ITEM 1. DESCRIPTION OF BUSINESS.

B ACKGROUND

Through a reorganization approved by stockholders on January 12, 2004, we changed our name from “NorStar Group, Inc.” to “Gaming & Entertainment Group, Inc.” and acquired the outstanding shares of Gaming & Entertainment Group, Inc., a Nevada corporation. We were first incorporated in Utah on March 10, 1961 under the corporate name of “Florist Accounting Service, Inc.” Through amendments to our articles of incorporation, our corporate name has been changed to “Luxor Group, N.A., Inc.” and then to “NorStar Group, Inc.”

From April 1992 through December 1999, we acquired and/or began to develop and dispose of, several businesses and certain other investments. In 1992, we acquired the mineral rights with respect to 17 claims on approximately 680 acres located in the Gold Mountain mining district of Esmeralda County, Nevada. Although we proposed to find a joint venture partner to assist us in developing these claims, we have not been successful to date in locating such a joint venture partner. In 1998, we began the development of an Internet business which involved the creation of a portal to an on-line community for products, entertainment, education and business services.

Through the acquisition of Gaming & Entertainment Group, Inc., a Nevada corporation, on January 12, 2004, we shifted the focus of our business to the development of central server gaming systems, game content and gaming devices for land-based gaming markets located in the United States ( i.e. , Indian gaming), Canada and Europe. As a result, we maintain our principal offices in Las Vegas, Nevada and additional offices in Sydney, Australia and London, United Kingdom. Immediately prior to the acquisition of Gaming & Entertainment Group, Inc., a Nevada corporation, we conducted limited operations. For additional information with respect to the reorganization, please see “Item 4. Submission of Matters to a Vote of Security Holders” of this Form 10-KSB.

Although the acquisition of Gaming & Entertainment Group, Inc., a Nevada corporation, occurred after the end of our fiscal year ended December 31, 2003, this Annual Report on Form 10-KSB shall provide disclosures related to the operations of Gaming & Entertainment Group, Inc., a Nevada corporation, as these operations will represent our operations on a going-forward basis.

G AMING & E NTERTAINMENT G ROUP , I NC .

Since 1995, we have grown to become one of the world’s leading suppliers of government-regulated networked gaming technology. During this period, we have built a comprehensive networked gaming platform that has passed multiple government prescribed validations in Australia (Tasmania and Queensland), Republic of Vanuatu and Great Britain (Alderney and the Isle of Man). We originally designed and employed our platform in the Internet-based gaming market, as evidenced by our agreements with traditional land-based gaming operators and numerous Australia-based online operators. In 2000, our gaming platform went live with its first customer, www.wrestpointcasino.com in Tasmania, Australia and for points-play at GOCORP in Queensland, Australia. In 2002, we commenced live operations of www.clubfiore.com , an online gaming site offered by Action Online, Inc. through the Isle of Man. In 2002, we entered into an agreement with the Venetian Interactive, LLC for the purpose of developing and providing an Internet gaming site for the Venetian Resort • Hotel • Casino.

In 2003, we significantly broadened our products to include gaming systems and game content for deployment in land-based casinos. To date, we have developed and licensed several games for deployment in the United States, Canadian and United Kingdom gaming

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markets, and continue to develop new games through our internal and outside game designers. In the United States Indian gaming market, we will introduce our central server gaming platform, software electro-mechanical ball blower, and Wild Ball Evolution Bingo game on a trial basis on or before May 15, 2004. In conjunction with our strategic partner Electrocoin Automatics Ltd., or Electrocoin, we recently launched on a trial basis in London a suite of new amusement with prizes, or AWP, video poker games known as Jacks or Better, Deuces Wild and Joker’s Wild. We anticipate introducing fixed-odds betting terminals, consisting of roulette and keno, into this market in the second or third quarter of this year. We have established a turnkey manufacturing relationship with a major Las Vegas, Nevada-based gaming machine manufacturer for our line of products to be deployed in the United States and Canada. We have internal and external sales personnel with extensive relationships in the United States and Canadian gaming markets to distribute such products.

Our business strategy involves:

Developed using the JAVA technology of Sun Microsystems, Inc., our central server gaming system platform can be deployed on virtually any operating system and hardware combination. The server software consists of administration applications and gaming servers and can be run on any network, operating system, including Microsoft Windows 95/98/2000/XP/NT and Sun Solaris. We are able to create central server gaming by connecting a range of gaming machines and games developed either by third parties or us.

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E MERGENCE OF G AMING S YSTEMS AND T ECHNOLOGY

Twenty-five years ago, more than a majority of all gaming revenue in the United States was derived from traditional table games such as blackjack, craps and baccarat. Today, a majority of all gaming revenue in the United States is generated from gaming machines. The shift from traditional table games to gaming machines has occurred in the gaming markets outside the United States. The proportion of total revenue originating from gaming machines is expected to further increase as a result of the higher margins produced by gaming machines when compared with increasing labor costs associated with the operation of table games and the ability of casino operators to establish a fixed return on gaming devices.

The dominant architecture of gaming machines within traditional gaming venues has been stand-alone devices, where these devices are generally connected to the gaming property’s monitoring system and may be connected to wide area progressive jackpot controllers. With the continued growth in gaming, especially in networked gaming, and the increased reliance on technology to deliver a superior gaming experience to patrons, we anticipate substantial growth in networked gambling systems. Due to the anticipated growth in central server gaming, the Gaming Standards Association has already standardized the Ethernet and TCP/IP protocols for the networking of gaming machines. Our technology is compliant with these standards.

We are focused on the technology that enables the inter-connectivity of individual gaming machines, a relatively recent innovation. The introduction, or anticipated deployment, of Video Lottery Terminals, or VLT’s, at horserace tracks in Delaware, Louisiana, Montana, New Mexico, Oregon, South Dakota, Rhode Island, West Virginia, New York and many other states, has introduced players to the new paradigm – terminals that are similar to stand-alone gaming machines, but are connected together in networks. Our central server gaming system platform will network individual gaming machines, include strong encryption and security and supply an existing and continuously updated portfolio of games.

To date, our technology has been deployed in gaming consoles and kiosks and has been installed in slot machines, in a test environment, for facilitation of Intranet based gaming. Once networked through our software, the gaming property can download games on demand, upgrade games centrally, lower long-term deployment and reduce administrative costs. For example, instead of replacing gaming machines every three years or so due to malfunction or poor performance, the gaming property can make specific games available to patrons and ensure that the highest revenue producing games are being offered at all times as well as, among other things, change denominations based on market conditions (e.g., $0.25/game during the day and $1.00/game at night). Further, the administration tools offered to casino operators should decrease operational costs meaningfully.

Industry Support for Central Server Gaming

In 2002, Bear Stearns issued a report on gaming machine providers and made four distinct assertions, all of which are applicable to our central server gaming opportunity:

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addresses these concerns by including player profiling functionality, player/operator interactivity, the ability to react quickly to user preferences, the ability to quickly change game content and the ability to monitor and analyze slot play in real time.

Benefits of Central Server Gaming

The implementation of a central server gaming system platform offers immediate and long-term strategic advantages to both the gaming property and its patrons, including:

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C ENTRAL S ERVER G AMING P LATFORM OF G AMING & E NTERTAINMENT G ROUP , I NC .

Our central server gaming system platform has an open, well-defined and well-documented application program interface, or API, for game and content development, including base game engines for 3-reel slots, 5-reel slots, video poker, card games, multiplayer bingo, keno, lottery, and progressives. Unlike basic “Game Development Kits” offered by some suppliers, our approach is to allow selected parties to access the full range of development API’s, comprising 5,000 class files plus documentation to allow quick and accurate code development. This approach allows the development of games with the same “look and feel” as the existing games, and provides existing functionality such as player messages, account management, and integration with casino databases and reports.

The main factor that influences the purchase of gaming systems is a player’s acceptance of the games. There is a constant demand for new game titles, only a limited number of which will prove to be long-term “winners.” Interestingly, the most successful games that have been distributed by industry leaders were oftentimes designed by outside developers. This is an important strategy that we will continue to utilize and pursue, along with further development of in-house game development staff, having already established partner relationships with a number of external game developers.

In marketing our central server gaming system platform, our strategy is to take advantage of our size and responsiveness and mitigate risk and unnecessary fixed overhead through the following measures:

Our central server gaming system platform consists of five key components that are integrated through the use of modules. The key components of our central server gaming system platform are:

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Our server platform will supply all the security, banking, reporting and configuration utilities that are required for trusted centralized gaming. The gaming machines will be connected to the server platform via secure, encrypted communication links (e.g., TCP/IP connections). An unlimited number of games and content can be available on demand by players, and can be extended and modified at any time by gaming operators subject to strict internal controls and regulatory restrictions. In addition, the server platform can support a module for comprehensive and fully configurable progressive jackpots and can be linked to third party progressive jackpots.

Through our software, the Casino Administration Center provides authorized casino managers the ability to monitor and report casino activity, control game libraries and enable progressive jackpots. Our central server gaming system platform can be integrated with industry-standard casino management applications for seamless analysis and aggregated reporting with the gaming property’s current environment.

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In terms of integrating the key components of our central server gaming system platform with the gaming architecture of an existing gaming property, we use various modules and interfaces that are designed to provide our central server gaming system platform with the ability to interface with a variety of slot accounting systems, games, gaming consoles and gaming machines. These modules and interfaces include:

G AMING AND W AGERING S OLUTIONS

In addition to our central server gaming system platform, we have developed the software electro-mechanical ball blower for use in Bingo and other Class II games, as well as Keno, as an alternative to a traditional mechanical ball blower. Our software electro-mechanical ball blower provides a software simulation of a collection of numbered balls contained within a virtual glass chamber whereby a virtual air stream at the base of the chamber pushes the numbered balls around chaotically within the glass chamber. The physics of the interaction of the numbered balls with the virtual air stream and with each other permits the numbered balls to be drawn one at a time, in a random order. We designed the software electro-mechanical ball blower to comply with National Indian Gaming Association Class II gaming regulations. In addition, we have developed Bingo games for use with our software electro-mechanical ball blower, such as Wild Ball Evolution Bingo, Wild Ball Keno, Spelling Bee Bingo and Queen Bee Bingo games, among others.

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We have also designed and developed interactive gaming and wagering solutions for Baccarat, Bingo, Blackjack (including a multi-player version), Craps, Keno, Pai Gow, Punto Banco, Roulette (including American, European and French versions), Sic Bo, Sports-Book, Video Poker and a range of 3-reel and 5-reel, multi-line slot machines. Our games may be run a range of gaming machines, in regulated online casinos or via other distribution means and are designed to be customizable in terms of design, layout and configuration.

T HE G AMING M ARKET

Native American Gaming Market

Native American gaming is regulated under the Indian Gaming Regulatory Act of 1988, or IGRA, which permits only specific types of gaming on Native American lands. IGRA classifies games that may be played on Native American land into three categories, Class I, Class II and Class III. Class I gaming includes traditional Native American social and ceremonial games and is regulated only by the tribes. Class II gaming includes bingo and, if played at the same location where bingo is played, pull-tabs, lotto, punch boards, tip jars, instant bingo, certain card games played under limited circumstances, and other games similar to bingo. Class III gaming consists of all forms of gaming that are not Class I or Class II, such as video casino games, slot machines, most table games and keno. For additional information, see “Business – Government Regulation – Native American Gaming Regulation.”

The Native American gaming market is a substantial, but highly fragmented, segment of the overall gaming industry in the United States. There are more than 500 federally recognized Native American tribes in the United States that operate over 300 gaming facilities in a majority of the states, with the majority of the tribes operating only one facility. These Class II and Class III facilities house over 100,000 Class II and Class III player stations of all kinds. Class II Indian casino gaming is the fastest growing gaming market in the world. According to the National Indian Gaming Association, total wagering in Class II and Class III Native American facilities in 2003 was estimated at more than $14 billion. This number is expected to increase significantly in the next few years as many states are negotiating new gaming compacts to permit expansion and/or introducing certain new types of gaming within their respective states. State governments seek to capture new and additional gaming tax revenue to offset mounting state budgetary deficits. Californian Indian tribes alone generated more than $5 billion in revenue in 2002 and it is estimated that by 2006 this market may exceed Las Vegas, Nevada in annual gaming revenues.

Class II games are limited to Bingo and games that are “similar to Bingo.” The challenge facing game and system designers in this market is to develop games that are fast-paced, multi-player, pari-mutuel and exciting to play, but meet the strict legal definition of Class II, since the conduct of unauthorized Class III games is illegal. Class II gaming on Native American lands is subject to federal regulation under the Johnson Act, IGRA, and the tribes’ own gaming commissions. Class II games normally require a physical ball draw rather than a computerized RNG. For additional information, see “Business – Government Regulation – Johnson Act.”

Electronic bingo games have been installed in increasing numbers at gaming facilities because they generally produce greater revenues and profits than paper bingo does on a per square foot basis. Technological innovations have increased the speed of play and have helped to drive increased wagering in the Class II gaming market. We believe that these technological innovations have also changed the demographic of end-users in this market to a younger and more affluent group than those that predominantly participated in paper bingo. In this regard, we believe our software electro-mechanical ball blower will accelerate the rate at which electronic bingo games can be played, a key objective of players and operators alike. With our software electro-mechanical ball blower, Wild Ball Evolution Bingo, Wild Ball Keno, Spelling Bee Bingo and Queen Bee Bingo games, as the first of many games we intend to deploy, will be able to be played significantly faster than electronic bingo games utilizing traditional bingo blowers.

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United Kingdom Market

Currently, the gaming market in the United Kingdom is estimated at more than $15 billion per annum. In the next few years, it is anticipated that this market will undergo deregulation and may be modeled somewhat similarly to the Nevada gaming market, both in terms of regulation and the breadth of gaming offered. The United Kingdom may also enact laws to regulate Internet gaming in the near future, which some industry experts believe may be the precursor to the United States ultimately regulating Internet gaming. The ultimate determination of the expansion of gaming in the United Kingdom has not been finalized.

Regulated Internet Gaming Market

The Internet gaming market has historically been characterized by sports betting and casino operations domiciled in the Caribbean islands. Jurisdictions such as Antigua set minimal standards and attracted companies that focused their marketing efforts predominantly on attracting United States players. These businesses grew rapidly until there were an estimated 1,400 gambling websites, at which time governments around the world began grappling with the associated regulatory issues. Internet gaming presents some unique and difficult issues for regulators. Unlike physical gaming facilities that serve all their customers within one state, Internet sites attract users from all over the world, making it difficult to decide who should regulate the activity. Some states have adopted regulations that govern Internet gambling only when the players are inside state borders.

Since 1961, it has been illegal in the United States to place sports wagers across state lines as provided by the 1961 Wire Act. In 2003, the United States Department of Justice confirmed that casino bets were also outlawed by the same legislation. This has led to a large number of sites becoming unviable, as the credit card companies and service providers, such as Master Card, Visa and PayPal, have been forced to stop processing credit card transactions.

In contrast to the initial, unregulated Internet gaming market, we have focused our efforts on the regulated Internet gaming market that has developed over the past four years. The regulated Internet gaming market has been marked by the adoption of regulations that permit the establishment and operation of Internet gaming sites in a variety of jurisdictions, including, among others, Alderney and the Isle of Man. These regulations focus on probity standards and technical requirements that are applied in land-based gaming markets and, among other things, create a substantial barrier to entry for the unregulated suppliers to the previously unregulated Internet gaming market. In addition, due to prohibition on Internet gaming by certain jurisdictions, including the United States, any Internet gaming website must include safeguards that a player is not attempting to access the online system from within these jurisdictions.

We satisfy the highly onerous requirements of United States land-based casinos that wish to establish offshore-to-offshore gaming sites. In this regard, we have entered into an interactive gaming system agreement with Venetian Interactive, LLC for the purpose of developing and providing an Internet gaming site for the Venetian Resort • Hotel • Casino. In the longer term, due to the constantly changing landscape of Internet gaming, additional jurisdictions, including the United States, may permit Internet gaming and adopt appropriate gaming standards related to the same. The expansion of legalized Internet gaming would provide other companies with the ability to apply their current products, services and technologies to Internet gaming that would otherwise have been precluded.

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T ARGET M ARKET S TRATEGIC I NITIATIVES

We market our products, systems and services in the United States and Canada through our internal and external sales force consisting of experienced personnel with significant relationships in the Indian gaming market and the provincial gaming commissions in Canada. In the United Kingdom and Europe, we have established a strategic partnership with Electrocoin to manufacture and distribute games we have co-developed into the AWP gaming market, a market estimated to have over 1,000,000 gaming machines in Europe and Russia. We also have a business development presence in the United Kingdom focusing on our recently announced initiative with independent licensed betting shops in the United Kingdom and Ireland, with the specific focus of introducing Internet gaming, AWP (video poker and otherwise) games, fixed-odds betting terminals (roulette and keno) and a 3-D virtual horse, greyhound and harness racing game to be licensed from a major Australian gaming company. We also promote our products, systems and services to the marketplace through press releases, media announcements, articles, gaming events, exhibitions at trade shows (e.g., NIGA, CNIGA, Bingoworld, Canadian Gaming Summit and Exhibition, Global Gaming Expo, International Casino Exhibition, etc.), and participation as speakers and chairs at gaming shows and conferences.

United States – Indian Gaming

In the United States, we are working with several established gaming veterans to deploy our central server gaming system platform and our suite of electronic bingo games into the ever-expanding Indian gaming market. We will introduce a suite of electronic bingo, keno and instant lottery games in this market in 2004 and estimate these games will total up to fifteen in number.

Our strategy for developing a portfolio of games is to work with a number of in-house and exclusive external game developers. These individuals have experience and expertise in designing games for the Indian gaming environment and have significant relationships therein. Each has provided detailed written specifications and sample graphics, from which our content development team has built working prototypes, followed by marketable products. Once a customer has installed our central server gaming system platform, new games can be added to the network and older games removed by the operator, without requiring any changes to the hardware.

We will place our gaming products in Indian gaming casinos primarily on a revenue sharing basis. We estimate that every 300 gaming machines placed on a revenue sharing basis will generate approximately $2,500,000 or more of recurring revenue per annum. In addition, we are in discussions with a provider of multi-player automated roulette machines to acquire its existing installation base of products with significant recurring revenue.

We will submit our central server gaming platform, software electro-mechanical ball blower and initial electronic bingo games to Gaming Laboratories, Inc. in late second quarter of 2004 for testing and certification. Concurrently, we will commence a trial of our central server gaming platform, software electro-mechanical ball blower and Wild Ball Evolution Bingo game at an Indian casino. We anticipate receiving approval of our central server platform, electro-mechanical ball blower and initial electronic bingo games submitted for Class II use within approximately 90 days of submission.

In addition to the development of our central server gaming system platform and our suite of electronic bingo, keno and instant lottery games, we propose to analyze other potential acquisitions or business combinations involving third parties involved in this gaming market.

Canada

We are currently working with the gaming commissions of several Canadian provinces for the purpose of deploying our central server gaming platform, software electro-mechanical ball blower and

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suite of electronic bingo, keno, instant lottery, video poker, video blackjack and other games on a sale or revenue sharing basis. To this end, we have formally submitted a proposal to one Canadian province in response to a request for information regarding the sale of approximately 750 gaming devices, including a specific number of our games, and our central server gaming platform (for utilization and ownership solely in this province).

We have retained a highly respected consultant with significant relationships with the various Canadian gaming provinces and will be aggressively marketing our products into this market.

United Kingdom

We are aggressively pursuing the United Kingdom market as well. This market offers significant opportunities and several major U.S.-based casino operators have made public announcements of their intention to expand into this market. Following our extensive analysis of the United Kingdom gaming market, we have:

Internet Gaming

We will continue to license our technology to regulated land-based casino operators of Internet casinos in regulated jurisdictions. With the United Kingdom announcing the anticipated adoption of Internet gaming regulations, Internet gaming may be regulated and licensed in additional jurisdictions in the next few years and possibly the United States thereafter. Since we have never accepted Internet gaming bets from residents of the United States or permitted our clients to accept such bets, we believe that we have taken sufficient steps to preserve our standing with gaming regulatory agencies in the United States. In contrast, companies who have accepted Internet gaming bets from residents of the United States are effectively prohibited from operating in land-based casinos in the United States or becoming licensed by gaming regulatory agencies in the United States should Internet gaming laws be passed by the United States Congress. The U.S. Internet gaming market is estimated at $2 billion a year.

As part of our Internet gaming strategy, we offer the main software components of our Internet gaming platform on the basis of a license fee and ongoing maintenance and game enhancement fees. License fees have varied according to the scope of each project, with the average license fee being approximately $1,250,000. In addition, we will continue to develop games and features for our Internet gaming system with a focus on features requested by customers and potential customers.

For cash play sites, we typically receive a royalty of 2.5% to 10.0% of the net gaming revenue arising from use of our Internet gaming system or a daily fixed fee per device deployed, where a portion of this revenue will be allocated to further develop additional functionality and new games. We also provide additional services related to project management, computer hardware procurement and

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installation, enhanced communications infrastructure, training, technical development, graphics work and website development. These services are offered at fixed daily rates on a time-and-materials basis within a preset budget. We also offer ongoing support and maintenance service for an annual fee equivalent to 15.0% to 17.5% of the license fee.

As of March 31, 2004, we have completed or are currently undertaking the following Internet gaming projects:

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In addition to the online gaming opportunities, in 2001, we signed a development agreement with Aruze of Japan, one of the largest gaming companies in the world, for utilization of our platform for a home entertainment application, and to explore mobile and online entertainment opportunities in Asia. Aruze technical personnel completed a comprehensive global search prior to selecting our platform.

Lottery Market Opportunities

We have identified the lottery industry as a significant market for implementation of our central server gaming system platform. Our central server gaming system platform can be applied to both Internet-based and land-based lotteries.

In the land-based lottery market, our central server gaming system platform can link multiple lottery kiosks in a manner similar to the clustered stand-alone gaming machine architecture that we intend to utilize in the central server gaming market. As for Internet-based lotteries, we can operate a lottery as a single application through our central server gaming system platform or as an integrated component of the overall casino gaming site. In addition, we will be able to offer both instant lottery games and traditional delayed result lotteries.

C OMPETITION

We view our competition in terms of companies that provide products to the Indian gaming, Canadian and European land-based gaming markets, as well as to the regulated Internet gaming markets. The companies with which we compete generally have longer operating histories, greater name recognition, customer bases and financial, technical and marketing resources.

M ANUFACTURING AND A SSEMBLY

As part of our business strategy, we have elected to out-source the manufacturing and assembly for all of our products either to third party manufacturers or to our strategic partners as part of our agreements with them. We will have our Class II electronic bingo games manufactured by Cole Industries, or Cole, a Las Vegas-based manufacturing concern on a turnkey basis. Through our strategic alliance with Electrocoin, Electrocoin will manufacture all products we develop on its behalf for distribution in the United Kingdom and Europe.

R ESEARCH AND D EVELOPMENT

We have a knowledge base of all aspects of network software development and industry-experienced professionals at all levels, including Java programmers, JavaScript specialists, game designers, graphic designers, 3D modelers, mathematicians and web developers. The majority of our software research and development operations are located in our Sydney, Australia office, and our hardware research and development operations are located in our Las Vegas, Nevada office.

For years ended December 31, 2003 and 2002, on an unaudited basis, Gaming & Entertainment Group, Inc., a Nevada corporation, did not incur any specific expenses related to research and development other than the expenses related to the salaries and wages of employees in our research and development operations.

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I NTELLECTUAL P ROPERTY

Since our inception, we have focused exclusively on gaming and building products for reputable organizations in the gaming industry. Unless specifically agreed otherwise, the games and gaming systems we develop are owned by us and licensed to the client. Where a game contains specific images relating to the client, we may not resell the game without the client’s permission, and where a game has been specifically commissioned by the client on an exclusive basis, we typically agree to a limited period of time during which the game remains exclusive to the client. Standard enhancements are generally integrated with our central server gaming system platform and maintained as part of the base, unless otherwise agreed. Proprietary interfaces and custom developments are created and maintained for each specific client.

We protect our intellectual property through the filing of patent and trademark applications for our key inventions and unique features in the various gaming markets in which we operate. On September 27, 2002 a patent application covering inventions relating to a Virtual Ball Selector was filed with the United States Patent and Trademark Office. To date, the application is still under investigation by the United States Patent and Trademark Office and we continue to expect comments based on such investigation. We have also been granted a general license to all intellectual property developed by Frank Banyai, our Vice President of Product Development and Marketing, which includes patents covering certain Class II electronic games (i.e., Wild Ball Bingo, Eight to go, and Wild Ball Keno). Moreover, our license extends to copyrights to Jesters Bingo and Big Time Bingo, as well as trademarks and service marks for Wild Ball.

In February 2003, after settlement of an action brought by us against Innovative Gaming Corporation of America, or IGCA, we were granted a license to a Nevada licensed slot operating system, developed by IGCA. The IGCA system has been approved for use in a large number of jurisdictions, including Nevada, and represents a significant asset within our business strategy and intellectual property holdings.

G AMING R EGULATION

We will be subject to federal, state and Native American laws and regulations that will affect both our general commercial relationships with Native American tribes as well as the products and services we intend to provide them. The following is a summary of those laws and regulations and not a complete recitation of all applicable law.

Native American Gaming Regulation. Federal law, tribal-state compacts, and tribal gaming regulations govern gaming on Native American lands. IGRA provides the framework for federal and state control over all gaming on Native American lands and is administered by the National Indian Gaming Commission, or the NIGC, and the Secretary of the United States Department of the Interior. The NIGC has authority to issue regulations governing tribal gaming activities, approve tribal ordinances for regulating gaming, approve management agreements for gaming facilities, conduct investigations, inspect, copy and audit all records, hold hearings, issue subpoenas, take depositions and monitor tribal gaming generally. The IGRA further authorizes the NIGC to impose civil penalties for violations of its regulations or of the IGRA, and also imposes federal criminal sanctions for illegal gaming on Native American reservations and for theft from Native American gaming facilities. The IGRA is subject to interpretation by the NIGC and may be subject to judicial and legislative clarification or amendment. In addition, tribal gaming commissions have been established by many Native American tribes to regulate gaming related activity on Indian lands.

Indian tribes are sovereign in their own government systems, which have primary regulatory authority over gaming on land within the tribes’ jurisdiction. Although the gaming regulations vary for each tribe, these regulations generally provide for Native American ownership of the gaming operation;

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the use of gaming net revenues for Native American government, economic development or related purposes; independent audits, including specific audits of all contracts of amounts greater than $25,000; background investigations and licenses; adequate safeguards for the environment and the public health and safety; and dispute resolution procedures.

Class III gaming requires, as a condition to implementation, that the Native American tribe and the state government in which the Native American lands are located to enter into a compact to govern gaming activities generally associated with casino gaming, defined as “Class III” gaming under the IGRA. A tribal-state compact is generally not required for gaming generally described as “bingo games,” classified as “Class II” gaming under the IGRA. Tribal-state compacts vary from state-to-state and in most cases require equipment manufacturers and/or distributors to meet ongoing registration and licensing requirements. In addition, tribal gaming commissions have been established by many Native American tribes pursuant to the terms of the applicable tribal-state compact to regulate Class III gaming-related activity by the tribe. In contrast, Native American tribes may engage in Class II gaming if the state in which the Native American reservation is located permits such gaming for any purpose by any person; the gaming is not otherwise specifically prohibited on the Native American reservation by federal law; the gaming is conducted in accordance with a Native American ordinance which has been approved by the NIGC; and several other requirements are met, including the requirement that the Native American tribe have the sole proprietary interest and responsibility for the conduct of gaming, and that primary management officials and key employees be licensed by the tribe.

The IGRA also regulates the terms of gaming management contracts with Native American tribes that must be approved by the NIGC before taking effect. Under existing regulations, management contracts can have a maximum of seven years and limit the amount payable to the manager to 30% of the net revenue from the related gaming activity. However, the NIGC has, on occasion, required that both a shorter term and a reduced percentage of the net revenue be accepted by a manager as a condition of its approval of a management contract. In contrast to management contracts, the IGRA does not impose similar restrictions on service agreements that merely provide equipment and services to Native American tribes.

Johnson Act. The Johnson Act, 15 U.S.C. §1171 et seq., generally prohibits manufacture, transport, possession and use of gambling devices in interstate and foreign commerce, but provides for certain exceptions. In addition, the Johnson Act broadly defines an illegal gambling device as any “machine or mechanical device” designed and manufactured “primarily” for use in connection with gambling and that, when operated, delivers money or other property to a player “as the result of the application of an element of chance.” IGRA defines Class II gaming as including “the game of chance commonly known as bingo (whether or not electronic, computer or other technological aids are used in connection therewith).” However, IGRA’s definition of Class II gaming expressly excludes “electronic or electromechanical facsimiles of any game of chance or slot machines of any kind.”

Prior to June 17, 2002, regulations adopted by the NIGC defined “electronic or electromechanical facsimiles of any game of chance or slot machines of any kind” as being equivalent to “gambling devices,” as defined and prohibited by the Johnson Act. On June 17, 2002, the NIGC published new regulations, effective July 16, 2002, defining the terms “electronic, computer or other technological aids” that can legally be used in Class II gaming, and “electronic or electromechanical facsimiles of a game of chance” that may not be legally used in Class II gaming. The NIGC essentially did away with using the Johnson Act definition of “gambling device” as the method of determining what constituted an illegal “electronic or electromechanical facsimile of a game of chance,” and relied instead upon existing court cases which have held that legal technological aids permitted by IGRA are aids that broaden the participation levels of players in the same game, facilitate communication between and among gaming facilities, and allow players to play a game with or against other players rather than with or against a machine. Under these court decisions, any devices that accomplish these objectives are not “gambling devices” prohibited by the Johnson Act.

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Notwithstanding the NIGC position on these devices, the United States Department of Justice is not bound by the NIGC regulations and has asserted that any electronic or mechanical device used in gaming, such as the electronic player stations used to play our Class II games, are illegal “gambling devices,” and thus in violation of the Johnson Act. As a result of this incongruity, several United States Court of Appeals that have considered the scope of the Johnson Act in relation to IGRA have generally determined that the Johnson Act does not prohibit the use of electronic and technological aids to bingo that operate to broaden the participation of players to play against one another rather than against a machine.

In a recent decision of the United States Court of Appeals for the Tenth Circuit ( Seneca-Cayuga Tribe of Oklahoma, et al. vs. National Indian Gaming Commission, et al. , decided April 17, 2003), a federal circuit court considered the applicability of the Johnson Act to Class II gaming. The opinion of the court was in line with several previous court opinions that found that the Johnson Act did not prohibit the use of technological aids to Class II gaming on Native American land. The court also noted that their opinion was in line with the new NIGC regulations. In another recent decision from the United States Court of Appeals for the Eighth Circuit ( United States of America vs. Santee Sioux Tribe of Nebraska, decided March 20, 2003), a circuit court found for the first time that the Johnson Act does apply to Class II technological aids, although the court also found that the pull tab player stations at issue in that case were not Johnson Act devices. That court also went on to cite the fact that the NIGC has adopted new regulations and that those regulations would permit Class II technological aids under IGRA. On March 1, 2004, the United States Supreme Court denied to consider the appeals of these decisions made by the Eighth Circuit and the Tenth Circuit of the United States Court of Appeals

The effect of this denial by the Supreme Court would be to essentially affirm the decisions of the Eighth and Tenth Circuit Courts that the Johnson Act does not prohibit the sale of Class II technological aids to and the use of such aids by Native American tribes. Although the Supreme Court declined to review these decisions, there are no assurances that the Supreme Court may elect to consider the matter if presented to the Supreme Court in the future and, if considered, how the Supreme Court will rule.

E MPLOYEES

As of March 31, 2004, we have nineteen full-time employees, twelve of which are engaged in research and development, graphics design and game design, three in sales and marketing, one in finance/accounting, and the remaining three comprising management. In terms of the geographic location of our employees, we have eleven employees in our Sydney, Australia office, six employees in our Las Vegas, Nevada office and two employees in our London, United Kingdom office.

In addition to employees, we regularly retain the services of outside consultants, including a consultant in Vancouver, British Columbia who focuses on gaming proposals submitted to the various provincial Canadian gaming commissions.