted to outside professionals.  Additionally,
the Company did not engage in any major restructurings or financing actions as
previously conducted.





Website
expenses increased by $513,669 to $1,286,371, or 66%.  Rehab Bingo
advertising and marketing expenses increased by approximately $263,000 to
$733,459, or 54%.  This increase was justified for successful
marketing of Rehab Bingo and has returned significant revenue to
us.  The bingo software supplier’s contract requires a royalty based
upon site sales and $113,331 of the website expense increase during fiscal 2008
was paid as additional royalties reflecting additional sales.


27


Liquidity and Capital
Resources.





Liquidity
is the ability of a company to generate adequate amounts of cash to meet its
needs for cash.  The following table provides certain selected balance
sheet comparisons between April 30, 2009 and April 30, 2008,
respectively.





All
amounts set forth in the table below are delineated in US Dollars.





30-Apr-09
                
                
                30-Apr-08
                
                
                $
      Difference
                
                
                %
      Difference(Audited)
                
                
                (Audited)Working
      Capital (deficit)
                
                
                (8,780,935
                )
                
                
                (6,731,769
                )
                
                
                (2,049,139
                )
                
                
                -30
                %Cash
                
                
                69,233
                
                
                
                215,746
                
                
                
                (146,513
                )
                
                
                -68
                %Accounts
      receivable
                
                
                88,122
                
                
                
                333,777
                
                
                
                (245,655
                )
                
                
                -74
                %Prepaid
      assets
                
                
                17,280
                
                
                
                82,508
                
                
                
                (65,228
                )
                
                
                -79
                %Total
      Current Assets
                
                
                174,635
                
                
                
                635,031
                
                
                
                (460,396
                )
                
                
                -72
                %Property
      and Equipment
                
                
                93,287
                
                
                
                161,510
                
                
                
                (68,223
                )
                
                
                -42
                %Total
      Assets
                
                
                740,826
                
                
                
                796,541
                
                
                
                (55,715
                )
                
                
                -7
                %Accounts
      payable and accrued expenses
                
                
                702,595
                
                
                
                826,260
                
                
                
                (123,665
                )
                
                
                -15
                %Total
      Current Liabilities
                
                
                8,955,570
                
                
                
                7,366,827
                
                
                
                1,588,743
                
                
                
                22
                %Total
      Liabilities
                
                
                9,471,190
                
                
                
                7,366,827
                
                
                
                2,104,363
                
                
                
                29
                %Net
      Cash Used by Operating Activities
                
                
                (2,687,878
                )
                
                
                (2,518,887
                )
                
                
                (168,991
                )
                
                
                7
                %Net
      Cash Used in Investing Activities
                
                
                (39,460
                )
                
                
                (39,917
                )
                
                
                457
                
                
                
                -1
                %Net
      Cash Provided in Financing
                
                
                2,354,828
                
                
                
                2,600,000
                
                
                
                (245,172
                )
                
                
                -9
                %





During
fiscal 2009, we used approximately $2.68 million in our operating
activities.  We allocated our capital among payroll and related
expenses (approximately $1 million), professional fees (approximately $570,000)
and, marketing expenses (approximately $685,000).  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.





Over the
last six months (including the three-month period after the end of the last
fiscal year), we have taken a number of steps to reduce our operating
expenses.  For example, by allowing our AIM listing to lapse, we will
reduce both the amount of independent directors fees payable (which were
approximately $115,000 last year) and professional expenses that we otherwise
would have incurred in connection with our off-shore operations (which were
approximately $300,000 last year).  In addition, we reduced our staff
by five persons and the remaining management and staff accepted a 10%-20% cut in
salary.  We also have reduced the amount of funds we allocate to
purchases of equipment.  Our lease in Ireland will expire this year
and we do not intend to maintain an office there until our financial condition
improves.  Since the end of the fiscal year, we entered into
agreements to eliminate approximately $6.1 million in debt and the associated
interest expense.





During
the next twelve months, we expect to allocate the majority of our available
capital to the repayment of debt outstanding to Trafalgar and expenses related
thereto.  We also will require funds to pay salaries and consulting
fees; for marketing expenses attributable to our lottery operations and for
other service fees in connection with our lottery operations, including website
hosting and site maintenance.


28





We expect
to generate cash for operations principally from revenue from managing our
client's lottery.  We believe that the affiliate programs, now in
place and that we expect to initiate over the next twelve months, will continue
to increase player traffic on our client's sites that will result in more
revenue to us.  We also expect to experience an upswing in fees from
gaming terminals as our operating system and games are now established and
seemingly are being well-received by the industry.  We hope to receive
proceeds under the Trafalgar credit facility, of which there is up to $700,000
available to us as of August 13, 2009, though any further draw downs under the
facility are at Trafalgar's sole option and we cannot be certain it will extend
further credit to us.  We will seek to leverage our OTC Bulletin Board
listing by raising funds from the sale of securities in the United
States.  We also will seek to secure funding from off-shore and
non-traditional sources.  To the extent we have an opportunity to
develop a lottery for a new client; we will seek to fund it through local
investors who have a vested interest in the success of the
operation.





We are
not certain we will have or identify capital sufficient for all the purposes we
require.  We expect to incur losses for the 2010 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.   We
have granted a security interest in all of our properties to Trafalgar in
connection with all of the loans outstanding to it and if we are unable to pay
principal and/or interest under these loans as it becomes due, we may default
under the loans and lose all of our assets.





Contractual
Obligations.





The
following table presents our contractual obligations and commercial commitments
as of April 30, 2009:





Payments Due By Period(all
      amounts in $)Contractual
                                Cash Obligations
                              
                              Total
                              
                              
                              Less
      than
                                One Year
                              
                              
                              1-3
                                Years
                              
                              3-5
                                Years
                              
                              After
      5
                                YearsCapital
      LeasesOperating
      Leases
                              
                              
                              418,535
                              
                              
                              
                              284,506
                              
                              
                              
                              134,029Loans
      Payable – Comerica (1)
                              
                              
                              4,000,000
                              
                              
                              
                              4,000,000Loans
      Payable – Affiliates (2)
                              
                              
                              2,110,000
                              
                              
                              
                              2,110,000Loans
      Payable – Trafalgar (3)
                              
                              
                              2,140,740
                              
                              
                              
                              1,625,120
                              
                              
                              
                              515,620Loan
      Payable – Third Party
                              
                              
                              183,177
                              
                              
                              
                              183,177Total
      Contractual Cash Obligations
                              
                              
                              8,852,452
                              
                              
                              
                              8,202,8036
                              
                              
                              
                              649,649





(1) The
total amount due to Comerica Bank under three promissory notes was either repaid
or assumed by Milton Dresner after the end of the period covered by this
report.  See "Related Party Transactions."


(2)
Includes $1,217,500 owed to Milton Dresner and $882,500 owed to Joseph Dresner,
all of which was converted into shares of common stock in July 2009 and $10,000
owed to John Carson.


(3) Net
of discounts (see footnotes) but does not include $300,000 loaned to the Company
in July 2009.


29




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.





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
currently generate 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."





Additionally,
the Company will, in certain contracts, advance marketing costs and prize
seeding funds to a lottery.  To the extent the Company reasonably
anticipates repayment; these seeding funds are recorded as an
asset.  Where repayment is not ascertainable, these advanced funds are
expensed.  For lotteries where marketing funds are expensed, any
repayment of those funds will be recognized as revenue upon
receipt.





Financing Activities During
the Last Fiscal Year.





During
the 2009 fiscal year, we received financing from the following
sources:





·
            Trafalgar loaned the Company the aggregate principal amount of
      €2.45;





·
            Milton Dresner, an affiliate, loaned the Company the aggregate principal
      amount of $600,000; and





·
            John T. Carson, an affiliate, loaned the Company
  $10,000.





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).


30





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.





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.  Under the
restructuring agreements, among other things, the maturity date of the November
2008 Loan was extended from April 30, 2010 to October 31, 2010 and the monthly
payments of principal and interest were suspended until July 2009.





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.


31





Milton
Dresner Loans





During the last fiscal year, Milton
Dresner extended a series of short-term loans to the Company in the aggregate
principal amount of $600,000. The loans were repayable with interest calculated
at the rate of 51⁄4% per annum.  As of April 30, 2009, the Company owed
Mr. Dresner $300,000 in regards to this loan.   On July 23, 2009,
Mr. Dresner converted the outstanding amount into common stock as described
above under the heading "Debt Restructuring.".





John
T. Carson





During
the last fiscal year, John T. Carson loaned the Company $10,000 which was
repayable with interest calculated at the prime rate of interest plus 3% per
annum.  The Company repaid the entire loan in July 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.





As
reported in a Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 20, 2009, on February 18, 2009 NM-US was notified that
effective January 1, 2009, the audit partner of Bouwhuis, Morrill & Company,
LLC (“BMC”) joined Chisholm, Bierwolf & Nilson, LLC (“CBN”) which became
Chisholm, Bierwolf, Nilson & Morrill, LLC (“CBNM”).  As a result,
BMC resigned as NM-US’s independent registered public accounting firm and CBNM
was formally engaged as its new independent registered public accounting
firm.





The
decision to retain CBNM as the Company’s certifying public accountant following
this event was authorized and approved by the board of directors of the
Company.


32





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, 2009, 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.


33





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.





As of
April 30, 2009, 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;


34





·
            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."
  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.


35





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.





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.


36




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.





PART
III





Item
10. Directors, Executive Officers and Corporate Governance.





The table
below sets forth, as of August 13, 2009, the officers and directors of the
Company.





Name
                      
                      Age
                      
                      TitleJohn
      Carson
                      
                      54
                      
                      President,
      Chief Executive Officer and DirectorJeffrey
      Sternberg
                      
                      64
                      
                      Director





37





John
Carson has been the Chief Executive Officer, President and a director of NM-US
since July 1, 2004, has been the Chief Executive Officer and a Director of
NM-PLC since 2006 and a director of New Media International since
2001.  He also currently serves as the Chief Executive Officer,
Director of NM-PLC and as a director of New Media International.  Mr.
Carson has been an innovator in the lottery industry, having introduced new
lottery program delivery models and game formats.  During his twenty
plus years in the industry, he has been responsible for all aspects of the
operation of lottery companies, including obtaining financing, and increasing
profits in each of the ventures in which he previously has been
involved.  From 1993 to 2000, he was the president and chief executive
officer of C.G.I. Inc. where oversaw all sales, operational and administrative
functions of the corporation and managed all international sales efforts,
securing contracts in 16 countries.  From 1988 to 1993, Mr. Carson was
an officer at Webcraft Technologies, Inc., as president of the lottery division
during 1990 through 1993, as vice president of international sales from 1988 to
1990 and as director of financial planning and business development from 1987 to
1988.  At Webcraft, he was responsible for developing new markets,
securing financing for a number of international joint ventures and developing
new products, including the introduction of licensed entertainment products to
the lottery industry.  During 1986 and 1987, he served as a senior
account executive at Columbia Pictures where he launched seven first run
projects and sold first run television shows throughout the Midwest
region.





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, 2009, 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,
                          
                          2009
                          
                          $
                          167,000
                          
                          
                          
                          13,361
                          (1)
                          
                          
                          180,361Chief
      Executive
                            Officer
      (principal
                            executive
      officer)
                          
                          2008
                          
                          $
                          136,000
                          
                          
                          
                          14,400
                          (1)
                          
                          
                          150,400


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, 2009 and April 30, 2008.


38





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 compensate 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.





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.





Paula
Horan served as a non-executive director and the secretary of NM-PLC from March
2006 to January 5, 2009 under the terms of a letter of appointment dated March
13, 2006 for a fee of €30,000 per annum (excluding bonuses and
benefits).  The term of the agreement was for a period of three years
and was terminated upon her resignation from NM-PLC.





The Rt.
Hon. Lord Mancroft served as a non-executive director of NM-PLC from March 2006
until his resignation on March 12, 2009 under the terms of a letter of
appointment dated March 1, 2006 for a fee of £50,000 per annum.  The
amount paid to Lord Mancroft decreased to £36,000 for the period ended April 30,
2008.  NM-PLC sold 100,000 of its Ordinary Shares, having a total
value of £50,000 at the placing price in the AIM Offering, to Lord Mancroft on
Admission for a subscription price equal to the nominal value per Ordinary
Share.





Nigel
Blythe-Tinker served as a non-executive director of NM-PLC from March 17, 2008
through February 27, 2009, at which time he resigned, under the terms of a
letter agreement executed in March 2008 for a fee of £2,500 per
month.





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.


39





As of
April 30, 2009, there were outstanding qualified options to purchase an
aggregate of 625,000 shares of common stock and non-qualified options to
purchase an aggregate of 1,000,000 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 did not grant any options to
purchase securities during the fiscal year ended April 30, 2009.





Outstanding
Equity Awards at Fiscal Year End





Below is
information relating to unexercised options held by John T. Carson, our Chief
Executive Officer, as of April 30, 2009.  No other executive officer
held any unexercised options or unvested stock as of such date.


40





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
                                          
                                          
                                          200,000
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          .25
                                          
                                          Mar.
      21, 20151,100,000
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          .35
                                          
                                          Nov.
      2,
2015





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, 2009.





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





The
following table sets forth, as of August 13, 2009, 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 31,247,843 shares outstanding as
of August 13, 2009.




Name
      of
                      Beneficial Owner (1)
                    
                    Amount
      of
                      Beneficial Ownership
                    
                    
                    Percent
      of Outstanding
                      Class OwnedJohn
      Carson (2)
                    
                    
                    3,387,714
                    
                    
                    
                    9.30
                    %Jeffrey
      Sternberg
                    
                    
                    -0-
                    
                    
                    
                    -0-Sterling
      Herbst (3)
                    
                    
                    396,429
                    
                    
                    
                    1.09
                    %Milton
      Dresner (4)
                    
                    
                    7,750,000
                    
                    
                    
                    21.28
                    %Joseph
      Dresner (5)
                    
                    
                    7,750,000
                    
                    
                    
                    21.28
                    %Trafalgar
      Capital Specialized Investment Fund-FIS (6)
                    
                    
                    9,005,700
                    
                    
                    
                    24.73
                    %All
      officers and directorsas
      a group (2 persons) (7)
                    
                    
                    3,784,143
                    
                    
                    
                    10.39
                    %


* 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 1,300,000
      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.


41


(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, the terms of which have not
      been settled 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.





·
            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.


42




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.


43





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.




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.





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.


44





Item
14. Principal Accounting Fees and Services.





AUDIT
FEES. The aggregate fees billed for professional services rendered by Chisholm,
Bierwolf, Nilson & Morrill, LLC for the audits of the Company's annual
consolidated financial statements for the 2009 fiscal year ending on April 30,
2009 and the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for the fiscal year were $2800. The aggregate
fees billed for professional services rendered by Bouwhuis, Morrill &
Company for the audits of the Company's annual consolidated financial statements
for the 2009 fiscal year ending on April 30, 2009 and the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for the fiscal year were $33,132.  The aggregate fees billed for
professional services rendered by Bouwhuis, Morrill & Company for the audits
of the Company's annual consolidated financial statements for the 2008 fiscal
year and the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for the fiscal year were $33,000 (including
direct engagement expenses).





AUDIT-RELATED
FEES.  The aggregate fees billed by Chisholm, Bierwolf, Nilson &
Morrill, LLC for audit-related services rendered for the Company for the 2009
fiscal year were $0.  The aggregate fees billed by Bouwhuis, Morrill
& Company for audit-related services rendered for the Company for the 2009
fiscal year were $0.  The aggregate fees billed Bouwhuis, Morrill
& Company for audit-related services rendered for the Company and its
subsidiaries for the 2008 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 Chisholm, Bierwolf, Nilson &
Morrill, LLC for tax-related services rendered for the Company for the 2009
fiscal year were $0.  The aggregate fees billed by Bouwhuis, Morrill
& Company for tax-related services rendered for the Company and its
subsidiaries for the 2008 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
Chisholm, Bierwolf, Nilson & Morrill, LLC, other than the audit services,
audit-related services, and tax services, were $0 for the 2009 fiscal year and
by Bouwhuis, Morrill & Company were $0 for the 2008 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
StatementsDocuments 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.


45





(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)           ExhibitsThe
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 Registrant,
      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).
                    
                    63(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


46





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
                    
                    12





47





10.34
                    
                    Convertible
      Loan Agreement dated October 31, 2008 between Trafalgar Capital
      Specialized Investment Fund-FIS and New Media Lottery Services,
      plc
                    
                    1410.35
                    
                    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.
                    
                    1732.1
                    
                    Section
      1350 Certification
                    
                    17





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.


48





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.
            Filed
      herewith.





(c)           No
exhibits required by this subsection (c) of Item 15 are required to be filed
with this report.


49




NEW
MEDIA LOTTERY SERVICES, INC.


&
SUBSIDIARIES





Financial
Statements for the Years


Ended
April 30, 2009 and 2008


and
Report of Independent Registered


Public
Accounting Firm










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


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Board of
Directors
 New Media
Lottery Services, Inc. and Subsidiaries
 Harrisonburg,
Virginia
  We have
audited the accompanying consolidated balance sheets of New Media Lottery
Services, Inc. and Subsidiaries as of April 30, 2009 and 2008, and the related
consolidated statements of operations, stockholders deficit and cash flows for
the years ended April 30, 2009 and 2008. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
examine management’s assertion about the effectiveness of the Company’s internal
control over financial reporting as of April 30, 2008 included in the
accompanying Management’s Report on Internal Control over Financial Reporting
and, accordingly, we do not express an opinion thereon. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New Media
Lottery Services, Inc. and Subsidiaries as of April 30, 2009 and 2008, and the
consolidated results of their operations and their cash flows for the years
ended April 30, 2009 and 2008 in conformity with accounting principles generally
accepted in the United States of America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 11 to the
consolidated financial statements, the Company has negative cash flows from
operations, recurring negative working capital deficiencies and recurring
operating losses which raise substantial doubt about its ability to continue as
a going concern. Management’s plans in regard to these matters are also
described in Note 11. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
   /s/ Chisholm,
Bierwolf, Nilson & Morrill LLC
  Chisholm,
Bierwolf, Nilson & Morrill LLC
 Bountiful,
Utah
 August
11, 2009


F-2




NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES


Consolidated
Balance Sheets





April 30,
                            
                            
                            April 30,2009
                            
                            
                            2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                            
                            $
                            69,233
                            
                            
                            $
                            215,746Accounts
      receivable, net
                            
                            
                            88,122
                            
                            
                            
                            333,777Available
      for sale securities
                            
                            
                            -
                            
                            
                            
                            3,000Prepaid
      assets
                            
                            
                            17,280
                            
                            
                            
                            82,508Total
      Current Assets
                            
                            
                            174,635
                            
                            
                            
                            635,031PROPERTY
      AND EQUIPMENT, NET
                            
                            
                            93,287
                            
                            
                            
                            161,510DEFERRED
      LOAN FEES
                            
                            
                            472,904
                            
                            
                            
                            -TOTAL
      ASSETS
                            
                            $
                            740,826
                            
                            
                            $
                            796,541LIABILITIES AND STOCKHOLDERS'
      DEFICITCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                            
                            $
                            702,595
                            
                            
                            $
                            826,260Other
      payable
                            
                            
                            69,713
                            
                            
                            
                            92,425Deferred
      compensation
                            
                            
                            62,500
                            
                            
                            
                            62,500Due
      to related parties
                            
                            
                            202,465
                            
                            
                            
                            202,465Notes
      payable, net
                            
                            
                            5,625,120
                            
                            
                            
                            4,000,000Loans
      payable - related parties
                            
                            
                            2,293,177
                            
                            
                            
                            2,183,177Total
      Current Liabilities
                            
                            
                            8,955,570
                            
                            
                            
                            7,366,827NOTES
      PAYABLE - LONG-TERM PORTION, NET
                            
                            
                            515,620
                            
                            
                            
                            -TOTAL
      LIABILITIES
                            
                            
                            9,471,190
                            
                            
                            
                            7,366,827MINORITY
      INTEREST
                            
                            
                            3,525,870
                            
                            
                            
                            2,887,722STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value; 150,000,000 shares authorized, 21,442,143 shares
      issued and outstanding
                            
                            
                            21,442
                            
                            
                            
                            21,442Additional
      paid-in capital
                            
                            
                            3,335,688
                            
                            
                            
                            3,335,688Accumulated
      deficit
                            
                            
                            (15,886,684
                            )
                            
                            
                            (12,923,096
                            )Accumulated
      other comprehensive income
                            
                            
                            273,320
                            
                            
                            
                            107,958Total
      Stockholders' Deficit
                            
                            
                            (12,256,234
                            )
                            
                            
                            (9,458,008
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                            
                            $
                            740,826
                            
                            
                            $
                            796,541





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





F-3





NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES


Consolidated
Statements of Operations





For
      the Twelve Months EndedApril 30,2009
                
                
                2008NET
      REVENUES
                
                $
                1,120,833
                
                
                $
                1,320,311OPERATING
      EXPENSESDepreciation
      and amortization expense
                
                
                384,540
                
                
                
                138,447General
      and administrative
                
                
                1,112,712
                
                
                
                1,123,908Management
      fees
                
                
                75,930
                
                
                
                90,039Professional
      fees
                
                
                577,831
                
                
                
                640,243Programming
      fees
                
                
                608,950
                
                
                
                719,097Rent
      expense
                
                
                98,393
                
                
                
                121,996Contract
      development
                
                
                39,129
                
                
                
                3,000Website
      expense
                
                
                895,547
                
                
                
                1,286,371Total
      Operating Expenses
                
                
                3,793,032
                
                
                
                4,123,101LOSS
      FROM OPERATIONS
                
                
                (2,672,199
                )
                
                
                (2,802,790
                )OTHER
      INCOME (EXPENSES)Gain
      (loss) on sale of property and equipment
                
                
                400
                
                
                
                (53,680
                )Interest
      income
                
                
                3,645
                
                
                
                148Interest
      expense
                
                
                (568,768
                )
                
                
                (352,477
                )Interest
      expense - beneficial conversion feature
                
                
                (439,582
                )
                
                
                -Total
      Other Income (Expenses)
                
                
                (1,004,305
                )
                
                
                (406,009
                )NET
      LOSS BEFORE INCOME TAXES AND MINORITY INTEREST
                
                
                (3,676,504
                )
                
                
                (3,208,799
                )PROVISION
      FOR INCOME TAXES
                
                
                -
                
                
                
                -MINORITY
      INTEREST IN SUBSIDIARIES LOSSES
                
                
                712,916
                
                
                
                609,242NET
      LOSS
                
                $
                (2,963,588
                )
                
                $
                (2,599,557
                )BASIC
      AND DILUTED NET LOSS PER SHARE
                
                $
                (0.14
                )
                
                $
                (0.12
                )WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
                
                
                21,442,143
                
                
                
                21,442,143OTHER
      COMPREHENSIVE INCOMENET
      LOSS
                
                $
                (2,963,588
                )
                
                $
                (2,599,557
                )Foreign
      currency translation adjustment
                
                
                168,362
                
                
                
                (7,289
                )Unrealized
      gain (loss) on marketable securities
                
                
                (3,000
                )
                
                
                (15,000
                )COMPREHENSIVE
      LOSS
                
                $
                (2,798,226
                )
                
                $
                (2,621,846
                )





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, 2007 through April 30, 2009
 
 AccumulatedAdditional
                  
                  
                  
                  
                  
                  OtherCommon Stock
                  
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  Comprehensive
                  
                  
                  MinorityShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Income
                  
                  
                  InterestBalance,
      May 1, 2007
                  
                  
                  21,442,143
                  
                  
                  
                  21,442
                  
                  
                  
                  3,335,688
                  
                  
                  
                  (10,323,539
                  )
                  
                  
                  130,247
                  
                  
                  
                  3,442,660Consolidation
      of subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (554,938
                  )Unrealized
      loss on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (15,000
                  )
                  
                  
                  -Foreign
      currency translation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,289
                  )
                  
                  
                  -Net
      loss for the year ended April 30, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,599,557
                  )
                  
                  
                  -
                  
                  
                  
                  -Balance,
      April 30, 2008
                  
                  
                  21,442,143
                  
                  
                  $
                  21,442
                  
                  
                  $
                  3,335,688
                  
                  
                  $
                  (12,923,096
                  )
                  
                  $
                  107,958
                  
                  
                  $
                  2,887,722Consolidation
      of subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  638,148Unrealized
      loss on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,000
                  )
                  
                  
                  -Foreign
      currency translation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  168,362
                  
                  
                  
                  -Net
      loss for the year ended April 30, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,963,588
                  )
                  
                  
                  -
                  
                  
                  
                  -Balance,
      April 30, 2009
                  
                  
                  21,442,143
                  
                  
                  $
                  21,442
                  
                  
                  $
                  3,335,688
                  
                  
                  $
                  (15,886,684
                  )
                  
                  $
                  273,320
                  
                  
                  $
                  3,525,870
 
 The
accompanying notes are an integral part of these consolidated financial
statements




F-5




NEW
MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows





For the Twelve Months EndedApril
      30,2009
                    
                    
                    2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                    
                    $
                    (2,963,588
                    )
                    
                    $
                    (2,599,557
                    )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization expense
                    
                    
                    384,540
                    
                    
                    
                    138,447Loss
      (gain) on disposition of assets
                    
                    
                    (400
                    )
                    
                    
                    53,679Accretion
      of beneficial conversion feature
                    
                    
                    439,582
                    
                    
                    
                    -Subsidiary
      stock issued for non cash expense
                    
                    
                    -
                    
                    
                    
                    54,305Minority
      interest in subsidiaries losses
                    
                    
                    (712,916
                    )
                    
                    
                    (609,243
                    )Change
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    245,655
                    
                    
                    
                    (109,346
                    )VAT
      receivable
                    
                    
                    (22,712
                    )
                    
                    
                    180,554Accounts
      payable and accrued expenses
                    
                    
                    (123,267
                    )
                    
                    
                    349,948Prepaid
      assets
                    
                    
                    65,228
                    
                    
                    
                    22,326Net
      Cash Used by Operating Activities
                    
                    
                    (2,687,878
                    )
                    
                    
                    (2,518,887
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                    
                    
                    (39,460
                    )
                    
                    
                    (39,917
                    )Net
      Cash Used by Investing Activities
                    
                    
                    (39,460
                    )
                    
                    
                    (39,917
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of notes payable
                    
                    
                    3,451,500
                    
                    
                    
                    750,000Loan
      fees paid
                    
                    
                    (690,422
                    )
                    
                    
                    -Proceeds
      from issuance of notes payable, related parties
                    
                    
                    610,000
                    
                    
                    
                    1,850,000Payments
      on notes payable, related parties
                    
                    
                    (500,000
                    )
                    
                    
                    -Payments
      on notes payable
                    
                    
                    (516,250
                    )
                    
                    
                    -Net
      Cash Provided by Financing Activities
                    
                    
                    2,354,828
                    
                    
                    
                    2,600,000EFFECT
      OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT
                    
                    
                    225,997
                    
                    
                    
                    (21,707
                    )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    
                    (146,513
                    )
                    
                    
                    19,489CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                    
                    
                    215,746
                    
                    
                    
                    196,257CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                    
                    $
                    69,233
                    
                    
                    $
                    215,746SUPPLEMENTAL
      DISCLOSURES:Cash
      paid for interest
                    
                    $
                    432,279
                    
                    
                    $
                    283,240Cash
      paid for income taxes
                    
                    $
                    -
                    
                    
                    $
                    -





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




F-6


NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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.
 
 F-7
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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, designs,
builds, implements, manages, hosts and supports internet and wireless device
based lottery programs operated by governments and charitable organizations
outside of the United States.  We also design and distribute games for
use on video lottery terminals and other electronic kiosks.
 
 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
                              
                              2009
                              
                              
                              2008Computer
      Equipment
                              
                              3
      Years
                              
                              $
                              106,476
                              
                              
                              
                              110,053Furniture
      & Equipment
                              
                              7 Years
                              
                              
                              7,805
                              
                              
                              
                              7,805Computer
      Software
                              
                              3 Years
                              
                              
                              297,589
                              
                              
                              
                              286,916Less
      - Accumulated Depreciation & Amortization
                              
                              
                              
                              
                              (318,583
                              )
                              
                              
                              (234,264
                              )Net
      Property and Equipment
                              
                              
                              
                              $
                              93,287
                              
                              
                              
                              161,510
 
 Depreciation
and amortization expense for the years ended April 30, 2009 and 2008 was
$97,492  and $138,447, respectively.
 
 F-8
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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 30,2009
                            
                            
                            2008Net
      loss (numerator)
                            
                            $
                            (2,963,588
                            )
                            
                            $
                            (2,599,557
                            )Weighted
      average shares outstanding (denominator)
                            
                            
                            21,442,143
                            
                            
                            
                            21,442,143Loss
      per share amount
                            
                            $
                            (0.14
                            )
                            
                            $
                            (0.12
                            )
 
 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, 2009 and 2008.
 
 Options
                      1,625,000  sharesWarrants
                      200,000  shares
 
 g.   Recent
Accounting Pronouncements
 
 On May 1,
2007, the Company adopted FASB 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.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) replaces SFAS No. 141, “Business Combinations”, but
retains the requirement that the purchase method of accounting for acquisitions
be used for all business combinations. SFAS 141(R) expands on the disclosures
previously required by SFAS 141, better defines the acquirer and the acquisition
date in a business combination, and establishes principles for recognizing and
measuring the assets acquired (including goodwill), the liabilities assumed and
any non-controlling interests in the acquired business. SFAS 141(R) also
requires an acquirer to record an adjustment to income tax expense for changes
in valuation allowances or uncertain tax positions related to acquired
businesses. SFAS 141(R) is effective for all business combinations with an
acquisition date in the first annual period following December 15, 2008; early
adoption is not permitted. The impact of SFAS 141(R) will have on our
consolidated financial statements will depend on the nature and size of
acquisitions we complete after we adopt SFAS 141(R).
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160). SFAS
160 requires that non-controlling (or minority) interests in subsidiaries be
reported in the equity section of the company’s balance sheet, rather than in a
mezzanine section of the balance sheet between liabilities and equity. SFAS 160
also changes the manner in which the net income of the subsidiary is reported
and disclosed in the controlling company’s income statement. SFAS 160 also
establishes guidelines for accounting for changes in ownership percentages and
for deconsolidation. SFAS 160 is effective for financial statements for fiscal
years beginning on or after December 1, 2008 and interim periods within those
years; early adoption is not permitted. The adoption of SFAS 160 is not expected
to have a material impact on our financial position, results of operations or
cash flows.
  F-9
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.This standard requires companies to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company has not yet adopted the
provisions of SFAS No. 161, but does not expect it to have a material impact on
its financial position, results of operations or cash flows.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles”.SFAS No. 162 sets forth
the level of authority to a given accounting pronouncement or document by
category. Where there might be conflicting guidance between two categories, the
more authoritative category will prevail. SFAS No. 162 will become effective 60
days after the SEC approves the PCAOB’s amendments to AU Section 411 of the
AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial
Guarantee Insurance Contracts-and interpretation of FASB Statement No.
60”.SFAS
No. 163 clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement of premium revenue and
claims liabilities. This statement also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal
years beginning on or after December 15, 2008, and interim periods within those
years. SFAS No. 163 has no effect on the Company’s financial position,
statements of operations, or cash flows at this time.
 
 In May
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 164,
Not-for-Profit Organizations:
Mergers and Acquisitions(Statement 164). Statement 164 applies to
combinations of not-for-profit (NFP) entities — a transaction or other event
that results in a NFP entity initially recognizing another NFP entity, a
business or nonprofit activity in its financial statements. Under Statement 164,
a combination may either be a merger or an acquisition, and the accounting for
each is significantly different. The feature that serves to differentiate a
merger from an acquisition is control. In a merger, the governing bodies of two
or more NFP entities cede control of those entities to create a new entity. In
an acquisition, one organization obtains control over the net assets of another
organization or business.
 
 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.
 
 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.
 
 F-10
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 At April
30, 2009, 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, 2009.
 
 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.
 
 Using the
guidance of FIN 46(R), the Company has consolidated its fifty percent interest
in the Brazilian joint venture.  (See Note 14)
 
 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, 2009 and 2008 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, 2009 the Company had uninsured cash
balances of $0 in the United States.  The remainder of the Company’s
cash reserves are held in Ireland with Allied Irish Bank or Canada with Scotia
Bank.
 
 m.   Advertising
 
 The
Company expenses advertising costs as they are incurred.  Advertising
expenses for the years ended April 30, 2009 and 2008 were $685,713 and $825,148,
respectively.
 
 F-11
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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, 2009 and 2008 as
a result of adoption of EITF issues No. 98-5 and 00-27 totaled $439,582 and $0,
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, 2009 and 2008.
 
 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 30,2009
                          
                          
                          2008Fair
      value of marketable securities at beginning of year
                          
                          $
                          3000
                          
                          
                          
                          18,000Realized
      gain (loss) on marketable securities
                          
                          
                          -
                          
                          
                          
                          -Proceeds
      from the sale of marketable securities
                          
                          
                          -
                          
                          
                          
                          -Unrealized
      gain (loss) on marketable securities
                          
                          
                          (3000
                          )
                          
                          
                          (15,000
                          )Fair
      value of marketable securities at end of year
                          
                          $
                          -
                          
                          
                          
                          3,000
 
 Unrealized
holding gains and losses are reported in accumulated other comprehensive income
on the balance sheets of the company, at April 30, 2009 and 2008.
 
 F-12
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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:
 
 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, 2009 and 2008.  The Company owed ME $202,465 at April 30, 2009 and
2008 (see Note 9).
  Nathan
Miller
 As of
April 30, 2009, 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 $60,698 in accrued interest  ($11,334 in
2009 and $17,082 of accrued interest in 2008), 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 has executed a
demand note in favor of Mr. Dresner with respect to such amount that bears
interest at variable interest rates.  Total accrued interest at the
2009 year end was $121,589 of which $60,697 and $41,367 was accrued in 2009 and
2008 respectively.  During the fiscal year ended April 30, 2009, Mr.
Dresner loaned $600,000 of which $500,000 was repaid.  Total
outstanding balance of principle at 2009 year end was
$1,217,500.
  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 has
executed a demand note in favor of Mr. Dresner with respect to such amount that
bears interest at variable interest rates.  Total accrued interest at
the 2009 year end was $90,922 of which $60,831 and $29,438 was accrued in 2009
and 2008 respectively.  Total outstanding balance of principle at 2009
year end was $882,500.
  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%.
 
 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 has
considerable loans payable due to related parties consisting of the
following:
 
 April 30,
                        
                        
                        April 30,2009
                        
                        
                        2008Loan
      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
                        
                        
                        525,000
                        
                        
                        
                        525,000Loan
      payable to an individual, interest at prime plus 2%, due on demand,
      unsecured
                        
                        
                        260,000
                        
                        
                        
                        260,000Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                        
                        
                        392,000
                        
                        
                        
                        392,000Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                        
                        
                        622,500
                        
                        
                        
                        622,500Loan
      payable to an individual, interest at prime plus 3%, due on demand,
      unsecured
                        
                        
                        10,000
                        
                        
                        
                        -Loan
      payable to an individual, interest at 5.25%, due on demand,
      unsecured
                        
                        
                        300,000
                        
                        
                        
                        200,000Total
      Loans Payable
                        
                        
                        2,193,177
                        
                        
                        
                        2,183,177Less:
      Current Portion
                        
                        
                        (2,193,177
                        )
                        
                        
                        (2,183,177
                        )Long-Term
      Loans Payable
                        
                        $
                        -
                        
                        
                        
                        -
 
 Accrued
interest expense on loans payable to related parties for the years ended April
30, 2009 and 2008 was $132,936 and $87,887 respectively.
 
 F-13
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 6 –
                NOTES
      PAYABLE
 
 Notes
payable consisted of the following:
  April 30,
                          
                          
                          April 30,2009
                          
                          
                          2008Comerica
      Bank note with interest approximately equal to the Euro dollar prime rate
      Plus 2.5%, due June 1, 2009
                          
                          $
                          1,500,000
                          
                          
                          
                          1,500,000Comerica
      Bank note with interest approximately equal to the Euro dollar prime rate
      Plus 2.5%, due June 1, 2009
                          
                          
                          600,000
                          
                          
                          
                          600,000Comerica
      Bank note with interest approximately equal to the daily adjusted LIBOR
      rate Plus 2.5%, due February 20, 2010
                          
                          
                          1,900,000
                          
                          
                          
                          1,900,000Trafalgar
      Capital Convertible Note with interest equal to 8%, due May 31, 2010,
      secured by all assets of the Company (less discount of $295,322 - See
      note 7)
                          
                          
                          1,098,553
                          
                          
                          
                          -Trafalgar
      Capital Convertible Note with interest equal to 8%, due October 31, 2010,
      secured by all assets of the Company (less discount of $499,188 - See
      note 7)
                          
                          
                          1,042,187
                          
                          
                          
                          -Total
      Notes Payable
                          
                          
                          6,140,740
                          
                          
                          
                          4,000,000Less:
      Current Portion
                          
                          
                          (5,625,120
                          )
                          
                          
                          (4,000,000
                          )Long-Term
      Notes Payable
                          
                          $
                          515,620
                          
                          
                          
                          -
 
 Interest
on the Comerica Bank and Trafalgar Capital notes has been paid on a monthly
basis; hence, accrued interest expense on notes payable for the years ended
April 30, 2009 and 2008 was $0 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
                                        
                                        $
                                        5,625,1202011
                                        
                                        
                                        515,6202012
                                        
                                        
                                        -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-14
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 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 $439,582in expense for the accretion of the discount during the
year ended April 30, 2009.
 
 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, 2009 and
2008
 
 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 leases an office at 1400 Technology Drive, Harrisonburg,
Virginia.  The office is approximately 500 square
feet.  This lease is on a month-to-month basis at a monthly rent of
$1,000.
 - The
Company leases approximately 2,659 square feet of office space at Suite 210A,
9705 Horton Road SW, Calgary, Alberta, Canada.  This lease terminates
December 31, 2011 and has a monthly rent of $6,875.37
(Canadian).
 - New
Media Lottery Services, PLC, leases an office at 22/23 Upper Pembroke Street,
Suite 402, Dublin 2, Ireland, from John R. McGuire at a 1,100 euros monthly
rent.  This lease ends March 30, 2010
 - The
Company has a contract with Telecity Redbus in the UK to provide on-line website
hosting.  This agreement requires a 1,925 BPS monthly fee and
expires  in March 2010.
 
 F-15
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 9 -
                COMMITMENTS
      AND CONTINGENCIES (Continued)
 
 - The
Company also has a contract with Parlay Entertainment Limited.  The
financial terms of this contract are confidential; however, the minimum fee
requirements have been included in the following table.
 - The
Company also rents a car in Ireland which is used for marketing
purposes.  This commitment runs until February 2011 and has monthly
fees of 596 Euros.
 
 The
following is a schedule of future minimum rental payments and commitments
required under the above agreements as of April 30, 2009:
 
 Year EndingApril 30,
                      
                      Amount2010
                      
                      $
                      284,5062011
                      
                      
                      88,5772012
                      
                      
                      45,4522013
                      
                      
                      -2014
                      
                      
                      -Thereafter
                      
                      
                      -
 
 Rental
expense was $98,393 in 2009 and $121,996 in 2008.
 
 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 did not
grant any stock options or warrants during the fiscal year ended
2009.  The Company’s 80.23% subsidiary, NM-PLC, did issue warrants and
stock options during the fiscal year ended 2009; however, those warrants and
stock options are not considered in the following tables.
 
 EMPLOYEE STOCK
OPTIONS
 
 The
following tables summarize the information regarding employee stock options at
April 30, 2009 and 2008:
 
 Outstanding,
      April 30, 2007
                        
                        
                        2,875,000Granted
                        
                        
                        -Canceled
                        
                        
                        (1,250,000
                        )Exercised
                        
                        
                        -Outstanding,
      April 30, 2008
                        
                        
                        1,625,000Granted
                        
                        
                        -Canceled
                        
                        
                        -Exercised
                        
                        
                        -Outstanding,
      April 30, 2009
                        
                        
                        1,625,000Weighted
      average exercise price of options outstanding at April 30,
      2009
                        
                        $
                        0.34
 
 F-16
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE
      10 -
                STOCK
      OPTIONS AND WARRANTS (Continued)
 
 Outstanding
                        
                        
                        ExercisableWeightedAverage
                        
                        
                        Weighted
                        
                        
                        
                        
                        
                        WeightedNumber
                        
                        
                        Remaining
                        
                        
                        Average
                        
                        
                        Number
                        
                        
                        AverageOutstanding
                        
                        
                        Contractual
                        
                        
                        Exercise
                        
                        
                        Exercisable
                        
                        
                        ExerciseExercise Prices
                        
                        at 4/30/09
                        
                        
                        Life (years)
                        
                        
                        Price
                        
                        
                        at 4/30/09
                        
                        
                        Price$                0.25
                        
                        
                        200,000
                        
                        
                        
                        5.90
                        
                        
                        $
                        0.25
                        
                        
                        
                        200,000
                        
                        
                        $
                        0.25$                0.35
                        
                        
                        1,425,000
                        
                        
                        
                        6.50
                        
                        
                        $
                        0.35
                        
                        
                        
                        1,425,000
                        
                        
                        $
                        0.35
 
 WARRANTS
 
 The
following tables summarize the information regarding warrants at April 30, 2009
and 2008:
 
 Outstanding,
      April 30, 2007
                        
                        
                        200,000Granted
                        
                        
                        -Canceled
                        
                        
                        -Exercised
                        
                        
                        -Outstanding,
      April 30, 2008
                        
                        
                        200,000Granted
                        
                        
                        -Canceled
                        
                        
                        -Exercised
                        
                        
                        -Outstanding,
      April 30, 2009
                        
                        
                        200,000Weighted
      average exercise price of warrants outstanding at April 30,
      2009
                        
                        $
                        0.25
 
 Outstanding
                                                                
                                                                
                                                                ExercisableWeightedAverage
                                                                
                                                                
                                                                Weighted
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                WeightedNumber
                                                                
                                                                
                                                                Remaining
                                                                
                                                                
                                                                Average
                                                                
                                                                
                                                                Number
                                                                
                                                                
                                                                AverageOutstanding
                                                                
                                                                
                                                                Contractual
                                                                
                                                                
                                                                Exercise
                                                                
                                                                
                                                                Exercisable
                                                                
                                                                
                                                                ExerciseExercise Price
                                                                
                                                                at 4/30/09
                                                                
                                                                
                                                                Life (years)
                                                                
                                                                
                                                                Price
                                                                
                                                                
                                                                at 4/30/09
                                                                
                                                                
                                                                Price$                0.25
                                                                
                                                                
                                                                200,000
                                                                
                                                                
                                                                
                                                                6.00
                                                                
                                                                
                                                                $
                                                                0.25
                                                                
                                                                
                                                                
                                                                200,000
                                                                
                                                                
                                                                $
                                                                0.25
 
 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 $15,886,684 losses from inception
of the Company through April 30, 2009.  The Company’s stockholders’
deficit at April 30, 2009 was $12,256,234.   Additionally, the
Company has sustained additional operating losses for the year ended April 30,
2009 of $2,672,199, has a working capital deficit of $8,780,935, negative cash
flows from operations, and no known borrowing capacity.  These factors
combined, raise substantial doubt about the Company’s ability to continue as a
going concern.  Management’s plans to address and alleviate these
concerns are as follows:
 
 Management
is continually striving to overcome our operating losses by expanding the player
base of its various projects and thereby increasing its operating
income.  The ability to expand the player base is principally
contingent on raising additional capital for marketing and new project
developments.
 
 F-17
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 11 -
GOING CONCERN CONSIDERATIONS (Continued)
 
 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 -
MAJOR CUSTOMER AND FOREIGN OPERATIONS
 
 The
Company received 98.8% of its revenue from Rehab Net Games Limited, an Irish
corporation.   The loss of this customer would have a material
adverse effect on our business, financial condition, results and
prospects.
 
 Foreign Operations and
Exchange Risk
 The
Company intends to conduct activities in multiple foreign markets including
countries with developing economies.  Some of these countries may have
experienced recently, or are experiencing currently, economic or political
instability.  Hyperinflation, volatile exchange rates and rapid
political and legal change, often accompanied by military insurrection, have
been common in these and certain other emerging markets in which the Company may
conduct business.  The Company may be materially adversely affected by
possible political or economic instability in these countries.  The
risks include, but are not limited to terrorism, military repression,
expropriation, changing fiscal regimes, extreme fluctuations in currency
exchange rates, high rates of inflation and the absence of industrial and
economic infrastructure.  Changes in investment policies or shifts in
the prevailing political climates in which the Company conducts business
activities could adversely affect the Company's business.  Operations
may be affected in varying degrees by government regulations with respect to
production restrictions, price controls, export controls, income and other
taxes, expropriation of property, maintenance of claims, environmental
legislation, labor, welfare benefit policies, land use, land claims of local
residents, water use and mine safety. The effect of these factors cannot be
accurately predicted and, therefore, no adjustments have been made to the
accompanying financial statements.
 
 NOTE 14 - CONSOLIDATION
OF VARIABLE INTEREST ENTITY
 Effective
April 5, 2006, the Company adopted FIN 46(R), resulting in the consolidation of
its fifty percent interest in it’s Brazilian joint venture (“JV”).  In
accordance with the pronouncement, JV is considered a variable interest entity
and the Company its primary beneficiary.  Accordingly, the Company has
consolidated JV and eliminated all intercompany transactions.  JV was
founded on June 22, 2005 by the Company and its joint venture partners to
develop and maintain a lottery in Brazil (the “Project”).
 
 In
exchange for agreeing to contribute funds, software and lottery expertise to the
JV, the Company was issued a fifty percent equity interest in JV.  The
Company also has provided the majority of JV’s financial support through
loans.  Members of the Company’s management team effectively control
the JV by exercising control over all funds loaned to the JV.  The
Company also participates in decisions pertaining to the JV.
 
 The total
equity investment at risk in JV will be insufficient to accomplish, in its
entirety, the scope of the Project and, therefore, will require additional
subordinated support in the foreseeable future.  In addition, the
Company is anticipated to absorb a majority of JV’s expected
losses.
 
 New
regulations adopted by the government in Brazil caused us to discontinue our
projects in this country.  As of April 30, 2009, we do not expect to
recover any of our investment in the JV and have written off the remainder of
the investment.  These amounts were written off under our 80.23% owned
subsidiary NM-PLC, the results of which have been eliminated in
consolidation.
 
 F-18
 
 NEW
MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 April 30,
2009 and 2008
 
 NOTE 15
–  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.  At April 30, 2009, the Company had expensed $198,974 of these
fees.
 
 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.  At April 30, 2009, the Company had expensed $88,074 of
these fees.
 
 NOTE 16
-  SUBSEQUENT EVENTS
  On May 29, 2009, the Company cancelled
outstanding options to purchase 1,625,000 shares of common stock.  It
was also resolved by the Board of Directors to issue options for the purchase of
3,475,000 shares of common stock.
 
 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.  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
stocks.  The parties expect to negotiate the definitive terms of the
preferred stock promptly.
 
 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 credit shall be available to the Company through a period
ending on July 20, 2011.  A description of the credit facility is
provided under "Item  9B. Other Information.”  We expect to
use any credit made available to us under this line for working
capital.
   F-19
 SIGNATURES
 
 In accordance with the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 Dated:  August
      13, 2009
                
                By:
                /s/   John T.
    CarsonName:  John
      T. CarsonTitle:  President(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
registrant and in the capacities and on the dates indicated.
 
 Person
                            
                            Capacity
                            
                            Date/s/ John T. Carson
                            
                            President
      and Director
                            
                            August
      13, 2009John
      T. Carson
                            
                            (Principal
      Executive Officer andPrincipal
      Financial Officer)/s/ Jeffrey Sternberg
                            
                            Director
                            
                            August
      13, 2009Jeffrey
      Sternberg
  50