10-Q 1 mainbody.htm MAINBODY mainbody.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
  x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:
September 30, 2009
 
   o
OR
 
 
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from:
 
to
 

Commission file number:
000-30375

Las Vegas Gaming, Inc.
(Exact name of registrant as specified in its charter)
     
Nevada
 
88-0392994
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
3980 Howard Hughes Pkwy., Suite 450, Las Vegas, Nevada 89169
(Address of principal executive offices)
 
(702) 871-7111
(Issuer’s telephone number)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No  o
 
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 oNo  o
 
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  o                                                                                                             Accelerated filer    o
Non-accelerated filer    o     (do not check if smaller reporting company)                           Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No  x
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date:
    15,081,846 shares of Common Stock Series A, $.001 par value, as of September 30, 2009
 
 
 
LAS VEGAS GAMING, INC.

  FORM 10-Q
 

 
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
2
 
 
2
 
 
3
 
 
5
 
 
7
 
 
8
 
Item 2.
18
 
Item 3.
25
 
Item 4T.
25
 
PART II – OTHER INFORMATION
 
Item 1.
26
 
Item 1A.
26
 
Item 2.
26
 
Item 3.
26
 
Item 4.
26
 
Item 5.
26
 
Item 6.
27
 
______________
 
PlayerVision, RoutePromo, NumberVision, WagerVision, AdVision, Nevada Numbers, The Million Dollar Ticket, and Nevada Keno are our trademarks.  This report may contain trademarks and trade names of other parties, corporations, and organizations.


PART I – FINANCIAL INFORMATION
Item 1.        Financial Statements
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
 
   
December 31,
   
September 30,
 
   
2008
   
2009
 
ASSETS
           
             
Current assets
           
Cash
  $ 497,529     $ 44,786  
Investment in marketable securities
    5,068       -  
Accounts receivable, net of allowance of $578 and $9,347
    576,847       300,235  
Inventories
    454,026       420,516  
Prepaid expenses, deposits and other
    79,881       145,626  
Jackpot reserve deposits
    1,230,761       218,628  
 
    2,844,112       1,129,791  
                 
Equipment, net of accumulated depreciation of $1,238,738 and $1,140,610
    924,256       634,001  
Other assets
               
Goodwill
    2,371,178       1,740,843  
Trademarks, copyrights, patents, software, and other identifiable intangibles, net of
               
    accumulated amortization of $1,165,742 and $1,362,724
    278,330       718,187  
Other long term assets
    56,451       70,151  
    $ 6,474,327     $ 4,292,973  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
Note payable
  $ -     $ 1,500,000  
Amount due to Gaming Arts, LLC
    -       239,683  
Advances from officers and major shareholders
    600,000       75,000  
Accounts payable and accrued expenses
    1,624,740       2,362,788  
Current portion of long-term debt
    11,957       7,363  
Deferred gain on sale of bingo     -       165,666  
Current portion of progressive jackpot liability
    1,555,360       1,596,360  
      3,792,057       5,946,860  
                 
Long-term debt
    23,119       17,181  
                 
Conditionally redeemable equity
               
Series B convertible preferred stock, $.001 par, 50,000 shares issued and
               
  outstanding
    250,000       250,000  
      250,000       250,000  
                 
Stockholders' equity
               
Convertible preferred stock, $.001 par, 10,000,000 shares authorized (all classes):
               
  Series E:  810,800 shares authorized, 810,800 shares issued and outstanding
    811       811  
  Series F:  200,000 shares authorized, 200,000  and 0 shares issued and outstanding
    200       -  
  Series G: 150,000 shares authorized, 150,000 shares issued and outstanding, respectively
    150       150  
  Series H:  98,500 shares authorized, 98,500 shares issued and outstanding
    99       99  
  Series I:  4,693,878 shares authorized, 4,693,878 shares issued and outstanding
    4,694       4,694  
  Common stock (including Series A): $.001 par, 90,000,000 shares
               
   authorized, 14,849,690 and 15,081,846 shares issued and outstanding
    14,850       15,082  
Additional paid-in capital
    44,160,702       44,300,772  
Less due from employees and stockholders
    (188,245 )     (182,245 )
Deficit
    (41,584,110 )     (46,060,431 )
      2,409,151       (1,921,068 )
                 
    $ 6,474,327     $ 4,292,973  
The accompanying notes are an integral part of these financial statements.
               
 
 
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2009
 
           
   
2008
   
2009
 
             
Revenues
           
    Casino games
  $ 709,195     $ 411,394  
    Product sales
    254,369       250,527  
    Other
    238,393       278,647  
      1,201,957       940,568  
                 
Costs and expenses
               
    Casino games
    519,682       253,764  
    Product costs
    133,112       135,600  
    Other
    304,652       227,859  
      957,446       617,223  
                 
Gross operating income
    244,511       323,345  
                 
Other operating expenses
               
    Selling, general, and administrative
    1,502,973       936,078  
    Research and development
    371,517       189,501  
    Depreciation and amortization
    200,137       131,190  
      2,074,627       1,256,769  
                 
Operating loss
    (1,830,116 )     (933,424 )
                 
Other income and expense
               
    Finance costs
    (490,440 )     (55,311 )
    Interest and other income
    2,233       6  
                 
Net loss
    (2,318,323 )     (988,729 )
Preferred stock dividends
    (52,500 )     (211,096 )
Net loss attributed to common stockholders
  $ (2,370,823 )   $ (1,199,825 )
                 
Net loss per share attributed to common stockholders
  $ (0.17 )   $ (0.07 )
                 
Weighted average shares outstanding
    13,689,403       15,081,846  
                 
The accompanying notes are an integral part of these financial statements.
               
 
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2009
 
 
           
   
2008
   
2009
 
Revenues
           
    Casino games
  $ 1,868,701     $ 1,395,959  
    Product sales
    927,738       781,876  
    Other
    716,283       866,697  
      3,512,722       3,044,532  
                 
Costs and expenses
               
    Casino games
    1,840,511       1,165,665  
    Product costs
    451,310       406,650  
    Other
    888,378       719,898  
      3,180,199       2,292,213  
                 
Gross operating income
    332,523       752,319  
                 
Other operating expenses
               
    Selling, general, and administrative
    4,865,008       3,707,806  
    Research and development
    1,070,057       372,684  
    Depreciation and amortization
    628,846       401,519  
      6,563,911       4,482,009  
                 
Operating loss
    (6,231,388 )     (3,729,690 )
                 
Other income and expense
               
    Finance costs
    (1,612,902 )     (69,647 )
    Interest and other income (expense)
    (89,156 )     (27,895 )
                 
Net loss
  $ (7,933,446 )   $ (3,827,232 )
Preferred stock dividends
    (84,000 )     (649,089 )
Net loss attributed to common stockholders
  $ (8,017,446 )   $ (4,476,321 )
                 
Net loss per share attributed to common stockholders
  $ (0.61 )   $ (0.29 )
                 
Weighted average shares outstanding
    13,249,905       15,062,484  
                 
The accompanying notes are an integral part of these financial statements.
               
 
 

LAS VEGAS GAMING, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  
NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2009  
                                                                     
                                               
Common Stock
   
Additional
   
Less due from
 
   
Convertible Preferred Stock
 
Including
   
Paid-In
   
officers and
       
   
Series A
   
Series C
   
Series D
   
Series E
   
Series F
   
Series G
   
Series H
 
Series I
 
Series A
   
Capital
   
stockholders
   
Deficit
 
Balances, December 31, 2007
  $ -     $ 35     $ 125     $ 744     $ -     $ -     $ -       $ 12,563     $ 26,497,097     $ (235,414 )   $ (28,562,419 )
                                                                                           
Net loss
                                                                                      (7,933,446 )
                                                                                           
Dividends Payable Preferred Stock F, G, and I
                                                                                      (84,000 )
                                                                                           
Exercise of warrants and options
                                                              93       108,705       (8,412 )        
                                                                                           
Issuance of warrants
                                                                      337,470                  
                                                                                           
Other stock based compensation
                                                              255       509,079       52,000          
                                                                                           
Cash received
 from
employees
and
stockholders
                                                                        9,000          
                                                                                           
Conversion of
Series B
Convertible
Preferred
Stock to
                                                        254       253,996                  
Common Stock Series A
                                                                                         
                                                                                           
Conversion
of Series C
Convertible
Preferred
Stock to
      (35 )                                               175       (140 )                
Common Stock Series A
                                                                                         
                                                                                           
Conversion
of Series D
Convertible
Preferred
Stock to
              (125 )                                       125                          
Common Stock Series A
                                                                                         
                                                                                           
Sale of Series E Convertible Preferred Stock
                            67                                         334,933                  
                                                                                           
Sale of Series F Convertible Preferred Stock
                                    200                                 639,872                  
                                                                                           
Sale of Series G Convertible Preferred Stock
                                            150                         479,904                  
                                                                                           
Sale of Series H Convertible Preferred Stock
                                                    99                 492,402                  
                                                                                           
Sale of Common Stock to employees
                                                              55       110,667                  
                                                                                           
Sale of Common Stock
                                                              500       629,374                  
                                                                                           
                                                                                           
Balances, September 30, 2008
  $ -     $ -     $ -     $ 811     $ 200     $ 150     $ 99       $ 14,020     $ 30,393,359     $ (182,826 )   $ (36,579,865 )

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

 
   
Convertible Preferred Stock
   
Common Stock
   
Additional
   
Less due from
 
                                                   
Including
   
Paid-In
   
officers and
       
   
Series A
   
Series C
   
Series D
   
Series E
   
Series F
   
Series G
   
Series H
   
Series I
   
Series A
   
Capital
   
stockholders
   
Deficit
 
Balances, January 1, 2009
  $ -     $ -     $ -     $ 811     $ 200     $ 150     $ 99     $ 4,694     $ 14,850     $ 44,160,702     $ (188,245 )   $ (41,584,110 )
                                                                                                 
Net loss
                                                                                            (3,827,232 )
                                                                                                 
Dividends Payable Preferred Stock F, G, and I
                                                                                            (649,089 )
                                                                                                 
Issuance of stock options and
warrants for services
                                                                      559,712                  
                                                                                                 
Issuance of common stock to
reimburse for legal expenses
                                                      27       17,863                  
                                                                                                 
Cancellation of Common Stock
                                                                    (20 )     20                  
                                                                                                 
Cancellation of Series F Preferred Stock
                                    (400 )                                     (1,999,600 )                
                                                                                                 
Re-issuance of Series F Stock
                                    200                                       999,800                  
                                                                                                 
Cash received from employees
and stockholders
                                                                              6,000          
                                                                                                 
Sale of Common Stock
                                                                    225       562,275                  
                                                                                                 
                                                                                                 
Balances, September 30, 2009
  $ -     $ -     $ -     $ 811     $ -     $ 150     $ 99     $ 4,694     $ 15,082     $ 44,300,772     $ (182,245 )   $ (46,060,431 )
                                                                                                 
The accompanying notes are an integral part of these financial statements.
                                                                         
 
 


LAS VEGAS GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2009
             
             
   
2008
   
2009
 
             
Operating activities
           
             
Net loss
  $ (7,933,446 )   $ (3,827,232 )
Marketable security received for licensing fee
    42,444       5,068  
Depreciation and amortization of equipment
    266,462       204,539  
Loss on disposal of assets
    72,040       25,445  
Bad debt expense     -       39,385  
Amortization of debt issuance costs and intangibles
    1,653,545       196,980  
Fair market value adjustment of debt derivative liability
    (141,307 )     -  
Stock-based compensation to employees and consultants
    689,113       567,602  
Other
    (1,724 )     (13,698 )
Changes in operating assets and liabilities:
               
   Accounts receivable
    28,789       150,759  
   Inventories
    64,105       21,353  
   Prepaid expenses, deposits and other
    88,418       (65,746 )
   Accounts payable and accrued expenses
    1,266,471       170,386  
   Advances from Gaming Arts, LLC     -       239,683  
   Progressive jackpot liability
    560,918       41,000  
   Deferred gain on sale of bingo     -       165,666  
Net cash (used in) operating activities
    (3,344,172 )     (2,078,810 )
                 
Investing activities
               
Purchase of property, equipment, and software
    (248,619 )     (95,436 )
Proceeds from sale of equipment
    55,250       6,150  
Proceeds from sale of Bingo
    -       832,251  
Capitalize Player Vision 3 engineering costs
    -       (631,899 )
Jackpot reserve deposits
    (1,298,640 )     1,012,133  
Net cash provided by (used in) investing activities
    (1,492,009 )     1,123,199  
                 
Financing activities
               
Dividend payments on Series F preferred stock
    -       (32,877 )
Redemption of Series F preferred stock
    -       (2,000,000 )
Re-issuance of Series F preferred stock
    -       1,000,000  
Redemption of Series B preferred stock
    (137,500 )     -  
Repayment of debt
    (61,747 )     (7,755 )
Sale of Series E convertible preferred stock
    335,000       -  
Sale of Series F convertible preferred stock
    640,072       -  
Sale of Series G convertible preferred stock
    480,054       -  
Sale of Series H convertible preferred stock
    492,501       -  
Advances from officers and major shareholders
    2,100,000       300,000  
Repayment of advances from shareholders
    -       (825,000 )
Increase in notes payable
    -       1,500,000  
Exercise of warrants and options for common stock
    100,387       -  
Collection of stock subscription receivables
    9,000       6,000  
Sale of common stock
    740,596       562,500  
Net cash provided by financing activities
    4,698,363       502,868  
                 
Net (decrease) in cash and cash equivalents
    (137,818 )     (452,743 )
Cash, beginning of period
    489,262       497,529  
Cash, end of period
  $ 351,444     $ 44,786  
                 
Non-cash investing and financing activities
               
                 
Conversion of Series B Convertible Preferred Stock to
               
     Common Stock Series A
  $ 254,250     $ -  
Conversion of Series C Convertible Preferred Stock to
               
     Common Stock Series A
    35       -  
Conversion of Series D Convertible Preferred Stock to
               
     Common Stock Series A
    125       -  
Exercise of stock warrants and options increasing subscriptions receivable
    8,412       -  
Equipment acquired directly with proceeds of new borrowing
    34,025       -  
Debt retired through issuance of Common Stock Series A
    107,500       -  
Prepayment of lease costs through issuance of Common Stock Series A
    106,000       -  
Accrued and prepaid interest added to face amount of note due to debt modification
    801,250       -  
Dividends declared on Series F, G, and I Preferred Stock
    84,000       649,089  
Dividend paid in Common Stock Series A on Series F Preferred Stock
    -       (10,000 )
   
The accompanying notes are an integral part of these financial statements
 

 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.            Nature of operations:
 
Our current principal business is the delivery of new, linked-progressive, mega jackpot games to the worldwide gaming industry.  Our offering of these types of games has included Nevada Numbers, Super Bonanza Bingo, Million Dollar Ticket and Gamblers Bonus Million Dollar Ticket.  During the second quarter of 2008, we launched Gamblers Bonus Million Dollar Ticket in cooperation with one of the larger slot route operators in Nevada.  We subsequently shut this game down on January 31, 2009.  On March 31, 2009, the Company shut down its Nevada Numbers and Million Dollar Ticket games.
 
Although we have focused our business primarily on the development of our proprietary multimedia delivery system, known as PlayerVision, PlayerVision has not produced significant revenue to date.  We continue to provide equipment, supplies and casino games for use by our customers in the keno and bingo segments of the gaming industry (Notes 8a and 12).
 
2.         Basis of Presentation:
 
The accompanying consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, relating to interim financial statements. Accordingly, certain information normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For further information, please refer to our annual financial statements and the related notes included within our Annual Report on Form 10-K for the year ended December 31, 2008, previously filed with the SEC, from which the information as of that date is derived.

The consolidated financial statements include the accounts of our wholly-owned subsidiaries and an inactive and immaterial 85%-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

The unaudited interim consolidated financial statements included herein reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the interim periods presented.  Events were evaluated by management to determine if adjustments to or disclosure in these interim consolidated financial statements were necessary through the date the consolidated financial statements were issued, November 23, 2009 (Note 12).  The results of operations for the three and nine months ended September 30, 2009, are not necessarily indicative of results to be expected for the year.

3.        Jackpot Reserve Deposits:

            At December 31, 2008 and September 30, 2009, we had deposit cash amounts of $1,230,761 and $218,628, respectively, which are restricted, as required by gaming regulators for funding our various jackpot-oriented games.

 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.         Equipment:

Equipment (Note 8a) consists of the following:
 
   
December 31, 2008
   
September 30, 2009
(Unaudited)
 
Production equipment                                                    
  $ 1,561,513     $ 1,466,267  
Equipment, furniture, and fixtures
    557,855       308,344  
Leasehold improvements                                                    
    43,627       0  
      2,162,995       1,774,611  
Less accumulated depreciation and   amortization
    1,238,739       1,140,610  
    $ 924,256     $ 634,001  

5.        Other Intangible Assets:

Other intangible assets (Note 8a) consist of the following:

   
December 31, 2008
   
September 30, 2009
(Unaudited)
 
Capitalized PlayerVision engineering costs
        $ 651,899  
PlayerVision technology patents
  $ 1,016,236       996,236  
Software                                                    
    427,836       432,775  
      1,444,072       2,080,910  
Less accumulated amortization
    1,165,742       1,362,723  
    $ 278,330     $ 718,187  

The intangible assets are amortized over their estimated useful lives, which are currently 5 years with the exception of software which is amortized over three years.  We have not begun amortizing PlayerVision costs as yet and will begin when we get our product to market. Total amortization for other intangible assets amounted to $362,026 and $196,980, respectively, for the nine months ended September 30, 2008 and 2009.  The estimated aggregate amortization for the remaining three months of calendar 2009 and the next five years is as follows (presuming we begin deployment of PlayerVision 3 in January 2010; however, no assurance can be given that we will begin deployment then, or at all):

2009
  $ 53,318  
2010
    238,062  
2011
    215,512  
2012
    211,295  
2013
    0  
2014
    0  
    $ 718,187  
 

 
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
6.         Debt:

Long term debt is as follows:

   
December 31, 2008
   
September 30, 2009
 
Other notes payable                                                    
  $ 35,076     $ 24,544  
Less amounts due within one year
    11,957       7,363  
    $ 23,119     $ 17,181  

The $600,000 advance from a stockholder at December 31, 2008 was paid back in January 2009.  An additional $300,000 was advanced from three principal stockholders.  Of this amount, $225,000 has been paid back as of September 30, 2009.  The buyer of our bingo business, Gaming Arts, LLC (Note 12) has advanced us $239,683 for working capital purposes (Note 12).

On February 13, 2009, we signed a binding term sheet (“Term Sheet”) with IGT whereby IGT advanced $1.5 million (“the Advance”) to the Company.  On September 4, 2009 (effective June 1, 2009), we signed a Secured Promissory Note for the Advance in favor of IGT which carries an interest rate of 10% and is due on January 29, 2010.  We granted a security interest to IGT in all of our present and future assets as security for such obligation.

 On September 4, 2009 (effective June 1, 2009), the Company and IGT signed a First Addendum to License and Application Support Agreement and a First Addendum to Intellectual Property Access Agreement (the “Addendums”).   The Addendums formally amend the License and Application Support Agreement dated September 30, 2008 between the Company and IGT (the “LASA”), and the Intellectual Property Access Agreement dated September 30, 2008 between the Company and IGT (the “IPAA”). The amendments to the LASA include: (i) a requirement that the Company use its best efforts to utilize IGT’s sb (server based) Media Manager as the default infrastructure for the delivery of the Company’s PlayerVision® applications, where feasible, (ii) a requirement that the Company provide development support for IGT sb (server based) applications requested by IGT, (iii) an amendment to the amount of distribution fees, (iv) a granting to IGT of a “most favored distributor” status so that IGT is granted the most favorable terms on the Company’s software distributor rates for its server-based applications, and (v) a requirement that the Company escrow the source code for the applications that connect to IGT systems, (vi) a specification that the Company has a worldwide license to use the IGT SPC Protocol in order to interface with the IGT Advantage card reader assembly and that any other installation or use of the IGT SPC Protocol that does not interface with the IGT Advantage card reader assembly is unlicensed, (vii)  a restriction not to place a secondary display in any location or casino where there is an IGT system, (viii) a requirement that the Company not compete against IGT in marketing, offering for use or sale, or installing any IGT EGM peripherals and the IGT SPC Protocol for use with such IGT EGM Peripherals, and (ix) a requirement that if the Company decides to purchase such IGT EGM Peripherals, it shall do so from IGT or its affiliates. IGT will have the right to access the source code only if the Company becomes insolvent, and IGT’s rights to utilize such software (if released) will be unlimited. The amendments to the IPAA include the Company’s agreement that IGT will have the right to initiate, coordinate, finance and assist in the prosecution, defense and enforcement of all Company owned intellectual property to which the Company has granted IGT a right of first refusal.

7.  Stockholders' Equity:

From time to time, the Company issues shares of common stock and preferred stock through transactions that are exempt from registration under the Securities Act of 1933 (Securities Act), either pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D.  For the nine months ended September 30, 2008, we issued 92,659 shares of Common Stock Series A as a result of the exercise of options and warrants.  Additionally, we issued 254,250 shares of Common Stock Series A pursuant to the conversion of 50,850 shares of Series B Convertible Preferred Stock.  We also issued 307,996 shares of Common Stock Series A for salaries, bonuses, services, and board of director fees and 500,000 shares of Common Stock Series A as part of our sale of Series F and Series G Convertible Preferred Stock.  We also issued 300,000 shares of Common Stock Series A as the result of conversions of Series C and Series D preferred shares.

 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
             During the nine months ended September 30, 2009, we issued 232,156 shares of Common Stock Series A to an investor in return for cash used for working capital (this is the same investor who invested $1,000,000 in Series E Convertible Preferred Stock, $1,000,000 in Series F Convertible Preferred Stock, and $750,000 in Series G Convertible Preferred Stock).
 
In the first quarter of 2009, we closed the Gamblers Bonus Million Dollar game due to a lack of ticket sales.  Accordingly, we redeemed the $1,000,000 of Series F Preferred Stock from our investor. We closed our Million Dollar Ticket Game as well for the same reason.  We also temporarily suspended our Nevada Numbers game to change the draw to hourly rather than daily.  We restarted the Nevada Numbers game on March 1, 2009 but again suspended it on March 31, 2009 due to a lack of funds to meet our Nevada Gaming bankroll requirements.  This suspension resulted from the change in ownership at Treasure Island and the new ownership’s decision to not continue bankrolling our game.  The game will remain suspended until we can find approximately $4 million for the bankroll.  When we restarted Nevada Numbers on March 1, 2009, we restored Series F Convertible Preferred Stock for $1,000,000 to be used as additional bankroll needed for Nevada Numbers. Due to the March 31 shutdown, the Nevada Numbers bankroll funds associated with Series F Convertible Preferred Stock were no longer needed.  Therefore, in April 2009 we again redeemed the Series F Convertible Preferred Stock and the $1,000,000 was returned to the investor.  In addition, in April 2009, he received another 7,156 shares of Common Stock Series A.  These shares were awarded in lieu of cash dividends and as a reimbursement of legal fees for the restoration of Series F Convertible Preferred Stock for $1,000,000 to support the restarting of Nevada Numbers.

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

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

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

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

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

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

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

Stock Warrants and Options. Our 2009 Stock Option Plan (2009 Plan), adopted by our Board of Directors and approved by our stockholders, allows for the issuance of both qualified and non-qualified options. The Stock Option Committee of our Board of Directors administers the 2009 Plan. The 2009 Plan succeeds the 2000 Stock Option Plan (2000 Plan) that will expire later this year except as to options outstanding under the 2000 Plan. As of September 30, 2009, there were 1,016,573 qualified and 65,200 non-qualified options outstanding under the 2009 Plan.  As of September 30, 2008 and 2009, respectively, there were 1,895,900 and 2,545,900 options outstanding under the 2000 Plan.  As of September 30, 2008 and 2009, respectively, there were 535,000 and 650,000 non-qualified options outstanding that were issued outside of the plans.  The exercise price of options issued pursuant to either plan cannot be less than the fair market value at the time of the grant and vesting is at the discretion of the Stock Option Committee, though limited to ten years. Only employees and consultants are qualified to receive qualified options.  The stock subject to the 2000 Plan is limited to 2,500,000 shares of Common Stock Series A. The stock subject to the 2009 Plan is limited to 20% of the sum of the currently outstanding shares of Common Stock Series A and the outstanding shares of our preferred stock convertible into Common Stock Series A as of beginning of the period under consideration.
 
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 We have, from time to time, granted common stock, warrants and options to employees and others as employment incentives, in return for successful capital-raising efforts or as an inducement to invest in our common or preferred securities, in return for other services, and in conjunction with the initial capitalization of our company and business acquisitions.  Warrants and options to purchase 1,662,000 and 1,122,440 shares of Common Stock Series A were issued to officers, directors and employees during the nine months ended September 30, 2008 and 2009, respectively. Total compensation cost recognized in operations from grants of options and warrants amounted to $689,113 and $559,712 for the nine months ended September 30, 2008 and 2009, respectively.  Unrecognized costs related to employee stock options and warrants outstanding at September 30, 2009 totaled $846,962 and are expected to be amortized over a weighted average period of three years.
 
     The weighted average exercise price of our outstanding options and warrants at September 30, 2009, was $2.53. The following table summarizes our stock option and warrant activity followed by the applicable weighted average prices during the quarter ended September 30, 2009:

   
Options/Warrants
   
Weighted
 Average Price
 
Balance, January 1, 2009
    8,656,209     $ 2.46  
Granted
    1,112,440       2.50  
Exercised
    -       -  
Forfeited
    (367,500 )     (1.04 )
Balance, September 30, 2009
    9,411,149     $ 2.53  

     As of September 30, 2009, 1,560,830 options and warrants are outstanding, but have not vested. The aggregate intrinsic value of options and warrants at September 30, 2009, is $846,962.

   
Non-vested Options
   
Weighted
 Average Price
 
Balance, January 1, 2009
    1,393,210     $ 3.45  
Granted
    642,580       2.50  
Vested
    (552,860 )     (3.56 )
Forfeited
    -       -  
Balance, September 30, 2009
    1,482,830     $ 3.00  


   
Non-vested Warrants
   
Weighted
 Average Price
 
Balance, January 1, 2009
    110,417     $ 2.52  
Granted
    15,500       2.50  
Vested
    (47,917 )     (2.55 )
Forfeited
    -       -  
Balance, September 30, 2009
    78,000     $ 2.50  
 
 
 
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table summarizes stock options and warrants outstanding at September 30, 2009, as to number exercisable and average remaining life in years:
 
               
Weighted Average
         
Weighted Average
 
   
Exercise
   
Number
   
Remaining
   
Number
   
Remaining
 
   
Price
   
Outstanding
   
Life in years
   
Exercisable
   
Life in years
 
Options
  $ 1.00       170,000       0.25       170,000       0.25  
    $ 2.00       460,000       3.54       310,000       3.54  
    $ 2.50       1,748,773       4.33       740,943       4.30  
    $ 3.00       100,900       0.42       100,900       0.42  
    $ 4.55       25,000       0.25       25,000       0.25  
    $ 5.00       1,123,000       2.97       798,000       2.91  
Warrants
  $ 1.00       110,000       2.77       110,000