New Media Lottery Services (NMLS) 10QSB 2007 Q3 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: January 31, 2007

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission file number 000-49884

NEW MEDIA LOTTERY SERVICES, INC.

(Exact name of small business issuer

as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 87-0705063 (I.R.S. Employer Identification No.)

370 Neff Avenue - Suite L, Harrisonburg, Virginia 22801

(Address of principal executive offices)

(540) 437-1688

(Issuer's telephone number)

_______________________________

(Former name, former address and former

fiscal year, if changed since last report)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At April 20, 2007 there were 21,442,143 shares of common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes o No x

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

NEW MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheet

(unaudited)

ASSETS
	January 31,
	2007
CURRENT ASSETS
Cash and cash equivalents	$	214,318
Accounts receivable		56,108
Marketable securities		18,000
Prepaid assets		115,819
Total Current Assets		404,245
PROPERTY AND EQUIPMENT, NET		391,616
TOTAL ASSETS	$	795,861
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	313,028
Deferred compensation		112,500
Due to related parties		202,465
Notes payable		2,100,000
Loans payable - related parties		408,177
Total Current Liabilities		3,136,170
TOTAL LIABILITIES		3,136,170
MINORITY INTEREST		3,707,723
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 50,000,000 shares
authorized, 21,442,143 shares issued and outstanding		21,442
Additional paid-in capital		3,335,688
Accumulated deficit		(9,416,239	)
Accumulated other comprehensive income
Foreign currency translation adjustment		(6,923	)
Unrealized gain on marketable securities		18,000
Total Stockholders' Deficit		(6,048,032	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	795,861

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

NEW MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended						For the Nine Months Ended
	January 31,						January 31,
	2007			2006			2007			2006
NET REVENUES	$	102,963		$	-		$	310,183		$	-
OPERATING EXPENSES
Depreciation and amortization expense		54,583			30,429			119,875			83,830
General and administrative		356,195			301,314			1,125,464			607,357
Management fees		22,127			9,000			115,992			90,000
Professional & consulting fees		178,234			80,305			656,451			226,499
Programming fees		153,894			133,953			486,533			355,391
Rent expense		25,066			15,311			70,016			44,027
Website expense		145,913			122,491			476,347			188,261
Total Operating Expenses		936,012			692,803			3,050,678			1,595,365
LOSS FROM OPERATIONS		(833,049	)		(692,803	)		(2,740,495	)		(1,595,365	)
OTHER INCOME (EXPENSES)
Gain (loss) on sale of property and equipment		313			-			(10,192	)		-
Cancellation of debt		50,000			-			50,000			-
Interest income		4,242			1,814			11,174			2,564
Interest expense		(45,164	)		(89,744	)		(112,339	)		(174,104	)
Total Other Income (Expenses)		9,391			(87,930	)		(61,357	)		(171,540	)
NET LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST		(823,658	)		(780,733	)		(2,801,852	)		(1,766,905	)
PROVISION FOR INCOME TAXES		-			-			-			-
MINORITY INTEREST IN SUBSIDIARIES LOSSES		(153,053	)		-			(500,399	)		-
NET LOSS	$	(670,605	)	$	(780,733	)	$	(2,301,453	)	$	(1,766,905	)
												��
BASIC NET LOSS PER SHARE	$	(0.03	)	$	(0.07	)	$	(0.11	)	$	(0.15	)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING		21,442,143			11,442,143			21,442,143			11,442,143
OTHER COMPREHENSIVE INCOME
NET LOSS	$	(670,605	)	$	(780,733	)	$	(2,301,453	)	$	(1,766,905	)
Foreign currency translation adjustment		12,708			8,819			24,402			6,567
Unrealized gain (loss) on marketable securities		3,000			(3,000	)		-			(3,000	)
COMPREHENSIVE LOSS	$	(654,897	)	$	(774,914	)	$	(2,277,051	)	$	(1,763,338	)

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

NEW MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Nine Months Ended
	January 31
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,301,453	)	$	(1,766,905	)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense		119,758			83,830
Loss on disposition of assets		10,539			-
Adjustment for subsidiary stock issued for asset acquisition		(160,643	)		-
Minority interest in subsidiaries losses		(304,804	)		-
Change in operating assets and liabilities:
Accounts receivable		(1,224	)		-
Vat receivable		84,225
Accounts payable and accrued expenses		(53,124	)		450,092
Deferred Compensation		-			16,000
Prepaid assets		(9,475	)		2,991
Other receivable		-			(246	)
Due to related parties		-			(2,000	)
Net Cash Used by Operating Activities		(2,616,201	)		(1,216,238	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(111,766	)		(77,995	)
Net Cash Used by Investing Activities		(111,766	)		(77,995	)
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred costs		-			(1,070,697	)
Loans to related parties		-			(60,000	)
Proceeds from issuance of notes payable		600,000			1,500,000
Proceeds from issuance of loans
payable, related parties		225,000			877,460
Payments on loans payable, related party		(150,000	)
Payments on notes payable		-			(5,929	)
Net Cash Provided by Financing Activities		675,000			1,240,834
EFFECT OF FOREIGN CURRENCY
TRANSLATION ADJUSTMENT		24,402			4,320
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS		(2,028,565	)		(49,079	)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD		2,242,883			92,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD	$	214,318		$	42,921

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

NEW MEDIA LOTTERY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	29,978	$	27,746
Cash paid for income taxes	$	-	$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for assets	$	-	$	8,250
Increase in fair value of marketable securities	$	-	$	(3,000	)
Capital assets acquired for accounts payable	$	-	$	216,750
Subsidiary stock issued for asset acquisition	$	160,643	$	-

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

NEW MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its April 30, 2006 Annual Report on Form 10-KSB, as amended. Operating results for the nine-months ended January 31, 2007 are not necessarily indicative of the results to be expected for year ending April 30, 2007.

NOTE 2 - GOING CONCERN CONSIDERATIONS

The accompanying condensed consolidated financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in its Annual Report on Form 10-KSB, as amended, for the year ended April 30, 2006, the Company has incurred operating losses of approximately $7,114,785 (excluding minority interest and other comprehensive loss) from inception of the Company through April 30, 2006. The Company’s stockholders’ deficit at April 30, 2006 was $3,770,980. Additionally, the Company has sustained additional operating losses for the nine months ended January 31, 2007 of approximately $2,301,453 (excluding minority interest). These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows:

Management is continually striving to overcome the company’s operating losses by expanding the player base of our various projects and thereby increasing our operating income. The ability to expand the player base is principally contingent on raising additional capital for marketing and new project developments. As of March 17, 2006 our future is directly tied to NMLS Plc., which raised $3.2 million from its public offering. Management is confident that both entities are in a better position to raise future potential funds subject to new project needs and existing project performance. In addition to our on-going efforts to achieving break-even cash flow, we also have the support of two key current shareholders who can meet operating shortfalls.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NEW MEDIA LOTTERY SERVICES, INC. & SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3 - MATERIAL EVENTS

On December 5, 2006, the company obtained a $600,000 loan from Comerica Bank of which $600,000 has been borrowed. The note is due December 5, 2007, bearing interest approximately equal to the Eurodollar Prime rate plus 2.5%.

On November 21, 2006, the company obtained a $150,000 loan from Milton Dresner, a related party, and repaid the loan on December 13, 2006.

On January 30. 2007, the company obtained a $75,000 loan from Milton Dresner, a related party, and repaid the loan on March 15, 2007.

NOTE 4 - SUBSEQUENT EVENTS

On February 20, 2007, the company obtained a $1,900,000 loan from Comerica Bank of which $1,050,000 has been borrowed. The note is due February 20, 2008, bearing interest approximately equal to the Eurodollar Prime rate plus 2.5%.

On February 13, 2007, the company obtained a $75,000 loan from Joseph Dresner, a related party, and repaid the loan on March 15, 2007.

Item 2. Management’s Discussion and Analysis or Plan of Operation.

This Management’s Discussion and Analysis or Plan of Operation section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially from the anticipated results discussed herein. Our financial performance is highly dependent on our ability to continue to generate income and cash flow from our clients’ electronic lottery and bingo operations and our ability to obtain capital as necessary to expand existing operations and implement new projects. We cannot assure you that we will achieve profitability, that our clients’ operations will generate the revenues we expect or that we will have the capital to complete any or all of our existing or future projects.

The Company.

New Media Lottery Services, Inc. (the “NM-US”), through its direct and indirect subsidiaries, New Media Lottery Services plc (“NM-PLC”) and New Media Lottery (International) Services Ltd. (“NMLS-LTD” and collectively, “we”, “us” the “Company” or like terms), designs, builds, implements, manages, hosts and supports web based and wireless device based lottery programs operated by governments and charitable organizations outside of the United States. We commenced providing services to clients in August 2003. We have begun generating revenues from the long-term agreements with our clients. Currently, we generate revenues in the form of commissions based solely from net sales of lottery tickets by our client’s lotteries. For purposes of our agreements with clients, “net sales” is defined as gross lottery ticket sales minus prizes discounts, refunds, and adjustments.

We offer an integrated range of products and services to develop, build and host lottery programs for state-operated lotteries and other government licensees, such as charitable lottery organizations (CLO’s). Our lottery infrastructure’s fundamental elements include (i) proprietary software platforms that support internet website, internet kiosk delivered and mobile phone lottery operations and (ii) website and game concepts. We have partnered with other organizations which provide us access to the mobile phone and banking applications required for our new media gaming options. Our gaming platform and business model can be replicated and implemented on varying scales in discrete geographical areas in the future. Our ability to re-brand our product for other organizations reduces implementation time and organizational and capital costs associated with establishing each client’s internet/wireless presence.

We have assembled a management team that combines a strong lottery operations background, extensive game development experience and the technological expertise required to create and operate these lottery systems.

Our market comprises small and mid-sized state-operated and charity operated lotteries. The lottery programs we develop and implement target the young-adult generation of potential lottery players who may not relate to the traditional paper-based games their parents play and who incorporate new media devices, such as cellular telephones, internet and other wireless apparatus into their daily lives.

To date, our most significant achievements have consisted of:

· obtaining long-term contracts with non-U.S. based licensed lottery organizations to operate specific new media game programs;

· developing proprietary software platforms that support internet website delivered, internet kiosk delivered and mobile phone lottery operations;

· developing a library of digital lottery game designs;

· implementing the technical, operational, design and marketing facets of our business in preparation for a full-scale roll-out of programs;

· completing a soft launch of our game software on behalf of three clients;

· completing a full launch of an internet based bingo site for our Irish client Rehab Lotteries; and

· consummating an offering of the securities by our Irish subsidiary, New Media Lottery Services plc (“NM-PLC”), in March 2006.

We derive revenues primarily from lottery service contracts, which are typically five years or more in duration for the base contract term with five-year extension options resulting in potential total contract lives in excess of ten years. Our contracts generally provide compensation to us based upon a percentage of a lottery’s net sales. We also anticipate deriving revenues from the delivery of lottery products and content to a variety of internet-based kiosks.

All of our clients are outside the United States. In addition, substantially all of our assets, primarily consisting of equipment we use to operate online lottery systems for our customers, are held outside of the United States. Accordingly, we will be subject to all of the risks of international operations, including increased governmental regulation of the online lottery industry in the markets where we operate; exchange controls or other currency restrictions; and political instability.

Our business is highly regulated, and the competition to secure new contracts is often intense.

Summary of Third Quarter Operations.

During the three months ended January 31, 2007, we recorded revenues of approximately $102,963 on net losses of approximately $670,605. We continue to intensify marketing efforts in connection with our Irish client’s internet bingo operations. As a result of our marketing efforts our bingo site sales grew by approximately 19% over the previous quarter. We continue to develop the electronic lottery and bingo platforms that we can migrate among our clients. Our operating expenses decreased by approximately $85,000, or 8%, over the last fiscal quarter but increased by approximately $243,000, or 35%, over the three month period ended January 31, 2006 as we continue to incur costs in connection with the development of gaming software, marketing of our client’s bingo website and general and administrative expenses. Though our cash position is diminishing, we expect that (i) revenues generated from our client’s bingo website in Ireland will continue to increase, (ii) we will begin to recognize revenues from electronic lottery kiosks to be distributed throughout Ireland some time during our second fiscal quarter of 2008 and (iii) we will begin to recognize revenues from the operations of our Brazilian client upon the initiation of a marketing campaign which is planned during June 2007, the amalgamation of which we hope will replenish available cash and provide us with the financial resources to grow our business. In addition, we are actively seeking financing and expect that our existing majority shareholders can provide funding or arrange the credit required to cover any shortfalls. On December 5, 2006, the Company borrowed $600,000 from Comerica Bank as evidenced by a promissory note. All of the Company’s repayment and other obligations under this note are guaranteed by each Milton Dresner and Joseph Dresner, directors and principal stockholders of the Company.

Critical Accounting Policies and Estimates

The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

Going Concern.  Because of our level of operations, we have had to make limited material assumptions or estimates other than our assumption that we are a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually attaining profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Consolidation. The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries and entities in which we have a controlling interest in accordance with the provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” (“FIN 46”). The application of FIN 46 requires management to make significant estimates and judgments about our and our venture partners’ rights, obligations and economic interests in the related venture entities.

Foreign Currency Translation

The Company’s foreign currency translation policy is that for all significant non-U.S. operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end or historical exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders' deficit.

Revenue Recognition.

The Company generates revenues solely from a portion of it’s client's lottery ticket gross sales. In accordance with its contracts with its clients, all discounts, refunds, and adjustments are settled inclusive in the commission. The balance is distributed between our client and us in accordance with the provisions of our contracts with our clients, which may vary from client to client.

Plan of Operation.

Our business can be divided into three discrete components, as follows:

o identifying and contracting with new clients;

o developing, implementing, marketing and hosting lotteries; and

o gaming software development for our clients’ lotteries and third parties.

Over the next several quarters, we expect to continue to advance each of the elements of our business in varying degrees. Given our limited financial resources, as more fully discussed in this section under the sub-heading “Liquidity and Capital Resources,” we will focus our efforts on projects that present the greatest opportunity to generate revenues in the near-term. We believe that developing our existing clients’ lottery programs and continuing the development of proprietary gaming software represent the most effective and efficient uses of our capital. We intend to re-invest profits generated from these operations to grow our business and provide funds to expand existing clients’ programs and develop programs for new clients.

We have completed the implementation of lottery systems for our Irish, English and Brazilian clients and have developed an affiliate tracking system for our Brazilian client which allows us both to offer incentives to advertisers for directing paying customers to our site and to build player loyalty. We have implemented a full-scale marketing campaign for our Irish client which has yielded positive results as evidenced by increasing revenues and a growing base. The electronic internet bingo operations of Rehab Lotteries represent our most mature operation with the greatest potential to generate meaningful revenues in the near-term. Accordingly, we expect to continue to devote significant financial resources to the development of this program during the current quarter by continuing both internet advertising programs and marketing programs that take advantage of that entity’s charitable affiliation.

Over the next few quarters, we expect to focus on the operations of our Brazilian client which has been granted licenses to offer internet lottery products by the Brazilian States of Para and Santa Catarina. We expect to devote financial resources to the marketing of these lotteries to develop a customer base and generate lottery sales.

We have been advised by Inspired Broadcasting Networks plc that it has completed full field testing of its kiosk lottery terminals, for which we developed gaming software, and expects to begin the roll out of these terminals in Ireland during fiscal 2008. Discussions have focused on the roll out of 1,000 kiosks with the potential for 1,000 more over time. The kiosks have been sited at pubs and other social establishments, initially in Ireland and eventually will be introduced in similar venues in England. Revenues generated by the kiosks will be apportioned between Inspired, the retail establishments and Rehab lotteries, which will receive one third of the net revenues. We will receive 50% of the proceeds distributed to Rehab.

Our near-term business priorities are to continue concentrated marketing and promotion of the Rehab Lottery’s bingo site to both increase the player base and the amount wagered per player, to begin aggressive marketing for our Brazilian client and to commence the deployment of a lottery in Venezuela in the summer of 2007. We believe that we will have sufficient cash, derived from the proceeds of our recent loans of $600,000 and $1,900,000 and from revenues generated from operations, to continue marketing Rehab Lottery’s bingo site and roll-out of our Brazilian client’s lottery operations. Unless we experience a considerable increase in revenues from our operating clients or otherwise receive an infusion of capital, we do not expect to possess funds sufficient to commence the full-scale marketing of the Venezuelan lottery opportunity.

We expect to proceed with the development of gaming opportunities in Venezuela to the extent our current cash allows and based on additional funding that can be obtained. We have completed the development of our gaming delivery platforms in Venezuela and will, at the request of the national government forward the games to an independent organization for approval, the results of which will be submitted to the national government. We do not expect to encounter any obstacles with respect to such approval process. At this juncture, we believe that our primary impediment to the roll-out of the lottery of our Venezuelan client is available cash to market the lottery. We believe that with sufficient capital, we could implement a marketing campaign almost immediately.

We will continue our efforts to procure new lottery contracts. While we expect that the cost to develop and implement lottery systems for new clients will decrease for each new client during the next several years as we become more efficient in our ability to migrate our existing lottery programs to new clients, marketing a lottery is highly capital intensive. Currently, we do not possess the financial resources to devote to the marketing and advertising phases of any new programs in which we may become involved that are required for the program to achieve profitability. Accordingly, we expect to enter into contracts only with entities for which we believe we could obtain financing to support such operations.

We continue to be optimistic regarding our opportunity to fill a market niche that is not fully serviced by the large, multinational lottery service corporations and has not yet been fully developed or exploited. Although competition for small and mid-sized government and charity operated lotteries has intensified as lottery service companies seek new revenue sources and new competitors enter the market, we consider this segment of the market to be supported by only a few internationally known companies and that neither the charity lottery marketplace nor the internet/wireless lottery marketplace has been significantly penetrated. We believe that our management and personnel have the lottery experience, gaming know-how and technological expertise necessary to attract, service and grow small to mid-size lottery organizations and that by being among the first companies, to our knowledge, dedicated to serving this market, we will be able to establish our Company as the premier provider of services and products for this market segment.

Results of Operations for the Three and Nine Months ended January 31, 2007.

Our total assets decreased from $1.03 million on October 31, 2006 to $0.8 million on January 31, 2007 resulting largely from a depletion in cash used to fund operations, including marketing our clients’ lotteries. Accounts receivable, which were generated exclusively from our Irish client’s ongoing web based bingo operations, decreased from approximately $292,000 at October 31, 2006 to approximately $56,000 at January 31, 2007.

For the three and nine month periods ended January 31, 2007, we recorded revenue of approximately $103,000 and $310,000, respectively, as compared to no revenue during the same periods in 2006. Revenues generated during the last two quarters were derived almost entirely from our Irish client’s web based bingo operations which we began marketing in earnest during the quarter. As of January 31, 2007, NMLS has incurred expenses of approximately $211,000 that are recoupable out of the Irish Bingo operations before our client will begin participating in net revenues. Management attributes the increase in net revenues to intensified marketing efforts and public acceptance of the bingo operations.

During this fiscal quarter, net losses decreased compared to the three months ended October 31, 2006 from nearly $733,000 to $671,000, resulting primarily from a decrease in operating expenses from period to period. For the three months ended January 31, 2007, net losses decreased over the same quarter during the 2006 period by nearly $110,000 to approximately $671,000, or 14%, and for the nine months ended January 31, 2007 net losses increased by approximately $535,000 to $2.3 million, or 29%, as compared to the same period during fiscal 2006. Net loss per share for the quarter ended January 31, 2007 was $.03, as compared to a net loss per share of $0.07 over the same period during the prior year. Contributing to the per share loss change is the increased number of shares outstanding between the periods resulting from the conversion of approximately $3.087 million of debt into 10 million shares of common stock in March 2006.

Liquidity and Capital Resources.

Our business is capital-intensive in that we require cash to implement lotteries for our clients. We have expended considerable capital and will continue to allocate significant financial resources to develop the fundamental elements of a web and wireless device based lottery infrastructure which allows us to migrate this infrastructure from client to client and re-brand our product for other organizations. While these efforts will reduce the set-up time and organizational and capital costs associated with establishing each client’s internet/wireless presence, we require significant capital to market and promote each lottery to build a player base and achieve profitability. We also require capital to retain our highly skilled personnel, including our computer programmers, operations specialists and game developers.

We expect our principal internal sources of liquidity to be existing cash on hand, proceeds from loans received during the last two quarters and revenues generated from operations, as we anticipate that we will be generating more meaningful revenues from operations over the next several months. Management believes that the sum of these resources will permit the Company to operate as described herein for at least the next three months. We do not have sufficient capital resources to fully fund the marketing of our Brazilian or Venezuelan clients. Our Irish subsidiary, NM-PLC, is actively seeking investments. On December 5, 2006, NMLS-LTD arranged for $600,000 line of credit, all of which has been borrowed as of the date hereof. In addition in February 2007, NM-PLC has secured an additional $1.9 million line of credit, and as of April 24, 2008 had borrowed $1.05 million under this line.

For the nine months ended January 31, 2007, the Company used approximately $2.616 million in cash for operations, an increase of $1.4 million over the corresponding period ending January 31, 2006. For the three months ended January 31, 2007, the Company used approximately $795,000 of cash for operations as compared to $464,000 during the three months ended January 31, 2006. The Company has $2.71 million negative working capital as of January 31, 2007. Included in the negative $2.7 million working capital is $2.5 million of promissory notes due within 12 months.

At January 31, 2007, we had cash, cash equivalents and accounts receivable of approximately $270,000, no borrowing capacity under lines of credit and outstanding loans of $2.5 million (not including accrued interest). As of April 25, 2007, we had $850,000 available under a line of credit arranged in February 2007.

We will require significant additional cash to develop and implement lotteries for new clients and without such funds we are hesitant to accept new clients. As of the date hereof, we have not identified any sources to satisfy our capital requirements. Management believes that once we have proved our business model, we will be able to locate project financing for each new lottery client. We will seek to obtain such financing from local sources within the country where our clients are located. Alternatively, we will seek to access the capital markets in Europe and the United States, though we can not be certain that the capital we require will be available to us from any source or that if it is available that it will be on favorable terms. We will be selective as to contracts we enter into in the hopes that the returns we can generate from new contracts will be appealing to any new investors. The availability and cost of capital in the future may inhibit our ability to grow our Company.

We expect that the additional funding from outside sources which we will require to implement lotteries for new clients will decrease in the coming periods for several reasons. First, we expect to generate revenues sufficient to allow us to implement new client lotteries, including the ability to execute marketing and promotional campaigns, from internal funds. Second, as we continue to develop the electronic platforms that are the backbone of our operations, we expect to realize a critical mass and take advantage of economies of scale as we gain more practical experience implementing and operating lotteries. Finally, once the shakeout period ends, in which we learn what marketing techniques are effective and identify the games players find attractive, we will be able to allocate our resources more efficiently and effectively. For example, we will be able to migrate the fundamental elements of the lottery infrastructure, as described above, from one lottery to another which will reduce the set-up time and organizational and capital costs, and also reduce the cost of acquiring player and maximizing gross revenues generated per player, thereby lowering our capital requirements to start-up and maintain new lottery clients. Theoretically, if our business model is accepted, we can concentrate on marketing to new media device users who we believe we can reach inexpensively because (i) we will require a relatively small organizational infrastructure, even when fully operational, (ii) we will have a significant existing library of games to offer and (iii) the manner in which our games are delivered and played (cell phones, PDA’s, internet kiosks and other wireless devices) is inherently inexpensive and the costs are decreasing each year.

Our future liquidity and capital requirements to execute our near-term plans will depend on a number of factors, including the speed at which our existing operations grow, our ability to bring our other clients’ operations on-line and our ability to raise additional capital in a timely manner through additional investment.

We do not believe that our current cash resources and expected revenues from operations will be sufficient to support all of our current business goals and objectives in the near term and that we will be required to obtain capital to effectuate our business plan as currently contemplated. We cannot assure you that we will be successful in raising additional capital on terms acceptable to us or at all. If we cannot raise additional capital, we may have to modify our business plan.

Financing Activities During the Last Quarter.

On December 5, 2006, the Company borrowed the principal sum of $600,000 from Comerica Bank as evidenced by a promissory note. All of the Company’s repayment and other obligations under this note are guaranteed by each Milton Dresner and Joseph Dresner, directors and principal stockholders of the Company. The note is payable on December 5, 2007 and bears interest at per annum rate equal to a floating Eurodollar rate applicable to each monthly period as provided in the note. The note grants to the bank a security interest in any and all property of the Company on deposit with or held at the bank, though the Company has no property on deposit with the bank. The default provisions are typical of notes guaranteed by individuals.

Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangement or commitment that will have a current effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements made by or on behalf of our company. From time to time, our representatives and we may make written or verbal forward-looking statements, including statements contained in this report and other company filings with the SEC and in our reports to stockholders. Statements that relate to other than strictly historical facts, such as statements about our plans and strategies, expectations for future financial performance, new and existing products and technologies, and markets for our products are forward-looking statements within the meaning of the Act. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "will" and other similar expressions identify forward-looking statements. The forward-looking statements are and will be based on our then-current views and assumptions regarding future events and operating performance, and speak only as of their dates. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors including, but not limited to, our limited revenues, our future capital needs, uncertainty of capital funding, acceptance of our product offerings, the effects of government regulations on our business, competition, and other risks. We undertake no obligation to publicly update or revise any forward-looking statements.

Item 3. Controls and Procedures.

(a) Disclosure Controls and Procedures. Our management, with the participation our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

As of January 31, 2007, we were not party to any litigation or other legal proceeding.

Item 2. Changes in Securities and Small Business Issuer Purchase of Equity Securities.

(a) None.

(b) None.

(c)  During the three months ended January 31, 2007, the Company did not issue any securities.

(d) None.

(e) None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

On February 20, 2007, the Company borrowed the principal sum of $1.9 million from Comerica Bank as evidenced by a promissory note. All of the Company’s repayment and other obligations under this note are guaranteed by each Milton Dresner and Joseph Dresner, directors and principal stockholders of the Company. The note is payable on December 5, 2007 and bears interest at per annum rate equal to a floating Eurodollar rate applicable to each monthly period as provided in the note. The note grants to the bank a security interest in any and all property of the Company on deposit with or held at the bank, though the Company has no property on deposit with the bank. The default provisions are typical of notes guaranteed by individuals.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

Exhibit No.	Description
10.28	Floating Euro Dollar Note in the principal amount of $600,000 dated December 5, 2006 between Comerica Bank and the registrant.
10.29	Floating Euro Dollar Note in the principal amount of $1.9 Million dated February 20, 2007 between Comerica Bank and the registrant.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as Amended.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as Amended.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NEW MEDIA LOTTERY SERVICES, INC.
Date: April 20, 2007	By: /s/ John T. Carson                              John T. Carson        President
	By:/s/ Randolph H. Brownell, III              Chief Operating Officer and        Chief Financial Officer