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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
LAS VEGAS GAMING, INC.
(Exact name of Company as specified in its charter)
NEVADA 88-0392994
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3261 S. Highland Avenue, Suite 613
Las Vegas, NV 89109 SEC File No.: 0-30375
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(Address of principal executive offices)
Registrant's telephone number, including area code 702-733-9703
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
25,000,000 Authorized Shares of Common Stock
--------------------------------------------
(Title of class)
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TABLE OF CONTENTS
Page
COVER PAGE ..................................................... 1
TABLE OF CONTENTS .............................................. 2
PART I ......................................................... 3
DESCRIPTION OF BUSINESS ........................................ 3
DESCRIPTION OF PROPERTY ........................................ 26
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES ........ 26
REMUNERATION OF DIRECTORS AND OFFICERS ......................... 28
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS ... 29
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS ...... 30
SECURITIES BEING REGISTERED .................................... 32
PART II ........................................................ 34
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS ................. 34
LEGAL PROCEEDINGS .............................................. 34
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .................. 34
RECENT SALES OF UNREGISTERED SECURITIES ........................ 34
INDEMNIFICATION OF DIRECTORS AND OFFICERS ...................... 36
PART F/S ....................................................... 38
FINANCIAL STATEMENTS ........................................... 38
PART III ....................................................... 39
INDEX TO EXHIBITS .............................................. 39
SIGNATURES ..................................................... 40
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PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
Item 6. Description of Business
Las Vegas Gaming, Inc. (the "Company") is in the business of
developing, marketing and distributing casino games and related
supplies. Currently, the Company owns the rights to a number of
games, including, among others, "Nevada Numbers", "Las Vegas
Numbers", and "4-Play Amore". In addition, the Company has
purchased the assets of Back to Back Gaming, Inc. ("B2B"), which
included the rights to "B2B Roulette".
The Company currently intends to focus its efforts on the
development and operation of its keno games and routes in Nevada.
A "route", as the term is typically used by the gaming industry,
generally refers to the situation where a company owns, operates
and services a game or games at various third-party venues
(generally casinos). In such a route, the Company would act as
the "bank" (money handler), in that it would collect the wagers
and pay out winners, and, in exchange for the use of the location
where the game is run, would pay rent to the casino and/or a
percentage of the game's revenues.
In order to be able to share in any revenues from gaming through a
route or otherwise, a person or entity must be licensed by the
state where the game is operated. The Company is currently in the
process of applying for its gaming license with the state of
Nevada. Such an application is a complicated process that will
involve an extensive review of the backgrounds of the officers,
directors and large shareholders of the Company as well as other
matters relating to its operations. No assurance therefore can be
given that the Company will be able to obtain such a license and
thus while it would continue to be able to offer its games, it
would not be able to share in the revenues and operate its planned
Nevada keno route.
CORPORATE ORGANIZATION
Incorporation
The Company was incorporated pursuant to the laws of the State of
Nevada on April 28, 1998.
Subsidiaries
The Company does not have any subsidiaries.
GAMES
1. Nevada Numbers
Nevada Numbers is a variation on the game of keno, commonly played
in Nevada casinos. Keno is a game in which bets are made and
recorded on a keno ticket. This ticket contains eighty numbered
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squares which correspond exactly to the 80 numbered balls in a
casino cage. A player may typically choose to play between three
and twenty different numbers. The player marks on the ticket
which numbers he has chosen, usually with an "X". Twenty out of
the eighty numbers are then drawn by the keno operator each game,
and those numbers are displayed on a keno board. After all the
numbers have been drawn, a player compares the numbers chosen on
his keno ticket with the numbers on the keno board. The more
numbers that match, the more money the player wins. Payouts may
vary from casino to casino and players must check the applicable
payoff chart to determine their winnings, if any. The money
wagered, the total amount of numbers selected, and the total
quantity of matching numbers determine the size of a player's
payoff, if any.
Nevada Numbers differs from this classic form of keno in that
fewer numbers (typically four or five, rather than twenty) are
drawn by the operator. In addition, as the Company plans to play
the game, it may have a "linked" and "progressive" feature at
certain casinos. Linking is the process of tying together
otherwise separate games held at different unassociated casinos
(locations not under common ownership) into one. In other words,
players at several different locations all choose numbers which
are matched to the same five number draw. A game is "progressive"
when the jackpot grows in amount each time there is no winner. In
order to create a progressively growing jackpot, the ticket price
(bet) is made slightly higher for each game played, with the extra
amount going to the added pot. After a progressive jackpot is won,
the winning player may be paid the jackpot in the form of an
annuity for twenty years or more, or a present-value lump sum
amount. The jackpot resets to a minimum amount from which it will
increase until it is won again.
The process of linking games and creating a progressive pot
provides an enticement to players of larger winnings. Until the
Company is properly licensed, it is only able to link and offer
progressive games among "associated" casinos or properties (a
process referred to as "Satelliting," see below), and it cannot
share in the profits of the games - it can only charge a flat
royalty or rental fee for the licensing of the game and equipment.
As a result, participating casinos, rather than the Company, are
responsible for making reports to the Nevada Game Control Board
and for complying with all gaming laws and regulations in the
conduct of the game.
The following is a sample anticipated payout table for a winning
ticket in Nevada Numbers:
Price per five pick ticket $2.00
Match Ticket Pays
5 $2,000,000 (without progressive jackpot)
4 $50,000
3 $100
2 $5
1 None
Drawings are planned to be held at least daily.
The Company currently does not have any contracts with any casinos
for the offering of this game.
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a. Nevada Bonus Numbers
Nevada Bonus Numbers works in exactly the same manner as Nevada
Numbers, except that it is planned to be linked and progressive at
"unassociated" properties (locations owned by different entities
or individuals) and run as a route by the Company. It would also
only involve one draw per day. Because of the licensing
requirement mentioned above, the game in this format can only be
offered by the Company once it obtains a gaming license in the
state of Nevada.
The following is a sample anticipated payout table for a winning
ticket in Nevada Bonus Numbers:
Price per five pick ticket $2.50
Match Ticket Pays
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5 $2,000,000 (plus progressive jackpot)
4 $10,000
3 $100
2 $3
1 None
The Company currently does not have any contracts with any casinos
for the offering of this game.
b. Las Vegas Numbers/The American Lottery
The "American Lottery" is the name for another keno based game
which is virtually identical to Nevada Numbers. The only
difference is that it is planned to be offered exclusively in
Native American casinos across the United States, in a linked and
progressive manner. The term "lottery" is used to convey to
potential players that the game has substantial progressive
jackpots not found in ordinary Keno games. As in Nevada Numbers,
players can win with as few as two out of five numbers correct,
payouts increase as a player chooses more correct numbers and
players who have selected five out of five numbers correctly win
$2,000,000 plus the progressive jackpot. As this game is
currently under development, however, it is possible the final
version of this game could vary substantially from this
description. Specifically, the Company has not finalized the
amount of winning numbers that will be chosen.
A version of this game is being planned for the non-tribal gaming
market in Nevada. The current working name for this game in
Nevada is "Las Vegas Numbers," which will likely be similar to the
American Lottery in all material respects.
The following is a sample anticipated payout table for a winning
ticket in the American Lottery:
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Price per five pick ticket $2.00 -$2.50
Match Ticket Pays
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5 $2,000,000 (plus progressive jackpot)
4 $20,000
3 $100
2 $3
1 None
There are currently no contracts with casinos for this game;
however, negotiations, are pending with several casinos.
d. 4-Play Amore
4-Play Amore is also a form of keno, only in the case of this game
four numbers are chosen by the game operator rather than five. If
a player matches all four numbers correctly, that player wins a
jackpot. As with Nevada Numbers and Nevada Bonus Numbers, this
game can be played with a progressive feature or not.
The following is the sample anticipated payout table for a winning
ticket in 4-Play Amore:
Wager 1 Out of 4 2 Out of 4 3 Out of 4 4 Out of 4
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$2.00 No Winner $100.00 $1,000 $150,000 (non-Progressive)
$2.50 No Winner $100.00 $1,000 $150,000 + Progressive Jackpot
Currently, the Company has licensed the operation of this game to
the Lady Luck Casino in Las Vegas, Nevada.
2. BonusKeno or Quick-Pic Keno
"BonusKeno" or Quick-Pic Keno is another variation on the game of
keno. The key difference in this game is that the winning numbers
(20 of them out of 80) have all been pre-picked before the game is
played and the player receives a pre-marked ("swiped") card. The
player can buy a card with 4, 5, 6, 8 or 10 numbers already
swiped. All BonusKeno cards are sealed so that no one will know
the numbers on the cards until they are opened. Once a player has
unsealed the card, he can compare his ticket to the pre-picked
winning numbers on the BonusKeno monitor to determine if he is a
winner.
For security purposes, the cards used in the BonusKeno game are
prepared using a process called "micro-printing", which is an
encrypted bar code. A random swipe generator produces the card.
Neither the manufacturer nor the casino knows what swipes are on
the inside of any one card. These cards are then sold and
verified using a point-of-sale system. The reverse side of each
ticket bears the payout for that particular game.
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BonusKeno cards are valid for the entire Keno session, usually two
hours. The pre-marked BonusKeno cards allow Keno players the
ability to keep playing. Standard Keno requires players to wait
for a game to close and new numbers to be drawn before they can
play again. BonusKeno gives players the opportunity to purchase a
card, open it and then play again with the BonusKeno numbers
already posted. Winning cards can then be immediately redeemed.
The faster turnaround encourages players to play more. Prices for
tickets are expected to be $1 each.
The Company is focusing on third world countries in marketing this
game. The game is currently underway in Nigeria and efforts are
being made to start the game in Cambodia and Costa Rica.
3. Back to Back (B2B) Roulette
B2B Roulette is an enhancement on the existing game of roulette.
In the regular American version of Roulette ("Roulette"), there is
a layout on a table of 38 numbers (1 through 36, plus 0 (zero) and
00 (double-zero). Each of these numbers corresponds to a matching
number on a Roulette Wheel (the European version is identical with
the exception that there is no double-zero). In Roulette, a
player can place eleven (11) types of wagers, with each wager
having different payouts. As a general rule, a player's wager is
reflected by where he places his chip(s) and what it touches on
the layout. Chips represent various denominations of currency,
typically $0.50, $1, $5, $25, $100, and so forth. The Roulette
Dealer (the "Dealer"), an employee of the casino, spins the
Roulette Wheel in one direction and a small ball in the opposite
direction. Bets may be placed until the Dealer announces: "No
more bets." When the ball comes to rest in a given slot on the
Roulette Wheel, winning bets are paid according to their
respective payouts and losing bets are removed and kept by the
casino. If, for example, the ball lands in the slot marked "12",
any player whose bet related to the number 12 on the layout would
be considered a winner.
B2B Roulette provides a player with the ability to place a side
bet on this traditional game format. After a player has made his
normal Roulette bet, the player has the opportunity to give the
Dealer at least one of his $1 chips (the chip denomination is
subject to change according to the policy of each casino) and call
out a number as a "B2B side bet". All B2B side bets are $1
regardless of the amount of the original bet. A player may make
as many B2B side bets as he chooses, but only one chip is allowed
per number per player. If the player wins the first time, the bet
rides (the bet remains in play and the player is not allowed to
remove the bet). At that point, new players are prevented from
wagering on that particular number. If the number selected by the
player then comes up on the immediately succeeding spin (i.e.,
twice in a row) the player wins a bonus payout of $1,000 based on
the $1 bet. If the number comes up on a third successive spin,
the player wins either a larger fixed payout ($10,000) (the "Fixed
Jackpot") or a progressive jackpot (the "Progressive Jackpot"),
depending on how the game is set up at the particular casino.
The Company has been approved to sell the Progressive Jackpot
version in Nevada, but, until properly licensed, may not share in
the game's profits.
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The Progressive Jackpot is won via the same B2B side bet as in the
fixed version. However, a portion of this B2B side bet goes to a
side meter reflecting the current progressive jackpot amount. A
computer sensor board senses the amount of the wager and performs
the calculations to adjust the progressive jackpot meter.
The Company believes that B2B Roulette will encourage current
roulette players to play with greater frequency and for longer
periods of time and will attract new roulette players who are
typically less attracted to standard table games. Individual
progressive versions of B2B Roulette can be linked together
between associated properties (Satellited) as well as among tables
at the same location.
The Company has entered into a marketing arrangement with
Technical Casino Supplies, Ltd. ("TCS"), a major international
supplier of roulette products and gaming supplies, to distribute
the Fixed Jackpot game outside the United States. The Company is
currently negotiating a similar deal with TCS for the progressive
version as well as to handle all distribution and sales within the
US for all B2B Roulette versions.
The tracking control system the Company presently uses in B2B
Roulette will be supplied exclusively by TCS in an agreement that
will be finalized later. If necessary, the Company believes that
it could identify alternative sources of supply; however, there
can be no assurance that the Company would be able to procure,
substitute or produce such components without a significant
interruption and cost in its assembly process in the event that
TCS is unable or unwilling to provide these components.
Due to gaming licensing laws in Nevada, the Company is currently
unable to share with casinos in the profits garnered through the
game. The Company is, however, permitted to lease or license the
rights to the games and earn revenues thereby. There are currently
no B2B games in operation.
4. Match Pair Bingo
On May 17, 2000, the Company purchased a table game called Match
Pair Bingo. In this game, the house or Casino pulls two balls
with five possible outcomes: "B", "I", "N", "G", and "O". Each
player antes a fixed amount to play which is taken by the house
and then bets on the outcome in three ways: (1) on what the first
ball will be; (2) on what the second ball will be; (3) on whether
the balls will match and what that match will be. The player
choosing the right outcome wins the bets placed.
The Company has not, as yet, placed this game in any Casino for
play.
SOFTWARE DEVELOPMENT
The software for the keno games described herein (except for
BonusKeno) have been, or are being, developed by Imagineering
Systems, Inc. ("Imagineering"). The Company has agreed to pay
Imagineering a fixed amount ($.04) per game ticket sold in
exchange for developing a game's software. The Company owns the
proprietary rights to the software developed by Imagineering and
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Imagineering is precluded from developing, or participating in the
development of, any similar game that would be offered to the
public. Imagineering's role is essentially a work-for-hire
arrangement to write the software and upgrade the games as desired
by the Company.
On November 18, 1999, the Company obtained an option to acquire
all of the shares of Imagineering owned by Bill Williams, its
President, in a private sale. Mr. Williams is also currently a
Director of Las Vegas Gaming. This option was obtained in exchange
for a loan to Mr. Williams from the Company in the amount of
$25,000 and the promise to deliver to Mr. Williams 150,000 shares
of Las Vegas Gaming Common Stock in the event the option is
exercised. In the event the option is not exercised by November
25, 2000, Mr. Williams is required to re-pay this loan at 8%
interest over a five year period in semi-annual payments.
LICENSES AND RIGHTS
1. Keno in Puerto Rico
The Company has obtained the right to sell or lease keno games and
equipment and provide software and hardware support to casinos in
the island of Puerto Rico. Puerto Rico has approximately 17
licensed casinos. Currently, The Company holds the only license to
sell or lease Keno games and equipment in the Commonwealth of
Puerto Rico, but has not, as yet, set up a Keno operation. In
Puerto Rico, the Company is not allowed to "bank" a game, and thus
any licensed casino the Company contracts with will be required to
handle the wagers and winnings.
Puerto Rico Keno will require at least $75,000 for equipment,
marketing, administrative costs and $100,000 in reserve capital
for jackpot payoffs before it can be offered.
2. Nevada Keno Route:
The Company has applied for a license to operate a Keno route in
the State of Nevada. Currently, the Company does not operate any
Keno games in the State of Nevada and will not before it becomes
licensed. The licensing process is expected to cost approximately
$100,000.00 and take approximately six months to complete.
The process involves a formal application to the Nevada Gaming
Control Board, followed by several months of investigation into
the background of all the principals involved in the operation of
the Company, including any 10% or greater shareholders. The
results of these investigations are then discussed in meetings
with the Gaming Control Board staff and eventually a full hearing
is held before the Nevada Gaming Control Commission to determine
whether a license will be granted. As this process is quite
extensive and involves individual examinations of officers,
directors and shareholders, there can be no assurance that the
Company will be able to obtain such a license, or that, if it is
obtained, it will be completed within the time frames expected or
desirable for the Company's business plans.
The Nevada Keno Route will require at least $75,000 for equipment,
marketing and administrative costs.
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BUSINESS DEVELOPMENT STRATEGY AND PLAN OF OPERATIONS
The Company's business plan is to develop and offer enhanced
versions of existing keno games. The Company believes that
offering players a more entertaining and engaging experience will
entice them to play its games. The Company does not intend, at
this time, to manufacture games or operate casinos. Rather, the
Company plans to contract with third-parties to develop and
manufacture its games, and then to sell, license or make other
arrangements with casino operators to have its games played in
their casinos.
While the Company will continue to consider various opportunities
for marketing its games and rights, it's current plan is to focus
it's efforts on obtaining a gaming license in the state of Nevada
so that it can share in the profits of its games and offer a keno
route in the state. This route is expected to focus around a
linked and progressive version of Nevada Bonus Numbers.
Linking and Satelliting of Games
A fundamental trait of all progressive games is that they are
connected to other machines in a way that a portion of every bet
made at each linked game is funneled electronically to the
progressive jackpot. The Company can connect, or has plans to
connect, its games in one of two ways: linking or satelliting.
"Linking" refers to the process of connecting games at different
locations so that they are playing the same game. These machines
may be located at unrelated properties (i.e., gaming properties
without any financial, management, or other ties to each other) or
at associated ones. For Keno-based games, numbers could be chosen
from any approved location, whether it be the Company's offices or
in a casino. The results of the number draw are transmitted
electronically to all linked properties, immediately and
simultaneously.
The Company does not currently have the proper license or
technology to link its games. However, the Company is currently
working with Imagineering to develop this technology.
Keno can also be "satellited". This means a game is connected but
only among associated properties (i.e., properties under the same
ownership or management group). Satellite keno is one game, run
by a master computer with several ticket outlets in other
locations, connected by a telephone line. A master computer,
"ball draw" equipment and printers are installed at the host
casino. The master computer runs the game. The results of the
game are communicated through the dedicated telephone lines to the
satellite computers located at the associated properties. Each
casino is responsible for the results of the tickets it sells.
The Company currently possesses the means to satellite its
progressive jackpot games at associated properties.
Manufacture, Installation, Training and Maintenance of Games
All games owned by the Company are manufactured by outside
companies.
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The responsibility for installing and maintaining games depends on
the type of game and the individual arrangement reached with the
participating casino. The Company provides initial training of
casino personnel on the game. For Keno games, the Company
provides all the necessary hardware, software, signage, training
and maintenance support through an independent company.
Casinos can have Nevada Numbers and/or Nevada Bonus Numbers
installed on their existing keno machines if they are currently
using the Imageplus, Imagineering Keno System. A progressive
server would, however, need to be installed, but takes up little
counter space.
Casinos without Imageplus can be provided with a Netstar Mega 2000
System. This system is independent and requires a small amount of
counter space. System components include a master computer, sign
computer, printer, wedge computer and a ticket printer. A site
survey is required prior to the installation of such a system.
The site survey typically takes several hours and installation
will usually take one full day.
Marketing
The Company sells its games directly to Casinos. Initial contact
is made either from mailing of marketing materials or referrals to
keno or casino managers. The Company will not directly market its
games to the general public. Instead, the staff at the Company
plans to work with the marketing department of the casinos that
offer its games to tailor a marketing plan for that particular
casino. The Company anticipates that a portion of each keno
ticket sold will be used to promote the game, with the casinos
themselves putting up any initial funding for the marketing
efforts prior to actual sales. Advertising within a casino
property may include table tents, flyers, slot toppers and show
cards to stimulate curiosity and game play.
Assuming the Company receives a gaming license from the Nevada
gaming authorities, the Company plans to aggressively market and
advertise the game Nevada Bonus Numbers throughout the state of
Nevada via billboards, radio, and television advertisements. It
is anticipated that $0.24 out of every ticket purchased will be
spent on advertising Nevada Bonus Numbers and the casinos offering
the game. All participating casinos are expected to be part of
these advertising campaigns.
Competition
Competition among gaming equipment suppliers and among individual
games is strong and presents a significant barrier to entry as
well as growth. The most direct competition to the Company's
games is the traditional game of keno which is already well
established in casinos throughout Nevada. Additional competition
will also be faced from several relatively new progressive slot
and table games, including Mega Bucks, Quarter Mania, Nevada
Nickels and Caribbean Stud which provide the growing pot
excitement targeted by the Company's progressive keno games.
In recent years, the market has not been dominated by any single
entity. The Company's existing competitors, as well as many
potential new competitors, have significantly greater financial
and technical resources, more established customer bases and more
established distribution channels
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than the Company. Moreover, because the Company is a start-up operation,
it is more sensitive than an established business to the impact of
competition.
Additionally, as more of these competitors enter into the
marketplace, it is likely that the industry and the Company will
experience a decrease in sales prices, reduced operating margins
and a loss of market share at a later date.
In addition, it is a reasonable possibility that existing or new
competitors could develop games that prove more attractive to
casino operators and the gaming public. If these factors occur,
they would have a significant impact on the future financial
operating results of the Company.
Any one or a combination of the events or other setbacks to the
Company's business could cause the Company to fail and an investor
to lose his or her entire investment. There can be no assurance
that the Company will be a successful competitor in the gaming
industry.
B2B ASSET PURCHASE AGREEMENT
On July 10, 1998, the Company entered into an asset purchase
agreement with B2B (the "Asset Purchase Agreement") to acquire all
of its assets (collectively, the "B2B Assets"). Upon consummation
of this transaction, the Company paid $375,000 and executed a
promissory note to B2B in the amount of $125,000. The promissory
note is amortized over a fifteen-year period with monthly payments
of principal and interest at a rate of 8% per annum. The note is
due and payable in full on its fifth anniversary in the year 2003.
In addition, the Company has issued 75,000 restricted shares of
its common stock to B2B shareholders as part of the consideration
for the sale.
Originally as part of this Asset Purchase Agreement, the Company
agreed to use its best efforts to register its common stock with
the Securities and Exchange Commission and to have it trading in
the over-the-counter market within one year. This provision was
later waived by the mutual agreement of the parties.
The Company currently does not plan to market this game, but
instead is engaging in discussions with TCS to license the game in
exchange for a royalty or licensing fee .
DISTINCTIVE CHARACTERISTICS OF THE BUSINESS THAT MAY HAVE A
MATERIAL IMPACT ON FUTURE FINANCIAL PERFORMANCE
A number of factors distinctive to the Company's business may have
a material impact on future financial performance, including:
1. Competition. As noted above, competition among gaming
equipment suppliers and games is strong and presents a significant
barrier to entry. Getting a game offered in a casino with
typically limited floor and operating space is a difficult task
with a high likelihood of failure. The failure to pass this
barrier will have a significant negative impact on the future
financial results of the Company.
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2. Marketing. The Company's marketing plan is dependent upon the
needs and acceptance of the Company's games by casino operators.
Many of the Company's products are proprietary in nature and
casino operators are reluctant to place gaming equipment in their
casino from which they will have to share revenue and which may
deplete revenues of other games for which they do not need to
share revenue. The failure to attract enough demand from casinos
will have a significant negative impact on the future financial
results of the Company.
3. Products. The replacement cycle for many games provided by
gaming equipment suppliers appears to be accelerating. There is
mounting pressure in the industry to put out the next widely
successful game. This gives the Company's games less time to be
accepted by the gaming public and forces the Company to
continually develop new games or be left behind in the
marketplace. Development of new games is costly with uncertain
rewards. The failure to attract enough demand from casinos and
players alike will have a significant negative impact on the
future financial results of the Company.
EMPLOYEES
As of January 31, 2000, the Company had 3 employees who are the
officers of the Company. The Company does not plan to hire any
additional employees in the foreseeable future.
The Company's three officers are Mr. Russell R. Roth, President,
CEO, CFO, and Chairman, Mr. Gary G. Baldwin, Executive Vice
President and Treasurer, and Mr. Mark F. Valenti, Executive Vice
President and Secretary. All Company officers are also directors
of the Company.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
A patent application for the Company's progressive keno games was
made by Mr. Mark Valenti as inventor/applicant. Mr. Valenti
assigned his rights in this application to the Company. This
application seeks to obtain exclusive rights to conduct the keno
style games described hereinabove. Currently, this patent
application has the status of "Patent Pending" with the US Patent
and Trademark Office. No assurance, however, can be given that
any such a patent will ever be issued or, if issued, will
withstand a challenge as to its validity. The Company has also
applied for, and received, certain trademarks and copyrights for
these games and their names.
Through the purchase of B2B, the Company obtained the intellectual
property rights for B2B Roulette. A patent for B2B Roulette was
recently issued.
The Company also has ownership rights to several trademarks and
copyrights filed with the State of Nevada and US Patent and
Trademark Office.
The Company intends to protect any future products it develops
through a combination of patents, trademarks and copyrights.
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RESEARCH AND DEVELOPMENT EXPENDITURES
The Company has not expended any funds for Research and
Development and does not currently expect to expend any in the
near future. New games are purchased from persons or entities
that have developed them in exchange for stock, cash or some
combination o0f the two, and software or other technology
development is provided by independent contractors in exchange for
stock or royalty payments. In the case of the Company's keno
games, with the exception of BonusKeno, the Company has agreed to
pay Imagineering Systems, Inc. four cents ($0.04) per keno ticket
sold for the development of the software to be used in playing the
games.
INDUSTRY BACKGROUND
Although the casino industry, and the gaming industry in general,
has experienced substantial growth in the 1990's, that growth has
slowed in recent years. Nevertheless, in the last ten years,
Arizona, California, Colorado, Connecticut, Delaware, Florida,
Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan,
Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico,
New York, North Dakota, Oregon, South Dakota, Texas, Washington,
Wisconsin and several provinces in Canada have joined Nevada and
New Jersey in legalizing or expanding the legalization of various
forms of casino gaming. In Canada, growth in these jurisdictions
has occurred in both land-based casinos and riverboat/dockside
casinos, which were first legalized in Iowa in 1989 and are now
authorized in six states. In addition, the Indian Gaming
Regulatory Act of 1988 has led to the development to date of more
than 160 tribal casinos in Arizona, California, Colorado,
Connecticut, Florida, Idaho, Iowa, Kansas, Louisiana, Michigan,
Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New
York, North Carolina, North Dakota, Oregon, South Dakota, Texas,
Washington, and Wisconsin.
GOVERNMENT REGULATION
1. Potential Legal, Regulatory and/or Compliance Risk
The Company will be required to obtain licenses, approvals, and
findings of suitability and Product approvals in all jurisdictions
in which it intends to distribute its gaming products. The
licensing and approval process will generally involve extensive
investigations into: (1) the gaming products produced, (2) the
Company itself, and (3) the Company's officers, directors,
employees and principal shareholders, and can require significant
expenditures of time and resources. In addition, gaming regulatory
authorities have broad discretionary powers and may deny
applications or revoke approvals on any basis they deem
reasonable. There is no guarantee that the Company, its products
or its personnel will receive or be able to maintain any required
approvals.
The Company has received approval to distribute its Fixed Jackpot
and Progressive Jackpot version of B2B Roulette in Nevada, and
only the fixed version in Mississippi and Iowa. The Company has
also received approval to distribute its Nevada Numbers games in
Nevada. These approvals and the underlying gaming regulations,
however, are subject to change. The Company cannot predict the
nature of any such changes or their impact on the Company in the
future. Notwithstanding these
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approvals, the Company continues to be unlicensed in Nevada and
therefore may not share in the profits of any gaming activities
in the state.
Potential shareholders should note that any beneficial holder of
an equity interest in the Company may be subject to investigation
by any gaming authority in any or all jurisdictions in which the
Company does business, if such authorities have reason to believe
that such ownership may be inconsistent with the state's gaming
policies. Persons who acquire beneficial ownership of more than a
certain designated percentage of the Company's common shares may
be subject to certain reporting and qualification procedures. In
addition, changes in control of the Company and certain other
corporate transactions may not be effectuated without the prior
approval of the gaming authorities in those jurisdictions in which
the Company does or anticipates doing business. Such regulatory
provisions could adversely affect the marketability, if any
develops, of the common shares and could prevent certain corporate
transactions, including mergers or other business combinations.
2. Gaming Regulations and Licensing
In General
The Company and its products are subject to strict governmental
regulations in most jurisdictions in which its products are sold
or are used by persons or entities licensed to conduct gaming
activities. Such gaming regulations vary from jurisdiction to
jurisdiction and the classification and level of the regulatory
licensing, approvals and compliance to which the Company and its
products must conform also vary by jurisdiction.
In certain jurisdictions, the Company may be operating pursuant to
temporary waivers or approvals. There can be no assurance that
such temporary waivers or approvals will be maintained or become
permanent. Failure by the Company to obtain, or the loss or
suspension of, any necessary licenses, approvals or suitability
findings would prevent or restrict the Company from operating,
selling or distributing its products in the applicable
jurisdictions. Such failure or loss could have a material adverse
effect on the Company.
In the event gaming authorities determine that an officer,
director, key employee, stockholder or other person of the Company
is unsuitable to act in such a capacity, the Company will be
required to terminate its relationship with such person or lose
its operating rights and privileges in that jurisdiction. In
either case, this will likely have a material adverse effect on
the Company. Such a finding of unsuitability could have a
material adverse effect on the Company. There can be no assurance
that the Company or its subsidiaries will obtain all the necessary
licenses and approvals or that its officers, directors, key
employees, their affiliates and certain other stockholders will
satisfy the suitability requirements in each jurisdiction in which
its products are sold or used by persons licensed to conduct
gaming activities. The failure to obtain such licenses and
approvals in one jurisdiction may affect the Company's licensure
and/or approvals in other jurisdictions. In addition, a
significant delay in obtaining such licenses and approvals could
have a material adverse effect on the business prospects of the
Company.
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The Company's products, B2B Roulette and Nevada Numbers, are
generally classified as "associated equipment." Associated
equipment is equipment that is not classified as a "gaming
device," but which has such an integral relationship to the
conduct of licensed gaming that regulatory authorities have
discretion to require suppliers of such systems to meet licensing
suitability requirements prior to or concurrent with the use of
such equipment in the respective jurisdiction. Regulatory
authorities generally must approve associated equipment in
advance.
The Company, or its distributor, has complied in all material
respects with the associated equipment approval process in each
jurisdiction in which it has sold B2B Roulette and Nevada Numbers.
Although the Progressive Jackpot version of B2B Roulette is
generally classified as "associated equipment," the proposed
participation by the Company in the revenues of the Progressive
Jackpot version of B2B Roulette will require the licensure of the
Company and its officers, directors and key employees. The Company
has not as yet obtained such a license.
Nevada Regulatory Issues
The Company is subject to the Nevada Gaming Control Act (the
"Nevada Act"), and to the licensing and regulatory control of the
Nevada State Gaming Control Board (the "Nevada Board"), the Nevada
Gaming Commission (the "Nevada Commission"), and various local,
city and county regulatory agencies (collectively, the "Nevada
Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy
which are concerned with, among other things: (1) the character of
persons having any direct or indirect involvement with gaming to
prevent unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
(2) application of appropriate accounting practices and
procedures; (3) maintenance of effective control over the
financial practices and financial stability of licensees,
including procedures for internal fiscal affairs and the
safeguarding of assets and revenues; (4) record-keeping and
reporting to the Nevada Gaming Authorities; (5) fair operation of
games; and (6) the raising of revenues through taxation and
licensing fees.
Officers, directors and certain key employees of the Company may
be required to be licensed by the Nevada Commission, and employees
associated with gaming must obtain work permits which are subject
to immediate suspension under certain circumstances. An
application for licensure may be denied for any cause deemed
reasonable by the issuing agency. Changes in licensed positions
must be reported to the issuing agency. In addition to its
authority to deny an application for a license, the Nevada
Commission has jurisdiction to disapprove a change in position by
such officer, director or key employee. The Nevada Commission has
the power to require licensed gaming subsidiaries to suspend or
dismiss officers, directors or other key employees and to sever
relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in
such capacities.
The Nevada Commission may also require anyone having a material
relationship or involvement with the Company to be found suitable
or licensed, in which case those persons are required to pay the
costs and fees of the Nevada Board in connection with the
investigation. Any person who
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acquires more than 5% of the Company's voting securities must report
the acquisition to the Nevada Commission; any person who becomes a
beneficial owner of 10% or more of the Company's voting securities
will be required to apply for a finding of suitability. Under certain
circumstances, an "Institutional Investor," as such term is defined
in the regulations of the Nevada Commission, which acquires more
than 10% but not more than 15% of the Company's voting securities,
may apply to the Nevada Commission for a waiver of such finding of
suitability requirements, provided the institutional investor
holds the voting securities for investment purposes only.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission may be found unsuitable. The same
restrictions apply to a beneficial owner if the record owner,
after request, fails to identify the beneficial owner. Any
security holder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the Common Stock beyond
such period of time as may be prescribed by the Nevada Commission
may be guilty of a gross misdemeanor. The Company is subject to
disciplinary action if, after it receives notice that a person is
unsuitable to be a security holder or to have any other
relationship with the Company, the Company: (1) pays that person
any dividend or interest upon voting securities of the Company;
(2) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; or
(3) gives remuneration in any form to that person. If a security
holder is found unsuitable, the Company may itself be found
unsuitable if it fails to pursue all lawful efforts to require
such unsuitable person to relinquish his or her voting securities
for cash at fair market value. Additionally, the Clark County
authorities have taken the position that they have the authority
to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require holders of a
debt or equity security of a corporation registered under the
Nevada Act to file applications, be investigated and be found
suitable to own the debt or equity security of a registered
corporation. The applicant security holder is required to pay all
costs of such investigation. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to
the regulations of the Nevada Commission, the registered
corporation may be sanctioned, including the loss of its
approvals, if, without the prior approval of the Nevada
Commission, it: (1) pays to the unsuitable person any dividends,
interest or any distribution whatsoever; (2) recognizes any voting
right by such unsuitable person in connection with such
securities; (3) pays the unsuitable person remuneration in any
form; or (4) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or
similar transaction.
The Company is required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Commission at any time,
and to file with the Nevada Commission, at least annually, a list
of its stockholders. If any securities are held in trust by an
agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada
Commission. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company will also be
required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power to
require the Company's stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act and
the
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regulations of the Nevada Commission. However, to date, the
Nevada Commission has not imposed such a requirement on the
Company.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or
retire or extend obligations incurred for such purposes. Also,
changes in control of the Company through merger, consolidation,
acquisition of assets, management or consulting agreements or any
form of takeover cannot occur without prior investigation by the
Nevada Board and approval of the Nevada Commission.
Pursuant to Nevada law, the Company and its affiliates, including
any subsidiaries, may engage in gaming activities outside Nevada
("foreign gaming") without seeking the approval of the Nevada
Commission provided that such activities are lawful in the
jurisdiction where they are to be conducted and that certain
information regarding the foreign operation is provided to the
Nevada Board on a periodic basis. The Company may be disciplined
by the Nevada Commission if it knowingly violates any laws of the
foreign jurisdiction pertaining to the foreign gaming operation,
fails to conduct the foreign operation in accordance with the
standards of honesty and integrity required by Nevada gaming
regulations, engages in activities that are harmful to the State
of Nevada or its ability to collect gaming taxes and fees, or
employs a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the ground of
unsuitability.
Other Jurisdictions
Although the regulatory schemes in other jurisdictions are not
identical, their material attributes are substantially similar, as
described below.
The manufacture, sale and distribution of gaming devices and the
ownership and operation of gaming facilities in each jurisdiction
are subject to various provincial, state, county and/or municipal
laws, regulations and ordinances, which are administered by the
relevant regulatory agency or agencies in that jurisdiction (the
"Gaming Regulators"). These laws, regulations and ordinances
primarily concern the responsibility, financial stability and
character of gaming equipment manufacturers, distributors and
operators, as well as persons financially interested or involved
in gaming or liquor operations.
In many jurisdictions, manufacturing or distributing gaming
supplies may not be conducted unless proper licenses are first
obtained. An application for a license may be denied for any
cause, which the Gaming Regulators deem reasonable. In order to
ensure the integrity of manufacturers and suppliers of gaming
supplies, most jurisdictions have the authority to conduct
background investigations of the Company, its key personnel and
significant stockholders. The Gaming Regulators may at any time
revoke, suspend, condition, limit or restrict a license for any
cause deemed reasonable by the Gaming Regulators. Fines for
violation of gaming laws or regulations may be levied against the
holder of a license and persons involved.
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Federal Regulation
The Federal Gambling Devices Act of 1962 (the "Johnson Act") makes
it unlawful, in general, for a person to manufacture, deliver, or
receive gaming machines, gaming machine type devices and
components across state lines or to operate gaming machines unless
that person has first registered with the Attorney General of the
United States.
The Company has complied with such registration requirements. In
addition, the Johnson Act imposes various record keeping equipment
identification requirements. Violation of the Johnson Act may
result in seizure and forfeiture of the equipment, as well as
other penalties.
The Company is required to renew its registration annually.
Native American Gaming Regulation
Gaming on Native American lands, including the terms and
conditions under which gaming equipment can be sold or leased to
Native American tribes, is or may be subject to regulation under
tribal ordinances, the terms of compacts between the tribe and the
host state, the Indian Gaming Regulatory Act of 1988 ("IGRA"),
which is administered by the National Indian Gaming Commission
(the "NIGC") and the Secretary of the U.S. Department of the
Interior (the "Secretary"), and also may be subject to the
provisions of certain statutes relating to contracts with Native
American tribes, which are administered by the Secretary. The
regulations and guidelines under which the NIGC and the Secretary
will administer IGRA are incomplete and evolving. IGRA also is
subject to interpretation by the NIGC and the Secretary, and may
be subject to judicial and legislative clarification or amendment.
IGRA prohibits substantially all forms of commercial gaming on
Native American lands, including gaming involving slot machines
and gaming devices, unless: (1) the tribe on whose lands the
gaming will take place has adopted an ordinance which has been
approved by the NIGC authorizing and regulating such gaming, and
(2) the state in which the gaming will take place permits such
gaming by any person for any purpose. If the commercial gaming
involves slot machines and gaming devices, IGRA also requires that
the tribe and the state have entered into a written agreement (a
"tribal-state compact") that specifically authorizes such types of
commercial gaming, and that has been approved by the Secretary,
with notice of such approval published in the Federal Register.
Tribal-state compacts vary from state to state. Many require that
equipment suppliers meet ongoing registration and licensing
requirements of the state and/or the tribe, some establish
equipment standards that may limit or prohibit the placement of
progressive games on Indian lands, and some impose background
check requirements on the officers, directors, and shareholders of
gaming equipment suppliers.
In addition to federal and state governmental requirements
pertaining to gaming on Native American lands, Native American
tribes are sovereign nations with their own courts and
governmental systems. Under IGRA, tribes are required to regulate
all commercial gaming under
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ordinances approved by the NIGC. Such ordinances may impose
standards and technical requirements on gaming hardware and software,
and may impose registration, licensing, and background check
requirements on gaming equipment suppliers and their officers,
directors, and shareholders.
Because of their sovereign status, Native American tribes possess
sovereign immunity from suit. The Company intends to seek waivers
of such immunity, where appropriate, from tribes with whom the
Company does business, but there can be no assurance that such
waivers will be obtained. If they are not, the extent of the
Company's ability to enforce its agreements with Native American
tribes will be severely circumscribed.
Under doctrines enunciated by the Supreme Court of the United
States, federal and state courts are obliged, as a matter of law,
to defer to the jurisdiction of tribal courts in litigation where
tribal interests are substantially involved and where tribal
courts may have jurisdiction. In such instances, if a tribal court
hears the litigation, its determinations likely will be entitled
to great deference in any state or federal court that later might
be asked to hear the matter. These facts may affect the ability of
the Company to effectively enforce its agreements with Native
American tribes.
In addition to the foregoing, two federal statutes may have
applicability to commercial gaming contracts with Native American
tribes:
(a) Title 25, Section 81, of the United States Code states that
"no agreement shall be made by any person with any tribe of
Indians, or individual Indians not citizens of the United States,
for the payment or delivery of any money or other thing of value .
. . in consideration of services for said Indians relative to
their lands... unless such contract or agreement be executed and
approved" by the Secretary or his or her designee. Agreements for
services relative to Native American lands which fail to conform
with the requirements of this section will be void and
unenforceable, and all money or other things of value paid under
such void agreements is subject to judicial forfeiture in
litigation, which can be brought by any person, in the name of the
United States of America. The Company believes that sales of its
B2B and Nevada Numbers systems are not "relative to Native
American lands" because, although the Company's products
ultimately may be used on Native American lands, the products
themselves are not related to such lands, and give the Company no
control over such lands. To date, the Secretary has not asserted
that agreements for the sale of goods to Indian tribes require his
approval under Title 25, Section 81, United States Code.
(b) Title 25, Sections 261-264, United States Code (the "Indian
Trader Licensing Act" or "ITLA") creates a licensing requirement,
and states that "any person other than an Indian of the full blood
who shall attempt to reside in the Indian country, or on any
Indian reservation, as a trader, or to introduce goods, or to
trade therein, without such license, shall forfeit all merchandise
offered for sale to the Indians or found in his possession, and
shall moreover be liable to a Penalty of $500 . . ." The
applicability of ITLA to the Company's sale of systems on Native
American reservations is unclear.
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Application of Future or Additional Regulatory Requirements
The Company intends to seek the necessary registrations, licenses,
approvals and findings of suitability for the Company, its
products and its personnel in other jurisdictions throughout the
world where significant sales are anticipated to be made. However,
there can be no assurance that such registrations, licenses,
approvals or findings of suitability will be obtained or will not
be revoked, suspended or conditioned or that the Company will be
able to obtain the necessary approvals for its future products as
they are developed in a timely manner, or at all. If a
registration, license, approval or finding of suitability is
required by a regulatory authority and the Company fails to seek
or does not receive the necessary registration, license, approval
or finding of suitability, the Company may be prohibited from
selling its products for use in the respective jurisdiction or may
be required to sell its products through other licensed entities
at a reduced profit to the Company.
RISK FACTORS
The Company faces risks in executing its business plan and
achieving revenues. The following risks are material risks which
the Company faces. If any of the following risks occur, the
business of the Company and its operating results and financial
condition could be seriously harmed.
1. The Company's Short Operating History Makes Its Business
Difficult To Evaluate
The Company was incorporated on April 28, 1998 and it has no
operating history or experience in developing, manufacturing,
marketing or distributing casino games or related supplies upon
which to base any projection as to the likelihood that the Company
will prove successful. Thus, there can be no assurance that the
Company will achieve profitable operations or even generate any
operating revenues.
Potential investors should be aware that there is a substantial
risk of failure associated with new businesses as a result of
problems encountered in connection with their formation and
commencement. These include, but are not limited to,
unanticipated problems relating to the marketing and sale of a new
service in the marketplace, the entry of new competition and
unknown or unexpected additional costs and expenses that may
exceed current estimates.
Accordingly, the Company's business and prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of
development, particularly companies in rapidly evolving markets
such as gaming equipment. To address these risks, the Company must
successfully implement its business plan and marketing strategies.
The Company may not successfully implement all or any of its
business strategies or successfully address the risks and
uncertainties that it encounters.
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2. Market Risks
Any time a new product or service is introduced into a market, as
in the case of the gaming products being offered by the Company,
there is a substantial risk that sales will not meet expectations
or even cover the cost of operations. General market conditions
might be such that sales will be slow or even non-existent, and/or
the product itself might not fit the needs of buyers enough to
induce sales. While the Company anticipates the ability to sell
its games to casinos, there is no way to predict the volume of
sales that will occur or even if sales will be sufficient to
support the future operations of the Company. Numerous factors
beyond the control of the Company may affect the marketability of
its gaming products. These factors include consumer demand, market
fluctuations, the proximity and capacity of suppliers and
government regulations, including regulations relating to gaming,
taxes, royalties, insurance, and other controls. The exact effect
of these factors cannot be accurately predicted, but it is
possible they may result in the Company not receiving an adequate
return on its invested capital.
To achieve commercial success, the Company's products must be
accepted by both casino operators and gaming patrons. To date, the
Company through arrangements with Imagineering is completing the
development and production of Nevada Numbers. With respect to B2B
Roulette, the Company has installed a number of the Fixed Jackpot
version of B2B Roulette in two different casinos in Nevada and
Mississippi. Because acceptance of the game by casino operators
will ultimately depend on revenue per table, the game's success
will depend on player acceptance. There can be no assurance that
casino patrons will accept the games sold by the Company. With
respect to Nevada Numbers, although it is a variation of keno, a
long-standing casino game, there can be no assurance that casino
patrons will accept Nevada Numbers.
In addition, there is a market risk specific to sellers of
proprietary games offered to casino operators, like those that the
Company intends to offer. Proprietary games are games where the
equipment supplier retains ownership of the gaming equipment and
leases or co-ventures the game itself to the casino. Casino
operators have been careful about adding proprietary games to
their floors since they are required by contract to pay a portion
of their revenues to the equipment suppliers. To compensate for
sharing their revenue, casino operators generally will not install
proprietary games unless those games have the ability to generate
substantially more than the average game of its type in that
casino. The additional revenue offered by proprietary games must
at least offset the payments to the equipment suppliers. Still,
casino operators prefer to own game equipment fearing that the
proprietary games are just taking revenue away from casino-owned
games, rather than increasing overall revenue.
3. Jackpot Risk
There is a risk that a person may win a jackpot on one of the
Company's games before sufficient revenue is generated to
compensate for the payment. In order to protect against this risk
the Company expects to self-insure by placing a substantial sum of
money into an account designated for use in the event that ticket
sales from a game are insufficient to cover any jackpot won. In
the event and to the extent that the money placed in this self-
insurance account is insufficient to insure
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against the full existing jackpot risks faced by the Company, the
Company intends to purchase independent insurance to cover this
uncovered marginal risk. The Company has developed an on-going
working relationship with SCA Promotions Inc. ("SCA"), the largest mega
jackpot broker in the United States. SCA has arranged for an insurance
company to insure the Company for any jackpot risks that may exist as a
result of the Company's Nevada Numbers game. The $2 million
jackpot is payable in twenty or more equal annual installments.
No interest is paid to the player.
4. The Company Has Limited Revenues
To date, the Company has derived only a limited amount of revenues
from the offering of its games. Future revenues will depend on
the Company's ability to successfully market existing products and
to develop new products.
The Company plans to derive some of its revenue through revenue
participation with casinos. Gross revenues are subject to
substantial reduction due to the Company's sharing commitments.
For example, revenue from keno ticket sales from the Company's
progressive keno games must be divided among the casino,
insurance, the progressive jackpot, marketing/advertising, and
player winnings. Royalties per ticket sold must also be paid to
Imagineering for software it has developed for the Company.
5. Operating Results Are Difficult To Predict
The Company's future financial results are uncertain due to a
number of factors, many of which are outside the Company's
control. These factors include:
a) The uncertainty over whether the Company will reach
agreements to place its equipment in various casinos and upon
what terms;
b) The amount and timing of costs relating to development of the
Company's products;
c) The announcement or introduction of competing products of
competitors;
d) The uncertainty associated with obtaining a license in the
state of Nevada and any other state it later sells its games;
and
e) General economic conditions and economic conditions specific
to the gaming industry.
6. The Need for Additional Financing
The Company may require additional financing in order to complete
its business plan. The Company has no agreements for additional
financing and there can be no assurance that additional funding
will be available to the Company on acceptable terms if necessary.
If funding is not made available as and when necessary, the
Company will not be able to continue operations.
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7. The Company Depends On Its Key Employees
The operation of the Company depends to a significant degree on
the efforts of its officers and directors, particularly the
efforts of Russell Roth, Gary Baldwin, Mark Valenti and Bill
Williams. The Company's officers and employees are bound by non-
competition agreements and/or have significant ownership interests
in the Company beyond their employment. Even so, there is no
assurance that officers and employees will not leave the Company
or compete against the Company in the future. The Company's
failure to attract additional qualified employees or to retain the
services of key personnel could have a material adverse effect on
the Company's operating results and financial condition.
8. Limited Protection of Intellectual Property Rights and the Risk
of Litigation
The Company's gaming products are proprietary in nature and the
Company relies primarily on a combination of patent, trademark,
copyright and trade secret laws as well as
confidentiality/nondisclosure agreements to protect its
proprietary rights in these products. The inventors of Nevada
Numbers (and related keno games) and B2B Roulette have applied for
a United States patent with respect to the method of play and
apparatus of these games, and such applications have been assigned
to the Company. Even though applications have been made, there can
be no assurance that such patents will be issued or, if issued,
that such patents will not be challenged. Further, the protections
offered by patent, trademark, copyright and trade secret laws
might not prevent a competitor from designing games that have an
appearance and functionality that closely resembles B2B Roulette
or Nevada Numbers. Also, the defense of intellectual property
rights can be difficult and costly. There can thus be no assurance
that the Company will be able to protect effectively its
intellectual property rights from misappropriation by competitors.
In addition, as the number of software products in the gaming
industry increases and the functionality of these products further
overlaps, software developers and publishers may increasingly
become subject to infringement claims. The Company may also become
subject to such infringement claims, regardless of merit, that are
brought by competitors or others. Although the Company is not
currently aware of any infringement claim against it, there can be
no assurance that the Company will not face such claims in the
future. Any such infringement claim, litigation arising from such
infringement claim and/or the eventual resolution of such
infringement claim - particularly if adverse to the Company --
would be costly and result in a diversion of management's
attention from the Company's operations, and may have a material
adverse effect on the Company's business and financial condition.
9. Limited Manufacturing Experience
In order for the Company to be successful, the Company's products
must be manufactured to meet high quality standards, in commercial
quantities, at competitive prices. The commercial manufacturing of
the Company's games by its' contract manufacturers involves
various risks and uncertainties including unforeseen costs or
assembly difficulties and the possibility that anticipated
efficiencies or economies of scale will fail to materialize. There
is no assurance that the Company
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will successfully manage this process, which may result in a material
adverse effect on the Company's business, operating results and financial
condition.
10. Dependence on Single-Source Suppliers
The Company currently intends to obtain certain components of its
B2B Roulette game from one supplier. In particular, Technical
Casino Supplies, Ltd. (TCS) of London, England will be supplying
the tracking control system the Company presently intends to use
in B2B Roulette. The Company has also entered into an agreement
with Imagineering Systems, Inc. to supply equipment and
programming skills for its Nevada Numbers games. The failure by
any supplier to furnish the Company with any such components
meeting the Company's performance specifications, quality
standards or delivery schedules could have a material adverse
effect on the Company's business, financial condition and results
of operation.
11. Possible Slowing in Trend to Legalize Gaming
The opening of new casinos, including casinos in jurisdictions
where gaming has recently been legalized, historically has driven
growth in demand for roulette and Keno games. There can be no
assurance that the recent trend among U.S. jurisdictions to
legalize casino gaming will continue and that the current prospect
of new jurisdictions legalizing gaming will not be reduced. A
reduction in the growth of the gaming industry in terms of new
casino openings, and casino expansions in existing and emerging
legalized gaming jurisdictions would have a material adverse
effect on the Company's business, financial condition and results
of operation.
In addition, a stagnation or downturn in the economy of Nevada, or
any jurisdiction in which the Company operates, or even the United
States as a whole, could significantly depress the Company's
revenues and have a material adverse effect upon the Company. As
a non-diversified, start-up entity, the Company is particularly
vulnerable to adverse economic conditions. As a result of any
stagnation or a downturn in the economy, the Company could fail
and an investor could lose his or her entire investment.
12. Management of Growth
The Company's development to date has required, and is expected to
continue to require, the full utilization of the Company's
management, financial, and other resources, which to date has
occurred without adequate working capital. The Company's ability
to manage growth effectively will depend on its ability to improve
and expand its operations, including its financial and management
information systems, and to recruit, train and manage executive
staff and employees. There can be no assurance that management
will be able to manage growth effectively, and the failure to
effectively manage growth may have a material adverse effect on
the Company's results of operations.
25
<PAGE>
13. Active Public Market May Not Develop; Possible Volatility of
Stock Price
Currently, there is no public market for the Company's common
stock, and there can be no assurance that an active public market
for this stock will develop or sustained. Moreover, the trading
price of the Company's common stock, assuming the common stock is
accepted for trading in the future, could be subject to wide
fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new
products by the Company or its competitors and other events or
factors. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations that have had a
substantial effect on the market prices for many emerging
companies which may be unrelated to the operating performance of
the specific companies.
Item 7. Description of Property
The Company rents office space on a month to month basis at 3261
S. Highland Ave., Suite 613, Las Vegas, Nevada, 89109. The
Company also owns certain general office and gaming equipment and
its software rights described herein.
Item 8. Directors, Executive Officers and Significant Employees
The following information sets forth the names of the officers and
directors of the Company, their present positions with the
Company, and some brief information about their background. The
Company does not have a written employment agreement with any of
its officers or directors.
Name Age Office(s) Held
---- --- --------------
Russell R. Roth 53 President, Director
Gary G. Baldwin 48 Treasurer, Director
Mark F. Valenti 36 Secretary, Director
Bill R. Williams 65 Director
Russell R. Roth. Mr. Roth has been President, Chief Executive
Officer, Chief Financial Officer and Chairman of the Company since
April 1998. Since January 1995, Mr. Roth has been the feature
writer, editor and co-owner of the Las Vegas Investment Report and
has managed portfolios for a few select individuals. From
September 1994 to April 1996, Mr. Roth served as President of
National Investment & Tax Managers, Inc. From January 1987 to
April 1993, Mr. Roth served as Chief Financial Officer of
Sotheby's Holdings, Inc., an art auction company. At Sotheby's
Holdings, Inc., Mr. Roth spearheaded the Company's initial public
offering in 1988. From 1983 to 1986, Mr. Roth served as Chief
Financial Officer of Cessna Aircraft Company where
26
<PAGE>
Mr. Roth coordinated a successful merger of the Company with
General Dynamics Corp. From 1974 to 1983, Mr. Roth served in various
financial capacities for Rockwell International and the Bendix
Corporation. Mr. Roth received his Bachelors of Science in
Economics from the University of Kansas in 1968 and his Masters of
Business Administration from the University of Michigan in 1973.
Gary G. Baldwin. Mr. Baldwin has served as Executive Vice
President and Director of the Company since April 1998. On August
13, 1999, he was voted into the position of Treasurer by the board
of directors. Since April 1997, Mr. Baldwin has served as General
Manager of TJ Wholesale. From 1995 to 1996, Mr. Baldwin served as
General Manager of the Old Chicago Casino in Cripple Creek,
Colorado. From 1993 to 1995, Mr. Baldwin served as General Manager
of the St. Charles Riverfront Station in St. Charles, Missouri,
and a casino property owned by Station Casinos, Inc. From 1989 to
1993, Mr. Baldwin served as Assistant General Manager of the
Imperial Palace Hotel and Casino in Las Vegas, Nevada. From 1985
to 1989, Mr. Baldwin was co-owner of Norquist Construction
Company. From 1984 to 1985, Mr. Baldwin served as General Manager
of the Nevada Palace where he was licensed to participate in the
profits of the hotel-casino. From 1978 to 1984, Mr. Baldwin was
co-owner and served as General Manager/Casino Manager of the
Landmark Hotel and Casino in Las Vegas, Nevada. From 1975 to 1978,
Mr. Baldwin worked for the Nevada State Gaming Control Board as a
Senior Financial Investigative Agent. In this capacity, Mr.
Baldwin conducted and supervised major investigations throughout
the United States and Europe on behalf of the Nevada State Gaming
Control Board and worked with various federal, state and local
agencies, such as the Federal Bureau of Investigations, the Bureau
of Alcohol, Tobacco and Firearms, and state and local police
departments.
Over the past twenty years, Mr. Baldwin has been active in the
hotel-casino industry. Mr. Baldwin has been licensed on four
separate occasions by the Nevada Gaming Commission and on one
occasion by the Colorado gaming authorities. In addition, Mr.
Baldwin has also served as a gaming consultant to several Native
American Tribes, such as the Sault Ste. Marie Tribe of Chippewa
Indians, for the past fifteen years. Mr. Baldwin received his
Bachelors of Arts in Business Management from Biscayne College in
Miami, Florida. Mr. Baldwin also received his Bachelors of Science
in Accounting and his Masters of Business Administration from the
University of Nevada-Las Vegas in 1974 and 1976, respectively.
Mark F. Valenti. Mr. Valenti has served as Executive Vice
President and Director of the Company since April 1998. Since
October 1997, Mr. Valenti has served as Vice President of Business
Development of B2B where he developed B2B Roulette and
successfully secured test sites and approvals for B2B Roulette.
From June 1994 to November 1997, Mr. Valenti served as Director of
Business Development for Hospitality Network, Inc. in Las Vegas,
Nevada. From April 1991 to June 1994, Mr. Valenti served as
General Manager of the Hampton Inn at Overland Park, Kansas. From
January 1991 to April 1991, Mr. Valenti served as Assistant
General Manager of the Holiday Inn at Syracuse, New York. From
August 1989 to January 1991, Mr. Valenti served as General Manager
of the Holiday Inn at Westwood-Los Angeles, California. From 1986
to 1989, Mr. Valenti worked in the hotel-hospitality industry in
management-related capacities for various hotel properties. Mr.
Valenti received his Bachelors of Science in Hotel Administration
from the
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<PAGE>
University of Nevada-Las Vegas in 1985 and his Bachelors
of Science in Economics from the University of Nevada-Las Vegas in
1986.
Bill R. Williams. Mr. Williams was elected to the Board of
Directors on November 2, 1999, at the Company's Annual Meeting.
Mr. Williams is President of Imagineering Systems, Inc., a keno
manufacturing and marketing company. Mr. Williams originally
founded Imagineering's partnership in 1970, and then sold the
company in 1978 to Advanced Media Technology, which then sold the
company to Intermark Imagineering, Inc. in 1986. Mr. Williams
retired in 1988. Since 1992, when Mr. Williams re-purchased the
company and incorporated Imagineering Systems, Inc., he has been
responsible for the day to day operations of this business. Mr.
Williams is also President of Keno International, which is based
in Reno, Nevada.
The Company does not have any written employment agreements with
its officers or directors.
Terms of Office
Directors of the Company are appointed for one year terms to hold
office until the next annual general meeting of the shareholders
or until removed from office in accordance with the Company's by-
laws. Officers of the Company are appointed by the Company's
board of directors and hold office until removed by the board.
Item 9. Remuneration of Directors and Officers
The following table sets forth certain information as to the
Company's three highest paid officers and directors for its last
fiscal year ended December 31, 1999. No other compensation was
paid to any such officers or directors during this time period.
Summary Compensation Table
Name of Individual or Capacities in which Aggregate
Identity of Group Remuneration was Received Remuneration
--------------------- ------------------------- ------------
Russell R. Roth Director and President $ 0.00
Gary G. Baldwin Director and Treasurer $ 41,000.00
Mark Valenti Director and Secretary $ 38,500.00
Bill R. Williams Director $ 0.00
Officers and Directors Directors and Officers $ 79,500.00
of the Company as a Group
--------------------------------------------------------------------
28
<PAGE>
Item 10. Security Ownership of Management and Certain Security
Holders
The following table sets forth, as of May 31, 1999, the beneficial
ownership of the Company's common stock by each person known by
the Company to beneficially own more than 10% of the Company's
common stock outstanding as of such date and by the officers and
directors of the Company as a group. Except as otherwise
indicated, all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class(1)
-------------- ------------------- -------------------- -----------
Common Russell R. Roth 696,500(2) 15.53%
3261 S. Highland Ave.
Suite 613
Las Vegas, Nevada 89109
Common Gary G. Baldwin 499,500(3) 11.13%
3261 S. Highland Ave.
Suite 613
Las Vegas, Nevada 89109
Common Mark Valenti 467,577(4) 10.42%
3261 S. Highland Ave.
Suite 613
Las Vegas, Nevada 89109
Common Bill R. Williams 32,000 .71%
3261 S. Highland Ave.
Suite 613
Las Vegas, Nevada 89109
Total of all officers and directors 1,695,577 37.79%
----------------------------------------------------------------------------
(1) Based on 2,805,700 shares of common stock issued and
outstanding on 5-31-00, plus 1,680,550 issued options and
warrants which are immediately exercisable.
(2) This includes warrants and options to purchase 376,500 shares
of the Company's common stock on 5-31-00 at prices between
$0.50 and $3.00 per share.
(3) This includes options to purchase 304,400 shares of the
Company's common stock on 5-31-00 at prices between $0.50 and
$3.00 per share.
(4) This includes options to purchase 294,400 shares of the
Company's common stock on 5-31-00 at prices between $0.50 and
$3.00 per share.
Share Purchase Warrants
There are outstanding warrants to purchase 38,000 shares of common
stock at a price of $2 per share.
29
<PAGE>
Options
The Company established a stock option plan in April of 1998 under
which it issued options to purchase 1,600,000 shares of the
Company's common stock at prices ranging between $0.50 to $1.00
per share. In December 1999, the board of directors decided to
discontinue issuing stock options under its 1998 stock option
plan. In January 2000, the Board of Directors approved a new
stock option plan under which it issued options to purchase 42,550
shares of the Company's common stock at a price of $3.00 per
share.
Convertible Securities
The Company has not issued and does not have outstanding any
securities convertible into shares of common stock or any rights
convertible or exchangeable into shares of common stock
Preferred Stock
On June 6, 2000, the Company filed an amendment to its articles of
incorporation with the Nevada Secretary of State's office to allow
for the creation of preferred stock. The company plans to offer a
form of preferred stock in a private offering to investors, but
has not, as yet, issued or offered any such stock.
Item 11. Interest of Management and Others in Certain
Transactions
Except as disclosed below, none of the following persons has any
direct or indirect material interest in any transaction to which
the Company is a party since the incorporation of the Company on
April 28, 1998 or in any proposed transaction to which the Company
is proposed to be a party:
(A) Any director or officer of the Company;
(B) Any proposed nominee for election as a director of the
Company;
(C) Any person who beneficially owns, directly or
indirectly, shares carrying more than 10% of the voting
rights attached to the Company's Common Stock; or
(D) Any relative or spouse of any of the foregoing persons,
or any relative of such spouse, who has the same house
as such person or who is a director or officer of any
parent or subsidiary of the Company.
1. Option rights issued to the officers and directors under the
1998 and 2000 Stock Option Plans, including options to purchase
920,000 shares under the Company's 1998 stock option plan at a
price of between $0.50 to $1.00 per share, and, more recently,
options to purchase 30,300 shares of common stock under the
current 2000 stock option plan at a price of $3.00 per share.
2. In April 1998, Mr. Mark Valenti, a director and officer of
the Company, received 200,000 shares of the Company's common stock
in exchange for his intellectual property rights in the
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<PAGE>
Nevada Numbers Keno games valued by the Company at $12,500 and the
payment of $1,000. Mr. Valenti was also one of the shareholders
and an officer of Back To Back Gaming, Inc. and a party in that
company's sale of its Back to Back Roulette to Las Vegas Gaming.
3. In April 1998, Mr. Gary Baldwin, a director and officer of
the Company, received 200,000 shares of the Company's common stock
in exchange for his intellectual property rights in the names
"World Series of Video Poker" and "World Championship of Video
Poker" valued by the Company at $11,500 and the payment of $2,000.
4. In April 1998, Mr. Russ Roth and Mr. Ken Maul, both directors
and officers of the Company at the time, received 200,000 shares
of the Company's common stock each in exchange for the payment of
$13,500.
5. Mr. Russ Roth, the President and a director of the Company:
(a) In November of 1998, loaned the Company $25,000 for which
he received 50,000 shares of the Company's common stock as
repayment in February of 1999 when the Company did not repay the
amount due.
(b) In March of 2000, loaned the Company $100,000 which was
due and payable on or before April 30, 2000. This loan was not
re-paid by this due date which allowed Mr. Roth the option to
require the Company to repay this debt by issuing 50,000 shares of
common stock and 25,000 warrants exercisable at a price of
$2/share for a period of five year. Mr. Roth exercised his option
to receive the shares and warrants as payment on this loan.
6. Mr. Bill Williams, a director of the Company, is also a
director and the President of Imagineering Systems, Inc.. The
Company currently contracts with Imagineering to provide, develop
and other services for its keno software and equipment. In
addition, the Company has entered into the following arrangements
with Mr. Williams and/or Imagineering Systems:
(a) On August 12, 1999, the Company entered into an agreement for
the assignment of rights to install, operate, sell and lease
electronic Keno systems in Puerto Rico with Keno International,
Inc., a company in which Mr. Williams is an officer, director and
controlling shareholder. Under this agreement, the Company
promised that in exchange for the assignment of Keno
International's license and upon the activation of the first keno
game authorized under the license in Puerto Rico, it would:
a. distribute to Keno International 50,000 shares of its common
stock. Such stock will be marked restricted;
b. nominate Bill Williams to its board of directors, if he was
not already appointed;
c. pay a royalty fee of $5,000 per month until the trading
value of the common stock issued under item "a" equaled or
exceeded $2,000,000 and the stock could be traded under some
exemption or registration under the US securities laws, or
keno ceased to be played under the license (whichever came
first).
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<PAGE>
This agreement further provided that at the point in time when the
operation of the keno games under the license had obtained net
earnings of $1 million, the Company would distribute to Keno
International an additional 150,000 shares of its common stock.
Mr. Williams signed the assignment of the license rights to the
Company on behalf of Keno International, and has since been
appointed to the Company's board of directors.
(b) On August 12, 1999, the Company also entered into an agreement
for the set up and operation of a keno route in Nevada with Mr.
Williams and Carl Conti. Under this agreement, the Company
promised that in exchange for Mr. Williams' and Mr. Conti's
agreement to set up and operate a keno route in Nevada and assign
any rights they had to contracts with casinos in Puerto Rico, it
would:
a. distribute to them 50,000 shares of its common stock. Such
stock will be marked restricted;
b. nominate Bill Williams to its board of directors, if he was
not already appointed;
c. pay a royalty fee of $5,000 per month until the trading value
of the common stock issued under item "a" equaled or exceeded
$2,000,000 and the stock could be traded under some exemption
or registration under the US securities' laws, or the route
ceased to be operated (whichever came first).
This agreement further provided that at the point in time when the
operation of the Nevada route had obtained net earnings of $1
million, the Company would distribute to Mr. Williams and Mr.
Conti an additional 150,000 shares of its common stock.
(c) On November 18, 1999, the Company obtained an option to
acquire all of the shares of Imagineering owned by Mr. Williams
(which comprise approximately 54% of Imagineering's issued
shares). This option was obtained in exchange for a loan to Mr.
Williams from the Company in the amount of $25,000 and the promise
to deliver to Mr. Williams 150,000 shares of Las Vegas Gaming
Common Stock in the event the option is exercised. In the event
the option is not exercised by November 25, 2000, Mr. Williams is
required to re-pay this loan at 8% interest over a five year
period in semi-annual payments.
(d) On January 6, 2000, the Company entered into an agreement with
Mr. Williams and others to purchase all of their rights and
interest in the BonusKeno game, including but not limited to
certain hardware as well as software, trademark and logo rights.
These rights and items were obtained in exchange for 32,000 shares
of the Company's common stock.
Item 12. Securities Being Registered
The securities being registered are the shares of the Company's
common stock, par value $0.001 per share. Under the Company's
Articles of Incorporation, the total number of shares of all
classes of stock that the Company shall have authority to issue is
25,000,000 shares of common stock, par value $0.001 per share (the
"Common Stock"). As of May 31, 2000, a total of 2,805,700 shares
of Common Stock were issued and outstanding.
32
<PAGE>
Common Stock
Holders of Common Stock have the right to cast one vote for each
share held of record on all matters submitted to a vote of holders
of Common Stock, including the election of directors. Holders of
Common Stock do not have cumulative voting rights in the election
of directors. Holders of a majority of the voting power of the
capital stock issued and outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a
quorum at any meeting of the Company's stockholders, and the vote
by the holders of a majority of such outstanding shares is
required to effect certain fundamental corporate changes such as
liquidation, merger or amendment of the Company's Articles of
Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata
based on the number of shares held, when, as and if declared by
the Board of Directors, from funds legally available therefor. In
the event of the liquidation, dissolution or winding up of the
affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities
shall be distributed, pro rata, among the holders of the Common
Stock. Holders of Common Stock are not entitled to pre-emptive or
subscription or conversion rights, and there are no redemption or
sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-
assessable.
Transfer Agent
Pacific Stock Transfer Company is the transfer agent for the
Shares. Pacific Stock Transfer Company is located at 5844 South
Pecos Road, Suite D, Las Vegas, Nevada 89120.
33
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters
There is no present public market for the Company's Common Stock.
The Company anticipates applying to have the Common Stock traded
on the OTC Bulletin Board upon effectiveness of this registration
statement. There is no assurance that a public market will
materialize.
As of the date of this registration statement, there were one
hundred and seventy five (175) registered shareholders in the
Company.
None of the holders of the Company's Common Stock have any right
to require the Company to register any shares of the Company's
Common Stock pursuant to the Securities Act of 1933 (the "1933
Act").
The Company has not declared any dividends on its Common Stock
since its inception in April, 1998. There are no dividend
restrictions that limit the Company's ability to pay dividends on
Common Stock. Payment of dividends on the Common Stock is within
the discretion of the Board of Directors and will depend upon the
Company's future earnings, its capital requirements, financial
condition and other relevant factors. It should be noted that the
Company currently has no plan to declare any dividends in the
foreseeable future.
No common equity is subject to outstanding options or warrants to
purchase, or securities convertible into, common equity of the
Company.
Item 2. Legal Proceedings
The Company is not a party to any material legal proceedings, and
to the Company's knowledge no such proceedings are threatened or
contemplated.
Item 3. Changes in and Disagreements with Accountants
The Company has had no changes in or disagreements with its
accountants since its incorporation in April, 1998.
Item 4. Recent Sales of Unregistered Securities
On April 28, 1998, the Company completed the sale of 800,000
shares of its Common Stock to its four (4) initial officers and
directors under section 4(2) of the Securities Act in exchange for
a combination of cash and intellectual property rights. These
shares have been marked "restricted". See Item 11. Interest of
Management and Others in Certain Transactions.
34
<PAGE>
On July 21, 1998, the Company completed the sale of 1,364,000
shares of Common Stock to 19 investors for $.50 per share pursuant
to Rule 504 of Regulation D of the Securities Act. The offering
was completed to persons known to the officers and directors of
the Company.
On August 12, 1998, the Company and Back to Back Gaming, Inc.
entered into an asset purchase agreement in order to acquire all
of the assets of B2B. The Company purchased these assets, in part,
for 75,000 shares of its Common Stock at a deemed value of $0.50
per share. These shares were issued pursuant to Section 4(2) of
the 1933 Act and have been marked "restricted".
On December 29, 1998, the Company issued out 5,000 shares of
common stock to Blake Hewitt in exchange for $2,500 worth of
services at a deemed value of $0.50 per share. These shares were
issued pursuant to Section 4(2) of the 1933 Act and have been
marked "restricted".
In February 1999, the Company issued out 50,000 shares of common
stock to Russell Roth, the Company's President and a member of its
board of directors, in exchange for the cancellation of a $25,000
debt. These shares were issued pursuant to Section 4(2) of the
1933 Act and have been marked "restricted".
On February 25, 1999, the Company issued out 5,000 shares of
common stock to Nancy Roth and 3,000 shares of common stock to
Steve Bush in exchange for $4,000 worth of services at a deemed
value of $0.50 per share. These shares were issued pursuant to
Section 4(2) of the 1933 Act and have been marked "restricted".
On April 6, 1999, the Company completed the sale of 147,000 shares
of Common Stock to 24 investors for $1.00 per share pursuant to
Rule 504 of Regulation D of the Securities Act. The offering was
completed to persons known to the officers and directors of the
Company.
On July 29, 1999, the Company issued out 7,200 shares of common
stock to Steve Havens in exchange for $7,200 worth of services at
a deemed value of $1.00 per share. These shares were issued
pursuant to Section 4(2) of the 1933 Act and have been marked
"restricted".
On August 2, 1999, the Company completed the sale of 98,500 shares
of Common Stock to 16 investors for $1.00 per share pursuant to
Rule 504 of Regulation D of the Securities Act. The offering was
completed to persons known to the officers and directors of the
Company.
On October 25, 1999, the Company completed the sale of 36,500
shares of Common Stock to 5 investors for $2.00 per share
pursuant to Rule 504 of Regulation D of the Securities Act. The
offering was completed to persons known to the officers and
directors of the Company.
On November 24, 1999, the Company completed the sale of 25,500
shares of Common Stock to 12 investors for $3.00 per share
pursuant to Rule 504 of Regulation D of the Securities Act. The
offering was completed to persons known to the officers and
directors of the Company.
On December 13, 1999, the Company issued 2,600 shares of Common
Stock to 21 individuals as part of a prize at a golf tournament
promotion. The offering was completed to persons known to the
officers and directors of the Company. These shares were issued
pursuant to Section 4(2) of the 1933 Act and have been marked
"restricted".
35
<PAGE>
On December 21, 1999, the Company issued out 2,700 shares of
common stock to Steve Havens in exchange for $8,100 worth of
services at a deemed value of $3.00 per share. These shares were
issued pursuant to Section 4(2) of the 1933 Act and have been
marked "restricted".
On February 14, 2000, the Company issued out 100,000 shares of
common stock to 4 individuals at a deemed value of $3.00 per share
in exchange for the sale of the BonusKeno game to the Company.
One of the individuals was Bill Williams, a director of the
Company. These shares were issued pursuant to Section 4(2) of the
1933 Act and have been marked "restricted".
On March 30, 2000, the Company completed the sale of 23,700 shares
of Common Stock to 9 investors for $3.00 per share pursuant to
Rule 504 of Regulation D of the Act. The offering was completed
to persons known to the officers and directors of the Company.
On May 1, 2000, the Company issued out 50,000 shares of common
stock and 25,000 warrants to Russell Roth, the Company's President
and a member of its board of directors, in exchange for the
cancellation of a $100,000 debt. These shares were issued pursuant
to Section 4(2) of the 1933 Act and have been marked "restricted".
On May 17, 2000, the Company issued out 10,000 shares of common
stock to 2 individuals at a deemed value of $3.00 per share in
exchange for the sale of the Match Pair Bingo game to the Company.
These shares were issued pursuant to Section 4(2) of the 1933 Act
and have been marked "restricted".
Item 5. Indemnification of Directors and Officers
The officers and directors of the Company are indemnified as
provided under the Nevada Revised Statutes and the Bylaws of the
Company.
Under the NRS, director immunity from liability to a corporation
or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a corporation's articles of
incorporation (which is not the case with the Company's Articles
of Incorporation). Excepted from that immunity are: (i) a willful
failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law (unless the
director had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful); (iii) a transaction from which the director
derived an improper personal profit; and (iv) willful misconduct.
The Bylaws provide that the Company shall indemnify any person
made a party to an action by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he, his
testator or intestate, is or was a director, officer, or employee
of the Corporation, against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with
an appeal therein, except in relation to matters as to which such
person is adjudged to have breached his duty to the Company. The
Company will indemnify any person made a party to an action
against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and
36
<PAGE>
necessarily incurred as a result of such action, if such person
acted in good faith, for a purpose which he reasonably believed to
be in the best interests of the Company, and, in criminal actions,
had no reasonable cause to believe that his conduct was unlawful.
Such rights of indemnification do not exclude other rights to
which such person may be entitled.
Any indemnification shall be made by the Company only as
authorized in the specific case upon a determination that
indemnification of the Director, Officer, employee, or agent is
proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the above paragraphs.
37
<PAGE>
PART F/S
FINANCIAL STATEMENTS
Attached to this registration statement are the audited financial
statements of the Company for the period from inception (April 28,
1998) to December 31, 1999 and unaudited financial statements for
the period from January 1, 2000 to March 31, 2000 including:
(a) Balance Sheet;
(b) Statement of Operations;
(c) Statement of Stockholders' Equity;
(d) Statement of Cash Flows;
(e) Notes to Financial Statements.
38
<PAGE>
LAS VEGAS
GAMING, INC.
(A Development
Stage
Enterprise)
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM INCEPTION
(APRIL 28,
1998) TO
DECEMBER 31,
1999 AND THE
PERIOD ENDED
MARCH 31, 2000
<PAGE>
LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
FOR THE PERIOD FROM INCEPTION (APRIL 28, 1998) TO DECEMBER 31,
1999 AND THE PERIOD ENDED MARCH 31, 2000
CONTENTS
PAGE
Independent auditors' report 1
Financial statements:
Balance sheet 2
Statements of operations 3
Statement of stockholders' equity 4
Statements of cash flows 5
Notes to financial statements 6-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Las Vegas Gaming, Inc.
Las Vegas, Nevada
We have audited the balance
sheet of Las Vegas Gaming,
Inc. (a development stage
enterprise) as of December 31,
1999, and the related
statements of operations,
stockholders' equity and cash
flows for the year then ended
and for the period from
inception (April 28, 1998) to
December 31, 1998. 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 audit.
We conducted our audits in
accordance with generally
accepted auditing standards.
Those standards require that
we plan and perform the audits
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 positions of Las
Vegas Gaming, Inc. as of
December 31, 1999, its results
of development stage
operations and its cash flows
for the periods presented 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 discussed in Note 9, the
Company's ability to commence
full operations is dependent
upon the successful completion
of its public offering and
obtaining other sources of
capital to fund the
development and marketing of
its products. This condition
raises substantial doubt as to
the Company's ability to
continue as a going concern.
Management's plans in regard
to this matter are also
described in Note 9. The
financial statements do not
include any adjustments that
might result from the outcome
of this uncertainty.
Piercy, Bowler, Taylor & Kern
January 28, 2000
Las Vegas, Nevada
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
BALANCE SHEET
December 31, March 31,
1999 2000
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash 19,545 46,982
Accounts receivable 1,741 2,633
----------- -----------
21,286 49,615
----------- -----------
Equipment and software,
less accumulated depreciation of
$112,731 and $133,470 173,446 152,707
----------- -----------
OTHER ASSETS:
Patents and other intangibles, net 196,778 403,945
Loan receivable 25,000 25,000
Deposits 1,242 1,242
----------- -----------
223,020 430,187
----------- -----------
$ 417,752 $ 632,509
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 32,545 $ 33,200
Accounts payable 75,483 6,861
Loans from shareholders 100,000
----------- -----------
108,028 140,061
----------- -----------
Long-term debt, less current maturities 54,937 46,396
----------- -----------
Stockholders' equity:
Common stock, $.001 par,
25,000,000 shares authorized,
2,619,300 and 2,745,700 shares issued
and outstanding 2,619 2,746
Additional paid-in capital 1,103,013 1,482,086
Deficit accumulated during development stage (850,845) (1,038,780)
----------- -----------
254,787 446,052
----------- -----------
$ 417,752 $ 632,509
=========== ===========
See notes to financial statements.
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD FROM INCEPTION
(APRIL 28, 1998) TO DECEMBER 31, 1998, THE THREE MONTHS ENDED
MARCH 31, 2000 AND THE CUMULATIVE PERIOD FROM INCEPTION TO MARCH
31, 2000
Unaudited
-----------------------
Three
From Months From
Inception to Ended Inception to
December 31, March 31, March 31,
1999 1998 2000 2000
------- ------------ ----------- ------------
Sales 33,788 31,952 153,707 219,447
General and
Administrative
Expenses (377,148) (350,982) (341,642) (1,069,772)
Write-down of
patents and
intangibles (120,000) (120,000)
Write-off of
purchase option (75,000) (75,000)
Interest income 640 5,905 6,545
------- ------------ ----------- ------------
Net loss (342,720) (508,125) (187,935) (1,038,780)
======= ============ =========== ===========
See notes to financial statements.
3
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD FROM INCEPTION
(APRIL 28, 1998) TO DECEMBER 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 2000 (Unaudited)
Deficit
Accumulated
Additional during
Common stock paid-in development
------------------
Shares Par value capital stage Total
------ --------- ---------- ----------- -------
Common shares sold
in 1998 to:
Officers and
directors 1,000,177 $ 1,000 $ 153,000 $154,000
Others 1,243,823 1,244 620,756 622,000
Offering costs (29,248) (29,248)
Net loss (508,125)(508,125)
------ --------- ---------- ----------- -------
Balances, December
31, 1998 2,244,000 2,244 744,508 (508,125) 238,627
Common shares sold
in 1999 to:
Officers and
directors 50,100 50 25,250 25,300
Others 325,200 325 413,875 414,200
Offering costs (80,620) (80,620)
Net loss (342,720)(342,720)
------ --------- ---------- ----------- -------
Balances, December
31, 1999 2,619,300 $ 2,619 $1,103,013 $ (850,845)$254,787
Balances from January 1 through March 31, 2000 (Unaudited):
Common shares sold
in 2000 to:
Officers and
directors 32,000 32 95,968 96,000
Others 94,400 95 283,105 283,200
Net loss (187,935)(187,935)
------ --------- ---------- ----------- -------
Balances, March
31, 2000
(Unaudited) 2,745,700 2,746 1,482,086 (1,038,780)$446,052
========= ========= ========= =========== =======
See notes to financial statements.
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD FROM INCEPTION
(APRIL 28, 1998) TO DECEMBER 31, 1998, THE THREE MONTHS ENDED
MARCH 31, 2000 AND THE CUMULATIVE PERIOD FROM INCEPTION TO MARCH
31, 2000
Unaudited
-----------------------
Three
From Months From
Inception to Ended Inception to
December 31, March 31, March 31,
1999 1998 2000 2000
------- ------------ ----------- ------------
Operating activities:
Net loss $(342,720) $ (508,125) $ (187,935) $(1,038,780)
Adjustments to
reconcile net loss
to net cash used in
operating activities:
Depreciation and
Amortization 163,212 66,741 53,572 283,525
Write-down of patents
and intangibles and
write-off of purchase
option 195,000 195,000
Compensation for services
with common stock 19,000 2,500 8,100 29,600
Change in operating assets
(increase) and liabilities
(decrease):
Accounts and note
Receivable 20,233 (21,974) (892) (2,633)
Deposits 3,346 (4,588) (1,242)
Accounts payable (23,328) (38,811) (8,622) (6,861)
------- ------------ ----------- ------------
Net cash used in
operating activities (160,257) (231,635) (135,777) (527,669)
------- ------------ ----------- ------------
Investing activities:
Deferred offering costs (80,620) (29,248) (109,868)
Purchase of equipment (62,662) (51,864) (114,526)
Purchase of intangible
Assets (10,000) (340,000) (350,000)
Purchase option
Acquisition (75,000) (75,000)
------- ------------ ----------- ------------
Net cash used in
investing activities (153,282) (496,112) - (649,394)
------- ------------ ----------- ------------
Financing activities:
Proceeds from sale of
common stock 395,500 712,000 71,100 1,178,600
Repayment of
Borrowings (46,669) (7,886) (54,555)
Loan to seller of
purchase option (25,000) (25,000)
Borrowing from
Stockholder 25,000 100,000 125,000
------- ------------ ----------- ------------
Net cash provided by
financing activities 323,831 737,000 163,214 1,224,045
------- ------------ ----------- ------------
Increase (decrease)
in cash 10,292 9,253 27,437 46,982
Balance, beginning
of period 9,253 19,545
------- ------------ ----------- ------------
Balance, end of
Period 19,545 9,253 46,982 46,982
======= ============ =========== ===========
Supplemental disclosure of
non-cash financing and
investing activities:
Common stock issued
for services 19,000 2,500 8,100 29,600
======= ============ =========== ===========
Shareholder loan
repaid with common
stock 25,000 24,000 60,000 109,000
======= ============ =========== ===========
Equipment purchased
with notes payable 134,151 134,151
============ ===========
Equipment purchased
with common stock 37,500 37,500
============ ===========
Intangible assets
purchased with
common stock 240,000 240,000
=========== ===========
Intangible assets
purchased with rights
to common stock 60,000 60,000
======= ===========
See notes to financial statements.
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Information for the three months ended March 31, 2000 is unaudited
1. Summary of significant
accounting policies:
Nature of business. The Company
is a development stage enterprise
and, therefore, as of December
31, 1999, has not commenced full
business operations. The Company
is in the process of acquiring
and developing casino games to be
marketed to the gaming industry.
The Company's future operations
could be affected by adverse
changes in local and regional
economic conditions in Nevada and
in various other gaming
jurisdictions.
Offering costs. The Company has
offered its unregistered common
stock to the public to raise a
maximum of $1,000,000 annually on
a "best efforts" basis; and, it
used one of its
officers/directors who is a
licensed security broker to sell
the common stock. The offerings
are intended to be exempt from
registration with the United
States Securities and Exchange
Commission under the Securities
Act of 1933 pursuant to Rule 504
promulgated there under (Note 9).
The costs of the offerings have
been offset against the proceeds
to date.
Use of estimates. Timely
preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to
make estimates and assumptions
that affect reported amounts and
disclosures, some of which may
require revision in future
periods.
Equipment and software.
Equipment and software are stated
at cost. Depreciation is
provided by the straight-line
method over the estimated useful
lives for the assets.
Advertising costs: Costs for
advertising are expensed in
current period and totaled
$35,107 and $29,304 for 1999 and
1998 respectively.
Research and development. The
Company incurs no research and
development costs and, instead,
contracts with technical resource
companies on a revenue sharing
basis to develop needed
components for its casino games.
Patents and other intangibles.
Patents and patents pending and
other intangibles are amortized
over 3 years.
Stock compensation awards. The
Company has adopted Financial
Accounting Standard Board
Statement No. 123, Accounting for
Stock-Based Compensation, for
valuing compensatory stock and
option awards.
Interim Period Financial
Information. The interim period
financial information included
herein is unaudited; however,
such information reflects all
adjustments (consisting solely of
normal recurring adjustments),
which are, in the opinion of
management, necessary for a fair
presentation of results of
development stage operations and
cash flows for the interim
periods. The results of
development stage operations for
the three month period ended
March 31, 2000 are not
necessarily indicative of the
results to be expected for a full
year.
2. Equipment and software:
Equipment and software at
December 31, 1999 consists of:
Equipment $ 161,177
Software 125,000
----------
286,177
Less Accumulated Depreciation (112,731)
----------
$ 173,446
3. Acquisitions:
Option to purchase T.J.
Wholesale. The Company entered
an option agreement on July 10,
1998, to purchase the stock of
T.J. Wholesale. The agreement
was terminated in March 1999;
therefore, the related option
payments totaling $75,000 have
been written off as of December
31, 1998.
Purchase of "4-Play" games.
During 1998, the Company
purchased the rights to games
known as "4-Play," referred to by
the Company as "Nevada Numbers,"
"World Series of Video Poker" and
"World Championship of Video
Poker," from officers/directors
(Note 4). "4-Play," a variation
of keno, encompasses a game that
stems from the selection of 4
numbers instead of 20 numbers, as
played in a regular game of keno.
The Company has entered into an
agreement with Imagineering
Systems, Inc. for the development
of software for the operation of
the "4-Play" game in exchange for
$.04 per ticket issued which
would be paid to Imagineering
Systems, Inc. (Note 8).
Purchase of "B2B" game. The
Company entered into an agreement
on June 21, 1998 to purchase a
roulette game known as "Back to
Back" (B2B) from Back to Back
Gaming, Inc. The terms of the
agreement provided for a purchase
price of $515,000, plus the
issuance of 75,000 common shares
valued at $.50 per share or
$37,500, with a $15,000 cash
deposit (paid on April 28, 1998),
which was applied to the purchase
price. On August 12, 1998, the
agreement was amended, and the
Company paid $375,000 in cash and
issued a promissory note in the
6
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Information for the three months ended March 31, 2000 is unaudited
amount of $125,000, payable in
monthly installments with
principal and interest at 8%,
with the balance due July 2002
(Note 7). The 75,000 common
shares were also issued to the
seller. In addition, the seller
received options to purchase
200,000 additional shares of
common stock at $.50 per share.
No value was assigned to these
options for accounting purposes.
Subsequent to the purchase,
management has determined that
the non-progressive version of
the B2B game has no continuing
value, therefore, has written
down $120,000 of the original
purchase price.
The remaining costs were
allocated to related assets as
follows:
Equipment and software $ 212,500
Property rights, including patents 109,000
Non-compete agreements 111,000
----------
Adjusted cost, before
amortization and depreciation $ 432,500
==========
The Company is negotiating a
revenue sharing agreement with a
technical services provider for
the development of the tracking
control system for the
progressive B2B games (Note 8).
Purchase of Bonus Keno game.
During 1999, the Company
purchased 50% the rights to the
game "Bonus Keno" for $70,000,
$10,000 in cash and an agreement
to issue 20,000 shares of common
stock. In February 2000
(unaudited), the Company issued
the 20,000 shares and purchased
the remaining 50% of the rights
for an additional 80,000 shares
of common stock.
Option to purchase Imagineering
Systems, Inc. The Company loaned
$25,000 to an owner of
Imagineering Systems, Inc. in
exchange for an option to buy
100% of his 54% interest in
Imagineering Systems, Inc. for
150,000 shares of the Company's
common stock plus forgiveness of
the loan. If the Company does
not exercise its option by May
18, 2000, the owner agrees to
repay the loan in semi-annual
payments over five years plus
interest at 8%. The option
period can be extended for six
months at the sole discretion of
the Company at no additional
cost. The Company currently
intends to exercise its option,
and will be required to obtain a
Nevada gaming license before the
purchase can be completed (Note
6).
Purchase of Match Pair Bingo
game. In May 2000 (unaudited),
the Company purchased a table
game called Match Pair bingo for
10,000 shares of common stock
valued at $3.00 per share
($60,000). In this game, the
house or casino pulls two balls
with five possible outcomes: "B",
"I", "N", "G", and "O".
4. Related party transactions:
Common stock issued to
officers/directors. During 1998,
common stock issued to the
Company's officers/directors
included 400,000 shares at $.0675
per share, 200,000 shares at $.50
per share, 200,000 shares at
$.005 per share plus the "Nevada
Numbers" game (valued at $12,500,
which computes to $.06258 per
share), and 200,000 shares, at
$.01 per share plus the "World
Series of Video Poker" and "World
Championship of Video Poker"
games (valued at $11,500, which
computes to $.0575 per share).
Stockholders loan. During 1999,
the Company issued 50,000 shares
of common stock in repayment of a
$25,000 loan received from a
stockholder/officer/director in
November 1998.
In March 2000 (unaudited), a
stockholder/officer/director
loaned the Company $100,000 with
repayment of principal and
interest at 8% annually due April
30, 2000. In May 2000, the
stockholder/officer/director
exercised the option to convert
the principal and interest due
into 50,000 shares of common
stock and 25,000 warrants to
purchase common stock at a price
of $2.00 for a period of five
years.
Agreements with
officers/directors. In August
1999, the Company entered into an
agreement for the assignment of
rights to install, operate, sell
and lease electronic keno systems
in Puerto Rico with Keno
International, Inc. In November
1999 an officer, director and
controlling shareholder with Keno
International was appointed to
the Company's board of directors.
The provisions of the agreement
include:
(a) Issuance of 50,000
restricted shares of common
stock to Keno International;
(b) Payment of a royalty fee of
$5,000 per month until the
trading value of the common
stock issued under item (a)
equals or exceeds $2,000,000
and is registered and traded
or keno ceased to be played
under the license (whichever
comes first).
This agreement further provides
that at the point in time when
the operation of the keno games
under the license had obtained
net earnings of $1 million, the
Company would
7
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LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Information for the three months ended March 31, 2000 is unaudited
distribute to Keno
International an additional
150,000 restricted shares of its
common stock.
Also in August 1999, the Company
entered into an agreement for the
set up and operation of a keno
route in Nevada with a
stockholder/officer/director and
another individual. The
provisions of this agreement
include:
(a) Issuance of 50,000
restricted shares of common
stock;
(b) Payment of a royalty fee of
$5,000 per month until the
trading value of the common
stock issued under item (a)
equals or exceeds $2,000,000
and is registered and traded
or keno ceased to be played
under the license (whichever
comes first).
This agreement further provided
that at the point in time when
the operation of the Nevada route
had obtained net earnings of $1
million, the Company would
distribute an additional 150,000
restricted shares of its common
stock.
5. Securities
Stock option plan. The Company
established a stock option plan
in 1998 (the 1998 Plan) under
which it issued options to
purchase 1,600,000 shares at
prices ranging from $.50 to $1.00
per share, of which officers and
directors were issued options to
purchase up to 920,000 shares.
The options were granted at the
estimated fair value of the
shares at the time of the grants
and, accordingly, no compensation
has been recorded for these
grants. The options are fully
vested and expire on April 28,
2008.
In December 1999, The Company
discontinued issuing stock
options under the 1998 Plan. In
January 2000, a new stock plan
(the 2000 Plan) was established
and additional options were
issued for 42,550 shares at $3.00
per share, of which 30,300 were
issued to officers/directors.
Stock Warrants. There are
outstanding warrants to purchase
38,000 shares of common stock at
a price of $2.00 per share.
Preferred Stock. In June 2000
(unaudited), the Company filed an
amendment to its articles of
incorporation with the Nevada
Secretary of State's office to
allow for the creation of
preferred stock. The company
plans to offer a form of
preferred stock in a private
offering to investors, but has
not, as yet, issued or offered
any such stock.
8
<PAGE>
LAS VEGAS GAMING, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Information for the three months ended March 31, 2000 is unaudited
6. Gaming regulations and
licensing:
The Company is currently not
subject to regulation in
jurisdictions in which its
products are leased or used by
persons or entities licensed to
conduct gaming activities.
However, the Company is seeking
licensure in several gaming
jurisdictions including Nevada,
among others, so that the Company
may participate in the gaming
revenues produced by its
products. Failure to obtain and
retain the necessary licenses
would prevent the Company from
fully implementing its business
plans and have a material adverse
effect on the Company.
On January 28, 2000, the Company
submitted an application for
licensure in Nevada and deposited
$50,000 with the State of Nevada,
50% of the estimated cost of the
investigation. In February 2000
(unaudited), the Company
deposited an additional $25,000
with the state of Nevada in
connection with the application
for licensure.
7. Long-term debt:
Long-term debt consists of an
unsecured note payable, due
$3,195 per month, including
interest at 8%, through July
2002.
Annual maturities are as follows:
2000 $ 32,545
2001 35,246
2002 19,691
---------
$ 87,482
=========
8. Dependence on single-source
suppliers:
The Company depends on single-
source suppliers for components
for certain of its games. The
failure by any single-source
supplier to furnish the Company
with components meeting its
performance specifications,
quality standards or delivery
schedules could have a material
adverse effect on the Company's
business, financial condition and
results of operation.
9. Management's plans:
To become fully operational, the
Company must raise additional
capital. In this regard,
management expects to complete an
exempt offering of 200,000 shares
at $3.00 per share ($600,000 less
expected offering costs of
approximately $50,000) and raise
additional capital through
private equity placement and/or
debt financing. The Company's
plans also include completing a
Form 10 registration with the
Securities and Exchange
Commission that could provide
additional means for raising
capital. Once operational,
management believes, but there is
no assurance, that future
placements of its products will
result in profitable operations
and positive cash flows.
Subsequent to January 2000
(unaudited), the Company closed
its offerings under Rule 504 of
Regulation D and filed a Form 10
registration.
The Company's inability to
complete the exempt public
offering, and obtain additional
capital necessary to acquire,
develop and expand its products,
could prevent the Company from
commencing and maintaining
profitable operations and
continuing as a going concern.
The financial statements,
however, have been prepared
assuming the Company will
continue as a going concern, and
reflect no adjustments that might
result from the outcome of these
uncertainties. Because of these
uncertainties, however, no effect
has been given in the financial
statements to any future income
tax benefit of the loss recorded
to date.
9
<PAGE>
PART III
INDEX TO EXHIBITS
Exhibit No.
3.1 Articles of Incorporation
3.2 Bylaws of the Company
6.1 Agreement for Set Up and Operation of Keno Route
with Bill Williams and Carl Conti
6.2 Agreement for Assignment of Rights with Keno
International, Inc.
27.1 Financial Data Schedule
39
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this amended registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 15, 2000
LAS VEGAS GAMING, INC.
/s/ Russell Roth
By: _______________________________
RUSSELL ROTH
Director, President and Chief Executive Officer
40
