[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
---------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-21991
ADVANCED GAMING TECHNOLOGY, INC.
(Exact name of small business issuer as
specified in its charter)
Wyoming 98-0152226
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2482 - 650 West Georgia Street,
P.O. Box 11610,
Vancouver, British Columbia V6B 4N9
(Address of principal executive offices)
(604) 689-8841
Issuer's telephone number
(Former name, former address and former fiscal year, if changed since last
report.)
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 requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: April 30, 1998 127,060,050
Transitional Small Business Disclosure Format (check one).
Yes ; No x
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements presented herein
have been prepared by the Company in accordance with the instructions to Form
10-QSB and do not include all of the information and note disclosures required
by generally accepted accounting principles. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-KSB for
the year ended December 31, 1997. The accompanying financial statements have not
been examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management such financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's financial position and results of
operations. The results of operations for the three months ended March 31, 1998
may not be indicative of the results that may be expected for the year ending
December 31, 1998.
2
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Advanced Gaming Technology, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 December 31
------------ ------------
1998 1997
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents ...................... $ 56,458 $ 17,276
Accounts receivable, net ....................... 303,111 234,187
Prepaid expenses ............................... 27,706 84,640
Deferred charges ............................... 56,346 248,564
Inventory ...................................... 109,606 163,156
Notes receivable ............................... 9,069 9,878
------------ ------------
Total current assets ........................ 562,296 757,701
------------ ------------
Property and Equipment ........................... 1,939,797 3,527,407
Less: accumulated depreciation ................. (377,815) 1,407,590
------------ ------------
1,561,982 2,119,817
------------ ------------
Intangible and other assets ...................... 4,919,960 4,982,272
------------
------------ ------------
Total assets ................................ $ 7,044,238 $ 7,859,790
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities ....... $ 3,387,705 $ 4,310,325
Notes payable .................................. 175,000 800,000
Convertible notes .............................. 2,377,500 3,477,500
Deferred revenue ............................... 390,000 390,000
Current portion of long-term debt .............. 757,451 1,911,256
------------ ------------
Total current liabilities ................... 7,087,656 10,889,081
Long term obligations, net of current portion .... 3,150,620 1,724,302
------------ ------------
Total liabilities ........................... 10,238,276 12,613,383
------------ ------------
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
120,559,944 in 1998 and 98,439,431 in 1997 .... 602,800 492,197
Additional paid-in capital ..................... 29,246,552 27,703,310
Accumulated deficit ............................ (33,043,390) (32,949,100)
------------ ------------
Total stockholders' deficit ................. (3,194,038) (4,753,593)
------------ ------------
Total Liabilities and Stockholders' Deficit . $ 7,044,238 $ 7,859,790
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Advanced Gaming Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31
--------------------------------
1998 1997
------------- ------------
Revenues ................................ $ 184,790 $ 510,366
Cost of revenues ........................ 92,280 106,734
------------- ------------
Gross margin ............................ 92,510 403,632
------------- ------------
Expenses
Research and development ............... 202,361 214,241
General and administrative ............. 857,757 624,800
------------- ------------
1,060,118 839,041
------------- ------------
Loss from operations .................... 967,608 435,409
Other income (expense), net ............. 873,318 (298,301)
------------- ------------
Net Loss ................................ $ (94,290) $ (733,710)
============= ============
Net loss per common share ............... $ -- $ (0.02)
============= ============
Weighted average common shares outstanding 109,468,320 45,245,508
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Advanced Gaming Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31
-------------------------
1998 1997
----------- -----------
Cash Flows From Operating Activities:
Net Loss ........................................... $ (94,290) $ (733,710)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization ................. 316,434 191,515
Deferred revenues ............................. -- (310,000)
Issuance of common stock for expenses ......... 93,500 366,808
Change in operating assets and liabilities:
Accounts receivable ......................... (68,924) (85,787)
Prepaid expenses ............................ 56,934 (734,008)
Deferred charges ............................ 192,218 --
Inventory ................................... 53,550 (26,316)
Notes receivable ............................ 809 (69,790)
Accounts payable and accrued liabilities .... (922,620) (847,014)
----------- -----------
Net cash used in operating activities .............. (372,389) (2,248,302)
----------- -----------
Cash Flows From Investing Activities:
Intangible assets .................................. -- (2,002)
Purchase of property and equipment ................. -- (17,597)
Disposal of property and equipment ................. 298,144 --
Security deposits .................................. (2,181) --
Deferred development costs ......................... 7,750 (1,476)
----------- -----------
Net cash provided by (used in) investing activities. 303,713 (21,075)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock ............. 1,560,345 674,308
Proceeds from debt and notes ....................... -- 2,702,590
Repayment of debt and notes ........................ (625,000) (665,368)
Payment of convertible notes ....................... (1,250,000) --
Proceeds from convertible notes .................... 150,000 --
Principal payments on long-term debt ............... (33,599) --
Proceeds from long-term debt ....................... 306,112 --
Bank loan .......................................... -- (354,100)
----------- -----------
Net cash provided by financing activities .......... 107,858 2,357,430
----------- -----------
Net increase in cash and cash equivalents .......... 39,182 88,053
Cash and cash equivalents at beginning of period ... 17,276 76,615
----------- -----------
Cash and cash equivalents at end of period ......... $ 56,458 $ 164,668
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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Advanced Gaming Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
-----------------------
1998 1997
---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest ........ $ 122,377 $ 125,670
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Conversion of notes to common stock ............. $1,577,124 $1,645,903
Issuance of common stock for debt reduction ..... $ 310,696 $ --
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Advanced Gaming Technology, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1. Interim Reporting
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with Form 10-QSB requirements. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three month period endeing March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 1997.
The Company's shares of capital stock are registered under Section 12 of the
Securities Exchange Act of 1934. The Company became a reporting issuer in March
1997. This quarterly report on Form 10-QSB and the information incorporated by
reference herein contain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include, but are
nor limited to, projected sales, gross margin and net income figures, the
availability of capital resources, plans concerning products and market
acceptance.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which may not even
be anticipated. Future events and actual results, financial and otherwise, could
differ materially from those set forth in or contemplated by the forward-looking
statements herein and any forward-looking statements should be considered
accordingly.
The highlight of the first quarter of 1998 was the continued execution of the
restructuring plan announced by the Company in December 1997. The key elements
achieved to date are as follows:
o Completion of the following agreements with a major competitor - Bingo
Technologies Corporation ("BTC"):
a) Financing, Royalty, and Licensing Agreement, granting BTC the
exclusive right to market, manufacture and distribute the Company's
MAXPLUS and TurboMAX products for a five year term in the U.S. market
only. The benefits to Advanced Gaming include:
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o A one time license fee of $1,500,000, which has been
recognized in the Statement of Operations for the three
months ended March 31, 1998;
o A 15% royalty on gross revenues generated by BTC, with a
minimum in each year of $350,000;
o A substantial overhead reduction (approximately 40%) by
assignment of the Denver distribution facility, and the
Cleveland marketing office to BTC.
b) Purchase Agreement, recognizing the assignment of certain
customer accounts leasing the MAXPLUS and TurboMAX products, as
well as related equipment and inventory. The proceeds credited to
the Company were approximately $375,000.
o Appointment of a new Chairman, and Chief Executive Officer, and Board
of Directors Mr. Tom Nieman was appointed Chairman, Chief Executive
Officer, and will act as President. As well as Mr. Nieman, Mr. Robert
Hunziker, and Mr. Neil Jenkins were appointed Directors. Subsequent to
the end of the quarter, Mr. Jenkins resigned from the Board due to
personal reasons and because of other business interests which
constrain his available time. The Company expects to appoint a third
board member as a part of its current negotiations with a private
investment banking organization.
During the second quarter the Company expects to complete the restructure by
relocating it's executive and administrative office to Las Vegas, Nevada, and to
further reduce operating expenses. The company will focus on generating
revenues. In order of priority these revenue sources are as follows:
o MAXLITE hand-held units in the United States by way of licensing or
distribution agreements. In March 1998, the Company completed an
exclusive distribution agreement with K & B Sales for the state of
Texas, which is a dominant market for bingo in the U.S.;
o Continued development of Parti MAX, a bi-directional hand-held unit
designed for the United Kingdom market;
o Continued development of Sonic Bingo, a fast paced multi-site
progressive bingo game, with it's joint venture partner SEGA Gaming
Technology, Inc.;
o Marketing and licensing of the Max Bingo Systems in the newly emerging
Canadian market.
Results of Operations -
1998 Compared to 1997
The loss for the three months ended March 31, 1998 of $94,290 is substantially
lower than that for the same period in 1997, and is the lowest quarterly loss
since 1994. This is due to the one time license fee received from Bingo
Technologies Corporation ("BTC") of $1,500,000 for the exclusive right to market
the MAXPLUS and TurboMAX products in the United States for a five year period.
This agreement was effective February 9, 1998 and accounts for the lower lease
revenues; even after removing income from joint venture projects in 1997 of
$310,000. However, royalties of 15% will accrue to the Company on all
installations by BTC of MAXPLUS and TurboMAX, with a minimum of $350,000 per
year.
8
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Although general and administrative expenses increased over March 31, 1997,
these expenses were significantly lower than those for the second, third and
fourth quarters of 1997 ($1.7m, $1.4m, and $1.9m, respectively). The full
effects of the Company's restructuring will not be recognized until the second
and third quarters of this year.
Financing costs and interest are substantially higher than in 1997 due to
increased deferred finance amortization related to convertible notes ($192,000
vs. $53,000). These deferred charges will be fully amortized in the second
quarter.
The Company also recorded a writedown on the sale of equipment pursuant to the
agreement with Bingo Technologies Corporation of approximately $174,000.
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 minimal revenues, which are not sufficient to support
operating expenses. With both the reduction of operating expenses and the focus
on generating additional revenues, the Company expects a positive cash flow
during the fourth quarter of 1998. Until then the Company requires external
funding by way of debt and/or equity issuances. This is essential both for the
survival of the Company, and to allow the timely execution of its business plan.
Currently the Company is negotiating with several parties in this regard,
but no formal commitments exist. There can be no assurance that such financing
will be available at all, or at terms acceptable to the Company.
During the first quarter of 1998 the Company reduced it's total liabilities
by $2.4m. This was done by the utilization of funds received pursuant to the
Financing, Royalty, and Licensing Agreement with Bingo Technologies Corporation,
and through conversion of certain debt to equity.
9
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
Effective May 7, 1998, Mr. Neil Jenkins resigned from the Board due to
personal reasons and because of other business interests which constrain his
available time. The Company expects to appoint a third board member as a part of
its current negotiations with a private investment banking organization.
Item 6. Exhibits and Reports on Form 8-K
Sales of unregistered securities during the past three months were reported
on Form 8-K filings on January 14, 1998 and March 3, 1998 and are incorporated
by reference.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED GAMING TECHNOLOGY, INC.
(Registrant)
DATE: May 20, 1998 By: /s/ Thomas S. Nieman
----------------------- -----------------------------
Thomas S. Nieman
President, Chief Operating
Officer and Chairman
DATE: May 20, 1998 By: /s/ Donald Robert MacKay
----------------------- ------------------------------
Donald Robert MacKay
Principal Financial and
Accounting Officer
11
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