Note 19: Subsequent Events

Prime Agreement

On October 4, 2011 we executed an asset purchase agreement (“Prime Agreement”) with Prime Table Games LLC and Prime Table Games UK (collectively “Prime Table Games”). Under the terms of the Prime Agreement we acquired over 20 different table games, including 21+3™, Two-way Hold’em™ and Three Card Poker™ which are currently played on approximately 500 tables in 200 casinos in the United States, the United Kingdom and in the Caribbean. (Three Card Poker™ rights are limited to the British Isles.)  The intellectual property portfolio includes 36 patents, 11 patents pending, 96 worldwide trademark and design registrations and 47 domain name registrations.

The purchase price was $23,000,000 comprised of the following:

·                  $800,000 in the form of 2,000,000 shares of the Company’s common stock.

·                  Twenty Two Million, Two Hundred Thousand US Dollars ($22,200,000USD) paid in the form of two promissory notes (“promissory notes”), one made payable to Prime Table Games, LLC in the amount of Twelve Million Two Hundred Thousand US Dollars ($12,200,000) and the other made payable to Prime Table Games, UK in the amount of Ten Million Dollars ($10,000,000).  The promissory note to Prime Table Games, UK was converted to and payable in British Sterling.  The conversion from US Dollars to British Sterling was at the conversion rate of One United States Dollar is equal to 64/100 British Pound Sterling, ($1.00USD = £0.64GBP) for an obligation of £6,400,000.

Interest on the promissory notes is at 0% for the remainder of 2011. The rate increases to 3% in 2012 and increases at 1% per year thereafter to maximum of 9%.

Payments are as follows:

·                  Prime Table Games LLC: Monthly payments are due under this note, commencing with $100,000 due on or before January 28, 2012.  Subsequent payments are due on the 28th day of each month and the payment amount shall increase to $130,000 per month beginning sixteen (16) months after the Closing Date, $160,000 per month beginning twenty-eight (28) months after the Closing Date, $190,000 per month beginning forty (40) months after the Closing Date, $220,000 beginning fifty-two (52) months after the Closing Date until fully paid.

·                  Prime Table Games UK: Monthly payments are due under this note, commencing with £64,000 due on or before January 28, 2012.  Subsequent payments are due on the 28th day of each month and the payment amount shall increase to £76,800 per month beginning sixteen (16) months after the Closing Date, £89,600 per month beginning twenty-eight (28) months after the Closing Date, £102,400 per month beginning forty (40) months after the Closing Date, £115,200 per month beginning fifty-two (52) months after the Closing Date until fully paid.

In the event future monthly revenue received by us from the “Assets,” as defined in the Prime Agreement is less than 90% of the notes monthly payment due to Prime Table Games, then the note payments may, at our option, be adjusted to the higher of $100,000 per month (for the Prime Table Games LLC note) or £64,000 per month (for the Prime Table Games UK note) or 90% of the monthly revenue amount.  If we engage in this payment adjustment election, the note shall not be deemed in default and the interest rate of the note will increase 2% per annum for the duration of the Note or until the standard payment schedule resumes.

The notes are collateralized by the all of the assets acquired from Prime Table Games LLC and Prime Table Games UK.

Lakes Agreement

On November 1, 2011, we entered into an asset purchase agreement (the “Lakes Agreement”) with Lakes Entertainment, Inc., a Minnesota corporation (“Lakes”). Under the Lakes Agreement, we have acquired certain business assets of Lakes.  The acquisition includes a portfolio of patented casino table games, including Bonus Craps™, Four The Money™, Rainbow Poker™, and Roulette Craps™, together with an assignment of the Lakes’ rights under existing licensing agreements with various casinos throughout the United States.  The assignment of some of the contractual rights included in the acquisition will require the consent of the licensee and may be subject to customary regulatory approvals.

The purchase price was $1 plus additional revenue sharing payments (“Contingent Consideration”), which we are obligated to pay.  The Contingent Consideration is based upon differing percentages of the gross revenues generated by the acquired assets following the acquisition.  Under the Lakes Agreement, Lakes has retained a perpetual, royalty-free license to install and offer for play any of the assigned casino games in any casino owned or managed by Lakes.  The Lakes Agreement allows us the option at any time to buy-out Lakes’ right to the Contingent Consideration.  In the event has not received Contingent Consideration in the amount of $69,804 or more within (18) months after the closing of the Lakes Agreement, Lakes will have the option to re-acquire all assets assigned under the Lakes Agreement and to collect all revenue generated by such assets going forward.  In connection with the Lakes Agreement, Lakes has executed a non-competition agreement restricting Lakes participation in any business whose products are substantially similar to the casino games acquired by us under the Lakes Agreement for a period of two (2) years.

Sherron Settlement

On October 25, 2011 we, our CEO and Sherron executed a settlement agreement for purposes of settling all claims amongst the parties.  In connection with the settlement agreement we agreed to pay Sherron the sum of $150,000 in monthly installments beginning November 1, 2011.  Such payments begin at $7,500 per month and increase in phases over the course of one year to a maximum of $17,500 per month.  The obligation was memorialized by a promissory note, at zero percent interest; however the note has default interest of 12% per annum, secured by a confession of judgment in the amount of $150,000 which can filed by Sherron immediately upon a default in any payment.  Credit will be given for any payments made.  Our obligation is personally guaranteed by our CEO.  We recorded a provision for litigation settlement of $150,000 during the quarter ended September 30, 2011.

Our CEO agreed to pay Sherron the sum of $350,000 by June 1, 2012.  If he fails to make the payment by that date, he is obligated to pay Sherron the sum of $375,000 by November 1, 2012.  If our CEO fails to make that payment on the specified due date, we have agreed to make the payment by November 15, 2012.  In the event that our CEO or we do not make the payment by November 15, 2012, Sherron may file a confession of judgment for $375,000 against us and our CEO with interest accruing at the rate of 12% per annum from November 15, 2012.

If our CEO fails to make the $350,000 payment to Sherron by June 1, 2012, then our CEO and we will meet by August 1, 2012 to discuss whether or not our CEO has the means to pay Sherron $375,000 by November 1, 2012.  If, after the August 1, 2012 meeting, our CEO and we agree that he does not have the means to pay the $375,000 by November 1, 2012, then our CEO will assign 1.5 million or more of his personally owned shares of our stock (depending on the trading price of our shares as of August 1, 2012) to us and such assignment shall provide us the power and authority to sell such shares on the open market in order to satisfy the $375,000 owed to Sherron.  If we are unable to raise the full amount of $375,000 through the sales of shares by November 15, 2012, or we are unable to sell any shares by that date, then our CEO guarantees and owes either $375,000 or any remaining balance thereof to us.

Reel Games

On November 10, 2011, we were served with a summons and complaint by Reel Games, Inc. in the United States District Court Southern District of Florida, alleging amongst other things, misappropriations of trade secrets, breach of confidence, fraud and intentional interference with contract.  Reel Games Inc. has claimed that the value of the information misappropriated alone is in excess of $1 million.  The allegations stem from a Mutual Non-disclosure and Non-circumvention Agreement executed by the companies in May 2010 in connection with us evaluating the acquisition of certain assets of Reel Games, Inc.  We believe that the claims are entirely without merit and intend to defend this matter vigorously.

In accordance with SFAS 165 (ASC 855-10), we have analyzed our operations subsequent to September 30, 2011 to November 15, 2011, the date these financial statements were issued, and have determined that except for the preceding items disclosed herein, we do not have any additional material subsequent events to disclose.