U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Fiscal Year Ended: December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-21991
ADVANCED GAMING TECHNOLOGY, INC.
(Name of small business issuer in its charter)
Wyoming 98-0152226
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.
2482 - 650 West Georgia Street,
P.O. Box 11610,
Vancouver, British Columbia V6B 4N9
(Address of principal executive offices) (Zip code)
Issuer's telephone number (604) 689-8841
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
Common Stock Par Value $.005
(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 required for the past 90 days. Yes X No
Total pages: 34
Exhibit Index Page: 32
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $1,338,121
As of February 28, 1998, there were 110,985,561 shares of the Registrant's
common stock, par value $0.005, issued and outstanding. The aggregate market
value of the Registrant's voting stock held by non-affiliates of the Registrant
was approximately $15,260,514 computed at the average bid and asked price as of
February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) Into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
None
Transitional Small Business Disclosure Format (check one): Yes NO X
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TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1 Description of Business .......................................... 4
Item 2 Description of Property .......................................... 15
Item 3 Legal Proceedings ................................................ 16
Item 4 Submission of Matters to a Vote of Security Holders .............. 18
PART II
Item 5 Market for Common Equity and Related Stockholder Matters ......... 19
Item 6 Management's Discussion and Analysis or Plan of Operations ....... 20
Item 7 Financial Statements ............................................. 23
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 23
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ................ 24
Item 10 Executive Compensation ........................................... 25
Item 11 Security Ownership of Certain Beneficial Owners and Management ... 30
Item 12 Certain Relationships and Related Transactions ................... 31
Item 13 Exhibits and Reports on form 8-K ................................. 32
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PART I
ITEM I DESCRIPTION OF BUSINESS
GENERAL
Advanced Gaming Technology, Inc., a Wyoming corporation (the "Company"), is
engaged in the design, assembly, supply, marketing and servicing of electronic
gaming products, the core of which is its MAX Bingo Systems. The Company is also
engaged in designing and developing a wireless, hand-held bingo unit, it's Parti
MAX for use in the United Kingdom. Advanced Gaming Technology, Inc. is also
developing a fast-paced, progressive linked speed bingo game, to be marketed
under the name "Sonic Bingo". The Company anticipates that both Parti MAX and
Sonic Bingo will generate revenues in the fourth quarter of 1998. In addition,
the Company owns, through one of its wholly-owned subsidiaries, 178 acres of
undeveloped property in Stone County, Missouri. The Company's common stock is
traded on the National Association of Securities Dealers, Inc. (the "NASD") OTC
Bulletin Board Under the symbol "AGTI."
The Company was incorporated pursuant to the laws of the state of Wyoming
on November 20, 1963, under the name "MacTay Investment Co." On June 19, 1987,
the Company changed its name to "Auto N Corporation." On April 22, 1991, the
Company changed its name again to "Advanced Gaming Technology, Inc." when it
acquired all of the assets and certain liabilities of Selectro Vision Ltd., a
California corporation, in exchange for 1,359,000 shares of the Company's common
stock, $.005 par value per share (the "Common Stock").
The Company has the following wholly owned subsidiaries: Executive Video
Systems, Inc., a Maryland corporation ("Executive Video"), Palace Entertainment
Limited, a company organized under the laws of the British Virgin Islands
("Palace"), Branson Signature Resorts, Inc., a Nevada corporation ("Branson"),
River Oaks Holdings, Inc., a Missouri corporation ("River Oaks"), Branson Bluffs
Resorts, Inc. ("Branson Bluffs") a Missouri corporation, Allied Resorts, Inc.
("Allied") a Missouri corporation, River Oaks Resorts and Country Club, Inc.
("River Oaks Resort") a Texas corporation, Prisms, Inc., a North Carolina
corporation ("Prisms"), Pleasure World Ltd., ("Pleasure World"), and its
subsidiary Prisms (Bahamas) Ltd. ("Prisms Bahamas"), both companies organized
under the laws of the Bahamas, and A.G.T. Acceptance Corp., a Nevada Corporation
("A.G.T. Acceptance Corp.").
Executive Video owns certain proprietary software and technology relating
to the MAX Bingo Systems, and prior to the merger with the Company, supplied
five bingo locations .
Palace Entertainment, an inactive company was organized in August 1996 to
be a joint venture partner with various entities in China for the operation of
entertainment centers in China, none of which materialized. See "Description of
Business - Proposed Operations in Asia."
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Branson and its wholly-owned subsidiaries are a resort and land developer
located in Branson, Missouri which owned two separate real estate properties:
(i) a resort property with limited existing development on site; and (ii) 178
acres of undeveloped property in Stone County, Missouri. On November 17, 1995,
the Company disposed of the resort property. The Company transferred the 178
acres of undeveloped property to River Oaks and is currently attempting to
develop or sell such property. See "Description of Business - Real Estate
Holdings."
Prisms, Inc. transferred certain patents to Prisms (Bahamas) Ltd., for the
development of bingo and other entertainment games which management of the
Company believes favorably complement the Company's MAX Bingo Systems. Prisms
has invented several games under the patents and Prisms Bahamas has trademarks
in place for such games. See "Description of Business Recent Acquisition."
The principal executive offices of the Company are located at 2482-650 West
Georgia Street, P.O. Box 11610, Vancouver, British Columbia, Canada, V6B 4N9,
telephone (604) 689-8841. The Company also has an office in Branson, Missouri,
where its real estate holdings are located.
RECENT DEVELOPMENTS. In February, 1998 the Company executed a Financing,
Licensing, and Royalty Agreement with a major competitor, Bingo Technologies
Corporation ("BTC"). This Agreement grants BTC the exclusive right to sell,
market, manufacture, and distribute the MAXPLUS and TurboMAX products in the
United States only for a period of five years. This Agreement has produced a
licensing fee ($1,500,000), and will generate royalties of 15% based on the
gross revenues generated by BTC from marketing these products. Minimum royalties
in the first year of the Agreement are $350,000 and are to be negotiated by the
parties thereafter, with the minimum royalty in subsequent years not to be lower
than the royalty amount negotiated in the preceding year.
On March 25, 1998, the Company executed a Letter of Understanding with its
partner in the Sonic Bingo project, SEGA Gaming Technology, Inc. This is a
refinement of the previous Letter of Intent signed by the parties May 13, 1996
and includes the formation of a new corporation which will result in:
o Sega Gaming Technology, Inc. licensing the use of the name "SEGA".
o Advanced Gaming Technology, Inc. licensing its MAX Bingo System
software, Prisms patented game technology, and rights to use the
"Sonic Bingo" trademark.
o Net income, capital expenditures and other product development costs
will be shared equally.
Additionally, SEGA Gaming Technology, Inc. has committed to acquire up to
5,000,000 common shares of Advanced Gaming Technology, Inc. in open market
transactions and/or by way of private placement.
Effective with the filing of this report, and subject to finalization of
severance packages, Mr. Robert C. Silzer, Sr. resigned as Chairman of the Board
of Directors of the Company and all subsidiary companies. Mr. Firoz Lakhani
resigned as President, Chief Operating Officer and Director of the Company and
all subsidiary companies.
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OPERATING LOSSES. The Company has incurred net losses of $9,575,512 and
$5,629,961 for the fiscal years ended December 31, 1997 and December 31, 1996,
respectively. Such operating losses reflect developmental and other start-up
activities. The Company expects to incur losses in the near future until
profitability is achieved. The Company's operations are subject to numerous
risks associated with establishing any new business, including unforeseen
expenses, delays and complications. There can be no assurance that the Company
will achieve or sustain profitable operations or that it will be able to remain
in business.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING. The Company has
generated minimal revenues from product distribution. Revenues are not yet
sufficient to support the Company's operating expenses and are not expected to
reach such levels until the fourth quarter of 1998 . Since the Company's
formation, it has funded its operations and capital expenditures primarily
through private placements of debt and equity securities. See "Recent Sales of
Unregistered Securities." The Company will be required to seek additional
financing in the future. There can be no assurance that such financing will be
available at all or available on terms acceptable to the Company.
GOVERNMENT REGULATION. The Company's operations are subject to gaming laws,
which vary according to the jurisdiction in which each product is marketed. The
state and local laws in the United States which govern the lease and use of
gaming products are widely disparate and continually changing due to legislative
and administrative actions and judicial interpretations. If any changes occur in
gaming laws through statutory enactment or amendment, judicial decision or
administrative action restricting the manufacture, distribution or use of some
or all of the Company's products, the Company's present and proposed business
could be adversely affected. The operation of gaming on Native American
reservations is subject to the Indian Gaming Regulatory Act ("IGR"). Under IGR
certain types of gaming activities are classified as Class I, Class II or Class
III. The Company's business will be impacted based upon how its products are
ultimately classified. See "Business - Government Regulation" and "Business -
Native American Bingo Operations."
RISK OF LOW-PRICED STOCKS. Rules 15g-1 through 15g-9 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") impose sales practice and
disclosure requirements on certain brokers and dealers who engage in certain
transactions involving "a penny stock."
Currently, the Company's Common Stock is considered a penny stock for
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed on certain brokers and dealers could impede the sale of the
Company's Common Stock in the secondary market. In addition, the market
liquidity and price for the Company's securities may be adversely affected.
Under the penny stock regulations, a broker or dealer selling penny stock
to anyone other than an established customer or "accredited investor"'
(generally, an individual with a net worth in excess of $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with his or her spouse) must
make a special suitability determination for the purchaser and must receive the
purchaser's
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written consent to the transaction prior to sale, unless the broker or dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker or dealer to deliver, prior to any transaction involving a
penny stock, a disclosure schedule prepared by the Securities and Exchange
Commission (the "SEC") relating to the penny stock market, unless the broker, or
dealer, or the transaction is otherwise exempt. A broker, or dealer is also
required to disclose commissions payable to the broker or dealer and the
registered representative and current quotations for the Securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
LACK OF TRADEMARK AND PATENT PROTECTION. The Company relies on a
combination of patent, trade secret, copyright and trademark law, nondisclosure
agreements and technical security measures to protect its products.
Notwithstanding these safeguards, it is possible for competitors of the Company
to imitate it products. Furthermore, others may independently develop products
similar or superior to those developed or planned by the Company. While the
Company may obtain patents with respect to certain of its products, the Company
may not have sufficient resources to defend such patents; such patents may not
afford all necessary protection and competitors may develop equivalent or
superior products which may not infringe such patents. See "Business - Patents
and Trademarks."
PRODUCTS
MAX BINGO SYSTEMS
The Company's MAX Bingo Systems products currently include three different
products:
[i] MAXPLUS. The MAXPLUS Bingo System is the first proprietary electronic
bingo system developed by the Company. Approximately 295 MAXPLUS units are
currently in use in the United States.
MAXPLUS is designed to increase bingo revenue at bingo halls, reduce
administration costs and increase the excitement of play and the opportunity for
bingo players to win. MAXPLUS gives players the opportunity to electronically
play up to 300 bingo cards simultaneously. The maximum physical number of cards
an average bingo player can manually daub (cover) is approximately 18. The
electronically operated MAXPLUS system keeps track of each card and gives the
player the option to display on the screen those most likely to reach bingo
first. As the bingo numbers are called they can be entered manually or
automatically. The manual setting keeps the players focused and feeling part of
the game as if they were playing a paper-based system. The automatic setting
lets the players relax and concentrate on their paper daubing, if they are
playing paper bingo as well, or eating, drinking, or engaging in conversation if
they are not.
For the bingo hall operator, electronic bingo systems, such as the MAXPLUS
Bingo System, may increase the revenue generated on a daily basis by allowing
players to play many more cards at a time. Concession stand sales may also
increase because players can consume greater amounts within the same bingo
session. By generating greater gross revenues, the hall operator may be able
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to increase the size of the prizes awarded and thereby attract larger crowds. In
addition, the MAXPLUS Bingo System lets the operator track necessary financial
and analytical information by providing a fully integrated accounting package.
[ii] MAXLITE. The MAXLITE Bingo system is the newest addition to the
Company's electronic bingo product line. It is a portable, hand-held electronic
bingo unit which stores up to 50 different games and allows users to play up to
300 bingo cards per game. The unit measures 12" x 9" and offers many of the
advantages of the MAXPLUS system in a lightweight wireless package, which allows
players freedom of movement in the bingo hall, thus increasing the players'
enjoyment and the hall operators' revenue. Approximately 525 MAXLITE units are
currently in use in the United States.
[iii] TurboMAX. TurboMAX is a pari-mutual system which has five progressive
jackpots with five different patterns for each game. A percentage of player
purchases can be selected and allocated toward a jackpot, which allows a jackpot
to be offered on every game. TurboMAX is a high speed bingo game which can be
played every 45 to 60 seconds. Approximately 30 TurboMAX units are currently in
use in the United States.
SONIC BINGO
Sonic Bingo is a high-stakes electronic speed bingo unit which uses the
Company's TurboMAX software, and is capable of playing multiple cards
simultaneously in sixty (60) second intervals. Sonic Bingo units will be
available in various styles capable of accommodating from 4 to 250 stations.
This system is capable of being networked throughout gaming halls as well as an
entire city or even a country (depending upon regulatory approvals), which
facilitates games involving major progressive jackpots.
The Sonic Bingo prototype was introduced to the market at the World Gaming
Show in Las Vegas held in October, 1996. Development is being finalized for beta
testing in the third quarter of 1998, and introduction in the market in the
fourth quarter of 1998.
On March 25, 1998, the Company executed a Letter of Understanding with its
partner in the Sonic Bingo project, SEGA Gaming Technology, Inc. This is a
refinement of the previous Letter of Intent signed by the parties May 13, 1996
and includes the formation of a new corporation which will result in:
o Sega Gaming Technology, Inc. licensing the use of the name "SEGA".
o Advanced Gaming Technology, Inc. licensing its MAX Bingo System
software, Prisms patented game technology, and rights to use the
"Sonic Bingo" trademark.
o Net income, capital expenditures and other product development costs
will be shared equally. Additionally, SEGA Gaming Technology, Inc. has
committed to acquire up to 5,000,000 common shares of Advanced Gaming
Technology, Inc. in open market transactions and/or by way of private
placement.
Pursuant to an agreement with Fortune Entertainment Corporation, and in
order to assist in
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the development of Sonic Bingo, in September 1996, the Company sold an 18.75%
share of the Company's interest in this project for $750,000; $390,000 of which
had been received up to December 31, 1997.
Parti MAX
The Company, having developed its MAXLITE hand held unit, identified the
United Kingdom as a natural new market for a portable unit, since there is
currently no portable electronic bingo systems in that country, and the bingo
market there is substantial. The Company entered into a Leasing and Service
Agency Agreement dated September 15, 1996 with Edward Thompson Group ("ETG") of
the United Kingdom, a private company established in 1867, and the leading
manufacturer and supplier of bingo paper and related products in that country.
Pursuant to the Agreement the Company is developing a wireless hand-held
electronic bingo system suitable for the United Kingdom market. Advanced Gaming
Technology, Inc. is responsible for design, engineering, manufacture, and supply
of the product. Edward Thompson Group will be responsible for marketing and sale
or lease of the Parti MAX system in bingo halls throughout the U.K. Also, ETG
will be responsible for personnel training, repair and maintenance, all customer
service activities, and for administration of each installation. ETG will obtain
all necessary regulatory approvals.
The Company and Edward Thompson Group will share net revenues equally after
Advanced Gaming has recouped certain of its development costs (up to 500,000
pounds sterling, approximately $800,000), until then revenues will accrue 60% to
Advanced Gaming Technology, Inc., and 40% to ETG.
The Company is at an advanced stage of development for the Parti MAX, and
expects preliminary testing in bingo halls to commence in the second quarter of
1998, with revenues anticipated to begin in the fourth quarter of 1998.
Pursuant to an agreement with Fortune Entertainment Corporation, and in
order to assist in the development of Parti MAX, in September 1996, the Company
sold a 15.0% share of the Company's interest in this project for $600,000.
SALES AND MARKETING
The MAX Bingo Systems are leased to bingo halls. The cost to the hall
operator is based on a daily lease rate per unit, which reduces the initial
capital outlay of the operator. The Company's MAX Bingo Systems complement
paper-based bingo halls. The Systems are modular; consequently, as their
popularity builds, additional units can be added to the systems.
In February, 1998 the Company executed a Financing, Licensing, and Royalty
agreement with a major competitor, Bingo Technologies Corporation ("BTC"). This
agreement grants BTC the exclusive right to sell, market, manufacture, and
distribute the MAXPLUS and TurboMAX products in the United States only for a
period of five years. This agreement has produced a licensing fee ($1,500,000),
and will generate royalties of 15% based on the gross revenues generated by BTC
from
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marketing these products. Minimum royalties in the first year of the agreement
are $350,000 and are to be negotiated by the parties thereafter, with the
minimum royalty not to be lower than $350,000 in any year.
TARGET MARKETS. Native American, charity, military, casino and cruise line
bingo operations are considered by the Company to be prospective markets for the
Company's electronic bingo systems. Currently, the Company is focusing its
marketing efforts on the Native American and charity markets.
Initially, the Company has targeted the United States and Canadian markets
due to their size, proximity and familiarity. Other world markets with
significant bingo operations are the United Kingdom, Australia, New Zealand and
Europe. A large potential for electronic bingo also exists in Asia and Central
and South America. The Company may pursue these and other international markets
in the future.
Advanced Gaming will focus it's activities concerning the MAX Bingo Systems
as follows:
MAXPLUS & TurboMAX - Canada and other world markets
MAXLITE - United States, Canada and other world markets
MARKET SEGMENTS. The key segments of the bingo market are as follows:
HIGH STAKES NATIVE AMERICAN BINGO. There are presently over 200 bingo
operations located on Native American reservations in the United States and
Canada. It is believed that the largest bingo games in the United States are run
on Native American reservations. The bingo halls located on these reservations
typically seat between 300 and 2,000 players. Bingo games are conducted three to
seven days per week, playing up to 28 bingo sessions per week.
CHARITY BINGO. Charity bingo sessions are conducted on a regular basis by
parochial, private and public schools, churches, fraternal orders, sororities,
little leagues, symphony orchestras, cultural and civic organizations,
auxiliaries, various clubs, synagogues, day-care centers, retirement
associations and most of other not-for-profit organizations across the United
States and Canada. Some of these bingo operations, because of their small size
or infrequency of operation, are not candidates for permanent electronic
installations, although portable electronic systems may be provided to certain
operations on a predetermined date and removed after completion of the session.
In many states, it is legal for a number of charities to associate with
each other for the purpose of operating bingo halls. In North America, it is
estimated that the majority of charity bingo is conducted in this manner. Under
this concept, the association leases a suitable hall, plays bingo seven days per
week, with a specific charity accepting responsibility for operations for that
particular day of the week. In the United States, this type of operation is
known as a "bingo barn." The result is a bingo operation that is much more
efficient than isolated charity games. All of these charity bingo
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operations are strong candidates for the electronic bingo systems.
REAL ESTATE HOLDING
On June 22, 1995, pursuant to an Agreement and Plan of Reorganization by
and among the Company, Branson Signature Resorts, Inc. ("Branson") and certain
shareholders of Branson, dated June 1, 1995 (the "Exchange Agreement"), the
Company acquired all the capital stock of Branson and its wholly-owned
subsidiaries in exchange for 5,999,820 shares of the Company's Common Stock.
Branson and its subsidiaries are a resort and land developer located in Branson,
Missouri, which owned two separate real estate properties: (i) a resort property
with limited existing development on site; and (ii) 178 acres of undeveloped
property in Stone County, Missouri. On November 17, 1995, the Company disposed
of the resort property by forfeiture to the mortgage holder. The Company is
currently attempting to capitalize on the 178 acres of undeveloped property by
way of a sale or development of the property with a joint venture partner.
The undeveloped property has been pledged to secure the repayment of: (i)
promissory notes in an aggregate principal amount of $1,339,792 bearing interest
at nine percent (9%) per annum and due in July 2002; (ii) a promissory note in
the principal amount of $60,812 bearing interest at ten percent (10%) per annum
and due on demand; and (iii) a convertible debenture in the principal amount of
$1,249,286 and accrued interest in the amount of $228,538 bearing interest at
two percent (2%) per month, compounded monthly, which was due December 1, 1997
and is currently being renegotiated.
RECENT ACQUISITION
PRISMS, INC. The Company entered into a Share Purchase Agreement, dated
September 26, 1996 (the "Prisms Agreement"), among (i) the Company, (ii) Prisms,
and (iii) the shareholders of Prisms, to acquire all the issued and outstanding
shares of Prisms. The purchase price for the acquisition was $600,000, payable
in 300,000 shares of the Company's Common Stock, with such shares having a
deemed value of $2.00 per share (the "Acquisition shares"). Prism's primary
assets are certain patents for the development of bingo and other entertainment
games which management of the Company believes favorably complement the
Company's MAX Bingo Systems. Prisms has invented several games under the patents
(the "Patented Products") and has intent to use trademarks in place for the
Patented Products.
Pursuant to the Prisms Agreement, in October 1997, the Company issued
2,567,755 additional shares of Common Stock so that the total value of the
Acquisition shares issued equaled $600,000. In addition, upon the receipt by the
Company of $10,000 of net sales for a Patented Product, the Company is required
to issue an additional 28,572 shares of Common Stock, at a deemed value of $2.00
per share, for each such Patented Product (the "Product Shares"). In the event
the issued Product Shares do not trade at a minimum average closing price of
$2.00 per share as reported by the NASD for a ten (10) day trading period
commencing 12 months after the issuance of the Product Shares, the Company is
required to issue additional shares of Common Stock so that the total value of
the Product Shares is $57,144. The Company has not issued any Product Shares.
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The former Prisms shareholders are also entitled to a royalty, payable on a
quarterly basis, equal to two percent (2%) of the net sale price of the products
after deduction of packaging and shipping costs, allowances made for defective
products, excise duties, value-added taxes or other similar taxes charged or
included in the price to the customer.
NATIVE AMERICAN BINGO OPERATIONS
THE INDIAN GAMING REGULATORY ACT. IGR classifies games that may be played
on Native American land into three categories. Class I gaming includes
traditional Native American social and ceremonial games and is regulated only by
the tribes. Class II gaming includes bingo, pulltabs, lotto, punch boards,
instant bingo, certain card games played under limited circumstances and other
games similar to bingo if those games are played at the same location where
bingo is played. Class III gaming consists of all forms of gaming that are not
Class I or Class II, such as video casino games, slot machines, most table games
such as black jack, craps and keno. Generally, Class II gaming may be conducted
on Native American lands if the state in which the Native American reservation
is located permits such gaming for any purpose by any person. Class III gaming,
on the other hand, may only be conducted pursuant to a compact reached between
the Native American tribe and the state in which the tribe is located. See
"Business - Government Regulation."
PROPOSED OPERATIONS IN ASIA
The Company embarked on a restructuring of the Company's operations in
December 1997, and consequently has abandoned all projects in Asia.
Due to the Company's limited financial resources, the inability to execute
its intentions from afar, and the political uncertainty of Asia, all prospects
regarding any projects in Asia have been terminated. The Company is currently
disposing of all assets, and believes all potential costs and charges have been
adequately reflected in the financial statements for the year ended December 31,
1997.
The Company's proposed operations in Asia were subject to political
instability and government regulations relating to the gaming industry and
foreign investors. Any changes in regulations or shifts in political conditions
were beyond the control of the Company. Corporations are affected in varying
degrees by government regulations with respect to restrictions on production of
sales, price controls, import/export controls, income tax, expropriation of
property and environmental legislation. Operations may also be materially
affected by political and economic instability, economic or other sanctions
imposed by other countries, terrorism, civil wars, guerrilla activities,
military repression, crime, extreme fluctuations in currency exchange rates and
inflation. The instability of China and the Philippines made it more difficult
for the Company to attain any required project financing from lending
institutions or private funding sources.
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PARTICIPATION AGREEMENT WITH FORTUNE ENTERTAINMENT CORPORATION
The Company entered into an Agreement, dated July 17, 1996, amended
September 15, 1996 (the "Participation Agreement"), with Fortune Entertainment
Corporation, a Delaware corporation ("FEC") under which FEC has the right to
receive a participating interest in certain of the Company's projects as well as
having the option to provide funding for the Company's MAXLITE handset on a
lease basis.
Under the Participation Agreement, FEC has acquired the following
interests:
Parti MAX
The right to acquire up to a fifteen percent (15%) carried interest in the
Company's interest in the bingo projects currently being developed in the
United Kingdom for $600,000 to be paid to the Company. Fortune
Entertainment must pay its pro rata share of the costs and liabilities of
the United Kingdom bingo projects. On October 31, 1996, Fortune
Entertainment exercised its right and paid the Company $600,000.
Sonic Bingo
The right to acquire an 18.75% interest in the Company's interest in the
development of the Sonic Bingo game in exchange for $750,000 to be paid on
or before September 30, 1996, of which $390,000 was paid to the Company on
September 30, 1996. Fortune Entertainment still owes the Company $360,000
in order to secure it's interest.
The parties are currently re-negotiating certain of the terms and
conditions of the Participation Agreement, including the possibility of the
Company repurchasing FEC's interest in these projects. As at December 31, 1997,
Fortune Entertainment had provided the Company with a total of $1,025,738.
GOVERNMENT REGULATION
In the United States, bingo is a legal gambling enterprise in the District
of Columbia and all states, except Utah and Hawaii. In 46 of those states, it
must be operated either by, or in association with, a not-for-profit
organization. The two states where it may be played under private ownership for
profit are Nevada and certain parts of Maryland. In any of the 48 states where
bingo and other forms of gaming are legal, bingo may be played on tribal lands
under tribal ordinance and with licensing approval by the tribes without state
regulation.
In each of the states where bingo is legal, the opening and operation of a
game requires a license. In some states licensing is controlled at the state
level and in other states it is controlled and issued at the local level. Some
states have formed and maintain formal gaming commissions. In several states,
the gaming commissions require that distributors, manufacturers and suppliers of
bingo products and equipment as well as their sales representative obtain
licenses. State regulations may limit the amount of revenues which the Company
can generate by limiting the number of sessions, revenues per session, number of
locations which may be operated, or other matters. The application for
administrative approval by the Nevada Gaming Control Board to market and operate
the Company's electronic bingo systems was filed to obtain access to the Nevada
market. The Company is licensed in Alaska, Mississippi, Nevada, Texas, Virginia
and Wisconsin, and has submitted an
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application for licensing to the Province of British Columbia, Canada.
The state and local laws in the United States which govern the lease and
use of gaming products are widely disparate and continually changing due to
legislative and administrative actions and judicial interpretations. If any
changes occur in gaming laws through statutory enactment or amendment, judicial
decision or administrative action restricting the manufacture, distribution or
use of some or all of the Company's products, the Company's present and proposed
business could be adversely affected.
Under IGR certain types of gaming activities are classified as Class I,
Class II or Class III. Class I gaming includes traditional Native American
Social and ceremonial games and is regulated only by the tribes. Class II gaming
includes bingo, pull-tabs, lotto, punch boards, instant bingo, certain card
games played under limited circumstances and other games similar to bingo if
those games are played at the same location where bingo is played. Class III
gaming consists of all forms of gaming that are not Class I or Class II, such as
video casino games, slot machines, most table games such as black jack, craps
and keno. Generally, Class II gaming may be conducted on Native American lands
if the state in which the Native American reservation is located permits such
gaming for any purpose by any person. Class III gaming, on the other hand, may
only be conducted pursuant to a compact reached between the Native American
tribe and the state in which the tribe is located. The Company's business will
be impacted based upon how its products are ultimately classified.
No assurances can be given that any of the Company's contracts will be
renewed upon the expiration of their term or that, if renewed, the terms and
conditions thereof will be favorable to the Company, nor can any assurances be
given that a tribe or tribes will not cancel any such agreements prior to
expiration of their stated term.
COMPETITION
The Company believes it has five main competitors, most of which have
substantially greater financial, marketing and technological resources than the
Company. In addition, since electronic bingo comprises only a very small segment
of the industry, it is conceivable that there will be new products and new
companies entering this area of business. Notwithstanding this, the Company's
management is of the opinion that with its constant upgrading of its MAX Bingo
Systems and introduction of new products, the Company will be able to attain a
meaningful share of this relatively untapped market.
PATENTS AND TRADEMARKS
The Company relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect its products. Notwithstanding these safeguards, it is possible for
competitors of the Company to imitate its products. Furthermore, others may
independently develop products similar or superior to those developed or planned
by the Company. While the Company may obtain patents with respect to certain of
its products, the Company may not have sufficient resources to defend such
patents, such patents may not afford all
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necessary protection and competitors may develop equivalent or superior products
which may not infringe such patents.
RESEARCH AND MARKET DEVELOPMENT
During the fiscal years ended December 31, 1997 and 1996, research and
market development expenses of the Company totaled approximately $1,230,426 and
$1,691,546 respectively. During 1997 and 1996 the majority of these expenses
were related to the development of MAXLITE, the refinement of MAXPLUS, and
TurboMAX and the further development of its new products Parti MAX and Sonic
Bingo.
EMPLOYEES
As of February 28, 1998, the Company had 21 employees, none of whom is
represented by a labor union.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located in Vancouver, British
Columbia, Canada. In addition, the Company has an office in Branson, Missouri,
where its real estate holding is located. The Company intends on relocating its
executive and administrative offices to Las Vegas, Nevada by mid 1998.
Pursuant to a lease dated March 13, 1995 and amended February 22, 1996 (the
"Vancouver Lease"), the Company leases 4,252 square feet in Vancouver, British
Columbia for its principal executive office. The annual base rent under the
Vancouver Lease is CDN $34,788. The Vancouver Lease expires on March 31, 2000.
The Company intends to assign this lease in conjunction with its corporate
restructuring whereby executive and administrative functions will be re-located
to Las Vegas, Nevada.
The Company's wholly-owned subsidiary, River Oaks Holding, Inc. ("River
Oaks"), leases approximately 900 square feet in Branson, Missouri pursuant to a
lease dated November 1, 1996 (the "Branson Lease"). River Oaks pays $300 per
month rent under the Branson Lease, which is month to month.
In February, 1998 pursuant to an agreement with Bingo Technologies
Corporation, ("BTC") the Company assigned it's obligations for it's distribution
facility in Colorado, and its sales and marketing office located in Ohio to BTC.
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On June 22, 1995, pursuant to the Exchange Agreement, the Company acquired
all the capital stock of Branson and its wholly-owned subsidiaries in exchange
for 5,999,820 shares of the Company's Common Stock. Branson is a resort and land
developer located in Branson, Missouri, which owned two separate real estate
properties: (i) a resort property with limited existing development on site; and
(ii) 178 acres of undeveloped property in Stone County, Missouri. On November
17, 1995, the Company disposed of the resort property by forfeiture to the
mortgage holder. The Company is currently attempting to capitalize on the 178
acres of undeveloped property by way of a sale or development with a joint
venture partner.
The undeveloped property has been pledged to secure the repayment of: (i)
promissory notes in an aggregate principal amount of $1,339,792 bearing interest
at nine percent (9%) per annum and due in July 2002; (ii) a promissory note in
the principal amount of $60,812 bearing interest at ten percent (10%) per annum
and due on demand; and (iii) a convertible debenture in the principal amount of
$,1,249,286 and accrual interest in the amount of $228,538 bearing interest at
two percent (2%) per month, compounded monthly, which was due December 1, 1997
and is currently being renegotiated.
ITEM 3. LEGAL PROCEEDINGS
In addition to ordinary routine litigation incidental to its business
operations, which the Company does not believe, in the aggregate, will have a
material adverse effect on the Company, or its operations, the Company is
engaged in the following lawsuits:
Braintech, Inc. ("Braintech") filed a statement of claim in the Supreme
Court of British Columbia on November 24, 1995 and amended on March 26, 1996
claiming default by the Company on three promissory notes. Braintech claimed
damages in the amount of $200,000, plus interest of ten percent (10%) per annum,
and costs. In 1997, the Company settled this dispute for $75,000 to be paid by
issuance of stock.
In January 1996, Tierra Corporation ("Tierra") commenced an action in the
Circuit Court of Stone County, Missouri, claiming that River Oaks Resort and
Country Club, Inc. a Texas corporation and a subsidiary of Branson ("River Oaks
Resort") defaulted on a promissory note. A judgment is sought in the principal
amount of $75,106, plus interest since October 18, 1995, at 10% per annum. An
answer has been filed on behalf of River Oaks Resort averring that Tierra has
not performed conditions precedent to assessing any deficiency and that no
accounting regarding the disposition of security for such note has been provided
and, in addition, a counter claim was filed, asserting Tierra disposed of stock
collateral in a commercially unreasonable manner. A principal of Tierra has
recently filed suit in Dallas, Texas concerning the stock collateral.
Preliminary discovery has occurred but no depositions have been taken.
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In February 1996, P.D.I., LLC, a Missouri limited liability company ("PDI")
commenced an action in the Circuit Court of Stone County Missouri, claiming
breach of a real estate purchase agreement which in part, provided for the
construction of a sewage treatment facility for which damages are claimed,
including the awarding to PDI of all escrow funds, costs and expenses incurred
by PDI over and above the amount of escrow funds and cost and expenses,
including attorney fees in connection with the commencement of the action. In
response, the Company and River Oaks Resort have counter claimed for damages, in
an amount to be determined at trial, incurred when plaintiff PDI withdrew funds
from the escrow fund created for construction of the sewage treatment facility
and the permit application for construction approval by the Missouri Department
of Natural Resources. Moreover, a claim has also been made by River Oaks Resort
and the Company that subsequent development attempted by PDI has encroached upon
property development belonging to River Oaks Resort and the Company without the
right to do so, including damages for disruption resulting therefrom.
In April 1996, Larry Newman ("Newman") commenced a mechanics' lien in the
Circuit Court of Stone County, Missouri, seeking $177,282, plus interest, for
excavation work performed during the period between July 19, 1995 to September
25, 1995 on a road across the River Oaks development in Stone County.
Thereafter, on or about June 24, 1996, Jack L. Holt ("Holt") filed a similar
petition in the Circuit Court of Stone County, Missouri, claiming a mechanics'
lien for engineering and land surveying during the period May 16, 1995 to July
4, 1995 for a road across the River Oaks development property in the amount of
$9,610, plus interest. The Holt case has now been consolidated in the case
originally filed by Newman. The Company has filed a counterclaim alleging Newman
and Holt extended the road beyond the boundaries of the River Oaks development
property onto land owned by Sunset Cove, Ltd., a Missouri corporation. The court
has since ordered Sunset Cove, Ltd. joined as a party needed for just
adjudication. Discovery has not yet commenced.
On November 15, 1996, Fortunet, Inc., a Nevada corporation ("Fortunet"),
filed a patent infringement claim in the United States District court Southern
District of California against the company and certain other companies which
manufacture and distribute electronics bingo systems, claiming that the
defendants, including the Company, infringed Fortunet's United States Patent No.
4,624,462 (the "Patent"). Fortunet seeks to enjoin the defendants from any
further alleged infringement of the Patent and is seeking actual and enhanced
damages as well as attorneys fees and other costs. In July 1997, the case was
transferred from the federal court in San Diego, California to the federal court
in Phoenix, Arizona. Discovery is expected to commence in May, 1998.
The Company entered into a Lease License Agreement, dated December 7, 1995
with G&J Production Trust. Pursuant to the Lease License Agreement, G&J
Production Trust leased 200 MAXPLUS Bingo System units from the Company for use
in G&J Production's bingo operation located in Victorville, California. As of
January 23, 1997, G&J Production Trust was approximately three months behind in
their payments to the Company and the Company removed its equipment from
Victorville. In July 1997, the Company commenced a lawsuit. This action includes
a claim for all outstanding accounts receivable, breach of Contract, and
reimbursement for various costs expended by the Company in regards to the
Contract.
In December 1997, a former employee commenced an action against the Company
in the District Court of the County of Hennepin, Minnesota alleging non payment
of certain expenses
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incurred while in the employ of the Company. The Company has entered a defense
and denies any liability.
In February and March 1998, actions were brought against the Company in the
District Court in the States of New York and Colorado by certain Convertible
Debenture holders. The plaintiffs are alleging the Company is in default in
regard to the conversion of these debentures. The Company has responded to these
allegations, and settlements are pending.
The Company is vigorously defending these law suits. However, no assurance
can be given as to the outcome of these cases, but in the opinion of management
and counsel, the ultimate liability will not have a material effect on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the year
ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Company's Common Stock is traded on the NASD's OTC
Bulletin Board under the symbol "AGTI." The following table presents the high
and low bid quotations for the Common Stock as reported by the NASD for each
quarter during the last two years. Such prices reflect inter-dealer quotations
without adjustments for retail markup, markdown or commission, and do not
necessarily represent actual transactions.
Year Period Low High
---- ------ --- ----
1996 First Quarter $ .25 $ .99
Second Quarter .64 2.19
Third Quarter .99 1.61
Fourth Quarter .49 1.26
1997 First Quarter .45 1.04
Second Quarter .31 .83
Third Quarter .18 .46
Fourth Quarter .04 .20
DIVIDENDS. The Company has never declared or paid dividends. It is the
present policy of the Company to retain any earnings to finance the growth and
development of the business and, therefore, the Company does not anticipate
paying dividends on its Common Stock in the foreseeable future.
The number of shareholders of record of the Company's Common Stock as of
February 28, 1998 was 368.
RECENT SALES OF UNREGISTERED SECURITIES. Sales of unregistered securities
during the past year were filed pursuant to 8-K on the following dates: March
17, 1997; April 7, 1997; April 24, 1997; May 27, 1997; June 18, 1997; July 15,
1997; July 31, 1997; August 26, 1997; September 22, 1997; October 6, 1997;
November 3, 1997; and subsequent to year end, January 14, 1998; March 3, 1998.
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ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Entering 1997, the Company's primary goal was to secure the necessary
financing to enhance the software for its MAX Bingo System products, and to
develop an infrastructure capable of marketing, distributing and providing
technical support for these products in a manner which would result in Advanced
Gaming Technology, Inc., finally achieving profitability.
From a financing perspective the Company committed to raise this capital,
through an agent, by issuing a series of Convertible Debentures, issued under
Regulation S of the Securities Act of 1933. Between February 1997 and July 1997,
the Company raised a net total of $4.7 million. These funds were used to settle
debt, and provide working capital to build the infrastructure. By August 1997,
the Company centralized its U.S. operations in a 20,000 square foot facility in
Denver, Colorado. This included sales, distribution, training, and support
personnel. Additionally, software version 3.0 of the MAXLITE electronic
hand-held bingo unit was introduced, and has been virtually trouble free in
bingo balls since this date. At its peak, the Company's employee base reached 46
which was a doubling of the 1996 staffing levels.
However, the nature of, and the conversion terms of these Convertible
Debentures has ultimately resulted in serious consequences to the Company's
image, undermined investor confidence, and impaired its ability to secure
additional financing on reasonable terms to continue with the execution of its
business plan. Trading in the Company's stock increased dramatically, however
the trading price declined steadily from an annual high in March 1997 of $1.04
to an all time low of $0.04 by the end of the year.
Consequently, the Company was unable to generate any material funding since
July 1997, and thus embarked on a new strategy. Advanced Gaming recognized that
its strength lies in the development of technology and products related
primarily to the bingo industry. The Company's MAX Bingo Systems are among the
leading products in the electronic bingo industry. Pursuant to this, the Company
throughout 1997 had a series of negotiations with a major competitor, Bingo
Technologies Corporation ("BTC") to form a strategic alliance; ranging from the
distribution of the Company's MAXplus and Turbo MAX products to a potential
merger between the two companies. This culminated in the announcement in
February 1998, of a Financing, Royalty, and Licensing Agreement granting BTC the
exclusive right to market, manufacture and distribute the Company's MAXplus and
Turbo MAX products for a five year term in the U.S. market only. The core
benefits to Advanced Gaming are as follows:
o $1,500,000 one time licensing fee;
o 15% royalty on gross revenues generated by BTC, with a minimum in the
first year of the Agreement of $350,000 and are to be negotiated by
the parties thereafter, with
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the minimum royalty in subsequent years not to be lower than the
royalty amount negotiated in the preceding year;
o 25% commission on all orders generated by the Company;
o Substantial reduction of overhead (approximately 40%) by assignment of
the Denver distribution facility, and the Cleveland marketing office
to BTC.
The execution of this agreement completes the initial phase of
restructuring announced by the Company in December, 1997. Going forward, the
Company will focus on the following:
o Negotiating marketing and distribution agreements for the MAXLITE
hand-held units in Canada, United States and other world markets;
o Working in conjunction with BTC, to enhance the MAXPLUS and TurboMAX
products to maximize the penetration of these products into the key
U.S. market;
o Marketing and licensing of MAXPLUS and TurboMAX products in Canada and
other world markets;
o Introduction of Parti MAX, the first ever by-directional handset, in
the United Kingdom;
o The completion of the development of Sonic Bingo, a fast paced
multi-site progressive game in partnership with SEGA Gaming
Technology, Inc.;
o Development of other products utilizing the Company's library of
patented Prisms technology.
Coinciding with the above, the Company has appointed a new Chief
Executive Officer, Mr. Tom Nieman, who will implement a new Board of Directors
and management team. Under Mr. Nieman's direction the Company's executive and
administration functions will be relocated to Las Vegas, Nevada by mid 1998. The
relocation will help position the Company as Las Vegas is the acknowledged
center of gaming in the U.S.
RESULTS OF OPERATIONS
1997 Compared to 1996
Net loss for 1997 was $9.6 million compared to $5.6 million for 1996. The
$4 million increase is explained as follows:
o Increase in general and administrative expenses of $2.3 million, the
majority of which relate to the building of infrastructure to sell,
market, and distribute the Company's MAX Bingo System products;
o Increase in financing costs and interest of $1.6 million, primarily
related to the discounted convertible debentures;
o Restructuring charge of $0.8 million regarding costs associated with
changing executive management, relocation of executive and
administrative offices to Las Vegas, Nevada, and inventory and
equipment write-downs relating to the Licensing, royalty, and
Financing Agreement with BTC.
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INFLATION AND REGULATION
The Company's operations have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices. This is due
in part to the highly capital intensive nature of the majority of the business
of the Company, thereby reducing the chances of competition providing for sales
price reductions while inflation in the costs are more likely to be passed
through to the customer.
The Company's operations are subject to state and local gaming laws as well
as various federal laws and regulations governing business activities with
Native American Tribes. The State and local laws in the United States which
govern the lease and use of gaming products are widely disparate and continually
changing due to legislative and administrative actions and judicial
interpretations. If any changes occur in gaming laws through statutory enactment
or amendment, judicial decision or administrative action restricting the
manufacture, distribution or use of some or all of the Company's products, the
Company's present and proposed business could be adversely affected. The
operation of gaming on Native American reservations is subject to the Indian
Gaming Regulatory Act ("IGR"). Under IGR certain types of gaming activities are
classified as Class I, Class II or Class III. The Company's business will be
impacted based upon how its products are ultimately classified. However, the
Company does not believe that any recently enacted or presently pending proposed
legislation will have a material adverse effect on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated minimal revenues from product sales. Revenues are
not yet sufficient to support the Company's operating expenses, however, the
Company is cautiously optimistic that operating revenues will be adequate to
meet operating expenses during the next year. Since the Company's formation, it
has funded its operations and capital expenditures primarily through private
placements of debt and equity securities. The Company will be required to seek
additional financing in the future. There can be no assurance that such
financing will be available at all or available on terms acceptable to the
Company.
There are no formal commitments from banks or other lending sources for
lines of credit or similar borrowings.
The increase in capital resources for 1997 is attributable to the private
placements of Common Stock and the conversion of debt to equity.
For the development of some of its new products, i.e. Parti MAX and Sonic
Bingo, the Company has been successful in arranging some off Balance Sheet
financing to advance the development of these projects. (See Participation
Agreement - Fortune Entertainment Corporation).
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ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are included
immediately following the signature page to this report. See Item 13 for a list
of the financial statements and financial statement schedules included.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has no changes in or disagreements with its accountants on any
accounting and financial disclosure.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Director
Name, Age and Principal Employment for Past Five Years Since
Firoz Lakhani, 53, has been the President, Chief Operating Officer 1995
and Director since September 1995. Mr. Lakhani served as a
Director at Olds Industries, Inc., a Canadian public company, from
August 1993 to September 1995, and was employed at Park Georgia
Realty, a real estate and land development brokering company, from
July 1990 to August 1993. From 1979 to 1990, Mr. Lakhani was
employed at Montreal Trust Company, where he headed the
Commercial Real Estate Division. See "Description of Business -
Recent Developments"
Robert C. Silzer, Sr., 51, has been the Chairman, Chief Executive 1993
Officer and Director of the Company since November 1993. Mr.
Silzer, Sr., resigned as Chief Executive Officer effective February
15, 1998. He also currently serves as a Director of InFOREtech
Golf Technology, Inc., since September 1995. From 1986 to 1992,
Mr. Silzer served as President and Chief Executive Officer of
Supercart International, Inc. See "Description of Business
Recent Developments"
Robert L. Hunziker, 53, was appointed as a Director of the Company 1998
effective January 14, 1998. Mr. Hunziker has been employed in
corporate relations and corporate finance with public companies
since 1992. Previously, he was a limited partner (associate director)
of Bear, Sterns & Company, Inc., and he was a principal of
Oppenheimer & Company, Inc.
The Company has three additional executive officers:
Thomas S. Nieman, 49, was appointed Chief Executive Officer of the Company as of
February 15, 1998. Mr. Nieman served as Vice President of Sales & Marketing for
Shuffle Master, Inc., a public company supplying the casino gaming industry from
1995 to 1997, and was Vice President of Marketing for Bally Gaming Inc., a major
supplier of gaming equipment from 1992 to 1995.
Robert C. Silzer, Jr., 32, was a director of the Company from March 31, 1997
until December 17, 1997. Mr. Silzer, Jr. holds the position of Executive Vice
President. From December 1992 through December 1993, Robert C. Silzer, Jr.
worked as a sales representative at Mills Printing in Vancouver.
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Robert C. Silzer, Jr., is the son of Robert C. Silzer, Sr.
Donald Robert MacKay, 45, has been the Chief Financial Officer of the Company
since August 1995. Prior to joining the Company, Mr. MacKay served as the
Manager-Business Analysis at TCG International, Inc. from March 1994 to July
1995. Prior to that, Mr. MacKay was the Controller of Attachmate Canada, Inc.
(formerly KEA Systems Ltd.) from September 1993 to March 1994 and was a Senior
Financial Accountant at GLENTEL, Inc. from 1989 to 1993.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of forms 3, 4, and 5 and amendments thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
the Company or any other person known to be subject to Section 16 of the
Exchange Act of 1934, as amended, failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act for the last fiscal year or prior
fiscal years.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
regarding compensation paid in each of the Company's last two fiscal years to
the Company's Chief Executive Officer and other executive officers whose
salaries and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
Other All
Name and Principal Fiscal Annual Other
Position Year Salary Bonus Compensation Compensation(1)
Robert C. Silzer, Sr., 1996 $175,000 (2) - $ 10,000 $ 16,692
Chairman and Chief 1997 $225,000 (3) - $ 10,000 $ 16,832 (4)
Executive Officer(10)
Firoz Lakhani 1996 $125,000 (5) - $ 10,000 $ 16,692
President and 1997 $175,000 (6) - $ 10,000 $ 13,004 (7)
Chief Operating Officer
Robert C. Silzer, Jr., 1997 $101,667 (8) - $ - $ 2,292 (9)
Executive Vice 1996 $ 85,937 - $ - $ -
President
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(1) Amounts under "All Other Annual Compensation" represent an automobile
allowance for: Robert C. Silzer, Sr., of $10,800 for 1996, $12,000 for 1997
and certain employee benefits; an automobile allowance for Firoz Lakhani of
$9,600 for 1996, $10,800 for 1997 and certain employee benefits; an
automobile allowance for Robert Silzer, Jr. of $2,000 for 1997 and certain
employee benefits.
(2) Includes $37,500 deferred to subsequent year.
(3) Includes $29,375 deferred to subsequent year.
(4) Includes $1,500 deferred to subsequent year.
(5) Includes $33,333 deferred to subsequent year.
(6) Includes $23,125 deferred to subsequent year.
(7) Includes $1,350 deferred to subsequent year.
(8) Includes $22,917 deferred to subsequent year.
(9) Includes $2,000 deferred to subsequent year.
(10) Effective February 15, 1998, Mr. Silzer, Sr. resigned as Chief Executive
Officer.
No bonuses were paid in 1996 and 1997.
Director Compensation
There are no arrangements pursuant to which Directors are compensated for
any services provided as a Director.
Option Grants in Last Fiscal Year
The following table sets forth information covering the grant of options to
acquire Common Stock in the last year to the persons named in the Summary
Compensation Table.
GRANT OF OPTIONS TO ACQUIRE COMMON STOCK
% of Total
Options
Number of Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in Year Per Share Date
Robert C. Silzer, Sr 800,000 22.6% $0.052 01/05/2003
Firoz Lakhani 600,000 16.9% $0.052 01/05/2003
Robert C. Silzer, Jr 600,000 16.9% $0.052 01/05/2003
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Aggregate Option Exercises in Last Year, and Year-End Option Values
The following table sets forth, for the persons named in the Summary
Compensation Table, information regarding aggregate exercises of options in 1997
and the number and value of unexercised options at December 31, 1997.
<TABLE>
AGGREGATE EXERCISES OF OPTIONS IN 1997
<CAPTION>
Shares Value of Unexercised
Acquired on Number of Unexercised In-the-Money Options
Value Options at FY-End FY-End ($)(1)
Exercise Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable(3)
<S> <C> <C> <C> <C> <C> <C>
Robert C.
Silzer, Sr. 1,000,000 $ 27,400 800,000(2) 1,000,000 $ - $ 25,000
Firoz
Lakhani 1,320,000 $ 30,837 780,000(2) 750,000 $ - $ 18,750
Robert C.
Silzer, Jr. - $ - 1,000,000 - $ - $ -
</TABLE>
(1) Based upon the difference between the exercise price and the closing price
of the shares on December 31, 1997.
(2) Includes options for 1997.
(3) Based on 50% of the ten day trading average prior to the effective date of
the option in 1999.
Employment Agreements
Effective January 1, 1994, the Company entered into an employment agreement
with Robert C. Silzer, Sr. (the "Silzer Sr. Employment Agreement"), under which
Robert C. Silzer, Sr. serves as Chairman and Chief Executive Officer of the
Company. Pursuant to the Silzer Sr. Employment Agreement, Mr. Robert C. Silzer,
Sr,. was paid a salary of $75,000 in 1994, $125,000 in 1995 and $137,500 in
1996. He deferred $37,500 of his salary for the year 1996. Robert C. Silzer, Sr.
was paid a salary of $225,000 in 1997 and deferred $29,375 to 1998. Mr. Silzer,
Sr. will be paid a salary of $275,000 in 1998, $325,000 in 1999 and $375,000 in
2000. In addition, Robert C. Silzer, Sr. is eligible to receive an annual bonus
in an amount equal to 5% of the net income of the Company and its subsidiaries
(the Company and its subsidiaries did not have net income in 1996 or 1997).
Robert C. Silzer, Sr. received a signing bonus of 250,000 shares in common
stock. Robert C. Silzer, Sr. was also paid an automobile allowance of $900 per
month in 1996 and $1,000 per month in 1997 of which $1,500 was deferred to 1998
and will be paid an additional $100 per month for each remaining
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calendar year of the term of the Silzer Sr. Employment Agreement. Pursuant to
the Silzer Sr. Employment Agreement, Robert C. Silzer, Sr. was granted options
to purchase; (i) 500,000 shares of the Company's Common Stock in 1995 at an
exercise price of $.30 per share; and (ii) 750,000 shares of the Company's
Common Stock in 1996 at an exercise price of $.50 per share and will be granted
options to purchase 1,000,000 shares of Common Stock of the Company for each of
the years 1997, 1998 and 1999, all at an exercise price equal to fifty percent
(50%) of the ten day average trading price prior to the effective date of the
option.
In addition, pursuant to the Silzer, Sr. Employment Agreement, Robert C.
Silzer, Sr. is entitled to receive a lump sum payment equal to the present
value, using an eight percent (8%) discount factor, of his salary for the
unexpired term of the Silzer Sr. Employment Agreement, plus the amount of any
performance bonus, grants of Common Stock and options which Robert C. Silzer,
Sr. is entitled, which shall be a minimum of $5,500,000 (the Silzer Severance
Payment") if (i) Robert C. Silzer, Sr. is terminated by the Company without
"just cause" as determined under the common law of British Columbia or, (ii) (a)
there is a change of control (as defined), (b) the Company employs any other
senior executive without Robert C. Silzer, Sr.'s prior written consent or (c)
materially alters the duties of Robert C. Silzer, Sr. without Robert C. Silzer,
Sr.'s prior written consent. The Silzer Sr. Employment Agreement also provides
that Robert C. Silzer, Sr. shall not compete with the Company for a period of
twelve (12) months after termination of his employment with the Company. The
Silzer, Sr. Employment Agreement terminates on December 31, 2000.
Effective September 5, 1995, the Company entered into an employment
agreement with Firoz Lakhani (the Lakhani Employment Agreement"), under which
Mr. Lakhani serves as President and Chief Operating Officer of the Company.
Pursuant to the Lakhani Employment Agreement, Mr. Lakhani was paid a salary of
$6,250 per month from September 1, 1995 to December 31, 1995 and $91,667 in
1996. He deferred $33,333 of his salary for the year 1996. Mr. Lakhani was paid
a salary of $175,000 in 1997, and deferred $23,125 1998. Mr. Lakhani will be
paid a salary of $225,000 in 1998, $275,000 in 1999 and $325,000 in 2000. In
addition, Mr. Lakhani is eligible to receive an annual bonus in an amount equal
to 3.5% of the net income of the Company and its subsidiaries (the Company and
its subsidiaries did not have any net income in 1996 or 1997). Mr. Lakhani
received a signing bonus of 200,000 shares of Common Stock. Mr. Lakhani was also
paid an automobile allowance of $800 per month in 1996 and $10,800 for 1997 of
which $1,350 was deferred to 1998, and will be paid an additional $100 per month
for each remaining calendar year of the term of the Lakhani Employment
Agreement. Pursuant to the Lakhani Employment Agreement, Mr. Lakhani was granted
options to purchase (i) 300,000 shares of the Company's Common Stock in 1995 at
an exercise price of $.30 per share and (ii) 500,000 shares of the Company's
Common Stock in 1996 at an exercise price of $.50 per share and will be granted
options to purchase 750,000 shares of Common Stock of the Company for each of
the years 1997, 1998 and 1999, all at an exercise price equal to fifty percent
(50%) of the ten day average trading price prior to the effective date of the
option.
In addition, pursuant to the Lakhani Employment Agreement, Mr. Lakhani is
entitled to receive a lump sum payment equal to the present value, using an
eight percent (8%) discount factor, of his salary for the unexpired term of the
Lakhani Employment Agreement, plus the amount of any performance bonus, grants
of Common Stock options which Mr. Lakhani is entitled, which shall be a minimum
of $4,250,000 (the Lakhani Severance Payment") if (i) Mr. Lakhani is terminated
by the
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<PAGE>
Company without "just cause" as determined under the common law of British
Columbia or (ii) there is a change of control (as defined), (b) the Company
employs any other executive without Mr. Lakhani's prior written consent or (c)
materially alters the duties of Mr. Lakhani without Mr. Lakhani's prior written
consent. The Lakhani Employment Agreement also provides that Mr. Lakhani shall
not compete with the Company for a period of twelve (12) months after
termination of his employment with the Company. The Lakhani Employment Agreement
terminates on December 31, 2000.
Effective February 15, 1994, the Company entered into an employment
agreement, amended December 8, 1997 and February 17, 1998, with Robert C.
Silzer, Jr. (the "Silzer Jr. Employment Agreement") under which Mr. Robert C.
Silzer, Jr. serves as Executive Vice President of the Company, effective
September 1, 1997. Pursuant to the Silzer, Jr. Employment Agreement, and
amendments thereto, Robert C. Silzer, Jr. was paid a salary of $49,000 in 1994,
$55,000 in 1995 and $85,937 in 1996 and effective September 1, 1997, his annual
salary increased to $125,000. In addition, Robert C. Silzer, Jr. was granted
options to purchase 50,000 shares of the Company's Common Stock on January 1,
1994, 1995, 1996 and 1997, all at an exercise price of $1.00 per share and will
be granted options to purchase 50,000 shares of Common Stock on January 1, 1998
at an exercise price of $1.00 per share. Mr. Silzer is to be paid a car
allowance of $500 per month for the period September 1, 1997 up to August 31,
1998 and thereafter $600 per month. The Silzer, Jr. Employment Agreement expires
February 14, 2000.
Effective March 6, 1998, the Company entered into an employment agreement
with Thomas N. Nieman (the "Nieman Employment Agreement"), under which Mr.
Nieman serves initially as Chief Executive Officer and will assume the title of
President upon the resignation of Mr. Firoz Lakhani. Pursuant to the Nieman
Employment Agreement, Mr. Nieman will be paid a base salary of $180,000 per
annum, which will be reviewed annually by the Board of Directors to the end of
the term on February 15, 2001. Mr. Nieman will participate in a new executive
bonus plan for Senior Management, which allocates 3% of the Net Income of the
Company each year to be allocated at the Board of Director's discretion. As an
additional part of Mr. Nieman's compensation, he will be granted options to
purchase up to 1,000,000 shares of the Company at $0.06 upon the Company
achieving a positive operational cash flow.
In addition, Mr. Nieman is granted a minimum of 500,000 stock options for
each of the years 1998, 1999 and 2000, at an exercise price of $0.06. If the
Company has a positive cash flow at the date Mr. Nieman exercises these options,
the Company may loan Mr. Nieman the sums necessary for such exercise, including
interest at a reasonable rate.
Mr. Nieman also receives the following compensation and benefits: four
weeks annual vacation; an automobile allowance of $500.00 per month; full
coverage of employee benefits including medical and dental.
In addition, pursuant to the Nieman Employment Agreement, Mr. Nieman is
entitled to receive a lump sum payment equal to the present value, using an
eight percent (8%) discount factor, of his salary for the unexpired term of the
Nieman Employment Agreement, plus the amount of any performance bonus, grants of
Common Stock options which Mr. Nieman is entitled, (the "Nieman Severance
Payment") if (i) Mr. Nieman is terminated by the Company without "just cause" as
-29-
<PAGE>
determined under the common law of Nevada, or (ii) there is a change of control
(as defined), (b) the Company employs any other executive with Mr. Nieman's
prior written consent, or (c) fails to comply with any material term of his
Agreement. The Nieman Employment Agreement also provides that Mr. Nieman shall
not compete with the Company for a period of twenty-four (24) months after
termination of his employment with the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 1998
regarding the beneficial ownership of Common stock of the Company by (i) the
directors of the Company, (ii) each executive named in the Summary Compensation
Table that appears under "Executive Compensation-Summary Compensation Table,"
(iii) each person who was known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock of the Company and (iv) all officers
and directors as a group.
Name and address of Beneficial Owner Number of Shares Owned Percent of Class
- --------------------------------------------------------------------------------
Robert C. Silzer, Sr.
2482-650 West Georgia Street 6,132,448 (2) 5.2% (2)
P.O. Box 11610
Vancouver, British Columbia
Firoz Lakhani
2482-650 West Georgia Street 3,800,000 (3) 3.3% (3)
P.O. Box 11610
Vancouver, British Columbia
Robert C. Silzer, Jr. (1)
2482-650 West Georgia Street 1,606,243 (4) 1.4% (4)
P.O. Box 11610
Vancouver, British Columbia
Robert L. Hunziker 1,730,734 (5) 1.5% (5)
2482 - 650 West Georgia Street
PO Box 11610
Vancouver, British Columbia
All officers and directors 13,944,425 12.5% (6)
as a group (5 persons)
-30-
<PAGE>
(1) Robert C. Silzer, Jr. is the son of Robert C. Silzer, Sr.
(2) Includes stock options which are exercisable by Mr. Robert C. Silzer, Sr.
to acquire 4,117,500 shares of Common Stock and 115,000 shares held by Madj
Silzer, Mr. Robert C. Silzer, Sr.'s wife.
(3) Includes stock options which are exercisable by Mr. Lakhani to acquire
2,030,000 shares of Common Stock.
(4) Includes stock options which are exercisable by Mr. Robert C. Silzer, Jr.
to acquire 1,257,693 shares of Common Stock.
(5) Includes stock options which are exercisable by Mr. Hunziker to acquire
750,000 shares of Common Stock and also includes 897,720 shares held by
indirect ownership.
(6) Includes all shares currently outstanding and those which are not
outstanding but which are subject to issuance upon exercise of stock
options. See footnotes (2), (3),(4) and (5).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, the Board of Directors instituted a program to make
available to its directors and key employees corporate loans to exercise the
options granted. This program allowed for directors to borrow up to $600,000,
secured by Promissory Notes (Note), with principal due and payable five years
from the date of the Note and interest payable monthly at the U.S. base rate.
Other key employees were allowed to borrow up to $50,000, with monthly
repayments including interest at U.S. base rate and principal.
Firoz Lakhani, the President, Chief Operating Officer, and a Director of
the Company, executed Promissory Notes ("Lakhani Notes") in January 1996 and
1997, totaling $599,325, which allowed the exercise of options totaling
1,770,000 common shares.
Robert C. Silzer, Sr., the Chairman and a Director of the Company, executed
Promissory Notes ("Silzer Notes") in January 1996, totaling $597,800, which
allowed the exercise of options totaling 1,530,000 common shares.
In view of the precipitous decline of the stock price, and given that these
shares were not freely transferable, the Board of Directors determined to:
1) reduce the exercise price to more closely reflect the market value;
and
2) permit the interest remittances made on the Notes to be applied to the
revised exercise price of the shares.
As a result the exercise price for options was adjusted from a range $0.26
to $0.30 per share to $0.054 per share which more closely reflected the market
value at December 31, 1997.
The Lakhani Notes were therefore revised to reflect a total of $95,757 of
which $79,834 had
-31-
<PAGE>
been paid by Mr. Lakhani as of December 31, 1997. The balance of $15,923 will be
offset by monies owing to Mr. Lakhani by the Company.
The Silzer Notes were also revised to reflect a total of $82,773 which was
fully paid by Mr. Silzer as of December 31, 1997.
During the fiscal year ended December 31, 1997, the Board of Directors held
approximately 40 meetings. The Company does not have a standing audit committee,
nominating committee or compensation committee.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Page
Report of Robison, Hill & Co., Independent Certified Public Accountants F - 1
Consolidated Balance Sheets as of December 31, 1997, and 1996 F - 2
Consolidated Statements of Operations for the years ended
December 31, 1997, and 1996 F - 4
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1997 F - 5
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1996 F - 6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, and 1996 F - 7
Notes to Financial Statements F - 9
2. Financial Statement Schedules
The following financial statement schedules required by Regulation S-X are
included herein.
All Schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
-32-
<PAGE>
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Exhibit
2.1 (1) Articles of Amendment to Articles of Incorporation of the Company.
2.2 (1) Articles of Amendment to Articles of Incorporation of the Company.
2.3 (1) Articles of Amendment to Articles of Auto N Corporation.
2.4 (1) Articles of Amendment to Articles of MacTay Investments Co.
2.5 (1) Articles of Incorporation of MacTay Investments Co.
2.6 (1) Bylaws of the Company.
6.1 (1) Leasing and Service Agency Agreement with Edward Thompson Group.
6.2 (1) Letter of Intent with Sega Gaming Technology, Inc.
6.2.1 Letter of Understanding with Sega Gaming Technology, Inc. dated
March 25, 1998.
6.3 (1) Agreement with Fortune Entertainment Corporation.
6.4 (1) Share Purchase Agreement among the Company, Prisms and the
Shareholders of Prisms.
6.10 (1) Employment Agreement with Robert C. Silzer, Sr.
6.11 (1) Employment Agreement with Firoz Lakhani.
6.12 (1) Employment Agreement with Robert C. Silzer, Jr.
6.12.1 Amendments to Employment Agreement with Robert C.Silzer, Jr. dated
December
8, 1997 and February 17, 1998.
6.13 (1) $250,000 Promissory Note with Firoz Lakhani.
6.14 (1) $90,000 Promissory Note with Firoz Lakhani.
6.15 (1) $104,000 Promissory Note with Firoz Lakhani.
6.16 (1) $150,000 Promissory Note with Robert C. Silzer Sr.
6.17 (1) $375,000 Promissory Note with Robert C. Silzer Sr.
6.18 (1) $72,800 Promissory Note with Robert C. Silzer Sr.
6.19 Employment Agreement with Thomas S. Nieman, dated March 6, 1998.
6.20 Financing, Royalty and Licensing agreement with Bingo Technologies
Corporation, dated February 9, 1998.
27.1 Financial Data Schedule
(1) Documents previously filed and incorporated by reference herein, the
same numbered exhibit to Registrant's Registration Statement on Form
10-SB filed on January 16, 1997.
(b) Sales of unregistered securities during the past year were filed
pursuant to 8-K on the following dates: March 17, 1997; April 7,
1997; April 24, 1997; May 27, 1997; June 18, 1997; July 15, 1997;
July 31, 1997; August 26, 1997; September 22, 1997; October 6,
1997; November 3, 1997; and subsequent to year end, January 14,
1998; March 3, 1998 and are incorporated by reference.
(c) The exhibits listed under Item 14(a)(3) are incorporated by
reference. (d) No financial statement schedules required by this
paragraph are required to be filed as a part of this form.
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, hereunto duly authorized.
ADVANCED GAMING TECHNOLOGY, INC.
Dated: April 14, 1998 By /s/ Donald Robert MacKay
---------------------- ------------------------------
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 14th day of April, 1998.
Signatures Title
/s/ Robert C. Silzer, Sr. Chairman and Director
- ----------------------------------------- (Principal Executive Officer)
Robert C. Silzer, SR.
/s/ Donald Robert Mackay Chief Financial Officer
- ----------------------------------------- (Principal Financial and
Accounting Officer)
Donald Robert MacKay
/s/ Firoz Lakhani President, Chief Operating
- ----------------------------------------- Officer and Director
Firoz Lakhani
Director
- -----------------------------------------
Robert L. Hunziker
Chief Executive Officer
- -----------------------------------------
Thomas S. Nieman
-34-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Gaming Technology, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Gaming Technology, Inc. and subsidiaries as at December 31, 1997 and 1996, and
the consolidated statements of operations, stockholders' deficit, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Gaming Technology,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations, and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $9,575,512 for 1997 and has incurred
substantial net losses in recent years. At December 31, 1997, current
liabilities exceed current assets by $10,131,380 and total liabilities exceed
total assets by $4,753,593. These factors, and the others discussed in note 18,
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
March 6, 1998
F-1
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED BALANCE SHEETS
As at December 31
1997 1996
ASSETS
Current Assets
Cash and cash equivalents (note 2(h)) ......... $ 17,276 $ 76,615
Accounts receivable, net of allowance of
$236,082 ($85,500 in 1996) .................... 234,187 56,492
Inventory (note 2 (c)) ........................ 163,156 43,000
Deferred charges .............................. 248,564 --
Prepaid expenses .............................. 84,640 129,969
Notes receivable (note 3) ..................... 9,878 129,426
---------- ----------
Total current assets ............ 757,701 435,502
---------- ----------
Notes Receivable (note 3) ............................ -- 1,099,300
---------- ----------
Property and Equipment (note 2(d))
Office and warehouse equipment ................ 231,558 103,985
Leasehold improvements ........................ 76,372 30,132
Display equipment ............................. 48,720 20,763
Product molds ................................. 363,478 330,718
Revenue generating equipment - uninstalled .... 1,804,100 930,564
Revenue generating equipment - installed ...... 1,003,179 1,137,131
---------- ----------
3,527,407 2,553,293
Less - accumulated depreciation ............... 1,407,590 583,412
---------- ----------
Net property and equipment .......... 2,119,817 1,969,881
---------- ----------
Other Assets
Security deposits ............................. 124,042 50,930
Deferred development costs .................... 55,604 131,313
Gaming equipment .............................. 40,000 765,138
Intangible assets (notes 2 (f) and 4) ......... 625,194 856,069
Investment - land ............................. 4,137,432 4,137,432
---------- ----------
Total other assets .................. 4,982,272 5,940,882
---------- ----------
Total assets ........................ $7,859,790 $9,445,565
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
Advanced Gaming Technology, Inc.
CONSOLIDATED BALANCE SHEETS
(Continued)
<CAPTION>
As at December 31
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank loan (note 5) .................................. $ -- $ 354,100
Accounts payable .................................... 1,463,624 1,494,617
Accrued liabilities
Salaries, wages and other compensation ............ 813,717 696,849
Other ............................................. 2,032,984 984,644
Stockholder's loan (note 6) ......................... -- 28,387
Notes payable (note 7) .............................. 800,000 619,356
Convertible notes (note 8) .......................... 3,477,500 3,292,715
Deferred revenue (note 2(k)) ........................ 390,000 765,380
Current maturities of long-term debt (note 9) ....... 1,911,256 2,459,528
------------ ------------
Total current liabilities ................. 10,889,081 10,695,576
Long-Term Debt (note 9) .................................... 1,724,302 1,911,864
------------ ------------
Total liabilities ........................ 12,613,383 12,607,440
------------ ------------
Commitments and Contingencies (notes 15 and 16)
Stockholders' Deficit
Preferred stock - 10% cumulative $.10
par value; authorized 4,000,000
shares; issued - nil ................................ -- --
Common stock - $.005 par value; authorized
150,000,000 shares; issued and outstanding
98,439,431 in 1997 and 42,248,368 in 1996 ........... 492,197 211,242
Additional paid-in capital .......................... 27,703,310 20,000,471
Accumulated deficit ................................. (32,949,100) (23,373,588)
------------ ------------
Net stockholders' deficit ................. (4,753,593) (3,161,875)
------------ ------------
Total liabilities and stockholders' deficit $ 7,859,790 $ 9,445,565
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended
December 31
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues .............................................. $ 1,338,121 $ 1,155,035
Cost of revenues ...................................... 623,272 282,509
------------ ------------
Gross margin .......................................... 714,849 872,526
------------ ------------
Expenses
Research and development ....................... 1,230,426 1,691,546
General and administration ..................... 4,824,253 2,510,106
------------ ------------
6,054,679 4,201,652
------------ ------------
Operating loss ........................................ (5,339,830) (3,329,126)
Other (expense) income
Foreign exchange adjustments (note 2 (g)) ...... 1,992 (6,616)
Financing costs and interest ................... (2,831,981) (1,223,210)
Asia development costs and equipment write-downs (564,062) (976,129)
Restructuring charge ........................... (841,631) --
Equipment write-downs .......................... -- (94,880)
------------ ------------
Net Loss .............................................. $ (9,575,512) $ (5,629,961)
------------ ------------
Net loss per common share (note 2(i)) ................. $ (0.15) $ (0.16)
============ ============
Weighted average common shares outstanding (note 2 (i)) 64,582,372 35,794,434
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Year Ended December 31, 1997
<CAPTION>
Price Range Additional
per Share Common Stock Paid-in Accumulated
$ Shares Amount Capital Deficit Total
--------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ................ 42,248,368 $ 211,242 $ 20,000,471 $(23,373,588) $(3,161,875)
to settle liabilities .......... 0.05-0.91 651,269 3,256 297,103 -- 300,359
to settle convertible notes .... 0.04-0.75 32,537,271 162,686 6,913,998 -- 7,076,684
for security ................... 0.10-0.34 10,558,039 52,790 -- -- 52,790
for financing costs and interest 0.04-0.42 589,262 2,946 215,820 -- 218,766
for deferred finance charges ... -- -- -- (936,392) -- (936,392)
for cash ....................... 0.175 4,000,000 20,000 680,000 -- 700,000
Prisms, Inc. acquisition,
additional consideration ...... -- 2,567,755 12,840 (12,840) -- --
for share and warrant options .. 0.25-0.55 3,310,238 16,551 1,207,757 -- 1,224,308
for employee options ........... -- -- -- (1,094,224) -- (1,094,224)
for finders' fees .............. 0.10-0.71 1,360,823 6,804 223,941 -- 230,745
for compensation ............... 0.59-0.91 96,406 482 57,018 -- 57,500
for consulting & other expenses 0.10-0.50 520,000 2,600 150,658 -- 153,258
Net loss for the year ..................... -- -- -- (9,575,512) (9,575,512)
----------- ----------- ------------ ------------ -----------
Balance at December 31, 1997 .............. 98,439,431 $ 492,197 $ 27,703,310 $(32,949,100) $(4,753,593)
=========== =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Year Ended December 31, 1996
<CAPTION>
Price Range Additional
per Share Common Stock Paid-in Accumulated
$ Shares Amount Capital Deficit Total
--------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 .............. 27,138,517 $ 135,693 $ 15,611,020 $(17,743,627) $(1,996,914)
for cash, less finder's fee of 0.15-0.50 7,266,666 36,333 1,233,667 -- 1,270,000
$ 30,000
to settle stockholders' loans 0.25-0.50 1,346,452 6,732 465,962 -- 472,694
for security ................. 0.45-0.61 1,099,794 5,499 -- -- 5,499
to acquire subsidiary ........ 1.25 300,000 1,500 373,500 -- 375,000
for signing bonuses .......... 0.06 450,000 2,250 23,850 -- 26,100
for consulting services ...... 0.30-0.79 105,000 525 43,650 -- 44,175
for share and warrant options 0.22-0.50 3,380,273 16,902 1,314,880 -- 1,331,782
to settle convertible notes .. 0.50-1.20 666,666 3,333 621,667 -- 625,000
for finders' fees ............ 0.20-1.20 395,000 1,975 290,775 -- 292,750
to terminate employment ...... 0.22 100,000 500 21,500 -- 22,000
contract
Net loss for the year ................... -- -- -- (5,629,961) (5,629,961)
----------- ----------- ------------ ------------ -----------
Balance at December 31, 1996 ............ 42,248,368 $ 211,242 $ 20,000,471 $(23,373,588) $(3,161,875)
=========== =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss .................................... $(9,575,512) $(5,629,961)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............. 1,535,791 1,178,357
Issuance of common stock for expenses ..... 429,523 471,955
Deferred revenue .......................... (375,380) 758,307
Change in operating assets and liabilities:
Accounts receivable ....................... (177,695) (21,665)
Inventory ................................. (120,156) (25,000)
Deferred charges .......................... (248,564) --
Prepaid expenses .......................... 45,329 (58,264)
Bank loan ................................. (354,100) 178,203
Accounts payable .......................... (30,993) 308,156
Accrued liabilities ....................... 1,165,208 293,718
----------- -----------
Net cash used in operating activities (7,706,549) (2,546,194)
----------- -----------
Cash flows from investing activities:
Intangible assets ........................... -- (414,432)
Purchase of property and equipment .......... (974,114) (2,568,638)
Disposal of property and equipment .......... 244,400 --
Security deposits ........................... (73,112) --
Investment in land .......................... -- (11,125)
Deferred development costs .................. 75,709 (131,313)
Net cash used in investing activities $ (727,117) $(3,125,508)
----------- -----------
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended
December 31
-------------------------
1997 1996
----------- -----------
Cash flows from financing activities:
Stockholder's loan ........................... $ (28,387) $ 28,387
Proceeds from issuance of common stock ....... 8,773,119 1,986,483
Proceeds from convertible notes .............. 7,350,000 3,169,089
Payments of convertible notes ................ (7,165,000) --
Finder's fee ................................. -- (30,000)
Principal payments on notes payable .......... (744,356) --
Proceeds from notes payable .................. 925,000 15,676
Principal payments of long-term debt ......... (986,049) (926,345)
Proceeds from long-term debt ................. 250,000 1,487,288
----------- -----------
Net cash provided by financing activities . 8,374,327 5,730,578
----------- -----------
Net change in cash and cash equivalents ............. (59,339) 58,876
Cash and cash equivalents at beginning of year ...... 76,615 17,739
----------- -----------
Cash and cash equivalents at end of year ............ $ 17,276 $ 76,615
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest .............. $ 340,626 $ 403,602
Non cash investing and financing activities:
Issuance of common stock for finders' fees ... $ 230,745 $ 292,750
Issuance of common stock as settlement of
stockholders' loans ........................ $ -- $ 472,694
Issuance of common stock for acquisition of
subsidiary ................................. $ -- $ 375,000
Issuance of common stock for debt reduction .. $ 300,359 $ --
Issuance of common stock as settlement of
convertible notes .......................... $ 7,076,684 $ --
The accompany notes are an integral part of these financial statements.
F-8
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
NOTE 1 - HISTORY AND ORGANIZATION
The Company was incorporated under the laws of the State of Wyoming in 1963
under the name of Mactay Investment Co. At a special shareholders' meeting held
in 1987, the Corporation's name was changed to Auto N Corporation. The Company
changed its name to Advanced Gaming Technology, Inc. in 1991.
The Company's executive offices are located in Vancouver, British Columbia,
Canada. The Company is principally engaged in the development and marketing of
electronic bingo equipment in the United States and the United Kingdom.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements is as follows:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Advanced
Gaming Technology, Inc. and its wholly-owned subsidiaries, Executive Video
Systems, Inc., Palace Entertainment Limited, Branson Signature Resorts, Inc.,
Branson Bluffs Resorts, Inc., River Oaks Resorts and Country Club, Inc., Allied
Resorts, Inc., River Oaks Holding, Inc., Prisms, Inc., Pleasure World Ltd.,
Prisms (Bahamas) Ltd., and A.G.T. Acceptance Corp. All significant intercompany
accounts and transactions have been eliminated.
(b) Joint Venture Operations Accounting
Joint venture operations are accounted for under the equity method of
accounting.
(c) Inventory
Inventory consists of bingo equipment parts and is carried at lower of cost
(first-in, first-out method) and market value.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis from 3 to 5
years.
F-9
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their useful lives.
(e) Investment - Land
Investment in land is carried at the lower of cost or net realizable value.
(f) Intangible Assets
Organization costs are recorded at their acquisition cost and are amortized
to operations over their estimated useful lives of ten years. Amortization is
computed on the straight-line method.
Goodwill and software rights were created by the excess of the purchase
price over the cost of the acquisitions made in 1995 and 1996, and are amortized
on a straight-line basis over five years. Software rights are capitalized after
technological feasibility has been established. Capitalization of computer
software cost is discontinued when the computer software product is available to
be sold, leased or otherwise marketed. Costs for maintenance and customer
support are charged to operations when incurred, or when the related revenue is
recognized, whichever occurs first. Management regularly assesses the carrying
amount of intangible assets and where, in their opinion, the value is less than
the carrying amount, the loss is recognized immediately. Unamortized computer
software costs that have been capitalized are reported at net realizable value.
The company has implemented the provisions of SFAS No. 121, "Accounting for
the impairment of Long-Lived Assets and for Long-Lived Assets Disposed of." SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by the Company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the sum of the expected future cash flows from the use of the
assets and its eventual disposition (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment loss is recognized.
F-10
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)
(g) Translation of Foreign Currency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange. Statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of the
stockholders' equity. Certain foreign activities are considered to be an
extension of the U.S. operations, and the gain or loss resulting from
re-measuring these transactions into U.S. dollars is included in income. Gains
or losses from other foreign currency transactions, such as those resulting from
the settlement of foreign receivables or payables, are included in the Statement
of Operations.
(h) Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less, as cash equivalents.
(i) Net Loss per Common Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" (EPS). SFAS No. 128 replaced the calculation of primary and
fully diluted EPS with basic and diluted EPS. The application of SFAS No. 128
had no effect on the loss per share for 1996 as previously reported.
The effect of outstanding common stock equivalents are antidilutive for
1997 and 1996 and are thus not considered.
The reconciliations of the numerators and denominators of the basic EPS
computations are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------------------
Number Number
of Loss of Loss
Loss Shares per Share Loss Shares per Share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss available to
common stockholders $(9,575,512) 64,582,372 $(0.15) $(5,629,961) 35,794,434 $(0.16)
=========== ========== ====== =========== ========== =====
</TABLE>
F-11
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)
(j) Revenue Recognition
Revenue is generated on operating leases and is recognized on an accrual
basis.
(k) Deferred Revenue
Revenues are deferred until commencement of the project operations.
(l) Persuasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain reclassifications have been made in the 1996 financial statements
to conform with the 1997 presentation.
NOTE 3 - NOTES RECEIVABLE
Notes receivable consists of the following:
1997 1996
----------- -----------
Due from employees pursuant to the exercise of $ 3,448 $ 103,595
stock options, interest at U.S. base rate,
principal due
Due from officers and directors pursuant to the 6,430 1,125,131
exercise of stock options, interest repayable
monthly at U.S. base rate, principal due
9,878 1,228,726
Less current maturities (9,878) (129,426)
----------- -----------
Net notes receivable $ -- $ 1,099,300
=========== ===========
In 1997, with respect to the Promissory Notes entered into with certain
employees, officers and directors of the Company, in view of the precipitous
decline of the stock price, the Board of Directors determined to reduce the
exercise price to more closely reflect the market value; and permit the interest
remittances made on the Notes to be applied to the exercise price of the shares.
F-12
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 4 - INTANGIBLE ASSETS
1997 1996
----------- -----------
Software rights
Gross $ 1,106,837 $ 1,106,837
Accumulated amortization (511,457) (286,042)
----------- -----------
Net 595,380 820,795
----------- -----------
Organization costs
Gross 57,175 57,175
Accumulated amortization (27,361) (21,901)
----------- -----------
Net 29,814 35,274
----------- -----------
Net intangible assets $ 625,194 $ 856,069
=========== ===========
NOTE 5 - BANK LOAN
The Company's line-of-credit agreement with a bank was discontinued in 1997.
NOTE 6 - STOCKHOLDER'S LOAN
Stockholder's loan consists of the following:
1997 1996
--------- -------
Due to an officer and director, non-interest bearing $ -- $28,387
========= =======
The loan was settled in 1997, for stock.
F-13
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 7 - NOTES PAYABLE
1997 1996
-------- --------
Due to an individual, interest at $300 per day, principal and $150,000 $ --
interest due on demand, secured by certain revenue
generating equipment and a personal guarantee of an
officer and director
Due to a corporation, interest at $300 per day, principal and 150,000 --
interest due on demand, secured by certain revenue
generating equipment and a personal guarantee of an
officer and director
Due to a corporation, interest at $350 per day, principal 105,000 --
and interest due on demand, secured by certain revenue
generating equipment and a personal guarantee of an
officer and director
Due to an individual, interest at 59%, principal and interest 200,000 --
due on January 17, 1998, secured by shares of the Company,
and a personal guarantee of an officer and director
Due to a corporation, interest negotiated at $10,000 per 120,000 --
month, principal and interest due on demand, unsecured
Due to a corporation, non-interest bearing, due on 75,000 199,910
demand, unsecured
Due to a corporation, interest at 12% -- 109,785
Due to an individual, interest at U.S. base rate -- 100,000
Due to an individual, interest negotiated at $20,000 -- 106,441
Due to a corporation, interest negotiated at $10,000 -- 103,220
-------- --------
Total notes payable $800,000 $619,356
======== ========
Of the 1997 notes, $505,000 was settled in 1998, for stock. Of the 1996 notes,
$109,785 was settled in 1997, for stock.
NOTE 8 - CONVERTIBLE NOTES
Due to individuals and corporations, bearing interest at rates between U.S.
base rate and 12% per year with varying maturity dates up to July, 1998. Certain
of the notes are convertible into common shares of the Company at fixed prices
ranging from $0.049 to $0.102, and others are convertible at a 20% discount to
the closing bid price at the time of conversion. Certain convertible notes have
warrants attached thereto, granting the holders the option to purchase a total
of 1,404,348 common shares of the Company at prices ranging from $0.10 to $0.40,
(see notes 10 and 18).
F-14
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 9 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1997 1996
---------- ----------
<S> <C> <C>
Notes payable, interest at 9%, quarterly interest only payments $1,339,792 $1,339,792
until July 2002, principal due in July 2002, collateralized by
deed of trust
Note payable, interest at 10%, quarterly interest only payments, 60,812 60,812
balance due on demand, collateralized by deed of trust
Loan payable, interest at 13.2%, due in monthly installments of 86,862 293,862
$31,000 including interest, due on demand, secured by
equipment
Note payable, interest at 3% above the Chase Manhattan 464,286 464,286
prime lending rate, due in quarterly principal installments
of $17,857 plus accrued interest, matures January 2002
Note payable, interest at 10%, principal is due, and is secured 75,106 75,106
by 100,000 common shares of the Company
Note payable, interest at 10%, due on demand 37,644 37,644
Note payable, interest at 10%, due on demand 3,600 3,600
Note payable, interest at 9%, due on demand 55,000 55,000
Note payable, interest at 8% -- 94,020
Loan payable, interest at 20% -- 102,965
Convertible debenture, total facility $1,000,000 plus accrued 1,249,286 1,698,492
interest, interest at 2% per month compounded monthly,
principal and accrued interest convertible into common stock
in whole or part at holder's option, redeemable by the
Company at any time to maturity; bonus consideration of
$150,000 per year for four years, convertible into stock at
holder's option, due on demand
Loan payable, interest at 16%, monthly installments of 231,100 --
$20,833 in year one, monthly installments in year two of
$3,125, year three of $1,505, and $1,462 in years four and
five, secured by certain revenue generating equipment, and
a personal guarantee of an officer and director
Loan payable, interest at 12%, due in monthly installments 32,070 32,070
of $1,000 including interest, matures December 1999, secured
by a patent
Loan payable, interest at 8.5%, monthly installments of $56,121 -- 113,743
including interest, secured by equipment and 1,200,000
common shares of the Company
3,635,558 4,371,392
Less: current maturities 1,911,256 2,459,528
---------- ----------
Net long-term debt $1,724,302 $1,911,864
========== ==========
</TABLE>
F-15
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 9 - LONG-TERM DEBT (Continued)
Annual principal payments on long-term debt are as follows:
1998 $ 1,911,256
1999 107,656
2000 99,836
2001 84,016
2002 1,432,794
------------
$ 3,635,558
============
Certain of the long-term debt obligations are in default as at December 31,
1997, (see note 18).
NOTE 10 - STOCK OPTIONS AND WARRANTS
All options and warrants have been granted at exercise prices greater than
the market value on the date of granting except for 5,015,000 options. All
options vest 100% at the date of granting of the options.
1997 1996
----------- -----------
Options and warrants outstanding, beginning of year 14,423,367 7,224,097
Granted 24,441,019 11,791,667
Expired (5,686,708) (1,212,124)
Exercised (3,310,238) (3,380,273)
----------- -----------
Options and warrants outstanding, end of year 29,867,440 14,423,367
=========== ===========
Option and warrant price for options and warrants
outstanding, end of year $0.04 - $3.00 $0.25 - $3.00
=========== ===========
Options and warrants granted subsequent to year end 2,850,000 1,850,000
=========== ===========
Option and warrant price range granted subsequent
to year end $0.03 - $1.00 $0.50 - $1.00
=========== ===========
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted by the standard, the Company has elected to continue
to follow existing accounting guidance, Accounting Principles Board Opinion No.
25 and related interpretations (APB No. 25), for stock-based compensation.
However, SFAS No. 123 requires companies electing to follow existing accounting
rules to disclose in a note the pro forma effects as if the fair value based
method of accounting had been applied. The Company recorded compensation expense
of $210,756 and $1,074,453 for the years ended December 31, 1997 and 1996
respectively, in connection with its performance shares, restricted stock and
other stock compensation awards. In accordance with APB No. 25, no compensation
expense has been recognized for the Company's stock options. The
F-16
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997 and 1996, respectively: dividend yield of 0.0
percent for both years, expected volatility of 149.75 and 149.05 percent,
respectively, risk-free interest rates of 6.2 percent for both years and
expected lives of 5 years for both years. If compensation expense for the
Company's stock options granted in 1997 and 1996 had been determined based on
the fair value at the grant dates for such awards in accordance with SFAS No.
123, the effect on the Company's net income and earnings per share for each of
the years ended December 31, 1997 and 1996 would have been immaterial.
NOTE 11 - SEGMENTED INFORMATION
Geographic segments: 1997 1996
---------- ----------
Revenue
United States $1,338,121 $1,155,035
========== ==========
Operating loss
Asia $ 213,454 $ 461,017
United States 2,093,127 779,278
Other corporate expenses 3,033,249 2,088,831
---------- ----------
$5,339,830 $3,329,126
========== ==========
Assets
Asia $ 40,000 $ 805,138
United States 7,592,640 8,538,575
Canada 227,150 101,852
---------- ----------
$7,859,790 $9,445,565
========== ==========
F-17
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 12 - SELECTED FINANCIAL DATA (Unaudited)
The following tables set forth certain unaudited quarterly financial
information:
1997 Quarters Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------- ---------- ---------- ----------
Revenues $510,366 $ 212,836 $ 304,662 $ 310,257
Gross margin 403,632 79,096 135,309 96,812
-------- ---------- ---------- ----------
Operating loss 435,409 1,712,895 1,314,409 1,877,117
Other expenses, net 298,301 692,142 520,784 2,724,455
-------- ---------- ---------- ----------
Loss before taxes 733,710 2,405,037 1,835,193 4,601,572
Income taxes -- -- -- --
-------- ---------- ---------- ----------
Net Loss $733,710 $2,405,037 $1,835,193 $4,601,572
======== ========== ========== ==========
1996 Quarters Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------- -------- ---------- ----------
Revenues $141,210 $224,488 $ 220,442 $ 568,895
Gross margin 88,278 170,171 164,865 449,212
-------- -------- ---------- ----------
Operating loss 749,023 727,169 880,838 972,096
Other expenses, net 249,617 267,412 643,600 1,140,206
-------- -------- ---------- ----------
Loss before taxes 988,640 994,581 1,524,438 2,122,302
Income taxes -- -- -- --
-------- -------- ---------- ----------
Net Loss $988,640 $994,581 $1,524,438 $2,122,302
======== ======== ========== ==========
NOTE 13 - INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
income and expenses for income tax reporting and financial statement reporting
purposes. Deferred benefits of $11,000,000 and $8,000,000 for the years ended
December 31, 1997 and 1996 respectively, are the result of net operating losses
and the gaming license rights reserve.
F-18
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 13 - INCOME TAXES (continued)
The Company has recorded net deferred income taxes in the accompanying
consolidated balance sheets as follows:
1997 1996
------------ -----------
Future deductible temporary differences related to
reserves, accruals, and net operating losses $ 11,000,000 $ 8,000,000
Valuation allowance (11,000,000) (8,000,000)
------------ -----------
Net deferred income tax $ -- $ --
------------ ===========
As of December 31, 1997, the Company had a net operating loss ("NOL") carry
forward for income tax reporting purposes of approximately $31,000,000 available
to offset future taxable income. This net operating loss carry-forward expires
at various dates between December 31, 2008 and 2012. A generated in a particular
year will expire for federal tax purposes if not utilized within 15 years.
Additionally, the Internal Revenue Code contains provisions which could reduce
or limit the availability and utilization of these NOLs if certain ownership
changes have taken place or will take place. In accordance with SFAS No. 109, a
valuation allowance is provided when it is more likely than not that all or some
portion of the deferred tax asset will not be realized. Due to the uncertainty
with respect to the ultimate realization of the NOLs, the Company established a
valuation allowance for the entire net deferred income tax asset of $11,000,000
as of December 31, 1997, which includes $240,000 from the gaming license and
manufacturing rights reserve and $10,700,000 from net operating loss carry
forward. Also consistent with SFAS No. 109, an allocation of the income
(provision) benefit has been made to the loss from continuing operations.
The differences between the effective income tax rate and the federal statutory
income tax rate on the loss from continuing operations are presented below:
1997 1996
----------- -----------
Benefit at the federal statutory rate of 34% $ 3,202,000 $ 1,914,000
Non-deductible expenses (21,000) (20,000)
Utilization of gaming license rights 527,000 (212,000)
Utilization of net operating loss carryforward (3,542,000) (1,467,000)
Other (166,000) (215,000)
----------- -----------
$ - $ -
=========== ===========
F-19
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 14 - ACQUISITION OF SUBSIDIARY
Prisms, Inc.
On September 26, 1996, pursuant to an agreement, the Company acquired all
of the capital stock of Prisms, Inc., a North Carolina corporation which holds
certain patents and trademarks for the development of bingo and other
entertainment games, in exchange for 300,000 common shares of the Company. The
acquisition has been accounted for by the purchase method.
Pursuant to the acquisition agreement, an additional 2,567,755 common
shares were issued to the former shareholders so that the total value of the
shares issued upon acquisition equaled $600,000 on the anniversary date of the
agreement.
The Company is also required to issue up to an additional 200,000 common
shares at a guaranteed price of $2.00 upon commencement of revenues from each
patented product developed. In addition, a royalty of 2% will be payable on the
net revenues generated from these products.
NOTE 15 - COMMITMENTS
The Company leases its offices and certain equipment under long-term
operating leases. Future minimum lease payments under these operating leases are
as follows:
1998 $134,669
1999 124,423
2000 37,008
2001 664
NOTE 16 - CONTINGENCIES
(a) The Company entered into a Leasing and Service Agency Agreement, dated
September 15, 1996 with Edward Thompson Group, a privately held corporation
established in 1867 and organized under the laws of the United Kingdom.
Edward Thompson has been producing bingo tickets since 1957, and the
Company believes, is the leading manufacturer and supplier of bingo paper
and related products in the United Kingdom.
The Service Agency Agreement requires the Company to use its best efforts
to engineer, manufacturer, design and develop a wireless electronic
hand-held bingo unit named Parti MAX for the United Kingdom bingo market.
F-20
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 16 - CONTINGENCIES (continued)
(b) The Company entered into an agreement, dated July 17, 1996, amended
September 15, 1996 with Fortune Entertainment Corporation, a Delaware
corporation ("FEC"), under which FEC has the right to receive a
participating interest in certain of the Company's projects. The parties
are currently re-negotiating certain of the terms and conditions of this
agreement, including the possibility of the Company repurchasing FEC's
interest in these projects. As of December 31, 1997, Fortune Entertainment
had provided the Company with $1,025,738.
(c) In addition to ordinary routine litigation incidental to its business
operations, which the Company does not believe, in the aggregate, will have
a material adverse effect on the Company, or its operations, the Company is
engaged in the following lawsuits:
Braintech, Inc. ("Braintech") filed a statement of claim in the Supreme
Court of British Columbia on November 24, 1995 and amended on March 26,
1996 claiming default by the Company on three promissory notes. Braintech
claimed damages in the amount of $200,000, plus interest of ten percent
(10%) per annum, and costs. In 1997, the Company settled this dispute for
$75,000 to be paid by issuance of stock (see note 7).
In January 1996, Tierra Corporation ("Tierra") commenced an action in the
Circuit Court of Stone County, Missouri, claiming that River Oaks Resort
and Country Club, Inc., a Texas corporation and a subsidiary of Branson
("River Oaks Resort") defaulted on a promissory note. A judgment is sought
in the principal amount of $75,106, plus interest since October 18, 1995,
at 10% per annum (see note 9). An answer has been filed on behalf of River
Oaks Resort averring that Tierra has not performed conditions precedent to
assessing any deficiency and that no accounting regarding the disposition
of security for such note has been provided and, in addition, a counter
claim was filed, asserting Tierra disposed of stock collateral in a
commercially unreasonable manner. Preliminary discovery has occurred but no
depositions have been taken. A principal of Tierra has recently filed a
suit in Dallas, Texas concerning the stock collateral.
In February 1996, P.D.I., LLC, a Missouri limited liability company ("PDI")
commenced an action in the Circuit Court of Stone County Missouri, claiming
breach of a real estate purchase agreement which in part, provided for the
construction of a sewage treatment facility for which damages are claimed,
including the awarding to PDI of all escrow funds, costs and expenses
incurred by PDI over and above the amount of escrow funds and cost and
expenses, including attorney fees in connection with the commencement of
the action. In response, the Company and River Oaks Resort have counter
claimed for damages, in an amount to be determined at trial, incurred when
plaintiff PDI withdrew funds from the escrow fund created for construction
of the sewage treatment facility and the permit application for
construction approval by the Missouri Department of Natural Resources.
Moreover, a claim has also been made by River Oaks Resort and the Company
that subsequent development attempted by PDI has encroached upon property
development belonging to River Oaks Resort and the Company without the
right to do so, including damages for disruption resulting therefrom.
F-21
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 16 - CONTINGENCIES (continued)
In April 1996, Larry Newman ("Newman") commenced a mechanics' lien in the
Circuit Court of Stone County, Missouri, seeking $177,282, plus interest,
for excavation work performed during the period between July 19, 1995 to
September 25, 1995 on a road across the River Oaks development in Stone
County. Thereafter, on or about June 24, 1996, Jack L. Holt ("Holt") filed
a similar petition in the Circuit Court of Stone County, Missouri, claiming
a mechanics' lien for engineering and land surveying during the period May
16, 1995 to July 4, 1995 for a road across the River Oaks development
property in the amount of $9,610, plus interest. The Holt case has now been
consolidated in the case originally filed by Newman. The Company has filed
a counterclaim alleging Newman and Holt extended the road beyond the
boundaries of the River Oaks development property onto land owned by Sunset
Cove, Ltd., a Missouri corporation. The court has since ordered Sunset
Cove, Ltd. joined as a party needed for just adjudication. Discovery has
not yet commenced.
On November 15, 1996, Fortunet, Inc., a Nevada corporation ("Fortunet"),
filed a patent infringement claim in the United States District court
Southern District of California against the company and certain other
companies which manufacture and distribute electronics bingo systems,
claiming that the defendants, including the Company, infringed Fortunet's
United States Patent No. 4,624,462 (the "Patent"). Fortunet seeks to enjoin
the defendants from any further alleged infringement of the Patent and is
seeking actual and enhanced damages as well as attorneys fees and other
costs. In July 1997, the case was transferred from the federal court in San
Diego, California to the federal court in Phoenix, Arizona. Discovery is
expected to commence in May, 1998.
The Company entered into a Lease License Agreement, dated December 7, 1995
with G&J Production Trust. Pursuant to the Lease License Agreement, G&J
Production Trust leased 200 units MAXPLUS Bingo System from the Company for
use in G&J Production's bingo operation located in Victorville, California.
As of January 23, 1997, G&J Production Trust was approximately three months
behind in their payments to the Company and the Company removed its
equipment from Victorville. In July 1997, the Company commenced a lawsuit.
This action includes a claim for all outstanding accounts receivable,
breach of Contract, and reimbursement for various costs expended by the
Company in regards to the Contract.
In December 1997, a former employee commenced an action against the Company
in the District Court of the County of Hennepin, Minnesota alleging non
payment of certain expenses incurred while in the employ of the Company.
The Company has entered a defense and denies any liability.
In February and March 1998, actions were brought against the Company in the
District Courts in the States of New York and Colorado by certain
Convertible Debenture holders. The plaintiffs are alleging the Company is
in default in regard to the conversion of these debentures. The Company has
responded to these allegations, and settlements are pending.
F-22
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 16 - CONTINGENCIES (continued)
The Company is vigorously defending these law suits. However, no assurance
can be given as to the outcome of these cases, but in the opinion of
management and counsel, the ultimate liability will not have a material
effect on its financial position or results of operations.
NOTE 17 - SUBSEQUENT EVENTS
In February 1998, Mr. Tom Nieman was appointed to replace Mr. Robert C.
Silzer Sr. as Chief Executive Officer of the Company. This is the first major
step in a plan of restructure announced in December 1997.
Effective February 9, 1998 the Company executed a Financing, Royalty, and
Licensing agreement with a major competitor - Bingo Technologies Corporation.
("BTC"). This agreement grants BTC the exclusive right to market and distribute
MAXPLUS and TurboMAX products in the United States only, for a five year period.
The benefits to Advanced Gaming Technology, Inc. are highlighted by the
following:
- $1,500,000 licensing fee;
- 15% royalties on gross revenues generated by BTC, with a minimum in
the first year of the Agreement of $350,000 and are to be negotiated
by the parties thereafter, with the minimum royalty in subsequent
years not to be lower than the royalty amount negotiated in the
preceding year;
- Substantial reduction of overhead (approximately 40%) by assignment of
the Denver distribution facility, and the Cleveland marketing office;
- Elimination of capital expenditures required for installation of
MAXPLUS and TurboMAX orders.
On March 25, 1998, the Company executed a Letter of Understanding with its
partner in the Sonic Bingo project, SEGA Gaming Technology, Inc. This is a
refinement of the previous Letter of Intent signed by the parties on May 13,
1996 and includes the formation of a new corporation which will result in:
- SEGA Gaming Technology, Inc. licensing the use of the name "SEGA";
- Advanced Gaming Technology, Inc. licensing its MAX Bingo System
software, Prisms patented game technology, and the rights to use the
"Sonic Bingo" trademark;
- Net income, capital expenditures, and other product development costs
will be shared equally.
F-23
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS December 31, 1997 and
December 31, 1996
(Continued)
NOTE 17 - SUBSEQUENT EVENTS (continued)
Additionally, SEGA Gaming Technology, Inc. has committed to acquire up to
5,000,000 common shares of Advanced Gaming Technology, Inc. in open market
transactions and/or by way of private placement. The parties anticipate
launching Sonic Bingo by the end of 1998.
Subsequent to the year end, $1,619,021 of certain debt and liabilities were
settled by the issuance of 21,968,656 common shares of the Company.
NOTE 18 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses in recent years. In addition, the Company has used substantial
amounts of working capital in its operations. Further, at December 31, 1997,
current liabilities exceed current assets by $10,131,380, and total liabilities
exceed total assets by $4,753,593. The Company is in technical default on
certain of the convertibles notes (note 8) and long-term debt (note 9) as at
December 31, 1997. The Company is in the process of renegotiating these
obligations. The Company is helpful that satisfactory repayment terms will be
reached, or that these amounts will be converted into an equity position in the
Company.
In view of these matters, realization of a major portion of the assets in
the accompany balance sheet is dependent upon continued operations of the
Company which in turn is dependent upon the Company's ability to meet its
financing requirements and the success of its future operations. Management
believes that actions presently being taken to revise the Company's operating
and financial requirements provide the opportunity for the Company to continue
as going concern.
F-24
<PAGE>
March 04, 1998
VIA ]EAX - 689-28Q2 =4 =TRZMD
Advanoed G=iing Technology, Inc. Sega. Gaming Technology, Inc.
2462 - 650 West Georgia Shftt 6311 South Industrial Road
Vancouver, B.C. Las Vegas, Xevada
V613 4N13 89116 U.S.A.
Dear Sirs
Re: Letter of Understanding
We are the solicitors for Advanced Gaming Technology, Inc. ("AGTr) and have
been instructed to set out the basic tenns ofthe agreement between AGTI and Sep
G=~ftg Technology, Inc. CSGTI") in regard to the development of a new electroric
bingo game.
I D-evelonmot of Grame
SGTI and AGTI shalljointly develop a new bingo game called "Sonic
Bingo" (the 'Troduce) which is intended to be a progresUve finked, Mgh
stakes, fast paced, electronic bin8o Same. The Product "t be based
upon AGTI's May Bingo Systems technology, Frisms patents and marketed
under SGTI's proprietary SEGAO tradernask.
2. Farmati2n I%v AGTI and S.QT1 of
AGTX and SGTI have agreed to form a corpovate entity ("Newco') in the
State of Nevada
with a name, share muctureand by-laws as mutually agrr:ed between ffie
parties. Newco will be the operating company for the manufacturing,
nwke6ng, distributing and selling of the Pwduct- The sham ebmcbire of
Newco will be allorted in SUCh amauntS to refle4t the following share
structure:
class "A" Non-Voting Shares
SGTI 51%
AGTI 49%
<PAGE>
Class "B" Voting shares
SGTI 50%
AGTI 506/6
SGTI and AGTI shall have equal representation on the Board of Directors of
Newco.
In the event that new ahardwiders to Newco are introduced, the
shareholdings of each of AGTI and SGTI sball be reduccd propottionatoly, as
will the Doard of Directors.
The parties a&= dud the corporate govmmance and operation of Newco shall be
set out in the articles of Newco or in at unanimous sbareholders'
agreement, as applicable. The articles and any shareholders' agreement
shall include all umal terms, conditions. representations, wan-antics,
covenants and indemnities as is usual and customary in such doeu=ntation.
Wiftut limiting the generality of the foregoing, the issues to be covered
in either or both of the, articles of Newco and the unanirrious
shareholden' agreement shEal include;
(a) scope and nAtue of shareholder relationships,
(b) conducE of the affairs of the company:
(i) directors appointinea / meetings;
(ii) officens appointment I meetings, and
(iii) major decisions;
(c) financing:
(i) mechanism for additional funding; and
(b) borrowing from shareholders-,
(d) restrictions an transfer of sham;
(e) right of first rofusal on sale of shares;
(f) voluntary or compulsory buy-ouLs;
(g) obligation to join in a sale;
(h) obligation to purchase and sell; and
<PAGE>
(i) indeninificatii5n and discharge of guarantees.
3. Inibal Capital Contribution
The initial capital contribution into Newco shall be made by each party
as follows.
AGTI $20,000.00
SGTI $20,000.00
TOTAL $40,000.00 USD
The initial capital contribution by each party will be by way of
shareholder loans to Newco. Further capital contribution will be
completed by the -parties pursuant to the Articles and the
shareholders' agreement. In the absence ofan agreernent to the
contrary, further capital contributions will be made by each party
proportionate to their intercst in the voting shares of Newco.
4- James Flamme
The parties hereby acknowledge and confirm that James Harnrner
("Han=eej is currently employed by the parties in the development of
the Product. ne parties further agree that Hammer shall be an employee
of Newco, once it is formed, in a capacity to be determined by mutual
igreement between the parties. Harftmer's reasonable expenses in
connection with the mauracturing, marketing, distributing and selling
of the Product on behalf of Newco, commencing Jahuary 21, 1998, shall
be paid by Newco,
5. Intellectual E=p
The, parties acknowledge that the Sonic Bingo software, based on Max
Bingo System/Prisms Patents, is owned by AGTI. AGn agrees to license
the software to Newoo for V .00 per year for an initial term of five
(5) years
The parties acknowledges that the name Sonic BiingoG is a trademmt
owned by AGTI. AGn agrees to license the Untlemark to Newco for $1.00
per year for in initial term of five (5) yCars.
The parties acknowledges that ft trademark SEGA@) is owned by SGn.
SGTI agrees to licen,so the tvdemark to Newco for $1.00 por ymr for an
irdtial term of five (5) years.
Any use of the SEGAC name must have approval from SGTI.
<PAGE>
6. Definitiyo-Amr-men
All terms and conditions concerning the matters described in this
letter shall be stated in a definitive agreement or agreements that
will be subject to rhe approval of the parties, acting on advice of
counsel. 'Mose terms and conditions will include representations,
wan-antics, covenants and indemnities that are usual and customary in
a transaction of this nature. SGTI and ACYTI anticipate that thB
definitive agreement win be executed as soon as possible. but in any
event, not later than March 30. 1998.
7, Gener
ExcepfE as to Section I and terms (a) - (d) below, which are intended
to be a binding and enforceable contmet between the parties pertaining
to tile subject matter of this Letter of UnderstAndinp, there are no
legally binding and enforceable staterneuts or agreementz and this
Letter of Understanding should not be deemed to constitute any offer,
acceptance or legally binding agreement and do not create: any rights
or obligations for or M the part of any party to this Letter of
Understanding.
(a) Cpnfidenti"
Any confidential or proprietary matters (,~xcept publicly
available or freely usable material as otherwise lawfully
obtained fromanother source) respecting any party will be kept in
strict confidence by the other party to this Letter of
Undzrstanding. If for any reason the subject transaction dois not
occur, or if this Letter of Understanding is terminated for any
reason, then each party will return all confidential or
proprietary materi als that it has received from the other party
to the disclosing party, and (upon request) will certify in
writing that it has retained no copies of the same.
(b) Pubfie
Neither party wiH issue auy pubhe awo=cement concerning the
transaction or this Letter of Understanding without the approval
of the other puty, except as maybercquiredbylaw. The parties
intend to issue a joint press release announcing this Letter of
Undemanding in a fonn to be matually agreed.
(c) Famand Eamms
Each party agrees to pay the IcCal and other fees and expenses
incurred by it related to the matters described
<PAGE>
in this Letter of Understanding whether or not the de6rdtive
agreement is executed.
(d) Termination
Either party may torminAtr, this Letter of Undent%nding
irnmediatdy upon notice to the other party, In the event of
tcm~-aatioa. SGTI shall have no finiher rights with respect to
AGTI's technology and Sonic 13ingo's trademuk and AGTJ shall have
no fiiaher rights with respect to the SEGA0 trademark.
8. The parties agree that if there is a dispute in regard to the terms and
conditions contained herein, they shall be resolved by arbitration pursuant
to the rules and regialations of the United States Federal Arbirrati6n Act.
The parries further agree that any definitive agreement will include an
arbitration clause.
9. The parties shall do all such other things and do such acts as to carry out
the intention of this Letter of Undamtanding.
10. This Letter of Understanding eamot he amended unless in writing by both
parties.
11. This Letter of Understanding shall be governed end construed in accordance
with the laws of the State of Nevada
12. This Letter of Utiderstanding is subjW to approval of the Board Of
Directors of both SGTI and AGT1.
Please acknowledge your acceptance and a8reement in regard to the above
terrns and conditions by executing the mclosed copy of this Letter of
Und=tanding and returning the same to our offices as soon as possible.
Youm very truly.
HOLMES GREENSLADE
Stephen D. Holmes
SDWsh
Enclosure
WE HEREBY AGREE AND ACKNOWLEDGE OUR AGREEMENT TO THE ABOVE TEMWS AND CONDITIONS.
ADVANCED GANaNG TECHNOLOGY, INC. SEGA GAMING TECIffNOLOGY, INC
THIS 9th DAY OF MARCH, 1998. THM DAY 017 MARCH, 1598,
Per: Per
Authorized Signatory Authorized Signatory
Per: Per
Authorized Signatory Authorized Signatory
<PAGE>
AMENDMENT
to the Employment Agreement
entered into benveen
Robert Curtis Slizer. Sr. and Advanced Garning Technology. Inc,
dated Me 15th day offebritary J 994
This serves to confirm that the Employment Agreement dated 16 February, 1994,
between Robert Curtis Silzer, Jr- and Advanced Gaming Technology, Inc., is
hereby amended as follows -and this amendment forms part of the Employment
Agreement.
1 . Address of the Employee is hereby amended to-, 20640 - 69A Avenue,
Langlay, B.C. V1 M 2N3
2. Clause 1 (Employment Duties), the title of the Employee Is changed from
Vice President of Operations to Executive Vice President effectIve as of
September 1, 1997.
3. Clause 2 (Term), the term of employment is hereby extended by one (1) year
to a total of six (6) years, expiring on the 14th day of February, 2000.
4- Clause 3 (Compensation, Base Salary), commencing September 1, 1997, base
salary is hereby increased from US $90.1300.00 to US $125,000.00 and, In
addition, shall be entitled to the following expenses:
(a) US S00.00 car allowance per month effective September 1, 1997 up
to August 31, 1998'. and US $600.00 per month effective September 1,
1998.
5. Clause 3.6 (Pooling), this clause is removed in its entirety.
6. Clause 5.0 (Non-Competition), the Employee shall be subjected to one (1)
year of non competition provisions provided for in Clause 5.0, i.e. the
first line of this Clause 6.0 shall now read:
"During the Term and for a period of one year thereafter
7. AGT will pay 100% of all medical/dental expenses fbr the Employee and his
family according to the terms and conditions set forth in the Company's
Group Benefit Plan, for the remaining Term of the Agreement.
N07VIlTH STAND ING anything to the contrary, it is hereby agreed that:
(i) the Employee shall be located in Greater Vancouver, BC Canada during the
term of his employment; and
(ii) should the Employee be dismissed Without cause, the Employee shall be
eititled to the (a) lessor ol one year's salary, or salary of the balance
of the remaining Term, an~ issued one million (1.000,000) common shares of
the Company. such shares will be subjeCt to any stock split or share
consolidation that may take place during the Term.
ALL OTHER TERMS AND CONDITIONS OF THE EMPLOYMENT AGREEMENT DATED
FEBRUARY IS, 1994 REMAIN UNCHANGED AND REMAIN IN FULL FORCE AND EFFECT.
DATED this 17th day of February, 1998.
ADVANCED GAMING TECHNOLOGY. INC
<PAGE>
AMENDMENT
~'Aj the EmploymentAgreement
zt len wed into between
RobeH cutlis Sd ndAdvanced Gaming TechnologV, Inc.
datgd Me 15th day qfFebruary 1994.
This serves to confirm that the Employment Agreement dated 15 February, 1994
between Robert Curtis Silzer, Jr. and Advanced Gaming Technology. Inc., is
hereby amended as follows and this amendment forms part of the Employment
Agreement.
1. Address of the Employee is hereby amended to:
20640 - 89A Avenue
Langley, B.C.
VIM 2N3
2. Clause i (Employment Duties), the title of the Employee is changed from
Vice President 6f Operations to Executive Vice President effective as of
September 1, 1997.
3. Clause 3 (CompensaVon, Base Salmy), commencing September 1, 1097, base
salary Is hereby Increased from US S90,000.00 to US W5,000.00 and in
addition shall be entitled to the following expenses:
(a) US $500.00 car allowance per month effective September 1, 1997 up to
August 31, 19981 and US $600.00 per month effective September 1, 1998.
4. Clause 3.6 (Pooling), this clause is removed in its entirety.
ALL OTHER TERMS AND CONDITIONS OF THE EMKOYMENT AGREEMENT DATED
FEBRUARY 15, 1994 REMAIN UNCHANGED AND REMAIN IN FULL FORCE AND EFFECT.
EMPLOYEE ADVANCED GAMING TECHNOLOGY, INC.
Robert Curtis Silzer, Jr. Auth2~~i&14wjzmt~
Witness
<PAGE>
EMPLOYMENT AGREEMENT dated this 6th day of M=h 1998.
ADVANCED GAMING TECHNOLOGY, INC.. a Wyoming corporatiom with an
office located at 2482 - 650 West Georgia Sueet. Vancouver,
13ritish Columbia, V7B 4N9
Chereinaft called the "Company")
OF THE FWT PART.
AND:
TROMAS S. NIEMAN, Businessman, of 228 Desert View Stree~ Las
Veps, Nevada 89107
(Tho"Executive")
OV T13E SECONM PART
KoW TREREFORE THIS AGREEXEN-T WIT~MSSES that in consideration, of the
pmmises md of the covenants and ageements hzreln~ contained, the pardes hereto
have agreed as fbHows (the 'Agreement'):
1.0 TERIM A1%TD PXnWAL
1.1 The Compaty agr=~ to =iploy the Excoutive, ana the F-,,=tive agrees to
serve pu:rs%=t to the terms and conditions of this Agreement, from the date
hereof dLrough Februzry 15, 200 1, or such shorte, or longer period as may b~
pro-,ided for herein.
1.2 If Es Agreement "I not othcr%-&ise have been tcrmine.~,-d zz provided
herrein and if neither puty shall have given the othcr nutict of n0nreaewal of
this Ag=ment on or befon~ August15,1999 (or on or Ware any mbsequent August 15
duting the t,=. of Lhis Agreement), therL this Agreementshall automaticaLly be
e%tended so it then sbnll have Th--n- ycan to run- Sach
<PAGE>
initi2l term through Februx-y 13, 2001 and a a-y extexisions thereof shzH be
refc-tred to &~ TI-4 1'Emp1o)m=tT=" orthe nTermofthis AVemenf'or the "Tenn-"
2.o mfn"FRAITON AND BENEFITS
2.1 The Company shall pay to the Rxecative eL salary as fbllows:
(a)From Febnukry 15,1998, the saigay shall be at least US $180,000 per
umum, payable twicz monthly in equal installments less any deductions or
witMoldinggs required by law,
(b) rn additio-a to the Executiv&s aw-111A base salm7, the Exetutive
shall participate in ft executive bonus plan describcd in Schcdulc 'W'
aftehed hereto and shall be gmted aptlow in the capital stock (common) of
the Company as described in Schodulo 13" auachod hereto; ana
(c) The Company agrees to rmonahly consider to structure the recordlug
and registration of the stock and options granted ta 1he Exmudve in a m"ner
as nouled to eliminate zW imediato tax ramification to thic. Excmtivc under
the vules and guidelines of the Uftmal Itevenue Service.
(d) The Company Rut= agrees to =vicw tho Executives base salary, bonus
compensation and otber entitle=ts at least annually and to reasonably
consider ilacroasiD& the sa= with any increue(s) bcing at the sole
discretiom of the Board.
2.2 The Executiva will be entitled to four (4) wedsv=tlon wiffi pay in mb
year of the T =z, at such linic or times as the F-mcutive way detnmine
consistent with the requirements of the: Company's busioess. The Executives
vacation will be =Mdative and, accordingly, ifthe Executive Wls to take his
vamtion in any calendar year, it will be carried over to the following year, If
tWs Agreement is terminated for cause duting the Term, the Compaay %ill
calculate the vacation entitlement for the year on a pro ratabasli and add itto
any vacation entitlement accrucd from prior y=. s. In addition to any other
provision of this Agreement vacation enUement at the time Of te-=juation of
employment %ill be paid to the Executive by the, Company based on the
Executive's salary as providcd for ia ffiis Agreement
2,33 The Exetutive shdl irailially usm bis own vehicle tmd, us wimburwzucat
fur ~,Wl j U!~at -%ki-11 be paid an Automobile Allowanee of US $500 per month to
cover all msomblo opecating costs of his vchicle, including Iming costs,
insurance. repairs and maintenance, C?s and oil.
2. 4 The Company zZmes to reiiinburse the Executive for all travellina Lnd
oilier out-o' pocket expenses actuaLly and properly incur=d by him in connection
with his dutics on bebalf of th,~ Company as authorized In advanced by the Board
of Directors of the Company (tba "Board of DirectaTs') from tim-, to time or as
Puthodzed in the Company budge~s). For all such expenses, f-h-c. Executive Vill
furaish to the Co==y statornents and rtceiots as wid mquired by the Campaw-Ay
from tirnt to t1r2c.
-2-5 -rh,~ Company " pro,~jde the Executive vAth employee benefits equal to
or greater -o= those provided by the Company from time to time, to other senior
executives of the Company.
2.6 7he mp . Company,"iU pay all reasom1bip- oat-of-pocket c, enses of the
Executive, and, in addition, up to S?-,000 in fts and disbursements of W3
solicitors and/or attorneys in connection wil:h the prcpw-4oq, revicw and
negotiation ofthis Agreement.
2.7 The Company aball provide ft Bxecutive. with Dlreutors and Ofn'ccn
insurance in such =ounts as am at least compuable to Directors and Officers
insumce provided by the CompaV from time to tiate; to otbrr smior exectitives of
the Compauy but in my event provide not less than, US $2 bfillion as of the date
bareof and ~%Ill r=onably tonsider efforts to increase the coverage in Ature
rML-Wals.
2.8 The Company will pay or cause to be paid the entire premium and other
costs of thr, following insured =0 other benefits for the Executive and his
family~
(a) Dental p1m and medical plan at least comparable to the wdsting plan for
employees as of the dato of this Agreemertt; and
(b) Any other benefit or perqdsita available to any other =Tloyees of the
Company or generally provided to executives of companies similar to the
Company.
3.0 POWERS A" RESPONSMIMMS
3.1 The Exe=dve, in accordance vdI the Tmms ofibis Agreemeut, will, upon
resolution of the BoaA assume the titlas of Cbairnum, Chief Fxecutive Officer
(CEO) and President The Executive =y, in his dIs=don at any ti= during the term
of this Agreement, subject to Board approval,%vhich shall not be unreasonably
withheld, appohit a person to fill the office of Pmideat of the Company. During
the Employment Period and upon resolution of the Board, the Executive shall have
ambority to makc all opera:~ng dwisions, plan the strategic cUitetion of thLe
Company and hirc, promote and terminate employment of all persorincl, sult ect
to the direction of the Board where liecessary. During tbe Employment Period,
the Rxocutive shall have such reasonable and custon=7 powers as are genemlly
associated with the positions of Chai=2m and Chief Executive Officer, including,
vvithout limimdon, authority to enend capital resources ofthe Company and shall
have, subject to the direction of the Board, authority to fill ali other
mmagemeat posidons, includiag, v,!ihout limiuktion, the position of Maef
Financial Officer.
3.2 Dwimg the Employment Term, the R-,tecutive shall b a em&3--'a by th e
Company &'Id, upon resolution of [he Board, as the Chairman of its Board of
Directors and as its Cbief Fxecutive Officer to peeform sucb duties &s may be
reasonably prescribed by the Company's BQ"d and its bylmvs, The Exectdive earees
to scrve during the EmploymentTerm in such offices or positions z--d such
further oL5ce3 or positions -%kith the Compmy or any subsidiary of thL- Company
as shau. ftom d by tbComp.-my's Board; but in no emr-ishal-I such offices
mposildons be of less autholfty than Chairman and ChAi0i'Executive Officer
except as is raurtuoy agrceabl c to The parties hereto.
<PAGE>
3.3 NMle the Excoutive is engaged hereunder, the services of the RxecutivB
shaLl bel pro,Aded on the following tMai3 and conditions.,
(a) Duxiog the Employment Period, and excluding any pariods of vace don
P-nd sick leave to which the Executive is cntitled~ the Executive shall
devoL- principal attention and time during normal business hours to the
biisiaess Emd affairs of the Company and, to the extent necessmy to
discharge the responsibilities assigaed to the Execufive under this
Asreement. use the Executive's reasonable best efforts to carry out such
rcsponsibilities WffiUly al3d effiCiently;
(b) The aecutive shail not, without the pflor vnitten consent of the Board
of Dhnctors, cogage in any other business or occupation or become an offi=,
manager or agent of my other company, firm or individtW. It shaU to%
however, be considered a violation of -the foregoing for the Executive to:
(i) Serve on corporate, civic or charitable boards or cominittecs
(excluding those which would create a conflict of interest);
(ii) D&liver lecturtA MM speaking cogagernents or teach at educationel
insdaitions; and
(iii) Manage pmolial investmm% so long as sub lcdvides do -pot Zrilter1211Y
interfere vAth the pe=fbm=ce of the Execudve's respongbilities as an
employee ofthe Company in accordance with 635s Agreement
3.4 The Executive sihsH obey and carry out the la\hld orders given to him
by the Board of DirectOrs from time to timevbich = corommsurate and comistent
vith 6e dudes he is reqtdred to perform hereunder.
3.5 The Executive sball report to the 8oard of Directors. The Ececadve
sh?-U report on The manzgetnent, operations and business affaLrs of th;~ Company
and adNise, to the best of his ab Ility, on material business matters requiring
Board action tb~ may arise fmra tJ-me to time d uring -Ln-_ temn of this
Apaxeccraent.
.3.6 ThoExecurive shall render hils services to tle CoMpany ftrIUS Vegas,
Nevada (the are-a of his prima-f r-csIdence), except for no--rual business
travel necessmily incideat to bis position. In addition, the Company authorizes
the Executive, by resoludom of the Bowd of Directors, to move die Van r. o uv
er, D ri 6 sh C a I uzem L- Cornparty a ff i ces and C o mp my head Tax-,t -" to
The Lz-t Ve a as ax ca
4.o COINFIODENn4L MOPWAMN
4.1 The Ex=zEve acknowledges that:
(a) in the course of carrying out, performing and fWAlling
5responsibilidesto the Colnpaay hcre=der, he will have access to and will
be ented 1Pith drtalled confidential information, know how and trade
secrets relating to the busincss ancl affairs of the Comp=y, induftgr,
without limitatioxi. finance-% products, scniccE, dealings and t=acdons of
the Company, and the names, addresses, prefereaces or other particular
business requirements of its customers, and that ibc disclosure of
confidencW
<PAGE>
information, Imow bow and trade secrets of the Company to competitors or to
the public would be higbly dttri=emW to the be& interests of the Company;
(b) in the course of performing his obligations to the Company
hereunder, the Executivo will br. one of 1he principal representatives of
die Company end, as such, -will be sigxdficardly responsible for mainukbag,
or edaaming the goodwill of ft Company- and
(c) The fight to r"Intairt the confidentiality of such confidential
itfor=-don, Imow how and trade secrets ofthe Company and the right to
preserve its Soodvvill consatutt proprietary right s which the Company is
entitled to protect.
4-2 The E%eeutive will not either during the Term or at any reasonable time
thereafter, disclose to any person, firm or corporation or othemise use any such
detailed confideritial infomation. Imow how and trade secrets for any purpose
oOw than the purposes of the Company. and the Executive will not disclose or use
for any pmpoSe, other ~= Por those of the Compazy, the private &ffairs of the
Company or any other privam information which he may acquire during tbz course
of his emplo~=erithereunder i4th relation to the bminess ana affers of the
Company, except as required by law- Confideritial information shall not however.
include information kaown to third parties beyond the cmployinent of the Company
or information that is required by law to be disclosed in the course of
reporting and regulatioti of and related to the Compmy. The Rxecutive
acknowledges thAt the covenant contalined in this paragraph is necessary md
fimdamen;W for the protection of the business of thc Company and that a ~n;ch by
the Executivewill result in d=aga to the Company vIrich would not be adequately
compensated by monetary award to the Company and that, in addition to all of the
remedies available to it the Company sh?1l be critifled to the irrumediate
remedy bf a resbilr~ng order, injunctiori or other fonn of relief as inay be
decreed or issu--d by any coLirt 6f coropetentAwdictloa w resa-Zm or enjoin the
Execut-ve from brwiching any such covenzint or provision.
4-3 In no event shall in assertcd violation oftht pro-visions of IIL,,-
sr--crioa or any relattd or offier s-ection in this Agreemerit constitute ?-
basis for d6errigg or o-, rc&,cing any e-mounts othar%,Aise p*yablc to &.e
Rxecutive under tbi3; Ag-r-a-ement.
5.0 TERMNATION OF A(MEMiNT
5.1 Irbe c(Mp2ny may tenninate ilia Exwutives eagagetnent UrLder this
ABreement as follows:
(a) At any time, by notice in writing from the Company to the.
Executive, for'Just cause" which, for purposes hercot is limited to,
subject to aay Nevada Re%ised Statutes r,BlAting to jtSt CaU30:
(i) no Executives fraud, gross iricompatency, penoral dishonesty
invahing the Company's assets, wifful rdsconduct or gross negligencr, in
tho Performa= of his duties hereunder,
(ii) Disciplinary action aggaWt rhe Executive by za essential gaming
regulatory authority which results in ternlination of the aecutive's
required licarse, if any; and
<PAGE>
ciii) A willfd breach by the Executive of any of the rnaterial %Tms of
this Agreement
If the'Executive's employment hereutder is terminated for just cause. the
Company shail have xio firther obligations or liabilities to the Executive, save
and except for obligadons due to 1he Executive for services rendered prior to
the date of termination forjust cause.
(b) In the averlt the Company contends ftt it raAy temiinge the Executive
for just cause due to the ExecutiYe's conduct as described in 5.1 (a) above, the
Compatly shaU pro-~ide the Executive with specific %witten uotice speciting
inreasouable dctall the screloas or matters %NNch it amtarlds the Executive bis
not been adequately performing nd NNilat the Executive should do to adequately
perform his obligations hereundtr. If the Executive perfanns the required
services witbin thirty (30) day5 of actual receip-L of the noticeloy the
Executive or modiffesbis performa--ice to correct the matters compl~ned ot in
either casc, to tbo rmonable satisfaction of the Company, tht a-ectitive's
breacla uill be &=cd cured and suebL breach sh-all. no longer coasftfte cause
(except in the case ofizdicted and convicied criminal conduct); prmided,
however, if the nature of the services not performed by the Executive or the
matters complaiaed of are such %bat zaare than thirr;- &tys art reasonably
required to r-edo= the requircd services or to corrcet The, matuas co=plzincd
of. then the Bxecut~,.e's breach -41 be deenled cured if the Executive
cornmtrces to perform Such me-iccs or to correct such matters --hithin the
t1lirty (30) day period and tbareLfter diligently V rosecates such performance
or correcdon to completion within stcb pceod of thne after rhLcud *Fsuch tLirty
(30) day period (the 'extension peeled") as ffic Corr-pe-r-ly has rinlified Th-2
'Ex e cu-dvt I s rm onably requirod to perform Th e required ss-eni c a s o! u)
corr ec t tM rLi-attLe rz cc-=p1--;n:-.;' of. If fae Executivc does no- peltorm
the requir~d sz--;;ceS ar, Modify hisperformance to correct the matters cornpl
ained of within the flArty (3 0) day period or the extension Period, as t1le
case rnay be, the Cornpany shaU have the right to terminate this Agreement at
the end of the t&ty (30) day period or extemion *od, as the tzge may be. it is
understood that the Executive's parformance hereunder -.Aill not be decmed
u=tisfaciory solely on the basis of any e=nomic perfb=nct of the Company because
tl~dis pr,rformanec vvill depend in put on a variety of factors overwhich T~ie
accutive has)ittle control.
5.2 If the Company termimatim -dtc engagment of tho ExtcutiNe as pro%ided
under subparauxaph 5.1 (a)(il), the Executive shall be cutitled only to the
accrued Wary oivins to him as set out in pazuxap~Ls 2.1 and 2.8 and other
benefits as provided herein,-up to the effective date of te=in on, less any
amounts owed by the Exmutive to the Company.
5.3 1f the Company tmmiinates the waagement of The Examdve f" any reason
other fbr just cause, the Company sball, in addition to other obligaflons as set
forch berain, pay to the Execulive in M immediately, as Uquidated damagges, a
lump sum arnount equal to the present value (calculated using an 8% discount
&ctor) ofhIs salary for the unc)Tired perio4 of the TeTm, and by providing to
him the amount of any performance bouns and coramOn 3tDck gmts and options to
which the Executive is or becomes or should betome entitled to pursmi to
Schedule A and Schcddc B and incroases of the same by the Company.
5.4 The Company acknowledges Omt participation in gaining may require
11ccrising in one or more
<PAGE>
jurisdictions and agr= to undertal-c s=h application(s), compliance aad
regWatory process(es) as the Executive deems ne=smy or appropriate for s=b
purposes. The Company Aafler a6mowledges and represents that it has fally
disclosW to tbeExecutive any and IU issuc* and facts that may ha;ve =y adverse
effect on such a garning licensing proaess(cs).
5.5 The Executive way tennina;te this eaggagement under this Agnernent if
any one of the fbUowing occurs during the Tem each of which shaU be considered a
breach of Us Agreement by the Compemy, entiding the Executive to compensation
for termirLation for other thanjwt cause:
(a) Change in coxitrol;
(b) The Company employs or enstPd any other serdor executivr.,
wiicffier as an empioyee, co-aultant or othemisa, without the prior written
consent ofthe Exccutive;
(c) Any, requirement by the Company th-ot the F-sm-cutive's scrNices
be render ad prirniiril~y at e location or locations offier than that
provided for here'--,
(d) kny f4ure by the Company io comply with any material term of this
Agreement, other fl= a fialurt that is ift bad faith that is not remedied
by the Company promptly after receipt of noticc thereof from th&.
Executive; and
(e) Any purported terraination of the Exectrdires emplo3=cnt by -the
Company for a renou or in a manner not expressly permitted by this
Agreerfttw.
5-6 For the purpose of this Agmement, "change of control" means the
occuricnct of any one or more Of the Mowing:
(a) The sale or a smies of sales occurring whWa any twelve (12) month
perioa, offier than a sale to an affiliite of the Company (as thAt temn is
defined in the BrItIsh ColumbiaCoznpany Act), of net assets of the
Corapanyhaving ivalue greater than 50% of the fak maiket value of the net
assets of the Co=paay, excluding- the Brinson property, determined on a
consolidated basis prior to such sale or prior to the Fht of a seties of
sales Occurring vAtbin any twelve (12) month peTiod;
(b) The disposition ofall or substantidly all of the assets of the
Company where such sale or disposition is reqiired by applicable law to be
approved as a special resolution ofthe sharclioldm of the Company;
(c) Any "persoe orgroup of Ppersons" (as the tc= "persoel or "&Toup"
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
and the rules thereunder) v6Vch does not include the Executive, is or
becomes the beneficial owner, dircetIy or indirectly, or securities of the
Company representing twenty percent (20%) or more of the combined voting
power of tho then oummiding securities of thc Company (whether by purchzse
or =quisition of sectuities by any person or by the Company or by agoement
to act in coocert with. respect to the voting of such secirides or
otherwise), except if such owmership is approved by the Board,; aad
(d) Any Other event shall have occurred which constitut-es a change of
owyauship or effecth-e coatrol of the Corapany or in the ownersh~p of its
assets, or ,%tich would be deerned. to be such aL clmnge under ss.2800 of
the Inkmal ReveDuc Code of 1954, as amended, or the regulations or other
legal authority developed there=dar.
<PAGE>
6.0 NONT-CONY)MMION
6.1 The Executive covermts and apees ti ",-- hewriii no; durmg -"-! Term,
or %VUI~n a t,,,,-D (2) yczx period after ha hass ceased to be am Executivt:
(a) DLrectly or indirt-edy, in any MP2zitY wh2tsoeveT, allom. orin
2ssociation %NU2 anv oti-er firm or cor ar c' a a t. porration (oter than
the Comp, y). as a prin 1,1D I gen Ezector, gwaramtor, creA4.1tor or in amy
colier v,,ha:so-zvcr, save and except as an employee only, knowin' .'IY
engage or be concerned or interested in any busincss That sells product($)
or =vice(s) that &adly compete NAfti the then existing Or specifically
identified -product(s) or se-ni*s) of th6 Company during that period in any
territory in jvhich the Company carries on its business during that peTiod,
(b) Directly or indirectly use or disclose to any persoa, except, duly
authorizcd offlem and employees of the Company entitled thj=eto, any
confidential information (as deEzed herainabove) flW was acquired by him by
reason of his involvement and associadon ,Ai th the Co mpW, or
(c) DirectLy or ftulirwtly solicit any customer, as of the date of
terniinattion of mploymcat, of the Company in any territory in vyYioh the
Corqp~my carries on its business during that period for the-purpose of
selling that customer a product(s) or service(s) that is the same or
similar to a product(s) or savice(s) sold by the Company.
Notwhhstandiug the foregoing, the Exceutive may invest in or have an
interest in entities traded on any public mmi-A or offered by any national
bidkj~zage house if and so long as the intcre5t does not exceed five percent
(5%) ofthe voting control of aty such entity; and an intcre~(s) in tiny
company(ies) not competing NAth or offoring the s=e or dniLar product(s) or
service(s) as the Company.
6.2 As ft is rewgd=d by all the parties hemto that irreparable di=Ses would
resWt fwra any -6olation of Paragraph 6.1 above, it is expressly agreed tb4 in
addition to any and a of the remedies avallable to it, cach party *ill hAve the
immediate remedy of fi~juactlon or such. other eq~Atable relief as may be
decreed or issutd by =y court of eoropetmt Msdiction to enfoTce Paragraph 6.1
hereot
6 ~3 Iri th a e vent thd any c I sus a o r op e rati o n o f F araaf aph 6.
1 IV= e nforurnb I (.-. o r d WJ;I re. d invalid for cry reason v.-hatsoever,
such unenforceability Or Invalidity xNill not affect th- enforccabUity or
validiTy of the rtmaining portions of Paragraph 6.1 and such unenforceability or
juvalidity will be severable from such paragraphs and this A&Teement.
6.4 The &=ufivc agrees and ackrio%nded-Ses this co-v enant is givem 11o:
good and valuablc comiderg-tiDn (receipt of which is hereby acknowledged) and
tha~ by Teason of his Unique Imowledge of and his association Nvith the business
of the Company, the scope of This cove=t 2LS to bofn time and =-,a is reasonable
2nd cornmeasurr-e vith the protcetion of the I.-itimate iaterest.3 of the
Company. This restrictive covenant %Nill cond= in effect after Che termination
of the employmzsat and t~t tarminsfion of this Agmement for any Teason, and This
rcstrictive covenant is
<PAGE>
severable for that purpose. If any part of this covenant is held to be void or
Ime-afomeablee by a Court o f compe L- nt j wisffict i o a, that p an may b e s
ev=d and xcpla=d by t1i e -%i d ~, s t T--rm th et wo u! d r o t be hold to b--,
- --o',-4*r unenforceable.
7.0 SEVERkBILITY
7-1 Each provision of this Agreement is declared to constitute a sepzare
and distinci covenant and %V be severable from aU other such sepu= and distinct
covenants. If zny covenant or pro,,~ion is dete=ined to be void or
unenforceable. in whole or in paM it uill not be deemed to affect or impalT the
eafurceability or vadidity of any other covenant or provision of &ds Agreement
or any put thereof.
8.0 SXMVIVAL
8.1 The obligations and acknowledgements of tha Company and the Executive
set out in Sections, 2, 4, 6, Schedulc A and Schedule B will sunrive the
tmmination of Chis Agreement.
9.0 WAMAORMODIFICATION
9.1 No failmr. or delay ofthe Company or C16 Executive in exercisiq any
paw-er or right hereunder shall operate as a vadver &m-eof ror shall any single
or paxtial exercise of sucb ji ght or pcnver preclude any other right or powcr
hereunder. No amcndmer4 modificatiou or waiver of any c=dition of this Agee;nerd
or consent to any departure by the Rxe=dve therefrom "I in any event be effccdve
unless the same shall be in miting signed by the Company.
10-0 TfMEOFMF-NCF,
10.1 Time 5hall ba of the essmee hereof.
11.0 FURTHER ASSURANCES
21-1 The Exwutive Eind the Company will do, execute and deliver, or vill
cause to be done, exe;=ed and deliveTcd, all such ftuiher dee&, inst=ents,
docmnents' acts and things don-: as the Company or the Executive may rwsonably
req*e fbr the pwrpose of 6-ViMn efrect to this Agreement.
12.0 NOTICES
12-1 Auy notice required to bc given hereunder by any party shall be dzemed
to have been ,%vcll and sufficicatly given, if delivered personally or if TmOed
by commerciJa cuTier or by prepaid req;istercd mail (ret,--A reeceiyt
requested), and =tuaUy &Hvered in person or at the addrcss of the otherpaAr,s
h-m-no set fordh orar such other address as the other party may, fro= timt- to
timc, direct in. -mTitino- The address for noticewill, unEU ebanged, be:
In the me of t4 Company:
2482 - 650 West GA-Mia Street
vancouver, B.C. V6B 4149
in the case ofthe Executive
228 Dmert view street
XAs VeW, Nevada $9107
13.0 INDENINUICATION
13.1 The Company sball indemnify and hold harmless the Exieudve from any
thrmte~ned, pending or completed action or proceeding against the Executive,
Wheffict or not brou& by the Company, and whether civi4 edmitW or
administrative, by reasom of the Executive can-ying out his dudes btreunder
against all costs. ebarges and expenses, inbluding legal fees and any mmount
p~dd to settle the actiou or proceeding or misfy &judgment, if he -acted
bonestly wd in good falth vitli a vizw to the best iwerests of the'Company gad
exercised the care, diligence and sldfl of a reasonibly prudent person az4 with
respect to any criminal or administrative action or proeftding, he had remonable
grounds forbelieving that his conduct was lawful. The dcaerroinacion of any
action, =it or proceeding, by judgment, order, settlement, conviction or
otherMse shall not, of itself, create a presumption tat the Executive did not
acE honestly and in good faith and in fhe best interests of the Company and did
not exercise the care, diligence and skM of a Teasonably prudaw parsoix emd,
witli respect to any criminal action or proceedirw, did not bAve reasonable
groads to belim that b1s; conduct was lawU. Such iudemnification of the
Executive by the Company shall be to the fullest extent allowed by law.
133 The Company shall indemnify the Executive in respect of any loss,
damage, costs or Lxpcases, ir-cluding,bvl not limited to, attomey and solicitor
fees, whatsoaverkm=ed by him wl-dle acting as Chairman, or Chief aecutive:
Officer or othemrisl~ on behalf of the Company, unless such lo5s, dama.- 0 ge,
costs or expenses shall arise out of failure to cornply,%iffithe Excc4yc's
obligations pum=r to this Agre;=Wt.
14.0 MEPENDENTLEGALAMCF,
lzt.i 71---EyecudvchcrtbyacimoNvlcd.-est'~athehzs bew advisedbytih-l*
Cornipanyto seek ind--pendent ad%icc and that he has either, obtained
lmdependent legal ad-AC-1 or haswaived bis ri ght to the m-n a R = 9 4?/. 604
689 2809 03-30-98 05:07PM p017#06 MAR.-30'98(MON) 16:02 AGTJ TEL:604 689 2809 P.
018
15.0 EF-kDINGS
15.1 7ac headings in this Agreement form no part of the agreement between
the parties and will be deemed to have b= insermt! for conveuience only andwitl
not affect dhe construc tion hereof
16.0 INTERPRETATION
<PAGE>
16.1 Whmver the singular or the masculine is used bemin, the sameAU be
deemed to include the pl=d or dw feminine or the body politic or =Torata where
the context or the parties so require
17 GOWRNINGILAW
17.1 This Ape=ent %%U, in all respects, be goveimcd and cons trued in
accordance with the laws of the State of Neva& whose courM in Clark County,
NevaU shall have, exclusIve judsdir,tion and venue over dispttes, if any, wising
out of or related to this Agreftneat. ALL dollar references herem Teter to U.S.
dollars.
18.0 ENTIRE AGREEMENT
18.1 The pr(wisions herein constitute the entire agreameat bat%mcn the
pardes and supersede all previous enzetations, ucdertakins-3, comm"ni ons.,
representations and ag=rzents, whether verbal or writEen. betweea the parties
uith respect to %esabject matter hereof
19.0 NO MTNERSW
19.1 No aggempy or partnership is hereby created behreea the pardes and no
reprrsentations will be made by either party v&cb would creatc, any apparent
agency or p2:tnership between the par t! es h cr--to
20.0 ENURIUMENT
20.1 'no provisions of this AgreerneutMll enure to theb=fit o'L---.d be
biTiding upon the pardes hereto and ffiaix resp~=tive heirs, executors,
successors and assiars.
IN WMESS NWIMEOF, the pardes h-ave hereto executed this Agreement as of tbe
=d year fast above written.
THE CORPORATE SEAL OF ADVANCED
GAMING TECHNOLOGIES INC. was affixed
hereto in the presence of:
Authorised Signatory
Authorised Signatory
SIGNED, SEALED AND DELIVERED by
THOMAS S. NIEMAN IN THE PRESENCE of.
Authorised Signatory
Authorised Signatory
<PAGE>
SCHEDULE
"A"
PERFORMANCE B0NUSES
1. Abonusplanis ageedtoNvHch%v:iLl re%rardtheExpeutive and tho Senior
NLviagement Team as recommended by tbP E=utive (Executive Group) to the
Board of Directors basod on frie Net Income ortbe Company (including its
stibsidiaries and its affiliam as those ternis are defted by generally
accepted accounting priuciples in the United Swes- In each ycu during the
Te=, the Executive Group will be entitled to a payment from the Con4=y of
an amount equal to or greater than three percent (3%) of the Net Income of
the Company for that year or suchaddition2l percentage as the Board shaU
reasonably dctemulne for each such year or pan themof
2. "Net Income" has the mmaing ascdbed to it under generally accepted
accounting principles in the United States, daterrnined in a manner
consistent with prior periods but in any event will be cxclasivo ofplior
lowes and depreciation and before tax and any e)dmordinaq or non-recurring
matters or events that reduce the "riat income" for that period
3. All payments of cash for ewh year will be maaa by the C=pany mitun ritety
(90) days of the end of the fiscal y&u of d2e Company- In The last partial
year of the Tenn, the Excccudvc will be entitled to a pro-rated perfammee
bonus based on the number of Ul or putial moaths; between the cad of the
fiscal year and tha and of the Term.
4. The Executive,;;ill receive as a performance bonus and incentive an option
to purchase up to one million (1,000,000) shares ofthe Company at US S.06
per shm. The execution of the above optionwill be contingent upon the
Executive artaining One Million (1,000,000) shams upon aebieving a positive
operation-al cash flow as defined under the rifles of U.S. Gentral
Acceptable Accounting Principlm a
<PAGE>
SCHEDULE "B"
STOCK OPTION STRUCTURE
1. Grant of Options- Purmmt to the provisions of Section 2.0 of the subject
Employmen; Aggreement catitled "Remunomdon and Beneftts," the Company
hereby graws to the Exemtive the option to purchase cermin shares of comm
on stock of the Company and in accordance with the terms and conditions set
forth herein (the 110ptiont.).
2- Number of Sbzres and Option Feriods-. The Option grauted herein 3hall be
exeroisablt~ for the number of shims and at flae share price as set forth
below:
Year No. Of Shares Share Price
1998 500,000 us $.06
1999 500,000 US $.06
2000 500,000 us $.06
The number of sham subject to the Option xepresent a wi-11murn amount only.
TheBoard of Directorsuill have the dismvtion to and wal reasonably cor6der
the grant offurther stock options.
3. CwndRfive Options: The options are to bc cumulative in natum and =
exerctsWe at any time up to fbice (3) ycars frorn the first (Ist) wlendar
day following the effective day of the Options. Acwrdingly. by way of
Mustrztion and for the sakc of clarity, the irdfial option for 500,000
shares will be exercisable at my time beginning, as of tht dare hereof, up
to and including Fcbnuwy 15, 2003
4. Ma-Aner of Exercise; The Optionshall be exercisable by tho Exwudve by
providing written notice to tbc Company of his inteation to mercise the
Option. ?a) ment for the sbam subj ect to tht Option sball be required
%ithin dtV (30) business days of the wHttea notice providnd to the Company,
Upon the Company rmhing a positive cash t1ow, the Company will rcasonibly
consider loaning to the Execurive and the Sey3ior Management Group the
sunis necessary for such cxcmise at an intercri. rale not to e=ccd the rzc
then earned by the Comp=y on deposited fimds.
5~ Nature of Option Shares: Th-! shams to be issued to t~e Executive shZ-1 be
issued pmm=t to C---e Securities Exchan-e Act of 1934. The shares s::Pl be
restrictzd fOT TesalO TO U,S. persons Qnly for a pcrioa of time as dictated
by the rt-porring status of ch.- Company. vith the ~q ccLL-id ts and
F-xchan2c Commission.
<PAGE>
6. Sul-viva] of Employment: All options grantod to tho E-xwutive shall survivc
=d rernalia in effect upon The volu=7 or involantary termination of
ealploymcni ofthe Executilyc vvi~i the Company,
7. Merger of Consolidation of the Company: Nomithstanding the inerBer of one
or wore corporations into the Company or any consofidatiorL of the Company
and one or moro corporati=s in whirl the Company is either the nmiving
corporAtion or is not tlie sllniving corporation, all Executive Options,
shaH suv4ve any such mMer or consolidatiou and the exercise ofthe O*n sholL
be aWlied on a pro rata basis. Still furdwr, th,: shares underlying the
Option sbaU be adjusted appropriately for the increase or dectase in the
number of issued shaTes resulting from a sabdivision or co=olidatiori of
shares or the payment of a stock dividend thereon or any other inerease or
decrease in thePurnber of shares effeoted vAthout reecipt of consideration
by the Company.
<PAGE>
FINANCING, ROYALTY AND LICENSING AGREEMENT
Dated as of this Ninth day of February, 1998 (the "Effective Date")
BETWEEN: ADVANCED GAMING TECHNOLOGY, INC.
P.O. Box 11610
Suite 2482-650 West Georgia Street
Vancouver, BC Canada V6B 4N9
hereinafter referred to as "AGT",
AND: BINGO TECHNOLOGIES
CORPORATION
295 Highway 50, Suite 20
P.O. Box 3256
Stateline, Nevada 89449
hereinafter referred to as "BTC", and together with AGT, the "Parties".
WHEREAS:
A. AGT has a family of fixed base interactive electronic bingo gaming devices
which it produces and markets, and AGT has made representations to and
desires to grant to BTC the right to be the exclusive licensee of AGT's
MAXPlus and TurboMax fixed base interactive electronic bingo system units
(the "Products"), and to act on AGT's behalf as the exclusive sales,
manufacturing, distribution and marketing agent for the Products in the
United States for a period of five years, renewable on reasonable terms.
B. ETC has electronic bingo sales, development, marketing, manufacturing,
assembly and distribution departments, and BTC has held itself out to AGT
as competent, with knowledge and experience in the production, marketing
and distribution of electronic bingo products and desires to act as the
exclusive licensee of the Products and as the sales, manufacturing,
distribution and marketing agent for AGT in the distribution of the
Products in the United States; and
C. AGT has agreed to appoint and grant to BTC the right and license. and BTC
has agreed to accept such appointment and right and license, on the terms
and subjeCt to the conditions set forth below, to act as the exclusive
licensee and agent for AGT in the sales, manufacturing, distribution and
marketing of the Products in the United States; and
D. BTC has, as of December 10, 1997 loaned Four Hundred Thousand Dollars
(USS400,000) to AGT, as documented by that certain Promissory Note dated as
of such date made by AGT for the benefit of 13TC (the "Initial Loan"), and
subsequently loaned AGT thladditional arnount of Five Hundred Thousand
Dollars (US$500,000), pursuant to tha, certain Promissory Note dated
January 2, 199S made by AGT f07 the bcnefit of DTC"(L-ie
<PAGE>
"Second Loan") BTC has also loaned Two Hundred Thousand Dollars
(US$200,000) to AGT, pursuant to that certain Promissory Note dated
February 3, 1998 made by AGT for the benefit of BTC (the "Third Loan").
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereinafter set out, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT OF BTC.
1.1 Subject to the terms and conditions of this Financing, Royalty and
Licensing Agreement (this "Agreement"), for the initial period beginning on
the Effective Date and ending on the fifth anniversary thereof (the
"Term"), with reasonable renewal terms, AGT hereby appoints BTC as AGT's
exclusive licensee and as its sales, manufacturing, distribution and
marketing agent for the Products throughout the United States, and BTC
agrees to act in that capacity. The definition of "Products" shall
specifically exclude any rights relating to AGT's portable, hand-held
electronic bingo unit, MAX Lite ("Max Lite Units"), and BTC shall have no
rights whatsoever respecting any Products in any area outside the United
States.
1.2 (a) BTC shall pay to AGT a monthly royalty (the "Monthly Royalty")
equal to fifteen percent (15 %) of the gross revenues received by
13TC's distribution, marketing and sales in the United States of the
Products for each month occurring during the term of this Agreement.
(b) Each Monthly Royalty shall be paid by BTC on the fifteenth day of
the month immediately following the month with respect to which such
royalty is due, E.g., royalties accrued during January shall be due on
the fifteenth day of February.
(c) Notwithstanding the provisions of paragraphs 1,2(a) and 1.2(b),
until the Initial Loan plus all accrued and unpaid interest is paid in
full, BTC shall retain said Monthly Royalty and apply it directly to
pay down said Initial Loan. No Monthly Royalty payments shall be due
to AGT until the Initial Loan is paid down in full.
(d) BTC guarantees to AGT a Minimum Guaranteed Annual Royalty Fee.
This guarantee is related to the Monthly Royalty but is not due in
addition to the Monthly Royalty Fee, An accord under the Minimum
Guaranteed Ann,~al Royalty Fee shall occur on June 30 and December 31
of every year under the terms of this Agreement,
(e) The parties agree that the Minimum Guaranteed Annual Royalty Fee
for 1998 shall be USS350,000. For 1998 the Minimum Guaranteed Annual
Royalty Fee accorded on June 30, 1998 shall be prorated based upon the
effective da'a of the Agreement. E.g., if the effective date is
January 1, 1998, then the Minimurn Guaranteed Annual Royalty Fee due
will be USS175,000. If the accrued Monthly Royalty as of the
<PAGE>
date of accord falls below the Minimum Guaranteed Annual Royalty Fee
for that six month period, then BTC will pay to AGTI the guaranteed
difference. E.g., if the accrued Monthly Royalty for the first
prorated half of 1998 does not equal US$175,000 (US$175,000 only being
due if the effective date is January 1, 1998), then AGT is due the
difference at that time. If BTC has met its Minimum Guaranteed Annual
Royalty Fee then no additional payments are due at that time.
(f) A complete accord and satisfaction however, will not occur until
December 31 of each year of the term. On the 3 1 " of December, an
accord will be made for the second half under the Minimum Guaranteed
Annual Royalty Fee consistent with that above. Again, if BTC has met
their Minimum Guaranteed Annual Royalty Fee for that half, which is
obviously prorated, then no additional payment is due. In the event
that BTC has exceeded the Minimum Guaranteed Annual Royalty Fee, no
accord payment need be made and, BTC is entitled to set off the
Monthly koyalty payment for the following year in order to make up for
any overpayment made during the mid-year accord, In the final year of
this Agreement, BTC is entitled to make withholdings based on an
estimate of an overaccord during the final mid-year accord, Over/under
accord and satisfactions shall not carry over from year to year. In
the event that the December 3 1 " accord reveals a shortfall under the
Minimum Guaranteed Annual Royalty Fee, obviously payment shall be due
subject to the terms above, "Over" accord and satisfactions shall not
penalize BTC by decreasing the calculation of the accrued Monthly
Royalty payments due on the following June 30". The Minimum Guaranteed
Annual Royalty Pee, that is the provisions of 1.2(d) and 1.2(e) shall
not come into effect unless BTC is unable to meet the Minimum
Guaranteed Annual Royalty Fee.
(g) Although the parties have agreed to a Minimum Guaranteed Annual
Royalty Fee for 1998 subject to proration the effective date of this
Agreement, the Minimum Guaranteed Annual Royalty Pee for subsequent
years shall be agreed upon by October 1 of the year for that term, The
failure to reach Agreement shall not terminate this Agreement. In no
event shall the minimum guaranteed amount set for any year of the Term
be less than that agreed upon for the preceding year.
(h) If, within 90 days of signing of this Agreement, any of the AGT
customers listed in Schedule I (the "Customers") stop making payments
on Products to ETC through no fault of BTC, then the Minimum Annual
Royalty will be reduced by the amount detailed for such customer(s) in
Schedule 1. Any such
<PAGE>
reduction in the Minimum Annual Royalty will be prorated to reflect
when a lost Customer stops generating Royalties during the course of a
year. For example, if t*ie Nfinimurn An-riual Royalty reduction amount
for a Customer equals US S15..000, and that customer is lost a*
mid-year, then the Minimum Annual Royalty rcduction in the year of
loss Would be US S7,500 (one-half of US S15,000) and USS 15,000- in
each vear th~!reafter.
(i) In addition to the Royalty, any other amounts to be paid by BTC
hereunder or under any other agreement between AGT and BTC, BTC shall
pay to AGT on the Effective Date US$1,500,000; provided, however, that
US $700,000 of such amount shall be set off against the amounts owing
under the Second and Third Loans, plus all accrued interest on such
loans, on the Effective Date. AGT shall advise BTC of any negotiations
for and the terms of any prospective exclusive agreement to license,
manufacture, distribute, market and sell Max Lite Units within the
United States only; immediately upon initiation of said negotiations
and prior to the execution of any such exclusive agreement.
(j) AGT will provide to 13TC the source code(s) for the product
licensed under this Agreement; and grants the right and license to
enhance said codes as BTC sees fit provided prior written approval
obtained from AGT, such approval not to be unreasonably withheld.
1.3 BTC shall have the option to hire any or all of AGT's United
States employees for any period of time except those listed below, and, on
such terms and conditions of employment as may be agreed upon between such
employee and BTC. BTC shall, in addition, have the right to contract
through AGT for the services of Mohamed Saad, the terms and conditions of
such contracts to be mutually and reasonably agreed by AGT and BTC. To the
extent 13TC requires the services of any AGT employee who is bound to AGT
under a contract of employment, AGT agrees to take all reasonable steps
necessary to release such employee from such contract, and to facilitate
ETC's hiring such employee on any basis mutually agreed by such employee
and BTC, Notwithstanding the foregoing, the Parties agree that Jim Hammer,
Mohamed Saad, Deborah Leake and Gerry Borowski shall continue employment
with AGT. AGT shall make Robert ("Rob") Silzer, Jr. and Mohamed Saad
available to provide services to BTC upon reasonable request of BTC and on
an "as needed" basis, in which event BTC shall pay all costs and expenses
arising in connection with such services provided to BTC by either such
person. In the event the services of either such person are used by BTC,
AGT and BTC shall each pay ratable portions of such person's salary (based
on the proportion of such person's total time spent providing services for
AGT and BTC, respectively.)
1.4 The Parties agree that BTC will continue to show the respective AGT
logos on products and promotional literature
2.0 WARRANTIES AND COVENANTS OF BTC
2. 1 BTC will provide complete support for the Products includinE Providing
advice, assistance, and repair and maintenance services to customer
accounts in connection with their use of Products, and shall assist
customer accounts in diagnosing, and remedying
<PAGE>
problems in the use and operation of the Products, BTC shall provide
sufficient scrvi Cc tech-nicians to perfonn such support of the Products in
accordance with the foregoing. AGT shall not be responsible for providing
any customer support.
2.2 ETC agrees that, with respect to all matters relating to this
Agreement, BTC shall be deemed to be an independent contractor and shall
bear all of its own expenses in connection with this Agreement. ETC shall
have no authority, whether express or implied, to assume or create any
obligation on behalf of AGT, nor shall ETC issue or cause to be issued any
quotations or draft any letters or documents over the name of AGT. Neither
shall AGT have the authority to assume or create any obligation on behalf
of ETC. Nor shall BTC accept any existing obligations, liabilities or
contracts of AGT.
2.3 BTC represents and warrants to AGT that:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of Nevada;
(ii) BTC has the corporate power to enter into and carry out is
obligations under this Agreement;
(iii) this Agreement has been duly authorized by BTC and, when
executed, this Agreement will be a valid and binding obligation of
BTC; and
(iv) Neither the execution and the delivery of this Agreement nor the
consummation of the transactions contemplated hereunder will violate
or constitute a default under any agreement or instrument to which ETC
is a party.
2.4 BTC agrees to defend, indemnify and save harmless AGT, its agents,
officers, directors, employees, shareholders, successors and assignees, and
each of them, from and against any and all claims, actions and suits,
whether groundless or otherwise, brought by or on behalf of any users of
the Products based on alleged damages relating to the Products or this
Agreement incurred during the Term and resulting from 13TC's actions, and
from and against any and all liabilities, judgments, losses, dama 'ges,
costs, charges, attorneys' fees, and other expenses of every nature and
character by reason of any such claims, actions and suites. BTC will not
bear any liability in any form for claims, actions or suits arising as a
result of the bad faith or gross negligence of AGT, its aeents, officers,
directors, employees, shareholders, successors and assigns,
<PAGE>
3.0 WARRAINNTIES AND COVENANTS OF AGT
3.1 AGT represents and warrants to BTC as follo%vs:
(i) AGT is a corporation duly organized, validly existing and in good
standing under the laws of Wyoming. AGT has the corporate power to enter
into and y carry out its obligations under this Agreemen'
(ii) This Agreement has been duly authorized by AGT and, when executed,
this Agreement will be a valid and binding obligation of AGT; and
(iii) Neither the execution and the delivery of this Agreement nor the
consummation of the transactions contemplated hereunder will violate or
constitute a default under any agreement or instrument to which AGT is a
p2rty or by which its right, title and interest in the Products may be
affected.
3.2 AGT warrants that the distribution and sale of Products, as provided
for in this Agreement, shall not violate or infringe any trademarks,
patents, trade secrets, copyrights, and/or licensing, marketing and
distribution agreements held by third parties and AGT agrees to defend,
indemnify and save harmless BTC, its agents, subdistributors, officers,
directors, employees, shareholders, successors and assigns, and each of
them, from and against any and all liabilities, judgments, losses, damages,
costs, charges, attorneys' fees, and other expenses of every nature and
character by reason of any such claims, actions and suits.
3.3 On the Effective Date, (i) AGT hereby assigns, transfers, conveys and
sets over to BTC, and BTC hereby accepts, all of AGT's right, title and
interest in and to any Products now owned by AGT and identified on Schedule
2 hereto (collectively, the "Inventory"), wherever such Inventory may be
located, "as is", "where-is", without representation or warranty of any
kind (INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE OF MERCHANTABILITY), and (ii) BTC hereby
assumes all risk of loss respecting all Inventory, wherever located. As
consideration for the inventory, BTC agrees to pay the Inventory Purchase
Price to AGT as defined in Section 6 below.
3.4 In the event that AGT knowingly violates the grant of exclusivity to
BTC by entering into any other sales or licensing agreement or in any way
causes Products which are the subject of this agreement to be sold or
leased in the United States Qthcr tha-n through BTC, then the Initial
Royalty
<PAGE>
Fee of $1,500,000 shall be immediately due and payable to BTC. This clause
shall not limit any other damages which may bc claimed by BTC.
4.0 DISTRIBUTION CENTERS
4.1 AGT hereby assigns and delegates, and BTC hereby acccpts, certain of
AGT's rights and obligations with respect to AGT's 20,000 square foot
warehouse and distribution center in Denver, Colorado and its facility in
Cleveland, Ohio; provided, in each case that such assigned and delegated
rights and oblivaions are limited to the followin-: assionment of leases,
rcnts, takina over the util;,ies accounts and operating costs, employee
salary base and other employee expenses. (Sce Exhibit 2 attached.)
4.2 The Parties atorce that BTC may close AGT's faci!~?,'e~ located in
Cleveland, Olhio;and o- Colorado at BTC's sole discretion and cost. BTC
will not assume liabiliLy for any outstanding debts for any of these
locations incurred prior to the Effective Date.
5.0 TRAINING
5.1 BTC and AGT hereby agree that training of any employees of BTC by AGT
will be at BTC's discretion. AGT will not be responsbile for any costs
incurred by BTC in connection with the training of BTC employees. BTC will
not be responsible for any amounts paid by AGT in connection with the
training of BTC employees.
6.0 CERTAIN PAYMENTS
6.1 The Parties hereto agree that BTC shall pay to AGT for all AGT
in'~entory not currently placed in existing Customer locations. BTC will
pay according to the prices stipulated in Schedule 2 of the Inventory"tD
AGT within 30 days of installation in BTC customers. Said inventory to be
warranted in good working order subject to quality assurance by BTC.
7.0 CONFIDENTIALITY; INTELLECTUAL PROPERTY
7.1 Confidential Information (as defined below) disclosed by a party to the
other party shall not be used, disclosed or copied by such other party
except as reasonably necessary in connection with the performances of any
obligations or the exercise of any rights hereunder, any such disclosure to
be made on terms and conditions reasonably necessary to ensure the
continued confidentiality of the disclosed Confidential Information. Each
party shall take reasonable care to prevent the unauthorized use,
dissemination or publication of the Confidential Information belonging to
the other party; provided, without limitation to the foregoing, no
Confidential Information shall be disclosed to any third party which has
not executed and delivered a confidentiality agreement pursuant to which
such third party agrees to maintain the confidentiality of Confidential
Information disclosed to such third party on substantially the same terms
and conditions as this Section 7. 1, such confidentiality agreement to be
for the benefit of, and a copy of such
<PAGE>
confidentiality agreement shall be immediately provided to, the party whose
Confidential Information is to be disclosed to such third party.
Confidential Information does not include information which; (i) is known
by the receiving party prior to disclosure hereunder (other than by reason
of disclosure by a third party that, in so disclosing such information,
breached an obligation of confidentialitv owinc, to the disclosing party),
as evidenced by the books and records oil the receiving party'existing at
the time of disclosure by the disclosing parvy~ (ii) is or becomes in the
public domain other than thiough a breach of this Aureement; or an% other
agreement or obligation between the parties hereto; (iii) is disclosed to
the receiving party by a third party (other than by reason of disclosure by
a third party that, in so disclosing such information, breached an
obligation of confidentiality owing to the disclosing, party) or (iv) is
independently developed by the receiving party, as evidenced 'ov the books
and records of the receiving party. Neither party shall be liable for
disclosure of any Confidential Information when such disclosure is required
by law provided that the disclosing party shall provide prompt notice to
the disclosing party, where possible prior to the disclosure and shall
cooperate with the disclosing party in an effort to minimize the scope of
the information to be disclosed. For the purposes hereof, "Confidential
Information" shall mean any information, in whatever form provided,
disclosed by a party to the other party that relates to such party's
finances, strategic planning forecasts, investments, data, or other
technology, as well as any other materials and information which, from the
circumstances in which they are made available to the other party ought, in
good faith, to be treated as confidential or proprietary (including,
without limitation, by designation by the disclosing party to the receiving
party that such disclosed information is confidential information).
Anything to the contrary appearing in this Agreement notwithstanding, (i)
this Agreement shall not be construed to amend or otherwise modify any
confidentiality agreement or confidentiality obligation existing between
the parties hereto on the Effective Date, and (ii) without limitation to
any other restriction on the use of Confidential Information, in no event
and at no time shall either party hereto use any Confidential Information
of the other party in a manner adverse to the interests of such other
party.
7.2 BTC acknowledges that AGT remains the sole owner of all licensed source
codes for the Products whether or not enhanced by BTC, its employees,
contractees. or agents, to AGT's patents, copyrights and trademarks;
provided, however, that, in the event, it experiences any material change
in ownership such that any or all or its assets and/or liabilities are
acquired at any time in the future.. it covenants to specifically exclude
any and all enhancements made to its source codes(s) from the assets and
liabilities transferred to such new owner(s). Without limitation to the
foregoing, BTC hereby acknowledges that BTC shall not acquire any ownership
or other interest in the Trademarks, the Copyrights or any patents owned by
AGT (the "Patents") by reason of the rights granted by AGT hereunder or any
action taken by or behalf of BTC in connection with BTC's perfor-mance
hereunder.
7.3 BTC acknowledges that AGT claims a copyright in any and all written
material and/or packaging
<PAGE>
to which AGT has filed a claim for copyright protection. Additionally, BTC
recognizes AGT's exclusive right to seek copyright protection for and/or
the restoration of copyright of any translation of any and all product
literature, promotional or descriptive material furnished by AGT to BTC for
which copyright protection is available under applicable law and of which
AGT is the author or the author's riahts in which have been assigned to
AGT.
7.4 AGT hereby authorizes BTC to use the Trademarks- in connection with the
marketiric oil the Products under this AgreerrienL. BTC aarees that, when
referrina to the Trademarks, Patents and Copyrights, 1, will comply wi:h
any and all applicable federal, state and local law and regulations
pertaining thereto. BTC further agrees Chat it will use its best efforts to
comply -,&iLh all applicable marketing requirements Tradcmarks, Copyrights
or Pa-ent3 OF WhiC~- ii r~-ceives writtcn notice pl-rtainir.:~ to th from
AG-7. BTC shall provide reasonable norice to AGT i~, tn,~ even' ii cannot
market the Products in compliance with the marketing requirements. BTC
further agrees that it shall not, by use of any apparent authority of BTC
hereunder which may reasonably be expected to create any defense of
estoppel, "unclean hands" or other defense, impair or take, or cause to be
taken, any action which may reasonably be expected to lend or impair, any
right, title or interest of AGT in or to any Copyri~ht, Patent or
Trademark.
7.5 BTC shall promptly notify AGT, in writing, of any and all
infringements, imitabons, illegal use or misuse of the Trademarks, Patents
and/or Copyrights which shall come to BTC's attention except for any use
and development licensed by BTC. BTC further agrees that it shall not, at
any time. take any action in and before any courts, administrative
agencies, or other such tribunals or otherwise attempt to prevent the
infringement, imitation, illegal use or misuse of the Trademarks, Patents
and/or Copyrights. BTC understands that such action falls wholly within the
authority of AGT as the sole owner of the Trademarks, Patents and
Copyrights.
8.0 TERM AND TERMINATION
8.1 This Agreement is effective and binding as of the Effective Date, and
its term shall extend for five years, unless terminated earlier pursuant to
Section 8.2. If either party wishes to continue this Agreement after the
end of the Term, it shall notif~,, the other Party in writing of this
desire not later than ninety (90) days prior to the end of the Term. Second
and subsequent terms will not be unreasonably withheld by AGT.
<PAGE>
8.2 This Agreement shall be terminable or shall terminate, as the case may
be, prior to the expiration of the Term hereof it and when any of the
following events occur,
(i) Either party materially breaches this Agreement and the non-breaching
party provides written notice of termination to the breaching party;
provided, however, that this Agreement will not terminate if the breach is
cured within the minimum period of time necessary to cure the breach
(assuming the breaching party uses its best efforts), but in no cvcnt in
more than thirty (30) days after the delivery of written notice by the
nonbreaching party.
(ii) AGT may terminate this Aareement if (1) with respoct to the Products,
BTC challenges the validity of the Trademarks, Copyrights or intellectual
propety rights or otherwise takes any action, the purpose or effect of
which is in any way to impair AGT's rights, title and in:er-~~ in any of
the trademarks, the Copyrights or the intellectual p.-opcrzy riuhts~ (ii)
with C C respect to the Products, BTC fails to comply with applicable
marketing requirements pertaining to Trademarks, Copyrigh* o.- in-cliccrual
propertV of which it receives written notice from AGT.
8.3 All ri2hts and licenses grantcd pursuant to this arz and shall
0'*~C7WISC bc deemed to be, fc, the purpose of Section 3651~n) c-7 -';-e
Uni!ed States Bankruptcy Code (the "Code"), license or rights to
"intellectual property" as define under Section 101(52) of the Code. AGT
agrees that if AGT, as a debtor in possession, or a trustee in bankruptcy
rejects this Agreement, BTC may elect to retain its rights under the
Agreement as provided under Section 365(n) of the Code. Upon written
request of BTC, AGT or a trustee in bankruptcy shall allow BTC to exercise
its rights hereunder and shall not interfere with such rights, provided
that BTC continues to make all payments as and when due hereunder.
9.0 OTHER PRODUCTS.
9.1 AGT acknowleges that BTC may in the future develop or acquire from
third parties additional products or technologies that may be similar to
the Products and the technology
<PAGE>
contained therein, Nothing in this Agreement shall be construed as a
repesentation or promise that BTC will not market or develop, or has
developed products or technologies that compete or are similar to the
Products. BTC shall not be restricted in any way from, without use of AGT's
intellectual property, independently developing or marketing any products
or intellectual property rights similar to the Products, and no rights to
any such independently developed products or intellectual property rights
are transferred pursuant hereto.
10.0 TIME; DEFAULT INTEREST.
10.1 Time is of the essence. Any amount payable hereunder which is not paid
when due, shall bear interest (payable on demand), from the time such
amount shall be due and payable until it is paid in full, at the rate equal
to the lesser of (i) the maximum amount permitted by applicable law
(including usury law) and (ii)one per cent (1%) per calendar month.
11.0 ENTIRE AGREEMENT
11.1 This Agreement contains the entire understanding between the parties
vvith respect to the subject matter hereof and supersedes all prior and
contemporaneous written or oral negotiations and agreements between them
regarding the subject matter hereof. This Agreement may only be amended in
writing signed by each of the parties.
12.0 NOTICE
12.1 All notices given pursuant to this Agreement must be in writing at the
address set forth below and shall be deemed to have been duly given hen
personally delivered, or whan mailed by certified mail, return receipt
requested, postage prepaid, to the addr.-sses of the parties hereto as
follows. Any party hcretc may. by 1110*1~-e so ziven, change its address
for any future notices:
lf to AGT:
P.O. Box 11610
Suite 2480 - 650 West Georgia St
Vancouver, BC, Canada V613 4N9
Attention: Chairman, CEO
with a copy to: President, COO
If to BTC:
P.O. Box 3256
295 Highway 50, Suite 20
Stateline, Nevada 89449
13.0 SEVERABILITY
<PAGE>
13.1 If any provision of this Agreement is deten-nined to be invalid or
unenforceable, the provisions shall be deemed to be severable from the
rearninder of this Agreement and shall not cause the invalidity or
unenforeability of the remainder of this Agreement.
14.0 ASSIGNABILITY
14.1 Neither party may transfer or assign this Agreement or any part
thereof to any person other than a wholly-owned subsidiary of the assignor
without the other party's prior written approval. This Agreement shall be
binding upon and shall inure to the benefit of BTC and its permitted
assignees.
15.0 ARBITRATION AND JURISDICTION
15.1 Pursuant to the Federal Arbitration Act, any controversy or claim
arising out of or relating to this Agreement (including, without
limitation, determination of the Inventory Purchase Price) shall be settled
as quickly as practicable by arbitration conducted in the State of Nevada
in accordance with the rules and regulations of the American Arbitration
Association and judgment upon any award rendered in such arbitration may be
entered in any court having jurisdiction thereof. Either party requesting
arbitration under this Agreement shall ma-ke a demand therefor or, the
other party b% registered mail. This Agreement shall be governed by the
laws of the State of Nevada
16.0 COUNTERPARTS
16.1 This Agreement may be exectuted in several counterparts, each of which
will be deemed to be an original and all of which will together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date and day first above written.
ADVANCED GAMING BINGO TECHNOLOGIES
TECHNOLOGY, INC. CORPORATION
By: By:
Date: Date
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 470
<ALLOWANCES> 236
<INVENTORY> 0
<CURRENT-ASSETS> 758
<PP&E> 3527
<DEPRECIATION> 1408
<TOTAL-ASSETS> 7860
<CURRENT-LIABILITIES> 10889
<BONDS> 0
0
0
<COMMON> 492
<OTHER-SE> (5246)
<TOTAL-LIABILITY-AND-EQUITY> 7860
<SALES> 1338
<TOTAL-REVENUES> 1338
<CGS> 623
<TOTAL-COSTS> 623
<OTHER-EXPENSES> 6055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2832
<INCOME-PRETAX> (9576)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9576)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
