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, 1998
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.)
P O Box 46855, Las Vegas, Nevada 89114
(Address of principal executive offices)(Zip code)
Issuer's telephone number (702) 227-6668
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: 29
Exhibit Index Page: 27
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: $ 537,827
As of June 28, 1999, there were 115,330,600 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 $1,729,959 computed at the average bid and asked price as of
June 28, 1999.
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS
Check whether the issuer 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 X No
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...............................................14
Item 3 Legal Proceedings.....................................................14
Item 4 Submission of Matters to a Vote of Security Holders...................16
PART II
Item 5 Market for Common Equity and Related Stockholder Matters..............17
Item 6 Management's Discussion and Analysis or Plan of Operations ...........18
Item 7 Financial Statements..................................................20
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................20
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.....................21
Item 10 Executive Compensation...............................................22
Item 11 Security Ownership of Certain Beneficial Owners and Management.......25
Item 12 Certain Relationships and Related Transactions.......................25
Item 13 Exhibits and Reports on form 8-K ....................................27
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PART I
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ITEM I DESCRIPTION OF BUSINESS
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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. In addition, the
Company owns 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.
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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 subsequently to Advanced Gaming
Technology, Inc. The company is currently attempting to sell the 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. Prisms has invented several
games under the patents and Prisms Bahamas has trademarks in place for such
games. The company has not begun development of any of these games.
The principal office of the Company is located at 3400 West Desert Inn
Road, Las Vegas, Nevada. The Company moved the executive office from Vancouver,
British Colombia during 1998. The company also closed an office in Branson,
Missouri, where its real estate holdings are located.
On August 26, 1998 Advanced Gaming Technology, Inc and Branson Signature
Resorts filed for reorganization in Las Vegas under chapter 11 of The U. S.
bankruptcy code. The cases are being jointly administered. The company continues
to operate as "debtor in possession" while the reorganization effort continues.
The company filed a plan of reorganization with the bankruptcy court in
December, 1998. The company's plan disclosure statement was approved by the
court on March 22, 1998. The plan was confirmed by the bankruptcy court on June
29, 1999. The plan becomes effective on early August, 1999.
RECENT DEVELOPMENTS. The company filed for reorganization under chapter 11
of the U S bankruptcy code in Las Vegas on August 26, 1998. The company filed a
plan of reorganization with the court in December 1998. There were several
objections to the plan and disclosure statement that were addressed by the
company during the first quarter of 1999. The company's plan and disclosure
statement was approved by the court on March 22, 1999. The company's
reorganization plan was confirmed by the bankruptcy court on June 29, 1999. The
plan becomes effective on early August, 1999.
Pursuant to the plan, obligations to secured creditors were re-negotiated.
The new amount of secured debt on the effective date is $2,634,000. All
remaining liabilities of the company have been fully satisfied through issuance
of new common stock. Other secured creditors received 3 shares of new common
stock for each $1 of allowed secured claim. Unsecured creditors received 1.88
shares of new common stock for each $1 of allowed claim.
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The company will issue 25 million shares of new common stock in conjunction
with the plan. The existing common stock will be cancelled. Existing
shareholders of the company on the effective date will receive 1 share of new
common stock for each 66 shares of common stock currently owned. Approximately
18 million shares will be issued to creditors, existing shareholders and new
investors. A reserve of approximately 7 million shares will be maintained for
additional allowed claims.
OPERATING LOSSES. The Company incurred net losses of $3,628,887, $9,575,512
and $5,629,961 for the fiscal years ended December 31, 1998, 1997 and 1996,
respectively. Such operating losses reflect developmental and other start-up
activities. Substantial cost reductions were made in conjunction with the plan
of reorganization. However, the company has generated minimal revenue from
product distribution. 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. 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 raised $1,000,000 in conjunction
with the reorganization effort through new investment and settlement of
outstanding litigation. Should the Company require 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 that govern the lease and use of
gaming products vary widely and change frequently 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."
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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 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.
TRADEMARK AND PATENT PROTECTION. The Company relies on a combination of
patent, copyright and trademark law 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 that may not infringe such patents. See
"Business - Patents and Trademarks."
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PRODUCTS
MAX BINGO SYSTEMS
The Company's MAX Bingo Systems products currently include three different
products:
[i] MAXPLUS. The MAXPLUS Bingo System was the first proprietary electronic
bingo system developed by the Company. 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. In
addition, the System tracks necessary financial and analytical information by
providing a fully integrated accounting package.
[ii] MAXLITE. The MAXLITE Bingo system is a portable, hand-held electronic
bingo unit that allows users to play up to 300 bingo cards per game. The unit
offers many of the advantages of the MAXPLUS system in a lightweight wireless
package. Approximately 100 MAXLITE units are currently in use in the United
States.
[iii] TurboMAX. TurboMAX is a pari-mutuel electronic bingo system that has
five progressive jackpots with five different patterns for each game. A
percentage of player purchases can be allocated toward a jackpot, which allows a
jackpot to be offered on every game. This high-speed bingo game can be played
every 45 to 60 seconds.
In February, 1998 the Company executed a Financing, Licensing, and Royalty
agreement with a major competitor, Bingo Technologies Corporation ("BTC"). This
agreement granted BTC the exclusive right to sell, market, manufacture, and
distribute the MAXPLUS and TurboMAX products in the United States for a period
of five years. This agreement produced a one-time licensing fee of $1,500,000,
and was to generate royalties of 15% based on the gross revenues generated by
BTC from marketing these products. The royalty amount was in dispute at December
31, 1998. In January of 1999 BTC was acquired by Gametech International, another
competitor. Gametech continued to dispute the amount of royalty payments. AGT
filed suit regarding the issue in June 1999. In July of 1999 the parties
resolved the dispute. In settlement, Gametech made a one time payment of
$850,000 to AGT. Gametech was allowed to retain and operate existing MAXPLUS and
Turbo MAX locations. AGT re-acquired the rights to these products for the
future. In clarification of an existing patent license between the parties,
Gametech was granted an non-exclusive license to the AGT patents.
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OTHER PRODUCTS
The company has expended considerable resources to develop two additional
products known as Sonic Bingo and PartiMAX. These products have not been
completed. The company is currently evaluating the cost involved to complete
development. These projects will not proceed until a market analysis is
performed to determine the potential return on investment. The company may
decide to abandon these efforts if the market potential is not sufficient.
Sonic Bingo is a high-stakes electronic speed bingo unit that uses the
Company's TurboMAX software, and is capable of playing multiple cards
simultaneously in sixty (60) second intervals. This system is capable of being
networked throughout gaming halls as well as on a wide area basis, (subject to
regulatory approvals). The Company sold an 18.75% interest in this project to a
third party for $750,000; $390,000 of which had been received up through
December 31, 1997. The executory contract with the third party was rejected in
the bankruptcy proceeding. AGT believes it has no further relationship with this
party. Development of Sonic Bingo has not been completed. The company is
currently evaluating the merits of this project.
Parti MAX is a hand held unit designed for use in the United Kingdom. The
unit, although similar in concept to the MAXLITE requires significant
development cost to design and produce. The United Kingdom was identified as new
market for a portable unit since no portable electronic bingo systems are in
use. The bingo market there is substantial.
The Company entered into a marketing and sales agreement with the leading
supplier of bingo paper and related products in the United Kingdom. This party
has not participated in the development cost of the project. This agreement was
rejected as an executory contract in the bankruptcy proceeding. AGT has no
current relationship with this supplier.
Development of PartiMAX has not been completed. It is unlikely that the
company will continue development.
SALES AND MARKETING
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.
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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.
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, and other organizations across
the United States and Canada. Many of these bingo operations are too small to
consider for permanent electronic installations.
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. These charity bingo operations are
candidates for electronic bingo systems.
REAL ESTATE HOLDING
On June 22, 1995, the Company acquired all of the capital stock of Branson
Signature Resorts (Branson) and its wholly-owned subsidiaries in exchange for
5,999,820 shares of the Company's Common Stock.
Branson was a resort and land development company located in Branson,
Missouri. Branson 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.
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The Company is currently attempting to sell the 178 acres of undeveloped
property. The property is burdened with a first trust deed of $1.6 million
including accrued interest and a second mortgage of $884,000. Management
believes that the proceeds from sale of the property may not be sufficient to
pay the secured debt in full.
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, 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
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."
GOVERNMENT REGULATION
In the United States, bingo is legal 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 that 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 application for licensing to the Province of British Columbia, Canada.
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The state and local laws in the United States that 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 will
continue to pursue a meaningful share of the electronic bingo 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.
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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.
RESEARCH AND MARKET DEVELOPMENT
During the fiscal years ended December 31, 1998 and 1997, research and
market development expenses of the Company totaled approximately $279,059 and
$1,230,426 respectively. During 1998 and 1997 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 PartiMAX and Sonic
Bingo.
EMPLOYEES
As of March 31, 1999, the Company had 1 employee. This employee was not
represented by a labor union.
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ITEM 2. DESCRIPTION OF PROPERTY
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The Company's principal executive offices are located in Las Vegas, Nevada.
The offices were relocated from Vancouver, British Columbia during 1998. The
company also closed a small office previously located in Branson, Missouri.
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.
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 sell the 178 acres of
undeveloped property.
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 $60,812 bearing interest at ten percent (10%) per annum
and due on demand; and (iii) a convertible debenture in the principal amount
of$,884,000 bearing interest at seven percent annually. This note is due in
seven years from the date of confirmation of a plan of reorganization.
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ITEM 3. LEGAL PROCEEDINGS
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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:
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.
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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 filed suit in Dallas, Texas concerning the stock
collateral. A summary judgement was awarded to Tierra Corp in June of 1999. The
River Oaks resort subsidiary has no assets at this time. This wholly owned
subsidiary of Branson Signature Resorts is subject to dissolution in conjunction
with the effective date of the bankruptcy plan.
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 July4,
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.
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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
justadjudication. 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 has not yet commenced.
The Company entered into a Lease License Agreement, dated December 7,
1995with 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 incurred while in the employ of the Company. The Company has
entered a defense and denies any liability.
The Company is defending these lawsuits. However, no assurance can be given
as to the outcome of these cases. Management and counsel believe the ultimate
liability will not have a material adverse effect on the company's 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, 1998.
-16-
<PAGE>
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
1997
First Quarter .45 1.04
Second Quarter .31 .83
Third Quarter .18 .46
Fourth Quarter .04 .20
1998
First Quarter .02 .08
Second Quarter .02 .08
Third Quarter .01 .03
Fourth Quarter .01 .02
DIVIDENDS. The Company has never declared or paid dividends. 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
June 28, 1999 was 408.
RECENT SALES OF UNREGISTERED SECURITIES. Sales of unregistered securities
during the past year were filed pursuant to 8-K on the following dates: January
14, 1998; March 3, 1998.
-17-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The company experienced operating losses of $3,628,887 in 1998 and
$9,575,512 in 1997. During 1998 liabilities of the company significantly
exceeded assets. The company was in default on debt obligations and was unable
to meet the cash flow needs in the ordinary course of business. The company
believes it had exhausted additional financing sources. Management determined
that the best course of action was to seek reorganization under chapter 11 of
the U. S. bankruptcy code. A petition for reorganization was filed with the
bankruptcy court in the District of Las Vegas on August 26, 1998. The company
filed a plan of reorganization in December 1998. The plan and disclosure
statement was approved in March 0f 1999. The bankruptcy plan was confirmed by
the court on June 29, 1999. The plan becomes effective on early August, 1999.
RESULTS OF OPERATIONS
The company was able to reduce losses during 1998 to $3.6 million compared
to a loss of $9.5 million in 1997. The reduced operating loss was primarily due
to a substantial cost reduction program implemented in conjunction with the
reorganization effort. The company has reduced costs to minimum levels until
additional revenue can be generated through new marketing efforts.
Revenue production during 1998 was generated primarily from lease of Max
Lite handheld electronic bingo units. The company did not realize royalty
revenue expected from licensing of the Max Plus fixed based electronic units due
to a dispute with the licensee. This dispute was resolved in July 1999. The
company settled the dispute for a one-time payment of $850,000 from the
licensee. The company retains the rights to the Max Plus product and is able to
market the product without restrictions.
Revenue subsequent to December 31, 1998 was minimal due to the lack of
product placements. The company is currently seeking placement for Max Lite and
Max Plus units. The company is also exploring new revenue sources to ultimately
diversify revenue to decrease reliance on the electronic bingo markets.
Future success of the company depends on its ability to place existing
electronic bingo products and its ability to identify and achieve new sources of
revenue.
-18-
<PAGE>
INFLATION AND REGULATION
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.
LIQIUDITY AND CAPITAL RESOURCES
The company exhausted financing sources during 1998. The resulting
shortfall in operating capital required the company to seek reorganization under
chapter 11 of the U. S. Bankruptcy Code. The company's bankruptcy plan was
confirmed by the court in June 1999. The plan becomes effective on early August,
1999.
The liabilities of the company were substantially reduced by the terms of
the plan of reorganization. The company will have $2.6 million in debt secured
by the Branson real estate. All other debt, secured and unsecured, was satisfied
in full through issuance of new common stock. The company raised $1 million
through new investment and settlement of outstanding litigation.
The company may require additional capital to fund future projects. There
is no assurance that such capital will be available when needed. The potential
lack of access to capital could inhibit the growth of the company. This could
cause the company to delay pursuit of projects that may be identified as
substantial returns on investment.
-19-
<PAGE>
- --------------------------------------------------------------------------------
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.
-20-
<PAGE>
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, was President, Chief Operating Officer 1995
and Director of the company from September 1995 until his
resignation in February 1998. 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.
Robert C. Silzer, Sr., 51, was Chairman, Chief Executive Officer 1993
and Director of the Company from November 1993 until his
resignation in February 1998. He also served 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.
Robert L. Hunziker, 53, was appointed as a Director of the 1998
Company 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.
Thomas S. Nieman, 49, was appointed Chief Executive Officer of 1998
the Company on February 15, 1998 and served in that capacity
until his resignation in August 1998. Mr. Nieman served as Vice
President of Sales & Marketing for Shuffle Master, Inc., a public
company supplying the casino gaming industry from1995 to 1997,
and was Vice President of Marketing for Bally Gaming Inc., a major
supplier of gaming equipment from 1992 to 1995.
Daniel H. Scott, 43, is currently Chairman, President and Chief 1998
Executive Officer of the company.
-21-
<PAGE>
Prior to joining the company Mr. Scott was Senior Vice President
and Chief Financial for MGM Grand Hotel Corp. of Las Vegas, Nevada,
a casino operator, from September 1995 until August 1998. Prior
to that Mr. Scott was Vice President and Treasurer during a
twelve-year employment with Caesars Palace, a casino operator,
in Las Vegas, Nevada.
Other executive officers:
Robert C. Silzer, Jr., 32, was Executive Vice President of the company until his
termination in August 1998. Silzer, Jr. was a director of the Company from March
31, 1997 until December 17, 1997.
Donald Robert MacKay, 45, was the Chief Financial Officer of the Company from
August 1995 until his resignation in August 1998.
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:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other All
Name and Principal Fiscal Annual Other
Position Year Salary Bonus Compensation Compensation (1)
- ----------------------- ----- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
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) 1998 - - - -
-22-
<PAGE>
Firoz Lakhani 1996 $125,000 (5) - $ 10,000 $ 16,692
President and 1997 $175,000 (6) - $ 10,000 $ 13,004 (7)
Chief Operating Officer 1998 - - - -
Thomas Nieman 1998 $ 52,500 - - $ 750
</TABLE>
(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 Thomas Nieman $750 for 1998 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.
Effective February 15, 1998, Mr. Silzer, Sr. and Mr. Lakhani resigned as Chief
Executive Officer and Chief Operating Officer, respectively.
No bonuses were paid in 1998 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
During 1998 2,850,000 options were granted to Thomas Nieman. Upon the
resignation of Mr. Nieman during August 1998, the 2,850,000 were cancelled.
-23-
<PAGE>
Aggregate Option Exercises in Last Year, and Year-End Option Values
No options were exercised during 1998.
Employment Agreements
Effective January 1, 1994, the Company entered into an employment agreement
with Robert C. Silzer, Sr., under which Mr. Silzer, Sr. served as Chairman and
Chief Executive Officer of the Company. Pursuant to the Agreement, Mr.
Silzer,Sr,. was paid a salary of $75,000 in 1994, $125,000 in 1995 and $137,500
in1996. He deferred $37,500 of his salary for the year 1996. He was paid a
salary of $225,000 in 1997 and deferred $29,375 to 1998. The employment
agreement was terminated in February 1998 in conjunction with Mr. Silzer's
resignation as chief executive officer. Mr. Silzer is pursuing a claim against
the bankruptcy for unpaid wages under the contract.
Effective September 5, 1995, the Company entered into an employment
agreement with Firoz Lakhani, under which Mr. Lakhani served as President and
Chief Operating Officer of the Company. Pursuant to the 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.
The employment agreement was terminated in February 1998 in conjunction with Mr.
Lakhani's resignation as President and chief operating officer. Mr. Lakhani is
pursuing a claim against the bankruptcy for unpaid wages under the contract.
On 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. served
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. The company terminated this agreement on July 31, 1998. Mr. Silzer is
pursuing a claim against the bankruptcy for unpaid wages under the contract.
On March 6, 1998, the Company entered into an employment agreement with
Thomas N. Nieman, under which Mr. Nieman was to serve as President and Chief
Executive Officer. This agreement was terminated upon Mr. Nieman's resignation
from the company in August 1998.
-24-
<PAGE>
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth information as of March 31, 1999 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 L. Hunziker 1,730,734 1.5% (1)
2482-650 West Georgia Street
PO Box 11610
Vancouver, British Columbia
All officers and directors 1,730,734 1.5% (2)
as a group (5 persons)
(1) Includes stock options that are exercisable by Mr. Hunziker to acquire
750,000 shares of Common Stock and also includes 897,720 shares held by
indirect ownership.
(2) All outstanding options were cancelled in conjunction with the bankruptcy
plan which becomes effective early August, 1999.
- --------------------------------------------------------------------------------
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
and1997, totaling $599,325, which allowed the exercise of options
totaling1,770,000 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.
-25-
<PAGE>
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 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
wasfully paid by Mr. Silzer as of December 31, 1997.
During the fiscal year ended December 31, 1998, the Board of Directors held
approximately 10 meetings. The Company does not have a standing audit committee,
nominating committee or compensation committee.
-26-
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, and 1997 F - 2
Consolidated Statements of Operations for the years ended
December 31, 1998, and 1997 F - 4
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1998 F - 5
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1997 F - 6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, and 1997 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.
-27-
<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.
6.20 (1) 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: 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.
-28-
<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: July 28, 1999 By /s/ Daniel H. Scott
------------- -------------------------------------
President and Chief Executive 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 28th day of July, 1999.
Signatures Title
/s/ Daniel H. Scott, Chairman and Director
(Principal Executive and Accounting
Officer)
/s/ Robert L. Hunziker Director
-29-
<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, 1998 and 1997, 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, 1998 and 1997 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 $3,628,887 for 1998 and has incurred
substantial net losses in recent years. At December 31, 1998, current
liabilities exceed current assets by $7,603,775 and total liabilities exceed
total assets by $3,956,431. These factors, and the others discussed in note 13,
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
July 20, 1999
F-1
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1998 1997
---------- ---------
Current Assets
Cash and cash equivalents (note 2(h)) ............. $109,824 $ 17,276
Accounts receivable, net .......................... 7,825 244,065
Inventory (note 2 (c)) ............................ 20,000 163,156
Deferred charges .................................. -- 248,564
Prepaid expenses .................................. 5,285 84,640
---------- ---------
Total current assets ................................ 142,934 757,701
Property and Equipment, net (note 2(d)) ............. 204,740 2,119,817
Other Assets (note 3) ............................... 3,442,604 4,982,272
---------- ---------
Total assets ........................................ $3,790,278 $7,859,790
========== ==========
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT
1998 1997
---------- ---------
Current Liabilities
Liabilities Subject to Compromise
Accounts payable ................................... 1,736,734 1,463,624
Accrued liabilities ................................ 1,029,854 813,717
Other .............................................. -- 2,032,984
Notes payable (note 4) ............................. 313,000 800,000
Convertible notes (note 5) ......................... 748,750 3,477,500
Deferred revenue (note 2(k)) ....................... -- 390,000
Current maturities of long-term debt (note 6)....... 3,918,371 1,911,256
---------- ---------
Total current liabilities .......................... 7,746,709 10,889,081
Long-Term Debt (note 9) ............................. -- 1,724,302
---------- ---------
Total Liabilities Subject to Compromise ............ 7,746,709 12,613,383
Commitments and Contingencies (notes 11, 12, 13 and 14)
Stockholders' Deficit
Preferred stock - 10% cumulative $.10 par value;
authorized 4,000,000 shares; issued - nil .......... -- --
Common stock - $.005 par value; authorized 150 million
shares; issued and outstanding 115,330,600 in 1998 and
24,609,858 in 1997.................................. 576,653 123,049
Additional paid-in capital ......................... 32,044,903 28,072,458
Accumulated deficit ................................ (36,577,987) (32,949,100)
---------- ---------
Net stockholders' deficit .......................... (3,956,431) (4,753,593)
---------- ---------
Total liabilities and stockholders' deficit ......... $3,790,278 $7,859,790
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Advanced Gaming Technology, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1998 1997
---------- ---------
Revenue ............................................. $ 537,827 $ 1,338,121
Cost of revenue ..................................... 197,980 623,272
---------- ---------
Gross margin ........................................ 339,847 714,849
---------- ---------
Expenses
Research and development ............................ 279,059 1,230,426
General and administration ......................... 1,722,006 4,824,253
---------- ---------
2,001,065 6,054,679
---------- ---------
Operating loss ..................................... (1,661,218) (5,339,830)
Other (expense) income
Foreign exchange adjustments (note 2 (g)) .......... (2,338) 1,992
Financing costs and interest ....................... (1,034,243) (2,831,981)
Asia project abandonment costs ..................... (9,986) (564,062)
Restructuring charge ............................... (200,000) (841,631)
Write-down of Land held for investment ............. (1,137,432) --
Loss on disposal of assets .......................... (1,083,670) --
Licensing income .................................... 1,500,000 --
---------- ---------
Net Loss ............................................ (3,628,887) $(9,575,512)
========== ===========
Net loss per common share (note 2(i)) ............... $ (0.05) $ (0.59)
========== ============
Weighted average common shares
outstanding (note 2 (i)) ............................ 69,970,229 16,145,593
=========== ===========
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, 1998
<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, 1998 24,609,858 $ 123,049 $ 28,072,458 $(32,949,100) $(4,753,593)
To settle convertible
notes and liabilities -- 90,720,742 453,604 3,972,445 -- 4,426,049
Net loss for the year -- -- -- (3,628,887) (3,628,887)
----------- --------- ------------ ------------ -----------
Balance at December 31, 1998 115,330,600 $ 576,653 $ 32,044,903 $(36,577,987) $(3,956,431)
=========== ========= ============ ============ ===========
</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, 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
(as reported prior to split) 42,248,368 $ 211,242 $ 20,000,471 $(23,373,588) $(3,161,875)
Reverse stock split (31,686,276) $(158,432) $ 158,432 $(23,373,588) $(3,161,875)
----------- --------- ------------ ------------ -----------
Balance at January 1,1997 10,562,092 $ 52,810 $ 20,158,903 $(23,373,588) $(3,161,875)
to settle liabilities .05-.91 162,817 814 299,545 -- 300,359
to settle convertible notes .04-.75 8,134,318 40,672 7,036,012 -- 7,076,684
for security .10-.34 2,639,510 13,197 39,593 -- 52,790
for financing costs & interest .04-.42 147,315 737 218,029 -- 218,766
for deferred finance charges -- -- -- (936,392) -- (936,392)
for cash .175 1,000,000 5,000 695,000 -- 700,000
Prisms, Inc. acquisition,
additional consideration .21 641,939 3,210 (3,210) -- --
for share & warrant options .25-.55 827,559 4,138 1,220,170 -- 1,224,308
for employee options -- -- -- (1,094,224) -- (1,094,224)
for finders' fees .10-.70 340,206 1,701 229,044 -- 230,745
for compensation .59-.91 24,102 120 57,380 -- 57,500
for consulting & other expenses.10-.50 130,000 650 152,608 -- 153,258
Net loss for the year -- -- -- (9,575,512) (9,575,512)
----------- --------- ------------ ------------ -----------
Balance at December 31, 1997 24,609,858 $ 123,049 $ 28,072,458 $(32,949,100) $(4,753,593)
=========== ========= ============ ============ ===========
</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,
1998 1997
---------- ---------
Cash flows from operating activities:
Net loss ........................................... $(3,628,887) $(9,575,512)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ...................... 437,410 1,535,791
Issuance of common stock for expenses .............. -- 429,523
Deferred revenue ................................... (390,000) (375,380)
Change in operating assets and liabilities:
Accounts receivable ................................ 236,240 (177,685)
Inventory .......................................... 143,156 (120,156)
Deferred charges ................................... 248,564 (248,564)
Prepaid expenses ................................... 79,355 45,329
Bank loan .......................................... -- (354,100)
Accounts payable ................................... 273,110 (30,993)
Accrued liabilities ................................ (1,816,847) 1,165,208
---------- ---------
Net cash used in operating activities ............... (4,417,899) (7,706,549)
---------- ---------
Cash flows from investing activities:
Intangible assets.................................... -- --
Purchase of property and equipment .................. -- (974,114)
Disposal of property and equipment .................. 986,894 244,400
Security deposits ................................... -- (73,112)
Write down of property, equipment & Investment in land 1,857,990 --
Other ............................................... 172,451 75,709
---------- ---------
Net cash used in investing activities ............... $ 3,017,335 (727,117)
---------- ---------
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,
1998 1997
---------- ---------
Cash flows from financing activities:
Stockholder's loan .................................. $ -- $ (28,387)
Proceeds from issuance of common stock .............. 4,426,049 8,773,119
Proceeds from convertible notes ..................... 525,000 7,350,000
Payments of convertible notes ....................... (3,253,750) (7,165,000)
Principal payments on notes payable ................. (625,000) (744,356)
Proceeds from notes payable ......................... 138,000 925,000
Principal payments of long-term debt ................ -- (986,049)
Proceeds from long-term debt ........................ 282,813 250,000
---------- ---------
Net cash provided by financing activities ........... 1,493,112 8,374,327
---------- ---------
Net change in cash and cash equivalents ............. 92,548 (59,339)
Cash and cash equivalents at beginning of year ...... 17,276 76,615
---------- ---------
Cash and cash equivalents at end of year ............ $ 109,824 $ 17,276
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest .............. $ 122,377 $ 340,626
Non cash investing and financing activities:
Issuance of common stock for finders' fees ......... $ -- $ 230,745
Issuance of common stock for debt reduction
and settlement of convertible notes ............... $4,426,049 $7,377,043
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
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. In 1987, the 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 Las Vegas, Nevada. The
Company is principally engaged in the development and marketing of electronic
bingo equipment.
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
5years.
F-9
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(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 is 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
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, 1998 and 1997
(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 effect of outstanding
common stock equivalents are anti-dilutive for 1998 and 1997 and are thus not
considered. The reconciliations of the numerators and denominators of the basic
EPS computations are as follows:
<TABLE>
1998 1997
-------------------------------- -----------------------------------
Number Number
Of Loss of Loss
Loss Shares per Share Loss Shares per Share
Basic EPS
Loss to Common
<S> <C> <C> <C> <C> <C> <C>
Shareholders $(3,628,887) 69,970,234 $(0.05) $(9,575,512) 16,145,593 $(0.59)
=========== =========== ====== =========== ========== ======
</TABLE>
F-11
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (Continued)
(j) Revenue
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 1997 financial statements
to conform with the 1998 presentation
NOTE 3 - OTHER ASSETS
1998 1997
----------- -----------
Land $ 3,000,000 $ 4,132,000
Software rights and other, net 442,604 850,272
----------- -----------
$ 3,442,604 $ 4,982,272
=========== ===========
F-12
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Continued)
NOTE 4 - NOTES PAYABLE
1998 1997
----------- -----------
Due to an individual, interest at $300 per day,
principal and interest due on demand, secured
by certain revenue generating equipment and a
personal guarantee of an officer and director $ -- $ 150,000
Due to a corporation, interest at $300 per day,
principal and interest due on demand, secured
by certain revenue generating equipment and a
personal guarantee of an officer and director -- 150,000
Due to a corporation, interest at $350 per day,
principal and interest due on demand, secured
by certain revenue generating equipment and a
personal guarantee of an officer and director -- 105,000
Due to an individual, interest at 59%, principal
and interest due on January 17, 1998, secured
by shares of the Company, and a personal
guarantee of an officer and director -- 200,000
Due to a corporation, interest negotiated at
$10,000 per month, principal and interest due
on demand, unsecured -- 120,000
Due to a corporation, non-interest bearing, due
on demand, unsecured -- 75,000
Other 313,000 --
----------- -----------
Total notes payable $ 313,000 $ 800,000
=========== ===========
Of the 1997 notes, $505,000 was settled in 1998, for stock.
NOTE 5 - CONVERTIBLE NOTES
Due to individuals and corporations, bearing interest at rates between U.S.
base rate and 12% per year, due on demand. 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 7, 13 and 14).
F-13
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997
(Continued)
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following: 1998 1997
----------- -----------
Notes payable, interest at 9%, quarterly interest
only payments until July 2002, collateralized
by deed of trust $ 1,339,792 $ 1,339,792
Note payable, interest at 10%, quarterly interest
only payments, balance due on demand,
collateralized by deed of trust 60,812 60,812
Loan payable, interest at 13.2%, due in monthly
installments of $31,000 including interest, due
on demand, secured by equipment 86,862 86,862
Note payable, interest at 3% above the Chase
Manhattan prime lending rate, due in quarterly
principal installments of $17,857 plus accrued
interest, matures January 2002 464,286 464,286
Note payable, interest at 10%, principal is due, and
is secured by 100,000 common shares of the Company 75,106 75,106
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
Convertible debenture, total facility $1,000,000
plus accrued 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 1,763,199 1,249,286
Loan payable, interest at 12%, due in monthly
installments of $1,000 including interest, matures
December 1999, secured by a patent 32,070 32,070
----------- -----------
3,918,371 3,635,558
Less: current maturities 3,918,371 1,911,256
----------- -----------
Net long-term debt $ -- $ 1,724,302
=========== ===========
All of the long-term debt obligations are in default as at December
31,1998, (see note 13 and 14).
F-14
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997
(Continued)
NOTE 7 - 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. All options and
warrants outstanding were eliminated in 1999 in conjunction with the effective
date of the plan of reorganization.
1998 1997
----------- -----------
Options and warrants outstanding, beginning of year 29,867,440 14,423,367
Granted 2,850,000 24,441,019
Expired -- (5,686,708)
Cancelled (32,717,440) --
Exercised -- (3,310,238)
----------- -----------
Options and warrants outstanding, end of year -- 29,867,440
=========== ===========
Option and warrant price for options and warrants
outstanding, end of year -- $0.04-$3.00
=========== ===========
Options and warrants granted subsequent to year end -- 2,850,000
=========== ===========
Option and warrant price range granted subsequent
to year end -- $0.03-$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 for the year ended December 31, 1997, 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.
F-15
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997
(Continued)
NOTE 7- STOCK OPTIONS AND WARRANTS (Continued)
The 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 1998 and 1997, 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 1998 and 1997 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, 1998 and 1997 would have been immaterial.
NOTE 8 - SEGMENTED INFORMATION
The company derived all revenues in 1998 and 1997 from operations within
the United States. The company has no assets outside of the United States. The
company incurred an operating loss of $9,986 in 1998 due to an abandoned project
in Asia.
NOTE 9 - SELECTED FINANCIAL DATA (Unaudited)
The following tables set forth certain unaudited quarterly financial
information:
1998 Quarters Ended,
Mar. 31 Jun. 30 Sep. 30 Dec. 31
--------- --------- --------- ---------
Revenues $ 184,790 $ 60,265 $ 68,664 $ 224,108
Gross margin 92,510 39,835 58,394 149,108
--------- --------- --------- ---------
Operating income(loss) (967,608) (572,444) (444,332) 323,166
Other expenses, net 873,318 (376,986) (134,112) (2,329,889)
--------- --------- --------- ---------
Loss before taxes 94,290 949,430 578,444 2,006,723
Income taxes -- -- -- --
--------- --------- --------- ---------
Net Loss $ 94,290 $ 949,430 $ 578,444 $2,006,723
========= ========= ========= =========
F-16
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997
(Continued)
NOTE 9 - SELECTED FINANCIAL DATA (Unaudited)(continued)
1997 Quarters ended,
Mar. 31 Jun. 30 Sep. 30 Dec. 31
--------- --------- --------- ---------
Revenue $ 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
========= ========= ========= =========
NOTE 10 - 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 $12,000,000 and $11,000,000 for the years ended
December 31, 1998 and 1997 respectively, are the result of net operating losses
and the gaming license rights reserve.
The Company has recorded net deferred income taxes in the accompanying
consolidated balance sheets as follows:
1998 1997
----------- -----------
Future deductible temporary differences related to
reserves, accruals, and net operating losses $12,000,000 $11,000,000
Valuation allowance (12,000,000) (11,000,000)
----------- -----------
Net deferred income tax $ -- $ --
=========== ===========
F-17
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 10 - INCOME TAXES (continued)
As of December 31, 1998, the Company had a net operating loss ("NOL")
carryforward for income tax reporting purposes of approximately $34,000,000
available to offset future taxable income. This net operating loss carry-forward
expires at various dates between December 31, 2008 and 2013. A loss generated in
a particular year will expire for federal tax purposes if not utilized within 15
years. Additionally, the Internal Revenue Code contains provisions that 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 $12,000,000 as of December 31, 1998, which includes $253,000 from the gaming
license and manufacturing rights reserve and $11,700,000 from net operating loss
carryforward. 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:
1998 1997
----------- -----------
Benefit at the federal statutory rate of 34% $ 1,234,000 $ 3,202,000
Non-deductible expenses (5,000) (21,000)
Utilization of gaming license rights -- 527,000
Utilization of net operating loss carryforward (1,357,000) (3,542,000)
Other 128,000 (166,000)
----------- -----------
$ -- $ --
=========== ===========
NOTE 11 - CONTINGENCIES
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 PartiMAX for the United Kingdom bingo market.
F-18
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 11 - CONTINGENCIES (continued)
(a) 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. As of December
31, 1998, Fortune Entertainment had provided the Company with $1,025,738.
The company has stopped development efforts on the projects and is
considering abandonment. The company has rejected this agreement in the
reorganization process.
(b) 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 4).
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
F-19
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 11 - CONTINGENCIES (continued)
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. 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 attorney 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 1999.
F-20
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 11 - CONTINGENCIES (continued)
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 alleged the Company was in default in regard
to the conversion of these debentures. A settlement was reached in April 1998.
NOTE 12 - SUBSEQUENT EVENTS
On June 29, 1999 the company's plan of reorganization was confirmed by the
bankruptcy court in the district of Las Vegas. The plan becomes effective on
early August, 1999.
The company licensed the Max Plus and Turbomax products to BTC in February
1998 under a 5 year agreement. In addition the company sold all existing
accounts relating to these products to BTC. The contract allowed BTC to offset
royalties against a $400,000 note payable by AGT to BTC. The contract was
disputed by BTC almost immediately. BTC refused to pay royalties due and began
making up additional offsets to the royalties for lost accounts, miscellaneous
expenses, etc. No royalties had been paid by BTC through 12/31/98. In January
1999 BTC was acquired by Gametech International. In March 1999 AGT received a
royalty payment of $9,800 representing royalties for January 1999. No further
payments were received.
AGT filed suit against BTC/Gametech in bankruptcy court in June 1999 for
unpaid royalties, breach of contract and other issues. The conflict was resolved
in July 1999. AGT received a one-time payment of $850,000. The Max Plus and
Turbo max rights were returned to AGT. Gametech received a license to the AGT
patents and was allowed to keep the existing accounts with the AGT products.
No receivable for royalties was recorded at 12/31/98. It would have had to
be reserved 100% due to the dispute. The $850,000 settlement has been considered
compensation for the remaining portion of the contract.
In conjunction with the plan of reorganization that was confirmed on June
29, 1999, certain outstanding secured obligations were settled by issuing new
notes for $2,634,000 an additional unsecured claim of $800,000. The unsecured
claim will be converted to equity on the effective date of the plan. The
obligations including accrued interest was recorded at $3,491,190 at 12/31/98.
All unsecured claims on the books of AGT will be converted to equity on the
effective date. Several amounts recorded at 12/31/98 will not result in allowed
claims as the parties failed to file proof-of-claim.
All liabilities of the Branson subsidiaries will be eliminated on the
effective date. No compensation was provided in the plan. These obligations
totaled $1,330,481 at 12/31/98.
The holders of convertible notes all converted prior to August 1998, with
the exception of Landow which was outstanding at 12/31/98. The process for
conversion called for the noteholders to notice their intent to convert and AGT
to deliver stock to escrow. Several noteholders maintain that the ultimate
conversion value is based on the price of the stock on the day it is removed
from escrow rather than the date of conversion. As a result several noteholders
believe they were due additional shares due to the decline in stock price
between the conversion date and the date they sold the shares.
F-21
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 12 - SUBSEQUENT EVENTS (continued)
The company believes these claims are equity interests at 12/31/98. The
noteholders believed they had a liability claim of $579,242. This matter was
resolved in the bankruptcy by allowing an unsecured claim of $579,242. This
claim will be converted to equity with all other unsecured interests on the
effective date. No liability is recorded at 12/31/98 due to the company*s
contention that these were at most equity interests.
The plan of reorganization will result in significant changes to the equity
make-up of the company. Unsecured creditors and new investors will hold the
majority of the equity interest. The existing shareholders did survive the in
the plan, but at a much reduced equity interest. Approximately 25 million new
shares of common stock will be issued under the confirmed plan.
NOTE 13 - 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. On August 26, 1998 the Company
filed a petition for reorganization under chapter 11 of the U S bankruptcy code
in Las Vegas, Nevada.
In view of these matters, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon continued operations of the
Company which in turn is dependent upon the Company's ability to successfully
complete the reorganization process and meet its financing requirements and
succeed in 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 a going concern.
NOTE 14 - PETITION FOR RELIEF UNDER CHAPTER 11
The company filed for reorganization under chapter 11 of the U S bankruptcy
code in Las Vegas on August 26, 1998. Under Chapter 11, certain claims against
the Debtor in existence prior to the filing of the petitions for relief under
the federal bankruptcy laws are stayed while the Debtor continues business
operations as Debtor-in-possession. These claims are reflected in the December
31 1998 and 1997 balance sheets as "liabilities subject to compromise."
Additional claims (liabilities subject to compromise) may arise subsequent to
the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed amounts. Claims
secured against the Debtor's assets ("secured claims") also are stayed, although
the holders of such claims have the right to move the court for relief from the
stay. Secured claims are secured primarily by liens on the Debtor's property,
plant, and Equipment.
F-22
<PAGE>
Advanced Gaming Technology, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1997 (Continued)
NOTE 14 - PETITION FOR RELIEF UNDER CHAPTER 11 (continued)
The Debtor received approval from the Bankruptcy Court to pay or otherwise
honor certain of its obligations, including employee wages and product
warranties. The Debtor has Determined that there is insufficient collateral to
cover the interest portion of scheduled payments on its prepetition debt
obligations. Contractual interest on those obligations is in excess of reported
interest expense; therefore, the Debtor has discontinued accruing interest on
these obligations.
The company filed a plan of reorganization with the court in December 1998.
There were several objections to the plan and disclosure statement that were
addressed by the company during the first quarter of 1999. The company's plan
and disclosure statement was approved by the court on March 22, 1999. The
company's reorganization plan was confirmed by the bankruptcy court on June 29,
1999. The plan becomes effective on early August, 1999.
Pursuant to the plan, obligations to secured creditors were re-negotiated.
The new amount of secured debt on the effective date is $2,634,000. All
remaining liabilities of the company have been fully satisfied through issuance
of new common stock. Other secured creditors received 3 shares of new common
stock for each $1 of allowed secured claim. Unsecured creditors received 1.88
shares of new common stock for each $1 of allowed claim.
The company will issue 25 million shares of new common stock in conjunction
with the plan. The existing common stock will be cancelled. Existing
shareholders of the company on the effective date will receive 1 share of new
common stock for each 66 shares of common stock currently owned. Approximately
18 million shares will be issued to creditors, existing shareholders and new
investors. A reserve of approximately 7 million shares will be maintained for
additional allowed claims.
NOTE 15 - STOCK SPLIT
After the close of business on June 30, 1998 the Company effected a 4 for 1
reverse stock split of the Company's common stock. As a result of the split,
31,686,276 shares were cancelled, and additional paid-in capital was increased
by $158,432. All references in the accompanying financial statements to the
number of common shares and per share amounts for 1997 have been restated to
reflect the reverese stock split. This transaction was previously approved at
the Company's annual meeting. The number of shares outstanding immediately prior
to the split was 143,594,531.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE OF ADVANCED GAMING TECHNOLOGY, INC. AS OF DECEMBER 31, 1998 AND THE
RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 110
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 20
<CURRENT-ASSETS> 143
<PP&E> 205
<DEPRECIATION> 0
<TOTAL-ASSETS> 3790
<CURRENT-LIABILITIES> 7747
<BONDS> 0
0
0
<COMMON> 577
<OTHER-SE> (4533)
<TOTAL-LIABILITY-AND-EQUITY> 3790
<SALES> 538
<TOTAL-REVENUES> 538
<CGS> 198
<TOTAL-COSTS> 198
<OTHER-EXPENSES> 2001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1968
<INCOME-PRETAX> (3629)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3629)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
