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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2009

or

For the transition period from                     to                

Commission file number: 000-25855

Elixir Gaming Technologies, Inc.

(Name of registrant as specified in its charter)

Unit 3705, 37/F, The Centrium

60 Wyndham Street

Central, Hong Kong

(Address of principal executive offices)

+ 852-3151-3800

(Registrant’s telephone number, including area code)

Securities to be registered under Section 12(b) of the Act:

Securities to be registered under Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes o No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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  o  No  x

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 (as defined in Rule 12b-2 of the Act):

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

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  $11,057,067

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 114,956,667 shares as of March 15, 2010.

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CAUTIONARY NOTICE

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Those forward-looking statements include our expectations, beliefs, intentions and strategies regarding the future.  Such forward-looking statements relate to, among other things, overall industry environment, our working capital requirements and results of operations, the further approvals of regulatory authorities, adverse court rulings, production and/or quality control problems, the denial, suspension or revocation of privileged operating licenses by governmental authorities, competitive pressures and general economic conditions.  These and other factors that may affect our financial results are discussed more fully in “Risk Factors” and  “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report.  We caution readers not to place undue reliance on any forward-looking statements.  We do not undertake, and specifically disclaim any obligation, to update or revise such statements to reflect new circumstances or unanticipated events as they occur, and we urge readers to review and consider disclosures we make in this and other reports that discuss factors germane to our business.  See in particular our reports on Forms 10-K, 10-Q, and 8-K subsequently filed from time to time with the Securities and Exchange Commission.

PART I

Item 1.                    Business

GENERAL

Elixir Gaming Technologies, Inc. is engaged in: (i) the ownership and leasing of electronic gaming machines in resorts, hotels and other venues in Asia placed on a revenue sharing basis with venue owners; (ii) the design, manufacture and distribution of table game products; and (iii) the design, manufacture and sale of component parts for the automotive industry. Our primary focus is on the ownership and leasing of gaming machines on a revenue sharing basis across certain countries in Asia.

Pursuant to the Securities Purchase and Product Participation Agreement (“Product Participation Agreement”) dated June 12, 2007 (as amended by an amendment dated October 21, 2007), we effected a change in our control under which Elixir Group Limited (“Elixir Group”), a wholly-owned subsidiary of Melco International Development Limited, became our principal shareholder and our strategic partner in the electronic gaming machine participation business.  On November 6, 2008, the Product Participation Agreement was terminated and thereby ending the strategic partnership between us and Elixir Group. Notwithstanding the said termination of the strategic partnership, Elixir Group remains as our principal shareholder as of the date of this filing. (Please see Part III Item 13. Certain Relationships and Related Transactions and Director Independence of this filing for more details.)

For our electronic gaming machine participation business, we utilize our developed operational experience and established market presence and key relationships to identify and develop new gaming venues, acquire the gaming machines, casino management systems and other gaming peripherals directly from manufacturers, dealers and suppliers and install same in our contracted venues. In addition, we assist the venue owners in brand-building and marketing promotions.  A good example is the signing of an agreement with NagaWorld Limited, where we have evolved from a pure machine lessor to a slot floor operator.  In NagaWorld, a luxury casino resort in Phnom Penh, Cambodia, we manage jointly with the casino owner the slot floor operations and design marketing programs and slot promotions for our assigned gaming space.  We also hire, train and manage the floor staff and set high expectations on the level of customer service.

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In addition to the electronic gaming machine participation business, we have historically developed, manufactured and distributed various table game devices used in the gaming industry, including automated card verification machines, electronic card shuffling systems and traditional and high-frequency RFID gaming chips.  However, in April 2009, we completed the sale of our card verification and electronic card shuffling assets and have discontinued those product lines and, going forward, our focus for this business division is now on the development, manufacture and distribution of both high-frequency RFID and traditional non-RFID gaming chips and plaques.

Through the July 2006 acquisition of Dolphin Advanced Technologies Pty Ltd. (“Dolphin”), we also design, manufacture and sell component parts for the automotive industry, including inner and remote door handles, fuel filler hinge assemblies, module brackets, steering wheel spoke covers, speaker grills, fasteners, safety products and cosmetic components for automobiles.

We have offices in Hong Kong, Philippines, Cambodia and Australia.  We also have manufacturing facilities in Melbourne, Australia.

Our mailing address in the United States is:

Elixir Gaming Technologies, Inc.

40 E. Chicago Avenue, #186

Chicago, Illinois, 60611

USA

The telephone number in the United States is (312) 867-0848.

During the fiscal year ended December 31, 2009, we owned or had rights to certain trademarks that we use in connection with the sale of our products, including, but not limited to VendingData™, Deck Checker™, Random Ejection™, Random Plus™, PokerOne™, ChipWasher™, ShufflePro™, DeckSetter® and Dolphin™. However, pursuant to the Purchase and Settlement Agreement entered into on March 16, 2009, we sold to Shuffle Master our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, and certain inventory of such products. As a result of this agreement, we ceased to own the relevant trademarks of Random Plus™, PokerOne™, ShufflePro™ and Deck Checker™. Also, due to the de-emphasis of our business focus on certain table game products, we have abandoned the relevant trademarks of Random Ejection™, ChipWasher™, and DeckSetter®. Other than the aforesaid trademarks, this report also makes reference to trademarks and trade names of other companies.

RECENT DEVELOPMENTS

During the fiscal year ended December 31, 2009 and through the date of this report, we have engaged in the following:

New Contracts with NagaWorld Limited (“NagaWorld”)

During the fiscal year ended December 31, 2009, we established a relationship with NagaWorld, a wholly-owned subsidiary of Hong Kong listed NagaCorp Ltd. (HKSE:3918), to place electronic gaming machines on a participation basis at its NagaWorld luxury hotel casino resort in Phnom Penh, Cambodia.  NagaWorld is currently the only licensed full service casino in Phnom Penh.  During the year, we expanded our relationship with NagaWorld and currently have 560 gaming machine seats in operation at this location.

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The existing contract under which we operate, entitled Machines Operation and Participation Consolidation Agreement (the “Consolidation Agreement”), was signed on December 30, 2009.  The Consolidation Agreement with NagaWorld (a) provides for our right to exercise an option granted by NagaWorld pursuant to an option deed dated July 25, 2009 to place an additional 200 electronic gaming machines (“Additional Machines”) on a participation basis at NagaWorld’s casino resort; and (b) with effect from the date of the Consolidation Agreement, supersedes and replaces the terms on the existing operation of 440 electronic gaming machines at the NagaWorld Casino under the three previous agreements executed with NagaWorld dated December 13, 2008 (“December 08 Agreement”), June 15, 2009 (“June 09 Agreement”) and July 25, 2009 (“July 09 Agreement”) collectively, the (“Previous Agreements”) with new terms that aligned with the operation of the Additional Machines.

Under the Previous Agreements: (i) we and NagaWorld shared the win per unit per day from the existing 440 machines and certain operating costs related to marketing and floor staff at a weighted average of 22.3% / 77.7% split, respectively; (ii) win per unit per day from only 200 out of 440 existing machines was settled and distributed daily to us; and (iii) both the terms of the December 08 Agreement and the June 09 Agreement were to expire in the first quarter of 2014 while the term of the July 09 Agreement was to expire at the end of the third quarter of 2014.

Pursuant to the terms of the Consolidation Agreement, we and NagaWorld now have joint control over the operation of a total of 640 electronic gaming machines (comprising the Additional Machines and the existing 440 machines placed and in operation pursuant to the Previous Agreements), including floor staff and respective audit rights. We and NagaWorld will share the win per unit per day from all the 640 machines and certain operating costs related to marketing and floor staff at a 25% / 75% split, respectively, (subject to Elixir Gaming’s entitlement to receive 100% of the win per unit per day from certain machines during certain periods of time as described below). Win per unit per day earned from all the 640 machines are settled and distributed daily to us. The Consolidation Agreement is for a term of six years commencing March 1, 2010.

In consideration for NagaWorld entering the Consolidation Agreement, we paid to NagaWorld a $1.38 million one-time non-refundable contract amendment fee and a commitment fee of $4.1 million. Both the one-time contract amendment fee and commitment fee were to be paid in three installments. The first 50% installment was due and paid by us on December 30, 2009, the second 25% installment was due and paid by us on January 15, 2010, and the third and final 25% installment was due and paid by us on January 28, 2010.

Below is a table showing various agreements with NagaWorld and respective commitment fees paid during the year ended December 31, 2009.

(1)   As of December 31, 2009, none of the 200 contracted machines seats were operational.   As of March 15, 2010, 120 of the contracted 200 machine seats were operational.

(2)   Represents 50% of the total commitment fee for the 200 machine seats.  The remaining 50% was paid to NagaWorld in January 2010.

While we and NagaWorld will share the win per unit per day from the 640 machines at a 25% / 75% split, respectively, we will be entitled to 100% of the win per unit per day from the 200 existing machines placed under the July 09 Agreement until we have received a total accumulated win per unit per day of $7.3 million from the said 200 machines and 100% of the win per unit per day from the Additional Machines until we have received a total accumulated win per unit per day of $5.47 million from the Additional Machines (representing the $4.1 million commitment fee plus the Company’s 25% share of the win per unit per day from the Additional Machines).

Regulatory Changes in Cambodia

On December 2, 2008, Cambodia’s Prime Minister issued a directive which required slot machine operators in the country to obtain licenses issued by the Ministry of Economy and Finance and to operate only in hotels certified by the Ministry of Tourism.  According to the directive, all then existing slot machine operators had only six months to comply.  In addition, the directive sought strict compliance with the foreigners-only rule that permits only foreigners or Cambodians with foreign passports to gamble in the country.

On February 24, 2009, Cambodia’s Prime Minister called for the closure of the country’s sole bookmaker, Cambo Six and indicated the government would not renew its license upon expiration in 2011.  Subsequent to this action, approximately 70 slot clubs in Cambodia’s Phnom Penh area were closed. Our partner NagaWorld, which operates under an exclusive casino license in the Phnom Penh area, is the only gaming establishment in operation in the city.

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With the exception of the operations at NagaWorld, all of our previous contracted venues in Cambodia were closed in early 2009.  We regained physical possession of our machines from the closed venues and some have since been redeployed.  At present, we plan to focus our resources in the Cambodia market on our operations at NagaWorld and other locations outside of the Phnom Penh area.

Sale of Certain Table Game Products to and Settlement of Litigation with Shuffle Master, Inc.

On March 16, 2009, we entered into a Purchase and Settlement Agreement with Shuffle Master, Inc. (the “Purchase and Settlement Agreement”) pursuant to which we sold to Shuffle Master our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, including but not limited to, the trademarks of Random Plus™, PokerOne™, ShufflePro™ and Deck Checker™, and certain inventory of such products.

In addition, we settled all outstanding patent infringement litigation with Shuffle Master with respect to U.S. Patent No. 6,655,684 dealing with automated shuffler technology.  The total consideration paid by Shuffle Master to us under the Purchase and Settlement Agreement was a base amount of $2.4 million plus $400,000 for related final inventory, or $2.8 million in total. Also, as part of the transaction, we agreed not to engage, directly or indirectly, in the business related to the manufacturing or selling of automated card verification machines and electronic card shuffling systems, anywhere in the world, for a period of seven years from the date of closing.

Regarding the settled litigation with Shuffle Master, this traced back to October 5, 2004, when Shuffle Master first filed a patent infringement action against us in the United States District Court, District of Nevada (Case No. CV-S-04-1373-JCM-LRL) claiming that the use, importation and offering for sale of our PokerOne shuffler infringed Shuffle Master’s United States Patent, No. 6,655,684. We responded by denying Shuffle Master’s claim of patent infringement. On February 1, 2008, the District Court granted our motion for summary judgment on all patent infringement claims.  On February 29, 2008, Shuffle Master filed a notice of appeal in respect of the February 1, 2008 court ruling.  On February 15, 2008, we delivered a demand to Shuffle Master for $3.0 million in damages for the wrongful injunction they obtained in 2004.  We also filed a motion in District Court to recover our attorney fees in the litigation.  Shuffle Master initially filed an appeal from the District Court ruling, but subsequently withdrew their appeal.

Although we had a reasonable level of confidence in the eventual favorable outcome of our claims for damages and attorney fees, it was not a certainty. In addition, by pursuing the matter in courts, it could have possibly taken another lengthy period and we would have incurred considerable additional legal expenses before getting a final ruling. As such, we entered into the Purchase and Settlement Agreement with Shuffle Master. We believe that this transaction was a mutually amicable solution and provided significant financial benefits to us as not only did it improve our cash position but it also freed up our resources to focus on addressing market opportunities that furthered our strategy of expanding our electronic gaming machine participation business.

Amendment to Elixir International Note

On July 24, 2009, we entered into an agreement (the “Second Amendment”) with Elixir International Limited pursuant to which the parties amended the terms of the Trade Credit Facility Agreement between them dated April 21, 2008 as amended by an Amendment to Trade Credit Facility Agreement and Related Note dated November 6, 2008 (the “Facility Agreement”). (See Part III Item 13. Certain Relationships and Related Transactions and Director Independence of this filing for more details.) Pursuant to the

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Second Amendment, Elixir International agreed to restructure the payment schedule on the outstanding principal balance of approximately $9.2 million under the Facility Agreement. Under the revised payment schedule, we are not required to make any repayments of principal or interest under the Facility Agreement until July 1, 2010 provided that interest at the rate of 5% will continue to accrue on the outstanding principal balance. As of December 31, 2009, the total outstanding balance was approximately $9.4 million including principal balance of $9.2 million and additional accrued interest. The repayment of the outstanding principal balance and interest accrued thereon is to be repaid in 18 equal monthly installments commencing on July 1, 2010.

Reduced Size of Board of Directors Supports Enhanced Efficiency

During the week of September 28, 2009, and in connection with the recommendations by our nominating committee of the board of directors on right-sizing our board as a means to enhance efficiency, we were advised by certain members of our board of directors, including Lorna Patajo-Kapunan, Maj. Gen. Paul A. Harvey, Daniel Sham and Ted Chan, that each did not intend to be nominated for re-election to the board of directors at our 2009 Annual Meeting of Stockholders.  As a result of the re-election of the remaining board members at our annual shareholder meeting on October 30, 2009, our current board of directors was reduced to five from nine members.

Chief Executive Officer Extends Employment Contract

On November 10, 2009, Mr. Clarence Chung, our chairman and chief executive officer, renewed his employment contract for the position of chief executive officer for a term of three years commencing from January 1, 2010 to December 31, 2012.  The contract may be renewed thereafter subject to further agreement between the parties. The annual salary remains at $1.00 with the provision for a discretionary performance bonus of such amount and form (whether in cash or in kind) to be determined as being payable upon the achievement of certain objectives set by the compensation committee and at such time as may be deemed appropriate by the compensation committee.

On January 22, 2010, the compensation committee of the board of directors resolved to grant to Mr. Chung, on that day, as part of his compensation package under the November 10, 2009 employment agreement: (a) options to purchase 500,000 shares of Company $.001 par value common stock at an exercise price of $0.275 per share provided that all these options will only be vested and become exercisable on January 1, 2011; and (b) 472,727 shares of restricted common stock, pursuant to our 2008 Stock Incentive Plan. All 472,727 restricted common shares are subject to vesting and risk of forfeiture based on our ability to meet certain financial and non-financial performance targets as of and for the fiscal year ending December 31, 2010. The determination of the vesting or forfeiture of the shares shall be made by the compensation committee of our board of directors on or before April 30, 2011.

Impairment of Gaming Machine Assets

Our board of directors, acting on the recommendation of management and the audit committee of the board of directors, approved a non-cash impairment charge to our gaming machine in the amount of $13.7 million during the year ended December 31, 2009. A substantial portion of the impairment was the write-down to fair market value of certain gaming machines in inventory deemed as non-performing for our current target markets or their customer preferences.  To a lesser extent, the impairment also included the write-down of the Philippine operation gaming assets based on whether the current carrying value of the machines in operation in this market is higher than the expected value as forecasted by projected future cash flows. We engaged an independent valuation firm for purposes of confirming the specific amount of impairment to our Philippine operations’ gaming assets. Based on the conclusions of the independent valuation firm and Company’s usability study and future deployment plans, we recorded a non-cash impairment charge of $13.7 million during the year ended December 31, 2009.  We do not expect that the impairment charge will trigger any future cash expenditures in connection with the impairment.

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GAMING MACHINE PARTICIPATION

Overview

Since September 2007, our primary business model has focused on the ownership and leasing of electronic gaming machines placed with venue owners on a revenue sharing basis across certain countries in Asia.  Utilizing our developed operational experience and established market presence and key relationships, we identify and develop new gaming venues, and acquire the gaming machines, casino management systems and other gaming peripherals and install same in our contracted venues.

Electronic gaming machine participation operations began in September 2007 and comprised 45% of our consolidated revenues for the year ended December 31, 2009.

Operations

We contract with the venue owners or operators for the placement of electronic gaming machines on a revenue sharing basis and directly acquire and install the gaming machines and other gaming peripherals at the relevant gaming venues. The target market for our electronic gaming machine participation business is hotels and resorts and various other gaming venues across Asia.  We focus on underserved gaming markets that we believe are poised for significant growth, and many of the targeted venue owners have little or no gaming operations experience.

We utilize electronic gaming machines from leading manufacturers, including International Game Technology, Aristocrat Technologies, WMS Gaming and Interblock.  As of December 31, 2009 we had an inventory of 1,702 gaming machines suitable for deployment and believe, given our current selective growth plans, that we will need to supplement our existing inventory with the purchase of a certain number of new and used gaming machines from cash on hand and cash from operations over the next twelve months.

We help market, design and develop the gaming venues of the venue owners to whom we lease our electronic gaming machines and related systems.  We contract with the venue owner for the leasing and maintenance of the electronic gaming machines on a revenue sharing basis.  We provide the development and implementation of various related gaming services in the Asia Pacific region with a principal focus, to date, on Cambodia and the Philippines.  Our solutions and offerings include:

·                  Developing the technical and network design, layout and overall space configuration of the gaming floor in order to best utilize and leverage the available space and present an appealing environment to customers; and

·                  Selecting the optimal mix of electronic gaming machines for the property to optimize the economic potential of the gaming floor and overall experience for the venue owner’s customers.

We assist the venue owner by providing training for its gaming floor personnel regarding the operation and maintenance of the gaming machines and back-of-the-house accounting.  In addition, we maintain all performance data and provide ongoing technical and operations support in order to optimize game performance throughout the floor.

We expect that our electronic gaming machine participation revenues and gross margins will be influenced by a number of factors, including the number and type of machines in service, the levels of play and the revenue sharing percentage.  In addition, we may initially install fewer electronic gaming machines than contracted for at a venue and increase the number of machines gradually as a way to build demand for our product.  Our cost of sales includes the depreciation, joint cost sharing (primarily, in the event our contract dictates we are involved in the management of the floor operations) and other installation and maintenance costs of the electronic gaming machines.

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Competition

The global gaming industry is highly competitive.  Our competitors principally include private companies in Cambodia and both public and private companies in the Philippines with operations focused in Asia.   Part of our operating strategy includes addressing markets and customers where we will face less competition and entry barriers due to several factors including:

·      United States Gaming Laws:  All of the major gaming equipment suppliers are licensed by a large number of United States regulatory agencies.  In order for one of these companies to enter the markets we serve in Asia on a direct revenue sharing model with a foreign operator, the operator would be required to comply with various United States regulatory procedures.  We are not subject to this requirement as we have surrendered all our gaming licenses in the United States.

·      Local Knowledge:  Through our operating experience, we have an extensive database of contacts and relationships throughout the Asian region that provides us with a unique opportunity to penetrate these under-developed markets.

Gaming Regulations and Licensing of Gaming Machine Participation

The regulatory structures in the Asian countries where we are pursuing our electronic gaming machine participation business, including the Philippines and Cambodia, are not as developed or clearly defined as the United States.  In general, all of the countries in which we currently operate require the venue owner to obtain a gaming license in order to operate the electronic gaming machines leased by us and we demand that all venue owners to whom we lease electronic gaming machines, being our customers in the Philippines and Cambodia, hold the required gaming licenses to operate their venues.  Since our business model primarily focuses on leasing the gaming machines to the venue owner, technically, we are not considered to be an operator or owner of the gaming operations by the relevant authorities (although to a certain extent we have assumed some operator roles, including but not limited to the design of marketing programs, recruitment, training and management of floor staff,  in certain of our venues) and thus, we are not required to obtain any form of gaming license in either the Philippines or Cambodia for our participation business in such jurisdictions.  However, current gaming laws, including licensing requirements and other regulatory obligations, could change or become more stringent resulting in additional regulations being imposed upon us and our electronic gaming machine participation operations.  Any such adverse developments in the regulation of the gaming industry could be difficult to comply with and significantly increase our costs which, in turn, could cause our projects to be unsuccessful.

TABLE GAME PRODUCTS

Overview

During the fiscal year ended December 31, 2009, our table game products were focused on the development, manufacture and sale of gaming chips which included:

·      High-frequency RFID casino chips which are traditional casino chips embedded with a RFID tag that allows casinos to identify counterfeit casino chips and track table play.  The high-frequency 13.56 MHz RFID casino chip is designed to provide real-time data capability, enhanced chip security, player tracking and accounting management benefits for casinos. The high-frequency RFID chips enable casinos to read 1,000 chips per second and have a memory capacity of over 10,000 bits.

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·                  Traditional casino chips for various table games, including a wide range of American-style gaming chips with 30 different color combinations, various sizes and other personalized printing combinations.

·                  High-frequency RFID casino plaques, which use modern, efficient plastic thermoforming techniques and a process of printing graphics to polymer that provides for a broad range of colors or designs, including a full photographic finish. Our plaques have unique security features including a patented RFID inlay which is tamper-proof and identifies each plaque, a currency grade ceramic DNA strand embedded in the plastic, a multi-directional hologram and serialization. They are available in five rectangular and three square shapes or customized to buyer requirements.  The development of our high-frequency RFID gaming plaques was completed during the fourth quarter of 2009.

During the fiscal year ended December 31, 2009, our table game products also included the development, manufacture and sale, through our distributor network, of products that automate the current manual processes supporting casino table games and provide additional security to the gaming industry.  These products included:

·                  The Deck Checker™, an automated playing card scanner that scans decks of playing cards to ensure an accurate count and verifies that all of the playing cards are present.

·                  The RandomPlus Card Shuffler, a shuffling device capable of shuffling up to eight decks of playing cards at once.

·                  The ShufflePro Shuffler, a high-speed playing card-shuffler designed for use with one or two deck table games such as standard poker room games and baccarat.

·                  The ChipWasher, a fully-automated gaming chip cleaner that washes and sanitizes gaming chips.  During the three-month period ended September 30, 2009, we recorded an impairment loss of $424,500 related to the write-down of an intangible asset associated with the chip washer patents.

Pursuant to the Purchase and Settlement Agreement, in March 2009 we sold to Shuffle Master our portfolio of automated card verification machines and electronic card shuffling systems, including Deck Checker™, RandomPlus Card shuffler, ShufflePro shuffler, all related intellectual property, and certain inventory of such products and, at the same time, settled with Shuffle Master all outstanding patent infringement litigation with respect to U.S. Patent No. 6,655,684 dealing with automated shuffler technology.  The total consideration paid by Shuffle Master to us under the Purchase and Settlement Agreement was $2.8 million, including a base amount of $2.4 million plus $400,000 for related inventory. Meanwhile, as a result of closing down our China manufacturing facility during the second quarter of 2009, we decided to exit the chip washer business and ceased the production of ChipWasher after evaluating the market opportunities for this product.

Marketing and Distribution

During the fiscal year ended December 31, 2009, we terminated our distribution agreements with third-parties as detailed below.

On January 6, 2006, we entered into a distribution agreement with Elixir Group which provided exclusive distribution rights for our high-frequency RFID casino chips for certain Southeast Asia casino properties and non-exclusive distribution rights elsewhere in Asia.  In October 2006 and February 2007, the distribution agreement was expanded to encompass our entire line of table game products and Elixir Group’s exclusive distribution rights to include all of Asia, Australia and New Zealand. This distribution agreement was terminated with effect on February 1, 2009.

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In June 2007, we entered into a distribution agreement with Suzo Happ Group, pursuant to which Suzo Happ Group served as the exclusive distributor of our table game products in North, Central and South America, Europe, South Africa and the Russian Federation.  In order to facilitate the sale of our portfolio of automated card verification machines and electronic card shuffling systems to Shuffle Master under the Purchase and Settlement Agreement mentioned above, this distribution agreement was terminated with effect on March 13, 2009.  Pursuant to the termination arrangement with Suzo Happ and, indeed, under the terms of the original distribution agreement, we purchased back the unsold inventory of our products from Suzo Happ and reimbursed it for the costs incurred by it in relation to the certification of our products, upon termination of the distribution agreement.

Since, pursuant to the Purchase and Settlement Agreement, we have undertaken to Shuffle Master for a period of seven years not to engage or participate, directly or indirectly, in the manufacturing and selling of automated card verification machines and electronic card shuffling systems, we believe the termination of the distribution agreements with Elixir Group and Suzo Happ will not have any material adverse effects on our overall business.

Regarding our Dolphin’s high-frequency RFID and traditional non-RFID gaming chips and plaques, we have engaged a local marketing agent in Australia for promoting and distributing these gaming chip products for us in Australia, New Zealand and certain other Asian territories including Macau and Singapore and at present, our customers include, amongst others, City of Dreams casino, Altira casino and Galaxy casino in Macau, Crown Casino in Melbourne and Burswood Casino in Perth, Australia.  Meanwhile, we are currently in discussion with another marketing agent for promotion and distribution of our gaming chip products in Europe and South Africa. However, since the gaming chip products are generally be regarded as “gaming device” by the gaming authorities in most of the states of U.S., which therefore requires the manufacturer of these products to be licensed, we currently do not have the intention to market or sell our Dolphin’s gaming chip products in the U.S. market.

Competition

The gaming products industry is competitive.  We compete with established gaming products companies, which have more substantial histories, backgrounds, experience and records of successful operations, greater technical, marketing and other resources, more employees and more extensive facilities than we have or will have in the foreseeable future.  During the fiscal year ended December 31, 2009, our most significant competitors in the table game products segment were Shuffle Master for automated card verification machines and electronic card shuffling systems and Gaming Partners International Corporation for our gaming chips and plaques.

Gaming Regulations and Licensing

In connection with the negotiation and development of the Product Participation Agreement with Elixir Group, we decided to focus our primary business operations on the ownership and leasing of electronic gaming machines in Asia.  In order to most efficiently accomplish our goals and objectives with respect to the Asian electronic gaming machine market, we decided to surrender our gaming licenses in the United States. This process was completed in early 2008.

In most jurisdictions, our table game products, other than the gaming chip products, fall within the general classification of “associated equipment”, which is defined as equipment that is not classified as a “gaming device,” but which has an integral relationship to the conduct of licensed gaming.  Regulatory authorities in some jurisdictions have discretion to require manufacturers and/or distributors to meet licensing or suitability requirements prior to or concurrently with the use of associated equipment.  Additionally, in most jurisdictions, the regulatory authorities must approve associated equipment after testing in an appropriate testing lab (either state run or independent) in advance of its use at licensed locations.  During fiscal 2008 and 2009, in those jurisdictions in the United States that allow the sale of our approved table game products through a licensed distributor, we sold through Suzo Happ Group, our then exclusive distributor for North and South America, Europe and South Africa. The distribution agreement with Suzo Happ Group was subsequently terminated on March 13, 2009 as explained above. In other jurisdictions where sales through a distributor are not allowed, including New Jersey, Mississippi, Indiana and Washington, our products were not available.  In the Asian markets, our products were distributed by Elixir Group, pursuant to the terms of the January 2006 distribution agreement as amended in 2007. This distribution agreement was subsequently terminated with effect on February 1, 2009.

Regarding our Dolphin’s gaming chips products, in most jurisdictions outside the U.S. market, neither manufacturer nor distributor of the gaming chips products are required to be licensed. However, since the gaming chip products are generally be regarded as “gaming device” by the gaming authorities in most of the states of U.S., which therefore requires the manufacturer of these products to be licensed, we currently do not have the intention to market or sell our Dolphin’s gaming chip products in the U.S. market.

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Product Development, Manufacturing and Assembly

As part of our cost cutting measures and focus on our core participation business, on December 31, 2008, we scaled down the facility for the manufacture and assembly of our table game products in Xiaolan, China.  This facility focused on enhancements to our shuffler, deck checker and chip washer product lines.  Following the sale to Shuffle Master of our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, and certain inventory of such products pursuant to the Purchase and Settlement Agreement as set out above, we closed the China facility during the second quarter of 2009.  As a result of the close down of this facility, we ceased the production of ChipWasher, and during the three-month period ended September 30, 2009, we recorded an impairment loss of $424,500 related to the write-down of an intangible asset associated with the chip washer patents.

Suppliers

During the fiscal year ended December 31, 2009, most components for our Shufflers and DeckChecker products were sourced in China. Shuffler and DeckChecker assembly was conducted in China and final units were shipped to our Macau warehouse for distribution to the North American, Asian, Australian and European markets. As a result of our sale of the portfolio of automated card verification machines and electronic card shuffling systems and all related intellectual property to Shuffle Master in April 2009, the related sourcing of materials and the assembly and production of such products has been discontinued. The manufacture of RFID casino chips is performed at Dolphin, our subsidiary in Australia, which specializes in plastic injection molding. Dolphin has licensed certain RFID technology from a third party.

NON-GAMING OPERATIONS

Dolphin specializes in tool-making, custom injection molding and clean room manufacture of high-precision plastic products together with non-gaming product lines of high-quality products for the automotive industry.  From our state of the art facility in Melbourne, Australia, we produce various automotive components including inner remote door handles, fuel filler hinge assemblies, module brackets, steering wheel spoke covers, speaker grills, fasteners, safety products and vehicle cosmetic components. In addition to Australia, Dolphin supplies components to auto manufacturers in North and South America, Europe, and the Asia Pacific region.

Marketing and Distribution

We market our automotive products through automotive organizations and institutions and are a preferred supplier to General Motors Holden, Toyota, Autoliv and Bridgestone, all of whom typically include us among the suppliers from whom they solicit bids on supply contracts.

Competition

The automotive tool-making and injection molding products businesses are highly competitive.  Our competitors include ITW Deltar, Hook Plastics, Palm Plastics & Tooling, Hasico and Sneddon & Kingston Plastics, all of whom have greater financial resources, infrastructure and experience.  However, it should be noted that the recent financial crisis has resulted in some consolidation of our competitor base.

Product Development, Manufacturing and Assembly

Automotive components manufactured by our Dolphin division are used for both internal and external applications and some are safety products.  We use our experience and expertise in engineering, tool-making and process technology in partnership with leading automakers. We provide to our customers full design, development and prototyping of new products.  Simultaneous engineering and Production Part Approval Process, a process which includes 19 procedures that a supplier must adhere to and must be approved by customers, is standard for automotive components manufactured at the Dolphin subsidiary.

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In addition, we occasionally engage research and development consultants to complement our skill set in specific areas of engineering activities.  We hire contract personnel on a varied basis depending upon production and installation volumes.

RESEARCH AND DEVELOPMENT

The research and development center, located in Zhuhai, China was closed down at the end of 2008.  Since then, all research and development related to non-gaming operations has been performed at our facilities in Melbourne, Australia.  Our current research and development emphasis is to improve our existing product lines and we spent $276,781 in 2009 and $678,047 in 2008 on research and development activities.

INTELLECTUAL PROPERTY

In October 2005, we acquired the rights to U.S. Patent No. 6,659,875, which covers a unique process for manufacturing RFID chips and plaques. We also hold patents covering similar processes issued by Australia and the United Kingdom. In addition, in February 2007, we filed a new provisional specification in Australia to protect additional enhancements in the manufacture of RFID chips and plaques.

We had one ChipWasher patent application on file with the USPTO and five applications pending in foreign jurisdictions which expired in September 2009 and were not renewed.

In April 2009, pursuant to the Purchase and Settlement Agreement with Shuffle Master, we completed the sale of our card verification and electronic card shuffling assets, including the exclusive rights to our table game products, primarily through federal and foreign intellectual property rights, such as patents, copyrights and trademarks to Shuffle Master.

For those intellectual property applications, claims and rights that do not form part of the subject matter of the transaction under the Purchase and Settlement Agreement with Shuffle Master and continue to be held by us, there can be no assurance that any of the claims contained in our pending United States or foreign patent or trademark applications will be issued, that any of these rights will not be infringed by others or that already issued patents or trademark registrations will not be invalidated or canceled. Third parties could infringe on our rights or successfully duplicate our products without infringing on our legal rights.

Many elements incorporated in our proprietary products are in the public domain or otherwise not amenable to legal protection and the steps taken by us will not, in and of themselves, preclude competition with our proprietary products.

EMPLOYEES

As of March 15, 2010, we had approximately 14 full-time employees in Hong Kong, 1 full-time employee in the United States, 34 full-time employees in the Philippines, 31 full-time employees and 123 contracted staff for floor operation at NagaWorld in Cambodia and 63 full-time employees in Australia. None of our employees are represented by labor unions, and we consider our relationship with our employees to be satisfactory.

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AVAILABLE INFORMATION

Our website is located at www.elixirgaming.com.  The information on or accessible through our website is not part of this annual report on Form 10-K.  A copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names of our executive officers and their ages, titles and biographies as of March 15, 2010 are set forth below.

Our executive officers are appointed by, and serve at the discretion of, our board of directors. Each executive officer is a full time employee although our chief executive officer, Mr. Clarence Chung, also serves as an executive director of Melco International Development Limited, the parent corporation of our principal shareholder, Elixir Group Limited. There are no family relationships between any of our executive officers or directors.

Clarence (Yuk Man) Chung joined our board in October 2007 and has served as our chairman of the board since August 2008 and was appointed chief executive officer in October 2008. Mr. Chung is also a director of Melco International Development Limited (“Melco”) and joined Melco in December 2003. Mr. Chung has many years of financial experience working in the financial industry in various capacities as a chief financial officer, an investment banker and a merger and acquisition specialist. He is also currently a director of Melco Crown Entertainment Limited, a company listed on the Nasdaq Global Market. Mr. Chung was named one of the “Asian Gaming 50 - 2009” by Inside Asian Gaming magazine. He holds a master degree in business administration from the Kellogg School of Management at Northwestern University and is a member of the Hong Kong Institute of Certified Public Accountants and the Institute of Chartered Accountants in England and Wales.

Andy (Kin Ming) Tsui has served as chief accounting officer since April 2009 and as vice president of finance since July 2008. Prior to joining our Company, Mr. Tsui had been the regional finance controller-Asia for Minteq International Inc., a wholly-owned subsidiary of Minerals Technologies Inc. (NYSE: MTX) based in Shanghai since June 2005.  From March 2003 to May 2005, he served as manager of financial analysis at the corporate office of Minteq International Inc. in New York. Mr. Tsui holds a Master of Business Administration degree from Baruch College, City University of New York and is a certified public accountant in the United States.

Item 1A.                          Risk Factors

In this report we make, and from time-to-time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives.  For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties.  No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made.  Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision.  Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement. Some of these important factors, but not necessarily all important factors, include those set out below.

We have a history of significant operating losses and anticipate continued operating losses for at least the near term. For the fiscal years ended December 31, 2009 and 2008, we have incurred net losses of $26,359,450 and $26,955,196, respectively, and our operations have used $6,955,397 and $30,096,613 of cash, respectively. As of December 31, 2009, we had an accumulated deficit of $380,926,107. We expect to continue to experience negative cash flows from operations until such time as we are able to substantially increase revenues and control expenses to levels that will allow us to operate on a positive cash flow basis. While management will endeavor to generate positive cash flows from our placement of electronic gaming machines in Asia, there can be no assurance that we will be successful in generating positive cash flows from operations.

Our revenues from our gaming machine participation operations are difficult to predict and may vary from our projections because the business model is new and the venues are not operated by us.  Our primary focus now is on the ownership and leasing of gaming machines on a revenue sharing basis across certain countries in Asia.  We focus on targeting venue owners in underserved gaming markets who have little or no gaming operations or experience.  Since we participate on a revenue sharing basis with these venue owners, our revenue generated from the revenue sharing arrangements will be dependent to a significant degree on the efforts and capabilities of the venue owners.  Our revenues and results from our gaming machine participation operations may be difficult to predict and may vary depending on the ability of the venue owners to manage the gaming operations of their venues.  Accordingly, there can be no guarantee that the venue owners will be able to manage the gaming operations successfully or that the gaming venues operated by them will perform at levels consistent with our financial projections and underlying forecasts and assumptions. Further, we have very limited past business relationships with the venue operators and assume that the venue operators are reputable. In the event that any of the venue operators are not reputable this would expose us to the risk of being unable to collect the revenue to which we are entitled under the revenue share arrangements and protect our gaming machine assets.

We could require additional funding in the future to continue to operate our business.  As of December 31, 2009, we had working capital of approximately $7.4 million.  Since December 31, 2009, our working capital has been reduced because of the payment of $2.74 million to NagaWorld in relation

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to the Machines Operation and Participation Consolidation Agreement entered into on December 30, 2009.  The $2.74 million payment represents the total of the remaining two installments which represented 50% of the $1.38 million one-time non-refundable contract amendment fee and the $4.1 million commitment fee for the placement of an additional 200 machines.  Since December 31, 2009, our working capital has been positively affected by the inflow of cash from our operations at NagaWorld.  We believe we have sufficient cash on hand to fulfill all current obligations as they become due.  Based on our internal revenue projections, existing contemplated machine placement rollout plans and our inventory of electronic gaming machines, we believe we have the needed capital to fund our operations over the next twelve months. However, if our revenue projections fail to meet our existing internal projections, we are required to procure additional gaming machines for projects or due to reasons not currently contemplated, we would need to raise additional capital within the next twelve months.  We would endeavor to raise funds through various financing sources, including the sale of our equity and debt securities and the procurement of commercial debt financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the following results can occur:

·                  the percentage ownership of our existing stockholders will be reduced;

·                  our stockholders may experience additional dilution in net book value per share; and/or

·                  the new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock.

Our growth into markets outside the United States exposes us to risks inherent in international business operations. We intend to market our gaming machine participation business and sell our remaining line (excluding the portfolio of automated card verification machines and electronic card shuffling systems which we have sold to Shuffle Master pursuant to the Purchase and Settlement Agreement) of table game products outside the United States. We intend to focus our sales efforts for our table game products, namely the RFID and traditional non-RFID gaming chips and plaques, in Asia, Australia, and Europe but our international expansion efforts may not be successful. Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

·                  increased cost of enforcing our intellectual property rights;

·                  heightened price sensitivity from customers in emerging markets;

·                  our ability to establish local manufacturing, support and service functions, and to form channel relationships with resellers in non-U.S. markets;

·                  localization of our electronic gaming machines and components, including translation into foreign languages and the associated expenses;

·                  compliance with multiple, conflicting and changing governmental laws and regulations;

·                  foreign currency fluctuations;

·                  laws favoring local competitors;

·                  weaker legal protections of contract terms, enforce recoveries of receivables and intellectual property rights and mechanisms for enforcing those rights;

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·                  market disruptions created by public health crises in regions outside the United States, such as Avian flu, SARS and other diseases;

·                  difficulties in staffing and managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions; and

·                  changing regional economic, political and regulatory conditions.

We may be unable to adequately protect our intellectual property rights. Our success in businesses, in particular, in relation to our table game products and non-gaming business, is impacted by maintaining the confidentiality and proprietary nature of our intellectual property rights. Our ability to compete may be damaged, and our revenues may be reduced if we are unable to protect our intellectual property rights adequately. To protect these rights, we rely principally on a combination of:

·                  contractual arrangements providing for non-disclosure and prohibitions on use;

·                  patents and pending patent applications;

·                  trade secret, copyright and trademark laws; and

·                  certain built-in technical product features.

Patent, trade secret, copyright and trademark laws provide limited protection. The protections provided by laws governing intellectual property rights do not prevent our competitors from developing, independently, products similar or superior to our products and technologies. In addition, effective protection of copyrights, trade secrets, trademarks, and other proprietary rights may be unavailable or limited in certain foreign countries. We may be unaware of certain non-publicly available patent applications, which, if issued as patents, could relate to our services and products as currently designed or as we may modify them in the future. Legal or regulatory proceedings to enforce our patents, trademarks or copyrights could be costly, time consuming, and could divert the attention of management and technical personnel.

It is possible that our table game products and/or, non-gaming products will be the subject of future patent litigation if the products are sold and installed in the United States and, if commenced, could subject us to continuing litigation costs and risks. To the extent that we introduce new products that incorporate the same or similar technology, it is likely that a competitor will bring one or more claims against us seeking damages, injunctive or other equitable relief, or both. We cannot predict the outcome of any present or future litigation that may occur.

If our future products incorporate technologies that infringe the proprietary rights of third parties and we do not secure licenses from them, we could be liable for substantial damages that would cause a material reduction in revenues and impair our prospects for achieving growth and profitability.

In furtherance of the development of our services or products, we may need to acquire licenses for intellectual property to avoid infringement of third-party rights or claims of infringement. These licenses may not be available on commercially reasonable terms, if at all. Claims for infringement, if made, could damage our business prospects, our results of operations and financial condition, whether or not the claims have merit, by:

·                  consuming substantial time and financial resources required to defend against them;

·                  diverting the attention of management from growing our business and managing operations;

·                  resulting in costly litigation; and

·                  disrupting product sales and shipments.

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If any third party prevails in an action against us for infringement of its proprietary rights, we could be required to pay damages and either enter into costly licensing arrangements or redesign our products so as to exclude the infringing technology. As a result, we would incur substantial costs and delays in product development, sales and shipments, our revenues may decline substantially and we may not be able to achieve the growth required for us to achieve profitability.

Elixir Group holds a significant interest in our common stock, giving Elixir Group the significant power over our management and all shareholder actions. As of March 15, 2010, Elixir Group owned 45.8 million shares of our common stock, representing approximately 40% of our issued and outstanding common shares, and has the right to acquire another 10 million common shares upon the exercise of outstanding common stock purchase warrants. Accordingly, Elixir Group has significant control over our management and all matters requiring approval by our shareholders, including the power to elect our board members and effect the approval of mergers and other significant corporate transactions. This concentration of ownership will make it difficult for other shareholders to effect substantial changes in our company, and also will have the effect of delaying, preventing or expediting, as the case may be, a further change in control of our Company.

Our common stock may be delisted from the NYSE Amex and if this occurs you may have difficulty converting your investment into cash efficiently.  The NYSE Amex has established certain standards for the delisting of a security from the NYSE Amex.  The standards for delisting from the stock market include, among other things, common stock selling for a substantial period of time at a low price per share, if the issuer fails to effect a reverse split of such shares within a reasonable time after being notified that the stock exchange deems such action to be appropriate.  Our common stock has continuously traded below $1.00 since August 2008. While we have not received any communications to date from the NYSE Amex concerning the selling price of our common shares, there can be no assurance that the NYSE Amex will take action to delist our common stock from the exchange due to the low selling price of the shares.  If that were to occur, we would consider effecting a reverse split of our common stock in order to raise our share price to a level satisfactory to the NYSE Amex.  However, reverse splits of the thinly traded shares have, at times, resulted in declining share prices after a proportional adjustment in share price to give effect to the split.  If our common stock were to be excluded from the NYSE Amex, or if we elected to conduct a reverse split in order to maintain the listing, the price of our common stock and the ability of holders to sell such stock could be materially adversely affected.

Our board of directors may issue blank check preferred stock, which may affect the voting rights of our holders and could deter or delay an attempt to obtain control of us. Our board of directors is authorized, without stockholder approval, to issue preferred stock in series and to fix and state the voting rights and powers, designation, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Preferred stock may rank prior to our common stock with respect to dividends rights, liquidation preferences, or both, and may have full or limited voting rights. Accordingly, issuance of shares of preferred stock could adversely affect the voting power of holders of our common stock and could have the effect of deterring or delaying an attempt to obtain control of us.

The global recession has negatively impacted the demand for automobiles which, in turn, could make it difficult to collect on accounts receivables from our Dolphin subsidiary customers.  For the fiscal years ended December 31, 2009 and 2008, we have reported net account receivables of $808,831 and $535,983, respectively, from the automotive segment of our Dolphin subsidiary. Due to the global recession and subsequent reduced demand for automobiles, many auto manufacturers, which include some of our Dolphin subsidiary’s customers, are experiencing financial and operating difficulties.  These difficulties could impact our customers’ ability to pay us and our ability to collect on receivables due from these customers.  For the fiscal year ended December 31, 2009, our largest non-gaming customer, Futuris Automotive, accounted for 8% of the Company’s consolidated revenues.  While no non-gaming customer accounts for over 10% of the Company’s consolidated revenues for the fiscal year ended December 31, 2009, the loss of any major customers could negatively impact the financial performance of the non-gaming segment and increase the risk of impairment on the long-lived assets and intangible assets.  While the automotive parts industry has recently shown signs of stabilization, we believe it will remain volatile throughout 2010.

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Item 1B.                          Unresolved Staff Comments

Not applicable.

Item 2.                                   Properties

In May 2009, we closed our United States office at 6650 Via Austi Parkway, Suite 170, Las Vegas, Nevada, which consisted of approximately 2,600 square feet of office facilities used for accounting and administration. We currently have a mailing address at 40 E. Chicago Avenue, #186, Chicago, Illinois.

We also lease the following offices throughout Asia and in Australia:

(1)   Lease renewed in March 2010 and expires March 2011.

Item 3.                                   Legal Proceedings

There are no pending legal proceedings to which we or our properties are subject, except as set forth below or for routine litigation incurred in the normal course of business.

On October 5, 2004, Shuffle Master filed a patent infringement action against us in the United States District Court, District of Nevada (Case No. CV-S-04-1373-JCM-LRL) claiming that the use, importation and offering for sale of our PokerOne shuffler infringed Shuffle Master’s United States Patent, No. 6,655,684.  We responded by denying Shuffle Master’s claim of patent infringement. On February 1, 2008, the District Court granted our motion for summary judgment on all patent infringement claims.  On February 29, 2008, Shuffle Master filed a notice of appeal of the February 1, 2008 court ruling.  On February 15, 2008, we delivered a demand to Shuffle Master for $3.0 million in damages for the wrongful injunction they obtained in 2004.  We also filed a motion in District Court to recover our attorney fees in the litigation.  Shuffle Master initially filed an appeal from the District Court ruling, but subsequently withdrew their appeal.

While originally the case would have gone back to the District Court to resolve our claims for damages and attorney fees, on March 16, 2009, we entered into a Purchase and Settlement Agreement with Shuffle Master (the “Purchase and Settlement Agreement”) pursuant to which we sold to Shuffle Master our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, including but not limited to, the trademarks of Random Plus™, PokerOne™, ShufflePro™ and Deck Checker™, and certain inventory of such products. In addition, we and Shuffle Master have settled all outstanding patent infringement litigation with respect to U.S. Patent No. 6,655,684 dealing with automated shuffler technology.  The total consideration paid by Shuffle Master to us under the Purchase and Settlement Agreement was $2.8 million.

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Purton Litigation

On October 5, 2007, William Purton filed an action against us in the Supreme Court of Victoria at Melbourne, Australia claiming he was owed monies under the July 2006 share sale agreement by which we acquired Dolphin.  In addition, Mr. Purton claimed he was owed money for an independent contractor agreement that he claims he was offered.  We subsequently filed a counterclaim.   After considering external legal counsel’s advice on an amicable settlement of this litigation, on June 17, 2009, we entered into a deed of release with William Purton and the other plaintiffs in which he has control (collectively, the “Purton Parties”), for the settlement of all legal claims, disputes and proceedings between the parties. Pursuant to the terms of the release, on a without admission basis, we paid to Purton Parties a lump sum of $550,000. The remaining reserve for the Purton litigation of $655,506 was reversed from accrued expenses and reported as other income in the consolidated statements of operations. With the notification of discontinuance of litigation filed with the Supreme Court of Victoria at Melbourne, Australia on June 24, 2009, this litigation matter was settled.

Sales Tax Audit

In February 2004, the State of Nevada initiated a sales/use tax audit of the Company’s equipment lessors. As of the date of this filing, the State of Nevada has not made a determination if there has been a double tax payment of the sales/use tax. Based on ongoing correspondence with the Nevada Department of Tax, we believe certain payments made to the State of Nevada and other states may not be recoverable and, therefore, we provided an additional allowance for the receivable balance. As of December 31, 2009, we had a tax refund receivable balance of $83,324, net of an allowance of $350,189. We will continue to assess the collectability of this receivable balance and make appropriate adjustments when necessary.

Item 4.            Submission Of Matters To A Vote Of Security Holders

On October 30, 2009, we held our 2009 annual meeting of shareholders in Hong Kong.  Out of 114,956,667 common shares issued and outstanding as of the record date and entitled to vote at such annual meeting, there were present at such meeting, in person and by proxy, shareholders holding 86,874,058 of our voting shares.  We held the annual meeting of shareholders, for the purposes of:

·                  Electing five directors, each to serve until our 2010 annual meeting of shareholders; and

·                  Ratifying the appointment of Ernst & Young, as our independent registered public accounting firm, for the fiscal year ending December 31, 2009.

All of the persons nominated to serve on our board of directors, namely, Mr. Clarence Chung, Mr. Vincent L. DiVito, Mr. John W. Crawford, Mr. Samuel Tsang and Dr. Anthony Tyen, were elected to our board of directors for terms of one year each.

Our shareholders approved the ratification of Ernst & Young as our independent registered public accounting firm.

There were no broker non-votes cast on any of the above matters.

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PART II

Market Information

Our common stock currently trades on the NYSE Amex under the symbol “EGT”.

The following table sets forth the high and low closing sale prices of our common stock, as reported by the NYSE Amex, for each quarter during the past two fiscal years:

Holders of Record

As of December 31, 2009, we had outstanding 114,956,667 shares of common stock, held by approximately 236 shareholders of record.

Dividend Policy

We have never declared or paid cash dividends on our common stock. We presently intend to retain earnings to finance the operation and expansion of our business and do not anticipate declaring cash dividends in the foreseeable future.

Equity Compensation Plan Information

In September 2008, our shareholders approved the adoption of our 2008 Stock Incentive Plan. We previously had two other stock options plans, our Amended and Restated 1999 Stock Option Plan and our Amended and Restated 1999 Directors’ Stock Option Plan, both of which expired in January 2009.  However, all options previously granted under our expired stock option plans remain outstanding.  Pursuant to the aforementioned plans, as of December 31, 2009, there were options outstanding to purchase 10,737,065 shares of our common stock with a weighted average exercise price per share of $1.84 and options available for future issuance to purchase 4,500,000 shares of our common stock.

The following table sets forth certain information as of December 31, 2009 about our stock plans under which our equity securities are authorized for issuance.

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The first column reflects outstanding stock options to purchase: (i) 6,074,465 shares of common stock pursuant to our Amended and Restated 1999 Stock Option Plan; (ii) 92,600 shares of common stock pursuant to our Amended and Restated 1999 Directors’ Stock Option Plan; (iii) 4,070,000 shares of common stock pursuant to certain non-plan options approved by our stockholders in September 2007; and (iv) 500,000 shares of common stock pursuant to our 2008 Stock Incentive Plan.

The third column reflects 4,500,000 shares remaining for issuance under our 2008 Stock Incentive Plan as of December 31, 2009.

Item 6.                                                           Selected Financial Data

Not applicable.

Item 7.                                                           Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements.  The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole.  This discussion should be read in conjunction with our consolidated financial statements and accompanying notes as of and for the fiscal years ended December 31, 2009 and 2008 included elsewhere in this report.

Elixir Gaming Technologies is a provider of gaming technology solutions, with a primary focus on leasing electronic gaming machines on a revenue sharing basis to gaming establishments within Pan Asian markets.  We identify and secure venues for the placement of electronic gaming machines and casino management systems, which track game performance and provide statistics on each installed electronic gaming machine owned and leased by us.  We contract with the venue owners or operators for the placement of the electronic gaming machines on a revenue sharing basis. In addition, we acquire and install the gaming machines, casino management systems and other gaming peripherals at the relevant gaming venues.

As of December 31, 2009, our gaming machine participation operations were concentrated in two countries, Cambodia and the Philippines. In Cambodia, we had 440 machines at one venue, NagaWorld, a wholly-owned subsidiary of Hong Kong listed NagaCorp Ltd. (HKSE: 3918).  In the Philippines, we had 859 machines in operation at seven venues.

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We remain focused on selectively growing our installed base through the addition of high-potential new venues in our target markets.  Pursuant to the Machines Operation and Participation Consolidation Agreement entered into with NagaWorld dated December 30, 2009, we are entitled to add a total of 200 gaming machines seats to our operations at NagaWorld. To date during the first quarter of 2010, we have already added 120 gaming machine seats and we anticipate the addition of the remaining 80 gaming machine seats will be completed by the end of the second quarter of 2010.  In addition, we continue to actively pursue placement opportunities in new and existing markets, where we can leverage our expertise and relationships and capitalize on the strong propensity to gamble.  Key markets of interest are border cities in Cambodia with strong feeder markets from neighboring countries such as Thailand and Vietnam, as well as opportunities in new countries such as Vietnam and Laos.  For such new potential projects, as with NagaWorld, we are seeking an operator role.

In addition to our primary gaming machine participation business, our operations consist of table game products, which focus on the design, manufacture and distribution of RFID and traditional non-RFID casino chips and plaques, and non-gaming products, which focus on the design, manufacture and sale of component parts primarily for the automotive industry.

We believe that our gaming chip operations remain an under-exploited asset for the Company.  During the fiscal year ended December 31, 2009, we focused on increasing our marketing efforts to expand our distribution channels for these products beyond our largest existing markets of Macau and Australia, where we have strong customer relationships and market penetration.  We have also focused greater resources on development and, during the fourth quarter of 2009, added high-margin plaques to our product portfolio.  Based on these initial efforts, we have already seen solid improvement in our gaming chip sales from new and existing customers and believe we have better positioned ourselves to capitalize on the future growth opportunities for the global gaming chip and plaque market.

With regard to our non-gaming operations, Dolphin auto component sales volumes have been negatively impacted due to the decline in auto production in Australia resulting from the global financial crisis and strength of the Australian dollar.  However, as a qualified supplier to several major manufacturers, we believe Dolphin is positioned to gain market share in the future with the consolidation of competitors in the market place.

Our financial performance has improved materially during the fiscal year ended December 31, 2009.  Our consolidated revenue for the fiscal year ended December 31, 2009 was $15.6 million, of which revenue from our gaming machine participation, table games and non-gaming operations comprised 45%, 29% and 26%, respectively, of consolidated revenue.  This compares to consolidated revenue of $11.1 million for the fiscal year ended December 31, 2008, of which revenue from our gaming machine participation, table games and non-gaming operations comprised 31%, 5% and 64%, respectively, of consolidated revenue.  The improvement in consolidated revenue was driven by strong growth in our gaming machine participation and table games operations which were partially offset by the weakness in our non-gaming product sales.

During the fiscal year ended December 31, 2009, we underwent a major reorganization of our operations and streamlined our cost structure.  In April 2009, we completed the sale of our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, and certain inventory of such products to Shuffle Master and settled all outstanding litigation with Shuffle Master, which traced back to October 5, 2004.  The total consideration paid by Shuffle Master was $2.8 million, of which $2.4 million was received in March 2009 and $400,000 was received in April 2009.   We believe that this transaction provided significant financial benefits to us as it improved our cash position and freed resources to focus on addressing market opportunities that further our strategy of expanding our core electronic gaming machine participation business.

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In addition, we have successfully executed various cost reduction initiatives. Such reductions are critical given the current economic climate and provide a much leaner cost structure to expand our core gaming machine participation operations and derive greater benefits from the leverage inherent in our operating model.  During the fiscal year ended December 31, 2009, we reduced selling, general and administrative cash expenses by $6.8 million, or 46%, compared to the prior year.  Based on our cost reduction measures and current scale of operations, we believe we can maintain quarterly selling, general and administrative cash expenses in the approximate range of $1.6 to $1.8 million.

As a result, we achieved positive adjusted EBITDA (as defined below) for the fiscal year ended December 31, 2009, the first year since we enacted our new business model in September 2007.  Despite the difficult global economic environment and the challenges we suffered in our Philippines market partly due to severe adverse weather that resulted in record flooding in certain regions during the second half of the year, we were able to achieve this important target largely due to the strength of our core gaming machine participation operations in Cambodia and the successful execution of our aggressive cost reduction initiatives.

In addition to our efforts to reorganize our operations and streamline our cost structure, we made progress in improving our liquidity and financial flexibility to pursue selective growth opportunities in our core gaming machine participation business.  On July 24, 2009, we entered into an agreement with Elixir International, a wholly-owned subsidiary of Elixir Group, to amend the unsecured promissory note issued by us in April 2008 and as amended in November 2008 to Elixir International. This agreement, which became effective July 1, 2009, provides for the deferment of the repayment of principal and accrued interest payments until July 2010 and immediate cash flow benefits to Elixir Gaming by reducing cash outlays by approximately $1.6 million per quarter during the deferment period.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2009 AND 2008

The following is a schedule showing summarized operating results on a consolidated basis and separately by each of our three segments, namely, gaming machine participation, table game products and non-gaming products for the fiscal years ended December 31, 2009 and 2008.

On March 16, 2009, we entered into a Purchase and Settlement Agreement with Shuffle Master, Inc. (the “Purchase and Settlement Agreement”) pursuant to which we sold Shuffle Master our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, including but not limited to, the trademarks of Random Plus™, PokerOne™, ShufflePro™ and Deck Checker™, and certain inventories of such products.  All historical revenues and expenses from these assets sold to Shuffle Master have been reclassified as discontinued operations.

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(*)         “Adjusted EBITDA/(LBITDA)” is earnings/(losses) before interest, taxes, depreciation, amortization, stock-based compensation, and other non-cash operating income and expenses. Adjusted EBITDA/(LBITDA) is presented exclusively as a supplemental disclosure because management believes that it is widely used to measure the performance and, as a basis for valuation, of gaming companies. Management uses Adjusted EBITDA/(LBITDA) as a measure of the operating performance of its segments and to compare the operating performance of its operations with those of its competitors. The Company also presents Adjusted EBITDA/(LBITDA) because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDA/(LBITDA) as a supplement to financial measures in accordance with generally accepted accounting principles in the United States (“GAAP”). Adjusted EBITDA/(LBITDA) should not be considered as an alternative to operating income as an indicator of the Company’s performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income/(loss), Adjusted EBITDA/(LBITDA) does not include depreciation or interest expense and,  therefore, does not reflect current or future capital expenditures or the cost of capital. The Company compensates for these limitations by using Adjusted EBITDA/(LBITDA) as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include operating income, net income/(loss), cash flows from operations and cash flow data. The Company has significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA/(LBITDA). Elixir Gaming’s calculation of Adjusted EBITDA/ (LBITDA) may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

A reconciliation of EBITDA/(LBITDA), as adjusted, to the net loss is provided below.

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Total revenue increased $4,509,166 to $15,622,659 in the fiscal year ended December 31, 2009 over the prior year primarily due to the increase in gaming machine participation revenue and a large gaming chip order to a new casino in Macau. Gaming machine participation revenue increased by $3,564,680 to $6,997,776, reflecting the significant growth in consolidated average net win per machine and an increase in the number of gaming machines in operation.  However, non-gaming product sales decreased $2,962,651 to $4,108,960 as a result of the global recession and subsequent reduced demand for automobiles, which negatively impacted some of our Dolphin subsidiary’s customers.

Our net loss decreased $595,746 to $26,359,450 while loss per share remained the same at $0.23 per share in the fiscal year ended December 31, 2009 as a result of higher gaming participation revenues driven by improving average net wins; higher revenue and gross profit from increased gaming chip orders; substantially reduced operating expenses; and benefits from legal settlement gain, all of which were partially offset by impairment charges on gaming equipment and systems; higher depreciation impact on our gaming machine participation business as it continues to ramp up net win results, lower sales and resulting gross margins in our non-gaming business, reduced interest income, and higher income tax expense compared to the prior year.

Gaming Machine Participation

In September 2007, we began our electronic gaming machine participation operations in Asia as part of our primary focus on placing gaming machines on a revenue sharing basis. Revenue from our gaming machine participation operations during the fiscal year ended December 31, 2009 increased $3,564,680 to $6,997,776 compared to revenue of $3,433,096 for the prior year. The increase in revenue was primarily the result of higher average net win per machine compared to the prior year when our gaming machine participation operations were still immature.

Gross loss from gaming machine participation operations decreased $1,530,693 to $4,107,650 for the fiscal year ended December 31, 2009 compared to a gross loss of $5,638,343 for the prior year as revenue from gaming machine participation increased significantly more than depreciation expenses for our gaming machine participation operations, partially offset by higher gaming machine operating costs.  Revenues have yet to cover the cost of machine depreciation, which is recorded in cost of operations.  Our cost of goods sold for the fiscal year ended December 31, 2009 included $10,054,265 depreciation of electronic gaming machines and $1,051,161 of other expenses, which include approximately $150,000 in machine redeployment costs.

As of December 31, 2009, we had a total of 1,702 gaming machine seats of which 403 were held in inventory and 1,299 machines were in operation.  Of the 1,299 gaming machine seats in operation, 440 were in operation in one venue/one location in Cambodia and 859 machines were in operation in seven venues in the Philippines.

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In Cambodia, regulatory changes within the last year impacted the competitive landscape of gaming operations in this market.  Due to directives issued by the Cambodian government in December 2008 and February 2009, all slot clubs in the Phnom Penh area, including our then contracted venues, were closed with the exception of the slot operations within NagaWorld. In December 2008, we established a relationship to place electronic gaming machines on a participation basis at NagaWorld hotel casino resort in the capital city of Phnom Penh.  NagaWorld operates under an exclusive casino license in Phnom Penh and our operations within NagaWorld are now our only operations in Cambodia.

During the fiscal year ended December 2009, we placed 440 gaming machine seats in prime locations of NagaWorld’s casino resort pursuant to three contracts between us and NagaWorld.  On December 30, 2009, we entered into another contract with NagaWorld entitled Machines Operation and Participation Consolidation Agreement (the “Consolidation Agreement”).   The Consolidation Agreement (a) provides for our right to exercise an option granted by NagaWorld pursuant to an option deed dated July 25, 2009 to place an additional 200 electronic gaming machines on a participation basis at NagaWorld’s casino resort; and (b) with effect from the date of the Consolidation Agreement, supersedes and replaces the terms of the existing operation of 440 electronic gaming machines at the NagaWorld Casino under the three previous agreements executed with NagaWorld dated December 13, 2008 (“December 08 Agreement”), June 15, 2009 (“June 09 Agreement”) and July 25, 2009 (“July 09 Agreement”) (collectively, the “Previous Agreements”) with new terms that aligned with the operation of the additional 200 machines.

Under the Previous Agreements: (i) we and NagaWorld would share the win per unit per day from the existing 440 machines and certain operating costs related to marketing and floor staff at a weighted average of 22.4% / 77.6% split, respectively; (ii) win per unit per day from only 200 out of 440 existing machines would be settled and distributed daily to us; and (iii) both the term of the December 08 Agreement and the June 09 Agreement would expire in the first quarter of 2014 while the term of the July 09 Agreement would expire at the end of the third quarter of 2014.

Pursuant to the terms of the Consolidation Agreement, we and NagaWorld will have joint control over the operation of the new total of 640 electronic gaming machines (comprising the 200 additional machines and the existing 440 machines placed and in operation pursuant to the Previous Agreements), including floor staff and respective audit rights. We and NagaWorld will share the win per unit per day from all the 640 machines and certain operating costs related to marketing and floor staff at a 25% / 75% split, respectively, (subject to Elixir Gaming’s entitlement to receive 100% of the win per unit per day from certain machines during a certain period of time as described below). Win per unit per day from all the 640 machines will be settled and distributed daily to us. The Consolidation Agreement is for a term of six years commencing March 1, 2010.

In consideration for the entering into the Consolidation Agreement by NagaWorld, we paid to NagaWorld a $1.38 million one-time non-refundable contract amendment fee and a commitment fee of $4.1 million. Both the one-time contract amendment fee and commitment fee were to be paid in three installments. The first 50% installment was due and paid by us on December 30, 2009, the second 25% installment was due and paid by us on January 15, 2010, and the third and final 25% installment was due and paid by us on January 28, 2010.

While we and NagaWorld will share the win per unit per day from the 640 machines at a 25% / 75% split, respectively, we will be entitled to 100% of the win per unit per day from the 200 existing machines placed under the July 09 Agreement until we have received a total accumulated win per unit per day of $7.3 million from the said 200 machines and 100% of the win per unit per day from the additional machines until we have received a total accumulated win per unit per day of $5.47 million from the additional machines under the December 30, 2009 contract (representing the $4.1 million commitment fee plus our 25% share of the win per unit per day from the additional machines).

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During the fiscal year ended December 31, 2009, we opened three new venues in the Philippines with a total of 344 gaming machine seats and closed one under-performing venue with a total of 172 gaming machine seats.  Gaming participation performance for our Philippines’ operations was negatively impacted during the second half of 2009 due to severe adverse weather, which included Tropical Storm Ondoy that struck the Philippines on Saturday, September 26, 2009 and resulted in flooding in areas including Metro-Manila.  Only two of our venues in operation suffered some water damage and the effect to our machines and equipment was minimal.    As a result, we recorded a flood damage loss of $83,052 during the fiscal year ended December 31, 2009, which represents the deductible for the insurance claims, and this has been separately presented as part of gaming participation operations in the consolidated statement of operations.  While our venues experienced only minor damage as a result of the storm, it took several weeks for our operations to gradually resume normal business activities in the affected areas.

We anticipate additional machine placements in 2010.  From December 31, 2009 to date, we have added 120 of the contracted 200 gaming machines at NagaWorld pursuant to the Consolidation Agreement dated December 30, 2009 and we expect to add the remaining 80 seats during the second quarter period of 2010.  In addition, we are actively pursuing potential new contracts in the Indo-China region, where there is gaming development and we can take an operator role.  However, total company-wide machine placements can fluctuate due to our strategic efforts to optimize average daily net wins.  In the event gaming machine performance at our contracted venues does not meet expectations, we may in this situation discuss with the relevant venue owner with a view to withdrawing all or a portion of our gaming machines from such venues for future redeployment in new or existing venues with better performance prospects.

Table Game Products

Table game products revenue increased $3,907,137 to $4,515,923 for the fiscal year ended December 31, 2009 compared to $608,786 in the prior year.  The increase was primarily a result of a large gaming chip order to a new casino in Macau during the three-month period ended June 30, 2009 and greater reorder contracts from existing customers.

Gross profit on gaming chip products increased $1,834,391 to $1,965,199 for the fiscal year ended December 31, 2009 compared to a gross profit of $130,808 in the prior year due to increased revenue and volume in our RFID gaming chips including in improved production efficiencies.

Non-Gaming Products

Non-gaming products revenue, which consists of automotive tooling and parts, decreased $2,962,651 to $4,108,960 for the fiscal year ended December 31, 2009 compared to $7,071,611 in the prior year.  The decrease was related to sales reductions to our largest customer as they decreased their production for the year primarily as a result of the sudden decrease in demand for automotive parts as a result of the global economic crisis.  While the automotive parts industry has shown signs of stabilization, we believe it will remain volatile throughout 2010.

The gross loss from non-gaming sales increased $1,023,533 to a loss of $111,214 for the fiscal year ended December 31, 2009 compared to a gross profit of $912,319 in the prior year due to the reduction in sales orders from a major customer and the resulting loss of production efficiencies.

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Operating Expenses

The following is a schedule showing expenses on a consolidated basis:

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $6,854,130 to $7,953,642 for the fiscal year ended December 31, 2009 compared to $14,807,772 in the prior year due to our cost reduction initiatives.  Salaries and wages expense declined $2.4 million as a result of headcount reductions and voluntary senior management pay reductions.  Legal expense and external consultancy and accounting fees declined $1.6 million due to greater reliance of related projects on in-house personnel.  Travel decreased by $1.0 million due to concerted efforts to reduce employee travel to the bare minimum. Rent, office supplies and other expenses decreased by $1.4 million due to various cost reduction initiatives. Bad debt expenses decreased $0.5 million.

Based on our cost reduction plans and current scale of operations, we anticipate selling, general and administrative expenses can be maintained in the approximate range of $1.6 to $1.8 million per quarter.

Stock-based Compensation Expense

Stock-based compensation expense decreased $1,718,205 to $875,790 for the fiscal year ended December 31, 2009 compared to $2,593,995 for the prior year primarily due to re-measurement of non-employee awards at fair market value and senior executives who have departed and their stock options forfeited.

Impairment of Goodwill, Intangibles and Other Long-Lived Assets

Intangible assets consist of patents, customer relationships, trademarks and goodwill. They are recorded at cost and are amortized, except goodwill, on the straight-line basis over the period of time the asset is expected to contribute directly or indirectly to future cash flows, which range from 10 to 13 years. The straight-line amortization method is utilized because we believe there is not a more reliably determinable method of reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up.

We measure and test goodwill and intangible assets for impairment in accordance with ASC 350, Intangibles-Goodwill and Other, and ASC 360, Property, Plant, and Equipment, at least annually on December 31, or more often if there are indications of impairment.

During the fourth quarter of 2008, we phased out our gaming product manufacturing operations in China and recorded an impairment charge to the patent for automated shuffler technology of $695,743 based on the assets’ carrying value exceeding the projected cash flow at December 31, 2008.

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Following the closure of the China manufacturing facility, we decided to exit the chip washer business after evaluating the market opportunities for this product. Due to lack of future demand, we determined the carrying value of related patents may not be recoverable. During the three-month period ended September 30, 2009, the Company recorded an impairment loss of $424,500, which relates to a write-down of an intangible asset associated with the chip washer patents.

The following table summarizes the impairment of goodwill and intangible assets:

Long-lived assets and definite-life intangible assets are reviewed for impairment quarterly or whenever events or circumstances indicate that the carrying amounts of assets may not be recoverable in accordance with ASC 360.  We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Such reviews assess the fair value of the assets based upon our estimates of the future cash flows we expect the assets to generate. In response to changes in industry and market conditions, we may be required to strategically realign our resources in the future which, in turn, could result in impairments of long-lived assets.

We recorded an impairment charge of $13.7 million for non-performing machines and the Philippine operations’ gaming assets for the year ended December 31, 2009. A substantial portion of the impairment represents the write-down of the carrying value to fair value of certain non-performing gaming machines in inventory for our current target markets or customers’ preferences. We identified approximately 500 machines as being non-performing based on an in-depth review of machine usability and future deployment plans. These non-performing machines are reflected under current assets as assets held for sale with a total fair value of $930,000. The impairment also included the write-down of our Philippine operations’ gaming assets based on the current carrying value of the machines in operation exceeding the expected cash flows generated from the Philippines operations.

In addition, we had a write-off of gaming assets $0.6 million relating to the closure of certain non-performing venues during the year.

The following table reflects the components of the impairment of assets included in the consolidated statement of operations:

Research and Development Expenses

Research and development expenses decreased $401,266 to $276,781 for the fiscal year ended December 31, 2009 compared to $678,047 in the prior year as a result of the complete closure of our China table game product manufacturing facility and related support services in April 2009.

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As a result of the sale to Shuffle Master of our portfolio of automated card verification machines and electronic card shuffling systems, all related intellectual property, and certain inventory of such products pursuant to the Purchase and Settlement Agreement as set out above were written off.

Future research and development will be focused on potential gaming and/or non-gaming product enhancements.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased $27,067 to $1,036,661 for the fiscal year ended December 31, 2009 compared to $1,063,728 in the prior year.  The decrease was a result of reduced depreciation expense from the closure of our United States office and our China table game product manufacturing facility.

Restructuring Charge

During the fiscal year ended December 31, 2009, as part of our cost reduction initiatives, we incurred restructuring charges of $622,935 for severance wages and benefits related to the termination of employees and vacated facility operating leases.  The amount represents contractual and other agreements with employees including a former executive, which only includes charges for termination benefits measured at the estimated fair value at the termination date and does not include charges for services yet to be rendered.  In 2008, we also incurred restructuring charges of $549,663 relating to the headcount reduction.

Other Income

Interest Expense and Finance Fees

Interest expense and finance fees decreased $200,223 to $536,805 for the fiscal year ended December 31, 2009 compared to $737,028 in the prior year principally due to lower debt levels and the reduced interest rate on the Elixir International notes.  In April 2008, we signed a note agreement for $15.0 million with Elixir International accruing 8% interest and, in November 2008, the agreement was amended and the interest rate was reduced to 5%.

Interest Income

Interest income decreased $621,279 to $85,273 for the fiscal year ended December 31, 2009 compared to $706,552 in the prior year as a result of the decrease in cash and cash equivalents held in overnight money market accounts and the general decrease in interest rates.  Cash in bank decreased by $10.3 million to $4.2 million from December 31, 2008 to December 31, 2009, respectively, mainly due to payments for the expansion of our operations at NagaWorld, gaming machine purchases, repayment of notes payable and operating expenses.

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We received funding from the private placement of common stock in the fourth quarter of 2007 and, as a result, the average cash position was significantly higher in 2008 and depleted over the years ending December 31, 2008 and 2009.  The average cash holdings per month were higher during the fiscal year ended December 31, 2008 compared to the fiscal year ended December 31, 2009.

Foreign Currency Transactions

Foreign currency losses increased $342,101 to losses of $89,533 for the fiscal year ended December 31, 2009 compared to gains of $252,568 for the prior year.  In the fiscal year ended December 31, 2009, the losses resulted from the appreciating value of U.S. dollar denominated payables for our Philippine operations. In the fiscal year ended December 31, 2008, our Philippine operations recorded foreign currency transaction gains mainly due to settlement of U.S. dollar denominated payables as a result of the appreciating value of the Philippine peso during the first quarter of 2008.

Legal Settlement Gains

We recorded a settlement gain of $655,506 from the Purton litigation during the three-month period ended June 30, 2009.  On June 17, 2009, we entered into a deed of release with William Purton and the other plaintiffs over which he had control for the settlement of all legal claims, disputes and proceedings between the parties.

Others

Other income increased $77,149 to $368,424  for the fiscal year ended December 31, 2009 compared to $291,275 in the prior year primarily resulting from the write-off of unclaimed debtor’s credit balance from prior years.

Income Tax Provision

Our effective tax rate for the fiscal year ended December 31, 2009 was approximately (1.9)% which was significantly lower than the federal statutory rate primarily due to the valuation allowance against the Company’s deferred tax assets.  We continue to review the tax losses and income generated in the future by our foreign subsidiaries to minimize taxation implication/costs.

FINANCIAL CONDITION

Liquidity and Capital Resources

On April 21, 2008, we entered into a Trade Credit Facility Agreement (the “Facility Agreement”) with Elixir International. Upon entering into the Agreement, we immediately issued the first note pursuant to the terms of the Facility Agreement in the then principal amount of $15,000,000 (the “Initial Advance”).  The Initial Advance extinguished a then trade payable of an equivalent amount to Elixir International with respect to gaming machines previously acquired.

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Under the terms as amended on November 6, 2008 (the “New Note”), we were obligated to repay the then principal of $12.1 million, plus any accrued interest thereon, in equal monthly installments of approximately $530,000 from January 1, 2009 to December 1, 2010.  The advances under the Facility Agreement are subject to demand by Elixir International for immediate payment only if there is either an event of default or a change of control defined in the Facility Agreement.

We began paying our monthly installments of approximately $530,000 under the New Note on January 1, 2009 and paid or settled six installments during the six-month period ended June 30, 2009.  As at June 30, 2009, the then unpaid principal balance under the New Note was approximately $9.2 million (the “Outstanding Principal”). On July 24, 2009, with the objective of improving our financial flexibility to enable us to capitalize on potential growth and investment opportunities such as expansion of slot machine placements and operation of new venues, at our request, Elixir International entered into an Amendment No. 2 to the Trade Credit Facility Agreement and Related Note with us (the “Second Facility Amendment Agreement”).  Pursuant to the Second Facility Amendment Agreement, Elixir International agreed to restructure the payment schedule of the Outstanding Principal. Under the revised payment schedule, we are not required to make any repayments of principal or interest under the Facility Agreement until July 1, 2010 provided that interest at the rate of 5% continues to accrue on the Outstanding Principal balance. The repayment of the Outstanding Principal balance and interest accrued thereon shall be repaid in 18 equal monthly installments commencing on July 1, 2010.

As of December 31, 2009, we had total cash and cash equivalents of $4.2 million and a working capital balance of $7.4 million.  Our working capital was positively impacted by the repayment deferral of principal and interest on the Trade Credit Facility until July 2010 and the completion of the sale of our deckchecker and card shuffler related intellectual property and remaining inventory in April 2009 for $2.8 million.  However, working capital was negatively impacted by the repayment of six monthly installments during the January to June 2009 time period under the New Note due to Elixir International and the contractual payments made to NagaWorld.  In accordance with our contract dated July 25, 2009 with NagaWorld, we paid a commitment fee to NagaWorld of $5.8 million on August 3, 2009.  As of December 31, 2009, we had recouped $3.1 million of this commitment fee.  In accordance with our contract dated December 30, 2009 with NagaWorld, we paid NagaWorld a total of $2.7 million, which was the first installment or 50% of the total fees under the contract for both a one-time non-refundable contract amendment fee in the amount of $0.7 million and a commitment fee in the amount of $2.0 million on December 30, 2009.

Subsequent to December 31, 2009, our working capital has been negatively affected by payment of the remaining installments or 50% of the total fees under the contract dated December 30, 2009 with NagaWorld, which totaled $2.7 million.  The $2.7 million payment included the remaining two installments of both the one-time non-refundable contract amendment fee which totaled $0.7 million and the commitment fee which totaled $2.0 million during January 2010.  Working capital was also negatively impacted by the purchase of gaming machines for our expansion at NagaWorld under the contract dated December 30, 2009.  Our working capital has been positively affected by the cash received from our operations at NagaWorld.

During 2010, we expect to purchase additional gaming machines to supplement existing inventory and source future targeted deployment plans. Given our current and projected future cash flow generation capabilities from our operations at NagaWorld (including the recoupment of commitment fees paid and our share of net wins from our machine installed base at NagaWorld), the state of the previously-owned gaming machine market, and our strong relationships with gaming equipment manufacturers, we anticipate funding our 2010 gaming machine purchases for our existing project pipeline from cash on hand and expected net cash flow from operations.  Based on our existing growth plans, we anticipate capital expenditures will be approximately $3 to $5 million for 2010.

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We anticipate our available working capital, along with cash expected to be generated from operations, will allow us to meet our working capital needs to support ongoing future operations, based on:

·                          under the Second Facility Amendment Agreement dated July 24, 2009 to the Trade Credit Facility, which became effective July 1, 2009, we can defer the repayment of principal and interest payments on the outstanding principal balance until July 2010 providing cash flow benefits to us by reducing cash outlays to approximately $1.6 million per quarter until July 2010 and improved financial flexibility to enable us to pursue growth opportunities in our core electronic gaming machine participation business;

·                          our extensive cost cutting measures, which involved, among other initiatives, the closure of our China factory and Macau office and significant reductions in traveling and entertainment expenses and based on our current quarterly run-rate, should enable us to contain annualized selling, general and administrative cash expenses to approximately $6.4 to $7.2 million, a decline of 5% to 16% compared to 2009 levels;

·                          our ability to collect on a daily basis 100% of the win per unit from NagaWorld for both the additional 200 gaming machines under our contract dated July 25, 2009 until such time as the commitment fee of $5.84 million plus Elixir Gaming’s 25% share of the win per day on these machines are recouped; and the gaming machines under our contract dated December 30, 2009 until such time as the commitment fee of $4.1 million plus Elixir Gaming’s 25% share of the win per day on these machines are recouped; and

·                          our assumption that we will be successful in our endeavors to ramp up the revenue base by focusing our placements of gaming machines in strong performing venues and plans to provide value-added services, such as promotion and marketing advisory services, to certain venues with a goal to improving net win per machine.

However, should we endeavor to commit to any future large projects to expand our gaming participation operations, we may require additional funding at such time. In this case, we will look into the options for raising additional funds through various financing sources, including the procurement of commercial debt financing and/or vendor financing and/or the sale of debt or equity securities.  However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected.  Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility and any equity financing will be dilutive to our present stockholders.

Cash Flow Summaries

Operations

Cash used in operations decreased $23,141,216 to $6,955,397 for the fiscal year ended December 31, 2009 compared to $30,096,613 in the prior year as a result of the decrease in our net loss (after giving affect to non-cash charges which primarily included depreciation of gaming machines and impairment of gaming machines assets).  In addition, the decrease in cash used in operating activities as compared with the prior year was due to a significant increase in working capital in 2008 which primarily related from the settlement of related party payable balance in 2008.  Cash used in operations included prepaid commitment fees and the one-time contract amendment fee paid to NagaWorld.

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Investing

Cash used in investing activities decreased $19,238,586 to $761,004 for the fiscal year ended December 31, 2009 compared to $19,999,590 in the prior year as a result of significant reductions in the purchase of electronic gaming machines and property, plant and equipment and the sale of assets to Shuffle Master during the fiscal year ended December 31, 2009.  We purchased electronic gaming machines and property, plant and equipment in the net amount of $3.7 million in the fiscal year ended December 31, 2009 compared to $20.1 million in the fiscal year ended December 31, 2008.

Financing

Cash used in financing activities decreased $256,656 to $3,184,202 for the fiscal year ended December 31, 2009 compared to $3,440,858 in the prior year as a result of the reduction in repayments of leases as the principal balances were fully paid off in early 2008.

Financial Condition

Changes from December 31, 2009 to December 31, 2008 are due to the following:

·                  Cash decreased $10.3 million primarily due to the payment of commitment fees and the one-time contract amendment fee to NagaWorld as well as notes repayment to Elixir International Inc.

·                  Gaming equipment and systems, net of depreciation, decreased $21.8 million primarily due to the write-down of gaming assets and depreciation charges for the fiscal year ended December 31, 2009.

·                  The increase in receivables during the same period was attributable to revenue growth from the participation business and an increase in sales of gaming chips.

·                  As of December 31, 2009, the allowance for doubtful accounts decreased as a result of the write-off of uncollectible receivables and the related allowance for doubtful account balances.

·                  Inventory decreased due to lower production as a result of lower market demand for automotive parts and the closure of the China manufacturing facility.

·                  Deposits and other assets decreased mainly due to the refund of deposits used in our venue operations in Cambodia and the additional allowance provided on the sales tax receivable.

·                  Stockholders’ equity decreased primarily as a result of operating losses incurred during the fiscal year ended December 31, 2009.

Contractual Cash Obligations and Off Balance Sheet Arrangements

Our contractual cash obligations under debt agreements, capital leases and operating leases including interest payments, for the next five years as of December 31, 2009 are as follows:

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States.  Accordingly, we are required to make estimates incorporating judgments and assumptions we believe are reasonable based on our historical experience, contract terms, observance of known trends in our Company and the industry as a whole, as well as information available from other outside sources.  Our estimates affect amounts recorded in the financial statements and actual results may differ from initial estimates.

We consider the following accounting estimates to be the most critical to fully understanding and evaluating our reported financial results.  They require us to make subjective or complex judgments about matters that are inherently uncertain or variable.  Senior management has discussed the development, selection and disclosure of the following accounting estimates, considered most sensitive to changes from external factors, with the audit committee of our board of directors.

Intangible Assets, including Goodwill

Intangible assets consist of patents, customer relationships, trademarks and goodwill. Intangible assets, other than goodwill, are recorded at cost and are amortized on the straight-line basis over the period of time the asset is expected to contribute directly or indirectly to future cash flows, which range from 10 to 13 years.  The straight-line amortization method is utilized because we believe there is not a more reliably determinable method of reflecting the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up.

We adopted ASC 350, Intangible-Goodwill and Other, whereby goodwill is no longer amortized but is subject to periodic impairment tests. Other intangible assets with finite lives, such as patents, customer relationships and trademarks will continue to be amortized over their useful lives.

Impairment testing for goodwill and other intangibles requires judgment, including the identification of reporting units, allocation of related goodwill, assignment of corporate shared assets and liabilities to reporting units, estimated future cash flows, and determinations of fair value.  While we believe our estimates of future revenues and future cash flows are reasonable, different assumptions could materially affect the assessment of useful lives, recoverability and fair value.  If actual future cash flows fall below initial forecasts, we may need to record additional amortization and/or impairment charges.

Inventory

The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time horizons, generally one year or less.  If we experience a significant unexpected decrease in demand for our products or a higher occurrence of inventory obsolescence because of changes in technology or customer requirements, we could be required to increase our inventory provisions.  Our inventories totaled $0.6 million and $1.1 million at December 31, 2009 and 2008, respectively, after giving effect to inventory provisions.

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Gaming Equipment and Systems

Gaming equipment and systems are stated at cost.  We depreciate electronic gaming machines and systems purchased new over a five-year useful life and electronic gaming machines and systems purchased used over a three-year useful life to a minimal salvage value, once placed in service.

Property and Equipment

We are also required to estimate salvage values and useful lives for our property and equipment, including electronic gaming machines.  Trends in market demand and technological obsolescence may require us to record impairment charges.  No impairments to property and equipment were recorded in 2009.

Revenue Recognition

We recognize revenue when all of the following have been satisfied:

·                  persuasive evidence of an arrangement exists;

·                  the price to the customer is fixed and determinable;

·                  delivery has occurred and any acceptance terms have been fulfilled;

·                  no significant contractual obligations remain; and

·                  collection is reasonably assured.

Gaming Machine Participation Revenue

We earn recurring revenue by providing customers with electronic gaming machines and casino management systems which track game performance and provide statistics on installed electronic gaming machines owned by us and leased to venue owners.  Revenues are recognized on the contractual terms of the participation agreements between us and the venue owners and are based on our share of net winnings.

Commitment fees paid to the venue operator where the agreement stipulates that the fees will be recovered from the daily net win sharing are capitalized as assets. As required by ASC 605-50, Customer Payments and Incentives, the cash consideration received for the portion of net winnings relating to the commitment fees is amortized as a reduction of revenue if the expected benefit from commitment fees cannot be separately identified or reasonably estimated. We had prepaid commitment fees $4,838,151 and $NIL as of December 31, 2009 and 2008, respectively.

Commitment fees paid to the venue operators relating to contract amendments are also capitalized as assets and amortized as a reduction of revenue fee over the term of the amended contracts. We had contract amendment fees of $687,500 and NIL as of December 31, 2009 and 2008, respectively.

Gaming and Non-Gaming Product Sales

We recognize revenue from the sale of our products to end users based on shipments against customer contracts or purchase orders.  Revenue from shuffler rentals, which were sold to Shuffle Master in April 2009, was recorded at the first of each month in accordance with rental contract terms.  We completed our transition to outsourcing all future sales to third-party distributors during the fourth quarter 2007 and, thereafter, no longer recorded rentals on our table game products.

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We recognize revenue from our sales to independent distributors based on shipments against distributor contracts or purchase orders.  We recognize revenue on consignment inventory when ownership of the product and title passes to the distributor which occurs when the distributor uses the product in its service organization or sells to an end user.

The maintenance components that are part of long-term sales contracts are recorded as deferred revenue and amortized over the remaining lives of the sales agreements after the initial 90-day warranty as required by the Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.  We provide for estimated warranty repair costs associated with sales contracts.  Although there are no extended warranties offered for our products, we provide for maintenance contracts that are billed and recognized on a monthly basis.  As noted above, future sales will be through our third-party distributors and we will no longer directly offer long-term sales contracts or service to customers. Therefore, as of December 31, 2009, we had no remaining obligations to perform maintenance on gaming and non-gaming products sold to end users.

Stock-Based Compensation

We adopted ASC 718, Compensation-Stock Compensation, to account for all stock-based compensation beginning January 1, 2006, and elected the modified prospective method of transition. Under the fair value recognition provisions of ASC 718, for stock-based compensation accrued to employees and non employee directors, we recognize stock-based compensation expense for all service-based awards with graded vesting schedules on the straight-line basis over the requisite service period for the entire award.  Initial accruals of compensation expense are based on the estimated number of shares for which requisite service is expected to be rendered.  Estimates are revised if subsequent information indicates that forfeitures will differ from previous estimates, and the cumulative effect on compensation cost of a change in the estimated forfeitures is recognized in the period of the change.  For non-employee awards, we remeasure compensation cost each period until the service condition is complete and recognize compensation cost on the straight-line basis over the requisite service period.  Option valuation models require the input of highly subjective assumptions, and changes in the assumptions can materially affect fair value estimates. Judgment is required in estimating stock price volatility, forfeiture rates, expected dividends, and expected terms that options remain outstanding.  Stock-based compensation expense totaled $875,790 and $2,593,995 for the fiscal years ended December 31, 2009 and 2008, respectively, and is included in selling, general and administrative expense in the consolidated statements of operations.

Income Taxes

We are subject to income taxes in the United States (including federal and state) and several foreign jurisdictions in which we operate.  Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.  ASC 740, Income Taxes, requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent it is believed a portion will not be realized in the future.  Many factors are considered when assessing the likelihood of future realizations of deferred tax assets, including recent cumulative earnings experience and expectations of future taxable income by the appropriate taxing jurisdiction, the carry-forward periods available for tax reporting purposes, and other relevant factors.

Significant judgment is required in evaluating tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.  Effective January 1, 2007, we adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes and Interpretation of ASC 740, which contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement.  Many factors are considered when evaluating and estimating tax positions and tax benefits which may require periodic adjustments and which may not accurately anticipate actual outcomes.

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We are subject to income tax examination by tax authorities in jurisdictions in which we operate. There are currently no income tax returns under examination by the Internal Revenue Service or any other major tax authorities.

Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC is an aggregation of previously issued authoritative U.S. generally accepted accounting principles (GAAP) in one comprehensive set of guidances organized by subject area. In accordance with the ASC, references to previously issued accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU).

In April 2009, the FASB amended ASC 820, Fair Value Measurements and Disclosures, in which, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with ASC 820.  We adopted this amendment and there were no material impacts on the financial position, results of operations or cash flows.

In April 2009, the FASB amended ASC 825, Financial Instruments, and ASC 270, Interim Reporting. The amendment requires an entity to provide disclosures about fair value of financial instruments in interim financial information. This amendment is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption being permitted for periods ending after March 15, 2009. We adopted this amendment and there were no impacts on the financial position, results of operations or cash flows.

In May 2009, the FASB issued ASC 855, Subsequent Events.  This Standard sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. We adopted this statement and there were no impacts on the financial position, results of operations or cash flows.

Item 7A.                 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 8.                    Financial Statements and Supplementary Data

Index To Financial Statements