Quarterly report pursuant to sections 13 or 15(d)


6 Months Ended
Jun. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  


Operating lease obligation. We lease our offices from a related party that is connected with our CEO. We entered into a lease effective September 1, 2010 for a period of two years with a monthly rental payment of $10,359. Rent expense was $66,470 and $62,154 for the six months ended June 30, 2012 and 2011, respectively. Our lease is due to expire at the end of August 2012. Based upon our current growth projections, we anticipate either renewing our existing lease agreement and expanding our operations with a lease of a second facility or in the alternative, may elect to not renew our existing lease and seek an entirely new facility sometime in late 2012 or 2013. We may also elect to purchase a future facility. The amounts shown in the accompanying table reflect our estimates of lease obligations for the twelve months ending 2012 through 2016 and are based upon our current estimates of our projected needs and our forecast of the commercial real estate market in Las Vegas, including a 5% cost of living increase. These estimates are summarized as follows:


Twelve Months ended December 31,   Annual obligation
  2012     $ 124,319  
  2013       225,000  
  2014       236,250  
  2015       248,063  
  2016       260,466  
  Total lease obligation     $ 1,094,098  


Legal proceedings. In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff, that are complex in nature and have outcomes that are difficult to predict. In accordance with SFAS 5, "Accounting for Contingencies," we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 10 in Item 8. “Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the year ended December 31, 2011. There are no material updates to matters previously reported on Form 10-K for the year ended December 31, 2011, except:


Unax Gaming. In May 2012, we entered into a Settlement Agreement (the “Settlement Agreement”) with UNAX Service, LLC (“Unax Gaming”). As a result of the Settlement Agreement, Unax Gaming assigned all of its rights and interest in the games “Double Action Blackjack” and “Squeezit Blackjack” which were deemed to have infringed on several patents held by us. The Settlement Agreement also called for Unax Gaming to reimburse us $20,000 for court costs and attorney fees. Additionally, we received a note receivable from Unax Gaming in the amount of $50,000. The note receivable bears annual interest of 6% and payments of interest only are to be made monthly, starting on June 1, 2012. Payments of principal in the amount of $25,000 must be paid on or before December 31, 2012 and $25,000 on or before June 30, 2014. Furthermore, the note receivable has a provision whereby the second principal payment due in June 2014 will be forgiven if Unax Gaming complies with all terms of the Settlement Agreement and makes all other interest and principal payments timely. In the event Unax Gaming fails to make any of the foregoing payments on the dates specified, all remaining payments become immediately due and subject to payment of interest beginning immediately at an annual rate of 10%. As of June 30, 2012 Unax Gaming was in compliance with the Settlement Agreement.

Washington administrative notice. On March 19, 2012, we received a notice of administrative charges from the Washington State Gambling Commission ("Commission") as a result of a routine audit conducted by them in 2010. The notice involves alleged untimely notifications, predominantly by predecessor companies. Since receiving the notice, we have had preliminary discussions with Commission officials to resolve the matters raised in the notice. Our executive management currently believes the matter will be resolved expeditiously and without material effect to our business operations in Washington. If unresolved, we could be subject to fines, reimbursement of the commission's investigative costs or harsher sanctions. For the six month period ended June 30, 2012, Washington revenues were $545,187. For 2011, Washington revenues were $1,154,925.