<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-28318
Multimedia Games, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Texas 74-2611034
- ---------------------------------------------- --------------------------------
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification
Number)
7335 South Lewis Avenue, Suite 302
Tulsa, Oklahoma 74136
------------------------------------------------
(Address of Principal Executive Offices)
(918) 494-0576
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No
----- ------
As of April 25, 1997 there were 4,319,211 shares of the Company's Common Stock,
par value $.01, outstanding.
Transitional Small Business Disclosure Format (Check one)
Yes No X
----- ------
<PAGE> 2
FORM 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
(March 31, 1997 and September 30, 1996)
Consolidated Statements of Operations
(Three months ended March 31, 1997 and 1996)
Consolidated Statements of Operations
(Six months ended March 31, 1997 and 1996)
Consolidated Statements of Cash Flows
(Six months ended March 31, 1997 and 1996)
Notes to Unaudited Consolidated Financial Statements
Report of Review By Independent Accountants
Item 2. Management's Discussion and Analysis
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
MULTIMEDIA GAMES,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 1997 and September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
March September
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 973,000 $1,508,000
Accounts Receivable:
Trade, net of allowance for doubtful accounts of
$60,000 and $76,000 1,181,000 247,000
Other 158,000 45,000
Inventory, at cost 368,000 358,000
Prepaid expenses 182,000 92,000
---------- ----------
Total current assets 2,862,000 2,250,000
---------- ----------
Restricted cash and cash equivalents 1,539,000 1,534,000
Note receivable from American Gaming Network LLC 336,000 336,000
Property and equipment, net of accumulated depreciation
of $1,270,000 and $703,000 4,305,000 2,616,000
Other assets 125,000 196,000
Goodwill, net of accumulated amortization
of $62,000 and $48,000 486,000 499,000
---------- ----------
Total assets $9,653,000 $7,431,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 100,000 $ 50,000
Current portion of long-term debt 288,000 197,000
Due to American Gaming Network LLC 62,000 99,000
Accounts payable and accrued expenses 1,650,000 1,292,000
Halls' share of surplus 93,000 120,000
Prize fulfillment fees payable -- 320,000
---------- ----------
Total current liabilities 2,193,000 2,078,000
---------- ----------
Bridge notes payable -- 800,000
Long-term debt 823,000 787,000
Other long-term liabilities 1,372,000 1,372,000
Commitments and Contingencies (Note 3)
Stockholders' equity:
Preferred stock, Series A, $.01 par value, 2,000,000 shares
authorized, 134,318 shares issued and outstanding 1,000 1,000
Common stock, $.01 par value, 10,000,000 shares authorized,
4,074,306 and 2,859,200 shares issued and 4,040,307 and
2,825,201 shares outstanding 41,000 29,000
Additional paid-in capital 9,219,000 6,296,000
Stockholder notes receivable (1,299,000) (1,271,000)
Treasury stock, 33,999 shares at cost (87,000) (87,000)
Accumulated deficit (2,610,000) (2,574,000)
---------- ----------
Total stockholders' equity 5,265,000 2,394,000
---------- ----------
Total liabilities and stockholders' equity $9,653,000 $7,431,000
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 4
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Gaming revenue $8,265,000 $4,376,000
Electronic player station sales 403,000 289,000
Electronic player station lease revenue 377,000 --
Other -- 169,000
---------- ----------
Total Revenue 9,045,000 4,834,000
---------- ----------
Operating costs and expenses:
Bingo prizes and commissions 2,163,000 2,629,000
Allotments to hall operators 4,478,000 955,000
Cost of electronic player stations sold 217,000 51,000
Salaries and wages 475,000 412,000
Selling, general and administrative expenses 1,143,000 601,000
Amortization and depreciation 314,000 121,000
---------- ----------
Total operating costs and expenses 8,790,000 4,769,000
---------- ----------
Operating Income 255,000 65,000
Interest income 6,000 14,000
Interest expense (34,000) (20,000)
---------- ----------
Net Income $ 227,000 $ 59,000
========== ==========
Income per common and equivalent share,
primary and fully diluted $ 0.04 $ 0.01
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 5
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Gaming revenue $ 14,858,000 $ 8,401,000
Electronic player station sales 403,000 292,000
Electronic player station lease revenue 588,000 --
Software license revenue -- 500,000
Other 1,000 299,000
------------ ------------
Total revenues 15,850,000 9,492,000
------------ ------------
Operating costs and expenses:
Bingo prizes and commissions 4,379,000 5,056,000
Allotments to hall operators 7,512,000 1,759,000
Cost of electronic player stations sold 217,000 55,000
Salaries and wages 952,000 733,000
Selling, general and administrative expenses 2,063,000 1,539,000
Amortization and depreciation 603,000 211,000
------------ ------------
Total operating costs and expenses 15,726,000 9,353,000
------------ ------------
Operating income 124,000 139,000
Interest income 12,000 32,000
Interest expense (99,000) (43,000)
------------ ------------
Net income $ 37,000 $ 128,000
============ ============
Earnings (loss) per common share,
primary and fully diluted $ (.01) $ .02
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 6
MULTIMEDIA GAMES,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,000 $ 128,000
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Bad debt expense -- 270,000
Amortization and depreciation 603,000 211,000
Other non-cash expenses 71,000 --
(Increase) decrease in:
Accounts and notes receivable (1,047,000) (298,000)
Inventory (10,000) --
Prepaid expenses (90,000) (43,000)
Other assets -- 11,000
Increase (decrease) in:
Accounts payable and accrued expenses 321,000 (535,000)
Halls' share of surplus (27,000) 149,000
Prize fulfillment fees payable (320,000) 219,000
Other long-term liabilities -- 37,000
---------- ----------
Net cash provided by (used for) operating activities (462,000) 149,000
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (2,279,000) (842,000)
Increase in cash balances in restricted escrow (5,000)
Other -- 6,000
---------- ----------
Net cash provided by (used for) investing activities (2,284,000) (836,000)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 2,108,000 970,000
Increase in long-term debt 362,000 --
Principal repayments of debt (185,000) (75,000)
Payment of preferred stock dividends (74,000) (76,000)
Purchase of treasury stock -- (10,000)
---------- ----------
Net cash provided by (used for) financing activities 2,211,000 809,000
---------- ----------
Net change in cash and cash equivalents (535,000) 122,000
Cash and cash equivalents, beginning of period 1,508,000 1,537,000
---------- ----------
Cash and cash equivalents, end of period $ 973,000 $1,659,000
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE> 7
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements should be read in conjunction with
the Company's financial statements for the twelve months ended September
30, 1996 contained within the Company's Annual Report on Form 10-KSB.
The financial statements included herein as of March 31, 1997 and for
each of the three and six month periods ended March 31, 1997 and 1996,
have been prepared by the Company, without an audit, pursuant to generally
accepted accounting principles and the rules and regulations of the
Securities and Exchange Commission. The information presented reflects all
adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results
for the periods. Results for the three or six months ended March 31, 1997,
are not necessarily indicative of the results which will be realized for
the year ending September 30, 1997. The September 30, 1996 consolidated
balance sheet data was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. Certain prior period information has been reclassified to
conform to current period presentation.
INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is
computed on the basis of the weighted average shares of common stock
outstanding for the three and six months ended March 31, 1997 and 1996.
Options and warrants are common stock equivalents and, along with
contingent stock issuances, are considered in the computation of income
per common share using the treasury stock method when they are dilutive.
To determine income per common share, net income is adjusted for preferred
stock dividends which were $37,000 and $39,000, respectively, for the
three months ended March 31, 1997 and 1996 and $74,000 and $76,000,
respectively, for the six months ended March 31, 1997 and 1996. Weighted
average shares outstanding were 4,929,343 and 5,699,737 on a primary and
fully diluted basis, respectively, for the three months and 4,065,850 and
5,291,908, respectively, for the six months ended March 31, 1997. Weighted
average shares outstanding were 2,392,000 and 2,514,000 on a primary and
fully diluted basis, respectively, for the three months and 2,200,000 and
2,261,000, respectively, for the six months ended March 31, 1996.
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS - In February 1997, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS 128 will
change the computation, presentation and disclosure requirements for
earnings per share. FAS 128 requires the presentation of "basic" and
"diluted" earnings per share, as defined, for all entities with complex
capital structures. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, and requires restatement of all
prior period earnings per share amounts. The Company has not yet determined
the impact that FAS 128 will have on its earnings per share when adopted.
2. FINANCING ACTIVITIES
In November 1996, the Company completed a private placement of
approximately 1.2 million shares of common stock for $3.00 per share. Each
of the 1.2 million shares sold was accompanied by a redeemable warrant to
purchase an additional share of the Company's common stock for $8 (a
"Redeemable Warrant"). After nine months, each Redeemable Warrant may be
called by the Company for $.10 when the closing bid price of the Company's
common stock has been at least $12.00 for 20 consecutive trading days.
Redeemable Warrants totaling 350,000 were granted to the placement agent
in connection with the November Placement. Proceeds from the November
Placement (which included the conversion of the Bridge Debt discussed
below) are intended to finance the expansion of the Company's MegaMania
network.
The November Placement was preceded by a private placement of bridge
debt financing in the amount of $800,000 (the "Bridge Debt") which was
completed in early August 1996. Redeemable Warrants representing 360,000
shares accompanied the Bridge Debt and an additional 173,310 Redeemable
Warrants were granted to the placement agent. The Bridge Debt was
converted into common stock and Redeemable Warrants in connection with the
completion of the November Placement.
<PAGE> 8
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
3. COMMITMENTS AND CONTINGENCIES
PENDING INVESTIGATION
On October 16, 1996, the Company was orally informed by the Office
of the U.S. Attorney in Tulsa, Oklahoma (the "U.S. Attorney") that the
Company was part of an investigation to determine whether, in the opinion
of the U.S Attorney, the Company's MegaMania bingo game constituted Class
II or Class III gaming, as defined by the Indian Gaming Regulatory Act of
1988 (the "Gaming Act"). MegaMania has been designed and is operated by
the Company as a Class II game within the definition of bingo set forth in
the Gaming Act. In a written opinion dated July 10, 1996, the Company was
informed by the National Indian Gaming Commission ("NIGC"), of the NIGC's
determination that MegaMania constituted a Class II game.
On April 8, 1997 the Company signed a memorandum of understanding with
the NIGC to implement certain changes to the Company's MegaMania bingo
game in order to maintain the Commission's classification of the game as
bingo. Classification as a bingo game allows MegaMania to be offered by
high-stakes Indian bingo halls in all 47 of those States where charity
bingo is allowed by State law as long as the game occurs on Indian trust
land. The Commission originally requested that these changes be made by
April 11, 1997, but agreed in the memorandum to extend that time
sufficiently to assure a more orderly conversion and allow the present
game to continue until the new changes are completed.
No assurances can be given that either the NIGC or the U.S. Attorney
will not later conclude that MegaMania is Class III gaming. If either the
NIGC or the U.S. Attorney concludes that MegaMania is Class III gaming, the
Company intends to vigorously defend its position that MegaMania is a Class
II game. No assurances can be given that the Company will be successful on
the merits. If MegaMania is ultimately determined to be Class III gaming,
the loss of the MegaMania business would have a material adverse effect
upon the Company's financial condition and results of operations.
LITIGATION
The Company is a party to various lawsuits and claims arising out of
the ordinary course of its business. No accrual for potential loss has
been made in the accompanying financial statements as management does not
believe that the likelihood of a material loss is probable at this time.
<PAGE> 9
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
Multimedia Games, Inc.
We have reviewed the accompanying consolidated balance sheet of Multimedia
Games, Inc. and Subsidiaries as of March 31, 1997, and the related consolidated
statements of operations for the three and six month periods ended March 31,
1997, and the consolidated statement of cash flows for the six month period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
December 18, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of September 30, 1996 is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
May 6, 1997
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Multimedia Games, Inc. and subsidiaries (the "Company") were
organized to develop, promote and produce lawful gaming activities over
the information highway, including but not limited to satellites,
television, telephone and the Internet. The Company provides satellite
linked, high stakes bingo games and interactive high speed bingo games
played on interconnected electronic player stations to participating bingo
halls owned primarily by American Indian tribes located throughout the
United States. The Company also provides proxy play services for its
MegaBingo and MegaCash games to bingo players located off Indian lands
through a subsidiary's 49% interest in American Gaming Network L.L.C.
("AGN").
Prior to August 1995, the Company's principal business was to furnish
the marketing and other operating services required in the conduct of high
stakes bingo games conducted under the names MegaBingo, MegaCash and
MegaBingo Lite (the "MegaBingo Games"). MegaBingo and MegaCash are played
simultaneously using a closed-circuit television satellite link at 50
independently owned bingo halls located in 14 states throughout the United
States, operated primarily on behalf of American Indian tribes. MegaBingo
Lite provides smaller prizes to similarly linked Indian bingo halls and is
presently delivered to 11 bingo halls located in the State of Oklahoma.
In August 1995, the Company introduced MegaMania, an interactive
high-speed bingo game developed by the Company that is played on
electronic player stations interconnected among participating Indian bingo
halls. Significant revenue generation for MegaMania did not begin until
March 1996. As of March 31, 1997, MegaMania is played at 39 independently
owned American Indian bingo halls located in 8 different states, primarily
Oklahoma and Washington.
RESULTS OF OPERATIONS
The Three Months Ended March 31, 1997 and 1996:
The Company's total operating revenues were $9,045,000 and $4,834,000
for the three months ending March 31, 1997 and 1996 respectively, or an
increase of $4,211,000 for the current period. The increase was primarily
a result of an increase in gaming revenue of $3,889,000, an increase of
$114,000 in electronic player station sales and an increase in electronic
player station lease revenue of $377,000, partially offset by a decrease
in other income of $169,000. The increase in gaming revenue was driven by
increased MegaMania gaming revenues during the three months ended March
31, 1997, from newly-installed electronic player stations, which were
partially offset by MegaBingo revenue decreases. The Company had
approximately 1,108 electronic player stations in operation during the
three months ended March 31, 1997 compared to approximately 200 during
the same three months of 1996.
<PAGE> 11
Bingo prizes and commissions were $2,163,000 and $2,629,000 for the
three months ended March 31, 1997 and 1996 respectively, or a decrease of
$466,000. The decrease resulted from decreased MegaBingo revenue during
the period.
Allotments to hall operators were $4,478,000 and $955,000 for the
three months ended March 31, 1997 and 1996 respectively. The increase
of $3,523,000 resulted from the increase in MegaMania revenues.
Costs of electronic player stations sold were $217,000 and $51,000
for the three months ended March 31, 1997 and 1996, respectively, or an
increase of $166,000. The increase was due to increased sales of MegaMania
electronic player stations.
Salaries and wages were $475,000 and $412,000 for the three months
ended March 31, 1997 and 1996 respectively, or an increase of $63,000.
Salaries and wages increased during the three months ended March 31, 1997
due to additional staff needed for the increased MegaMania operations.
Selling, general and administrative expenses were $1,143,000 and
$601,000 for the three months ending March 31, 1997 and 1996,
respectively, or an increase of $542,000. The increase is primarily due to
an increase in business meals and travel of approximately $46,000, an
increase in legal and professional fees of approximately $146,000
primarily as a result of increased legal and regulatory activity, an
increase in contract labor and services of approximately $64,000 and
increased telephone expenses of approximately $191,000 and other costs of
approximately $95,000 primarily as a result of increased MegaMania
activity.
Amortization and depreciation was $314,000 and $121,000 for the three
months ending March 31, 1997 and 1996 respectively, or an increase of
$193,000. The increase results from the acquisition of additional MegaMania
electronic player stations leased to independently owned Indian bingo
halls.
The Six Months Ended March 31, 1997 and 1996:
The Company's total operating revenues were $15,850,000 and
$9,492,000 for the six months ended March 31, 1997 and 1996 respectively,
or an increase of $6,358,000 for the current period. The increase was
primarily a result of an increase in gaming revenue of $6,457,000 an
increase in electronic player station sales of $111,000, and an increase
in electronic player station lease revenue of $588,000, partially offset
by a decrease in the sale of intellectual property of $500,000 and a
decrease of other income of $298,000. The increase in gaming revenue was
driven by increased MegaMania gaming revenues during the six months ended
March 31, 1997 from newly-installed electronic player stations, partially
offset by MegaBingo revenue decreases. The Company had approximately
1,008 electronic player stations in operation during the six months ended
March 31, 1997 compared to approximately 150 during the same six months of
1996.
Bingo prizes and commissions were $4,379,000 and $5,056,000 for the
six months ended March 31, 1997 and 1996 respectively, or a decrease of
$677,000. The decrease resulted from decreased MegaBingo revenue during
the period.
<PAGE> 12
Allotments to hall operators were $7,512,000 and $1,759,000 for the
six months ended March 31, 1997 and 1996 respectively. The increase of
$5,753,000 resulted from the increase in MegaMania revenues.
Costs of electronic player stations sold were $217,000 and $55,000
for the six months ended March 31, 1997 and 1996, respectively, or an
increase of $162,000. The increase was due to increased sales of
electronic player stations.
Salaries and wages were $952,000 and $733,000 for the six months
ended March 31, 1997 and 1996 respectively, or an increase of $219,000.
Salaries and wages increased during the six months ended March 31, 1997
due to additional staff needed for the increased MegaMania operations.
Selling, general and administrative expenses were $2,063,000 and
$1,539,000 for the six months ending March 31, 1997 and 1996,
respectively, or an increase of $524,000. The increase is primarily due to
an increase in legal and professional fees of approximately $176,000 for
the six months ended March 31, 1997, primarily as a result of increased
legal and regulatory activity, an increase in telephone expenses of
approximately $400,000 related primarily to increased MegaMania activity,
partially offset by a decrease in business meals and travel of
approximately $57,000 during the six months ended March 31, 1997.
Amortization and depreciation was $603,000 and $211,000 for the six
months ending March 31, 1997 and 1996 respectively, or an increase of
$392,000. The increase resulted primarily from the acquisition of
additional MegaMania electronic player stations leased to independently
owned Indian bingo halls and computer software costs capitalized during
1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $973,000 in unrestricted cash and
cash equivalents, a decrease of $535,000 from September 30, 1996. During
the six month period ended March 31, 1997, the Company had negative cash
flow from operations of $462,000 versus positive cash flow of $149,000 in
the same period of the prior year. The primary components of
cash flows from operations in the current six month period include an
increase in accounts and notes receivable of $1,047,000, a decrease in
prize fulfillment fees payable of $320,000, primarily offset by an
increase in amortization and depreciation to $603,000 and an increase in
accounts payable and accrued expenses of $321,000. The Company used
$2,284,000 for investing activities, primarily related to capital
expenditures for MegaMania electronic player stations. The capital
expenditures were funded by increasing long term debt and with the
proceeds of a private offering of the Company's common stock in November
1996 which generated net proceeds after offering costs, of $2,027,000. As
a result, at March 31, 1997, the Company had positive working capital of
$669,000.
<PAGE> 13
The Company believes that its current operations can be sustained
from cash from operations. However, the purchase and installation of
additional electronic player stations to expand the Company's MegaMania
operations will require funding from external sources. Such funding is
expected to be obtained from financial institutions and the issuance of
additional equity. No assurances can be given that the Company will be able
to obtain such funding on a timely basis or upon terms satisfactory to the
Company.
FUTURE EXPECTATIONS AND FORWARD LOOKING STATEMENTS
This Quarterly Report and the information incorporated herein by
reference contains various "forward-looking statements" within the meaning
of Federal and state securities laws, including those identified or
predicated by the words "believes," "anticipates," "expects," "plans," or
similar expressions. Such statements are subject to a number of
uncertainties that could cause the actual results to differ materially
from those projected. Such factors include, but are not limited to, those
described under "Item 1. Description of Business - Risk Factors" contained
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996, which are incorporated herein by this reference. Given
these uncertainties, readers of this Quarterly Report are cautioned not to
place undue reliance upon such statements.
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The legal environment in which the Company conducts its business is
relatively new and presents significant operating challenges and uncertainties.
The Indian gaming Regulatory Act (the "Gaming Act") was adopted in 1988 and the
development of the Federal, State and Tribal infrastructure to regulate the
proliferation of Indian gaming activities has occurred only since that time.
Fundamental issues concerning the scope and intent of the Gaming Act and its
relationship to other Federal and State gaming laws and regulations remain
unresolved and unclear. The National Indian Gaming Commission ("NIGC") was not
fully operational until February 1993, and prior to that the Bureau of Indian
Affairs was responsible for certain functions now performed by the NIGC. As a
result, the adoption and implementation of regulations in furtherance of the
Gaming Act have moved cautiously and, in comparison to more settled areas of
the law, there is a lack of judicial decisions, regulation or interpretations
of regulations to guide conduct under the Gaming Act. Moreover, the Company is
on the leading edge of the rapid advancement of technological innovation in
gaming, and issues relating, for example, to the use of technological aids for
the playing of games are either novel or lack historical precedent sufficient
to enable the Company to predict with certainty the outcome of planned actions.
The Company believes that its MegaMania game meets all of the
requirements of a Class II game of bingo and that the NIGC has the regulatory
authority to make final and binding determinations on the classification of
games. In a written opinion dated July 10, 1996, the Company was informed by
the NIGC of its determination that MegaMania constituted a Class II game. The
Company has relied on the NIGC's written opinion in conducting its MegaMania
operations and believes that the NIGC made its determination with a complete
and accurate understanding of the facts and the applicable law.
On October 16, 1996, the Office of the U.S. Attorney in Tulsa,
Oklahoma (the "U.S. Attorney"), orally informed the Company that the U.S.
Attorney was conducting an independent investigation to determine whether, in
the opinion of the U.S. Attorney, the Company's MegaMania bingo game
constituted Class III or Class II gaming as defined in the Gaming Act, and was
therefore in violation of the law or not. Generally speaking, Class II gaming
is regulated by the NIGC and may be conducted on Indian lands if the state in
which the Indian lands is located permits such gaming for any purpose by any
person. Class III gaming, on the other hand, may only be conducted on Indian
lands pursuant to a compact reached between the Indian tribe and the state in
which the tribe is located.
<PAGE> 15
In in an effort to resolve any differences between the NIGC and the
U.S. Attorney and to create an air of certainty for the Company in the conduct
of its operations, on April 8, 1997, the Company entered into a Memorandum of
Understanding with the NIGC to implement certain changes to its MegaMania game.
These changes generally require the bingo card holder to take certain actions
in order to daub the bingo card and to indicate a bingo win, and also require
the drawing of bingo numbers using a physical ball blower or as a result of
some other human activity rather than the use of electronically randomly
generated numbers. The Memorandum of Understanding allowed the Company until
July 15, 1997, to make the agreed changes and indicated the willingness of the
NIGC to grant appropriate extensions if the Company was unable to institute the
changes for technical reasons or for reasons beyond the control of the Company.
In addition, the NIGC issued a letter to the Company dated April 9, 1997,
concluding that the modified MegaMania game conformed to the definition of
bingo in the Gaming Act and thus was a Class II game.
On May 12, 1997, the Company received a letter from the Acting Chair of
the NIGC declaring that the NIGC would not necessarily be bound by the
Memorandum of Understanding, that the NIGC would not in the future pre-approve
proposed changes to the Company's games, and that the NIGC would make its
determination on the Class II status of the modified MegaMania game only after
the Company had completed its changes and submitted the modified version of the
game to the NIGC. The May 12, 1997 letter still gave the Company until July 15,
1997, to make the agreed changes but also stated that the Company was expected
to cease operation of the current MegaMania game by July 15, 1997, unless the
NIGC had specifically approved the modified version of the game by that time.
The Company intends to comply with the terms of the Memorandum of
Understanding and to submit the modified version of the MegaMania game to the
NIGC before July 15, 1997. No assurances can be given that the NIGC will honor
the conclusion made in its April 9, 1997, letter and accept the modified
version of the game as a Class II game. If the Company is not able to implement
the agreed changes to MegaMania by July 15, 1997, or if completed on time the
NIGC does not honor the conclusion made in its April 9, 1997 letter, the
Company intends to vigorously defend its position that MegaMania is a Class II
game; however, if the Company is not successful in these efforts, it may be
necessary to discontinue the operation of MegaMania.
In entering into the Memorandum of Understanding and agreeing to a
timetable for the implementation of changes to its current MegaMania game, the
Company believed that any remaining
-2-
<PAGE> 16
interpretive disagreements with the U.S. Attorney over the Class II status of
MegaMania would be resolved. However, the Company has not been advised of this
resolution by the U.S. Attorney. On the other hand the Company has also never
received written confirmation from the U.S. Attorney that the Company was, in
fact, the subject of an investigation.
The inquiry and on-site inspection that, at the Company's invitation,
was conducted by the U.S. Attorney several months ago has not appeared to have
developed into any other action on the part of the U.S. Attorney, at least of
which the Company has notice. However, on May 6, 1997, in response to an
inquiry by the Absentee Shawnee tribe of Oklahoma, and with no knowledge of the
NIGC opinions issued to the Company or of the Memorandum of Understanding
between the Company and the NIGC, the First Assistant U.S. Attorney for the
Office of the U.S. Attorney in the Western District of Oklahoma issued a letter
to the tribe stating that the Company's current MegaMania bingo game was
considered by that Office to be an illegal Class III gaming activity. As a
result of this letter, the Absentee Shawnee tribe has suspended the play of
MegaMania on its reservation. The First Assistant U.S. Attorney has now been
provided with the previously issued NIGC opinions and the Memorandum of
Understanding, but there is no assurance that the First Assistant U.S.
Attorney will reverse his previous position.
Over time, the Company does not believe that the planned changes to its
MegaMania game will materially and adversely affect consumer interest and
acceptance of MegaMania, although no assurances in that regard can be given.
There is evidence to suggest that existing players of the current game will
reduce the level of their play until the changes made in the new version become
familiar.
There can be no assurance that the NIGC, either on its own initiative
or as the result of pressure from or cooperation with other agencies such as
the Department of Justice, will adhere to the conclusion made in its April 9,
1997 letter. There also can be no assurances that the U.S. Attorney, the First
Assistant U.S. Attorney or the Department of Justice will accept any of the
opinions or actions of the NIGC regarding the Company's activities, and not
seek to challenge the legality of the Company's activities.
If adverse determinations or actions are taken by the NIGC, the U.S.
Attorney, the First Assistant U.S. Attorney or the Department of Justice, the
Company intends to vigorously defend its position that MegaMania is a Class II
game. No assurances can be given that the Company will be successful on the
merits. If MegaMania is ultimately determined to be Class III gaming, the loss
of the MegaMania business would have a material adverse effect upon the
Company's financial condition and results of operation.
<PAGE> 17
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 1997, the Company issued 47,523
shares of Common Stock in five transactions exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof as follows:
1. the issuance of 9,000 shares of Common Stock at a price of
$2.75 per share upon the exercise of warrants originally issued in May 1994;
2. the issuance of 7,273 shares of Common Stock at a price of
$2.00 per share upon the exercise of warrants by an officer and director of the
Company originally issued in September 1994;
3. the issuance of 10,000 shares of Common Stock at a price of
$1.50 per share upon the exercise of an employee stock option by an officer and
director of the Company;
4. the issuance of 10,000 shares of Common Stock at a price of
$2.50 per share upon the exercise of an employee stock option by an officer of
the Company; and
5. the issuance of 11,250 shares of Common Stock at a price of
$2.50 per share upon the exercise of an employee stock option by a former
officer of the Company;
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 29, 1997, the Company held its 1997 Annual Shareholder Meeting.
Because there was not the required two-thirds of the outstanding shares of
common stock and preferred stock, voting together as a class, needed to pass the
proposal, voting separately as a class, and of common stock to amend the
Company's Articles of Incorporation to increase the number of authorized shares
of common stock from 10,000,000 shares to 25,000,000 shares, the Meeting was
adjourned and reconvened to April 12, 1997. The Meeting involved the election
of four nominees to be Directors, and the following persons were elected,
constituting all of the members of the Board of Directors of the Company: -
Gordon T. Graves; Larry D. Montgomery; Gregory N. Stern and Daniel J.
Sarnoff.
A separate tabulation with respect to each nominee is as follows:
Gordon T. Graves 2,780,939 votes for 44,675 votes against or withheld
Larry D. Montgomery 2,780,939 votes for 44,675 votes against or withheld
Gregory N. Stern 2,780,939 votes for 44,675 votes against or withheld
Daniel J. Sarnoff 2,780,939 votes for 44,675 votes against or withheld
In addition to the election of directors, the following additional matters
were voted upon at the Meeting and received the requisite number of votes
necessary to pass:
1. A proposal to amend the Company's Articles of Incorporation to
increase the authorized number of shares of Common Stock from 10,000,000 shares
to 25,000,000 shares.
2,705,056 votes for 59,633 votes against or withheld
60,925 votes abstaining 1,210,836 broker non-votes
2. A proposal to ratify and approve the adoption of the Company's 1996
Stock Incentive Plan.
2,709,456 votes for 48,733 votes against or withheld
56,225 votes abstaining 1,222,036 broker non-votes
3. A proposal to ratify and approve the appointment of Coopers & Lybrand
L.L.P. as the Company's independent auditors.
2,761,672 votes for 59,242 votes against or withheld
4,700 votes abstaining 1,210,836 broker non-votes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Quarterly Report on Form 10-QSB
are listed in the attached Index to Exhibits.
(b) There were no reports filed on Form 8-K during the current quarter.
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated May 13, 1997 Multimedia Games, Inc.
By: /s/ FREDERICK E. ROLL
----------------------------------
Frederick E. Roll, Vice President and
Chief Financial Officer
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation
10.1 Press Release dated April 9, 1997, announcing memorandum of
understanding with the NIGC
10.2 Memorandum of Understanding with the NIGC dated April 8, 1997
15 Letter regarding Unaudited Interim Financial Information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
APPENDIX A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MULTIMEDIA GAMES, INC.
ARTICLE ONE
NAME
The name of the Corporation is Multimedia Games, Inc.
ARTICLE TWO
DURATION
The period of its duration is perpetual.
ARTICLE THREE
PURPOSE
The purposes for which the Corporation is organized are to engage in any
activities in which corporations may lawfully engage under the Texas Business
Corporation Act.
ARTICLE FOUR
AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is set forth as follows:
A. COMMON STOCK. The Corporation shall have the authority to issue
25,000,000 shares of Common Stock with a par value of $0.01 per share.
B. PREFERRED STOCK. The Corporation shall have the authority to
issue 2,000,000 shares of Preferred Stock with a par value of $0.01 per share.
The par value, powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
to the Preferred Stock shall be as follows:
1. (a) The Preferred Stock may be issued from time to time
as shares of one or more series of Preferred Stock, and in the
resolution or resolutions providing for issue of shares of each
A-1
<PAGE> 2
particular series, before issuance, the Board of Directors of the
Corporation is expressly authorized to fix:
(i) the distinctive designation of such series
and the number of shares which shall constitute such
series, which number may be increased (except where
otherwise provided by the Board of Directors in creating
such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like
action of the Board of Directors;
(ii) the rate of dividends payable on such
series, whether or not dividends shall be cumulative, the
date or date from which dividends shall accrue and, if
cumulative, shall be cumulative and the relationships
which the dividends shall bear to dividends payable on any
other series;
(iii) whether or not the shares of such series
shall be subject to the redemption by the Corporation and,
if so, the times, prices and other terms and conditions of
such redemption;
(iv) whether or not shares of such series shall
be subject to the operation of a sinking fund or a fund of
a similar nature and, if so, the terms thereof;
(v) the rights of the shares of each series in
case of liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or upon any
distribution of its assets;
(vi) whether or not the shares of such series
shall be convertible into or exchangeable for shares of
any other series or class of stock of the Corporation and,
if so, the terms of conversion or exchange;
(vii) whether or not the shares of such series
shall have voting rights in addition to the voting rights
provided by law in paragraph 5 below and, if so, the
nature and extent thereof; and
(viii) the consideration to be received by the
Corporation for the shares of such series.
(b) The shares of the Preferred Stock of any one series
shall be identical with each other in all respects except as to
the dates from which dividends thereon shall accrue or be
cumulative.
(c) In case the stated dividends and the amounts, if
any, payable on liquidation, dissolution or winding up of the
A-2
<PAGE> 3
Corporation are not paid in full, the shares of each series of
the Preferred Stock, after the payment in full of such dividends
and amounts to all series of the Preferred Stock ranking senior
to such series and before any payment to any series ranking
junior thereto, shall share ratably in the payment of dividends,
including accumulations, if any, in accordance with the sums
which would be payable on said shares if all dividends were
declared and paid in full, and in any distribution of assets
other than by way of dividends, in accordance with the sums which
would be payable on such distribution if all sums payable were
discharged in full.
(d) Prior to the issuance of any series of Preferred
Stock, a statement, including a copy of the resolution or
resolutions (including the designation, description and terms of
such series) adopted by the Board of Directors with respect to
such series shall be made and filed in accordance with the then
applicable requirements, if any, of the laws of the State of
Texas, or, if no certificate is then so required, such
certificate shall be signed and acknowledged on behalf of the
Corporation by its Chairman of the Board, President or a Vice
President, and its corporate seal shall be affixed thereto and
attested by its Secretary or an Assistant Secretary, and such
certificate shall be filed and kept on file at the principal
office of the corporation in the State of Texas or at such other
place or places as the Board of Directors shall designate.
2. The holder of each series of the Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but
only out of funds of the Corporation legally available for the payment
of dividends, dividends in cash at the annual rate of such series
provided by the Board of Directors in the Statement made pursuant to
subparagraph (d) of paragraph 1 with respect to such series.
3. If so provided by the Board of Directors in the Statement
made pursuant to subparagraph (d) of paragraph 1, the Corporation, at
the option of the Board of Directors (or in accordance with the
requirements of any sinking fund for any one or more series of Preferred
Stock established by the Board of Directors), may redeem the whole or
any part of the Preferred Stock at any time outstanding, or the whole or
any part of any series thereof, at such time or times and from time to
time and at such redemption price or prices as may be provided by the
Board of Directors in such Statement, together in each case with all
dividends accrued and accumulated but unpaid (other than noncumulative
dividends from past dividend periods), but computed without interest,
and otherwise upon the terms and conditions fixed by the Board of
Directors for any such redemptions.
4. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders
A-3
<PAGE> 4
of each series of the Preferred Stock then outstanding shall be entitled
to receive, after the payment in full of all amounts to which the
holders of all series of the Preferred Stock ranking senior thereto are
entitled, out of the assets of the Corporation, before any distribution
or payment shall be made to the holders of any series of the Preferred
Stock ranking junior to such series upon liquidation, dissolution or
winding up of the Corporation or of any junior stock, the amount, if
any, for each share provided by the Board of Directors in the Statement
made pursuant to subparagraph (d) of paragraph 1, plus, in respect of
each such share, all dividends accrued and accumulated but unpaid (other
than noncumulative dividends from past-dividend periods), but computed
without interest. If payment shall have been made in full to the
holders of each series of the Preferred Stock, the remaining assets of
the Corporation shall be distributed among the holders of the junior
stock, according to their respective rights and preferences and pro rata
in accordance with their respective holdings.
5. On all matters with respect to which holders of the
Preferred Stock or of certain series thereof are entitled to vote as a
single class, each holder of Preferred Stock afforded such class voting
right shall be entitled to one vote for each share held.
6. For purposes of this Article Four, the term "junior stock"
shall mean the Common Stock and any other class of stock of the
Corporation hereafter authorized which shall rank junior to all series
of Preferred Stock as to all dividends or preference on dissolution,
liquidation or winding up of the Corporation.
C. SERIES A PREFERRED STOCK.
1. Designation and Amount. An aggregate of 2,000,000 shares
of Preferred Stock, $.01 par value, of the Corporation are hereby
constituted as a series designated as "Series A Preferred Stock (the
"Series A Preferred Stock"). Such number of shares may be increased or
decreased by resolution of the Board of Directors, provided, that no
decrease shall reduce the number of shares of Series A Preferred Stock
to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Preferred
Stock.
2. Dividends.
(a) The holders of shares of Series A Preferred Stock,
in preference to the holders of Common Stock (as hereinafter
defined) and of any other junior stock (as hereinafter defined),
shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for that
purpose, quarterly dividends payable in cash on the first day of
January, April, July and October in each
A-4
<PAGE> 5
year (each such data being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per
share equal to $.275 (rounded to the nearest cent).
(b) Dividends shall begin to accrue and be cumulative,
whether or not earned or declared, on outstanding shares of
Series A Preferred Stock from and after the date of issue of such
shares, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a Quarterly Dividend and
before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive payment
of a dividend declared, which record date shall not be more than
60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Subject to the provisions for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to one vote on all matters
submitted to a vote of the shareholders of the Corporation. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock,
or affect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such
event.
A-5
<PAGE> 6
(b) Except as otherwise provided herein, in any other
Statement of Resolution creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) If at any time quarterly dividends payable on the
Series A Preferred Stock as provided in Paragraph 2 hereof are in
arrears for two consecutive quarterly periods, thereafter and
until all accrued and unpaid dividends, whether or not earned or
declared, on shares of Series A Preferred Stock outstanding shall
be paid in full, the holders of record of the Series A Preferred
Stock, voting separately as a class, shall immediately have the
right (subject to compliance with all applicable law, without
limitation including any applicable provisions of the Securities
Exchange Act of 1934) to elect a majority of the Board of
Directors of the Corporation, and the holders of the Common Stock
and any other class of stock of the Corporation shall not be
entitled to vote in the election of such directors so to be
elected by holders of record of the Series A Preferred Stock.
Upon the vesting of the aforesaid voting rights in the Series A
Preferred Stock, the number of directors constituting the Board
of Directors shall, without the necessity of any further action
by any party or any amendment of the Bylaws of the Corporation,
be automatically increased by such number as shall permit the
election of the majority of the Board of Directors by the holders
of record of the Series A Preferred Stock. Whenever the holders
of record of the Series A Preferred Stock shall have the right to
elect directors as provided hereinabove, a meeting of the holders
of record of the Series A Preferred Stock for the election of
such directors shall be held on the earliest practicable date at
the principal office of the Corporation. If not called pursuant
to the Bylaws of the Corporation, such meeting shall be
immediately called by the Secretary of the Corporation upon the
written request of the holders of record of at least 100
outstanding shares of the Series A Preferred Stock. At such time
as the right of the holders of record of the Series A Preferred
Stock to elect such directors shall terminate, the respective
terms of office of any directors in office shall immediately
terminate, and the number of directors constituting the Board of
Directors shall, without the necessity of any further action by
any party or any amendment of the Bylaws of the Corporation, be
automatically decreased by the number added as aforesaid so as to
permit exercise by the holders of record of the Series A
Preferred Stock of their rights as aforesaid.
A-6
<PAGE> 7
4. Conversion.
(a) Right to Convert. Subject to and upon compliance
with the provisions hereof, each holder of record of shares of
Series A Preferred Stock shall have the right, at such holder's
option, at any time or from time to time subsequent to two years
after the issuance, respectively, of the shares held by such
holder (except that upon any liquidation of the Corporation the
right of conversion shall terminate at the close of business on
the last full business day next preceding the date fixed for
payment of the amount distributable on the Series A Preferred
Stock), to convert any such shares into such number of shares of
Common Stock as is obtained by multiplying the number of shares
of Series A Preferred Stock so to be converted by $10.00 and
dividing the result by the applicable Conversion Price (as
hereinafter defined).
(b) Exercise. In order to exercise the conversion
privilege, the holder of Series A Preferred Stock shall surrender
a certificate or certificates for the shares so to be converted
to the Corporation at the principal executive offices of the
Corporation at 1920 S. West Union Road, Topeka, Kansas 66614 (or
such other office or agency of the Corporation as the Corporation
may designate by notice in writing to the holders of record of
Series A Preferred Stock), accompanied by written notice to the
Corporation that the holder elects to convert a stated number of
shares of Series A Preferred Stock into Common Stock. Such
notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of
Common Stock which shall be issuable on such conversion shall be
issued, in each case subject to the provisions of applicable law.
As soon as practicable after the receipt of such notice and the
surrender of the certificate or certificates for the shares of
Series A Preferred Stock to be converted, the Corporation shall
issue and shall deliver at said offices to the holder a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such share or shares
of Series A Preferred Stock, and provision shall be made for any
fraction of a share as provided in Subparagraph (c) hereof. Such
conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which such notice
shall have been received by the Corporation and conversion shall
be at the Conversion Price in effect at such time, and at such
time the rights of the holder of such share or shares of Series A
Preferred Stock shall cease and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares of Common Stock represented thereby.
(c) Adjustment for Fractional Shares; Dividends;
Partial Conversions. No fractional shares of Common Stock or
scrip shall be issued upon conversion of Series A Preferred
Stock,
A-7
<PAGE> 8
and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Common Stock issued upon
such conversion. In case the number of shares of Series A
Preferred Stock represented by the certificate or certificates
surrendered pursuant to Subparagraph (b) exceeds the number of
shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder thereof, at the expense of the
Corporation, a new certificate or certificates for the number of
shares of Series A Preferred Stock represented by the certificate
or certificates surrendered which are not to be converted.
Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion, the Corporation shall pay
a cash adjustment in respect of such fractional share of Common
Stock in an amount equal to the same fraction of the then current
fair value of a share of Common Stock, as determined in good
faith by the Board of Directors of the Corporation.
(d) Conversion Price. The Conversion Price per share
of Common Stock shall be $2.00, subject to adjustment as herein
provided.
(e) Adjustment for Dividends. In case the Corporation
shall declare a dividend upon the shares of Common Stock payable
otherwise than out of earned surplus or otherwise than in shares
of Common Stock or convertible securities of the Corporation, the
Conversion Price in effect immediately prior to the declaration
of such dividend shall be reduced by an amount equal, in the case
of a dividend in cash, to the amount thereof payable per share of
Common Stock or, in the case of any other dividend, to the fair
value thereof per share of Common Stock as determined in good
faith by the Board of Directors of the Corporation. For the
purposes of the foregoing, a dividend other than in cash shall be
considered payable out of earned surplus only to the extent that
such earned surplus is charged an amount equal to the fair value
of such dividend as determined in good faith by the Board of
Directors of the Corporation. Such reductions shall take effect
as of the date on which a record is taken for the purpose of such
dividend, or, if a record is not taken, the date as of which the
holders of shares of Common Stock of record entitled to such
dividend are to be determined.
(f) Subdivisions and Combinations; Stock Dividends. In
case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common
Stock, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately prior to such
combination shall be
A-8
<PAGE> 9
proportionately increased. In case the Corporation shall declare
a dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, rights to subscribe for or
to purchase, or any options for the purchase of, Common Stock or
any stock or securities convertible into or exchangeable for
Common Stock, any Common Stock, rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any
stock or securities convertible into or exchangeable for Common
Stock, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued in a
subdivision of outstanding shares as provided in this
Subparagraph (f).
(g) Issuance of Rights or Warrants; Evidences of
Indebtedness or Assets.
(i) In case the Corporation shall hereafter
issue rights or warrants to holders of its outstanding
Common Stock generally entitling them to subscribe for or
purchase Common Stock at a price per share less than the
current market price per share less than the current
market price per share (as determined pursuant to
Subparagraph (iii) of this Paragraph (g)) of the Common
Stock on the effective date of the adjustment under this
paragraph mentioned below, the Conversion Price shall be
adjusted to equal the price determined by multiplying the
Conversion Price then in effect by a fraction the
numerator of which shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered
would purchase at such current market price, and the
denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase. Such
adjustment shall take effect as of the date on which a
record is taken for the purpose of such issuance, or, if a
record is not taken, the date as of which the holders of
shares of Common Stock of record entitled to receive such
rights or warrants are to be determined.
(ii) In case the Corporation shall hereafter
distribute to holders of its outstanding Common Stock
generally evidences of its indebtedness or assets
(excluding any cash dividend paid from retained earnings
of the Corporation and dividends or distributions payable
in stock for such adjustment is made pursuant to
Subparagraph (e) or rights or warrants to subscribe to
securities of the Corporation (excluding those referred to
in clause (i) of this Subparagraph (g), then in each such
case the Conversion Price shall be adjusted to equal
A-9
<PAGE> 10
the price determined by multiplying the Conversion Price
then in effect by a fraction the numerator of which shall
be the current market price per share (determined as
provided in clause (iii) of this Subparagraph (g)) of the
Common Stock on the effective date of the adjustment under
this clause mentioned below less the then fair market
value (as determined in good faith by the Board of
Directors of the Corporation) of the portion of the
evidences of indebtedness or assets so distributed to the
holder of one share of Common Stock or of such
subscription rights or warrants applicable to one share of
Common Stock, and the denominator of which shall be such
current market price per share of Common Stock. Such
adjustment shall take effect as of the date on which a
record is taken for the purpose of such distribution, or,
if a record is not taken, the date as of which the holders
of shares of Common Stock of record entitled to receive
such distribution are to be determined.
(iii) For the purposes of any computation under
clauses (i) and (ii) of this Subparagraph (g), the current
market price per share of Common Stock on any date shall
be deemed to be the average of the daily market prices for
the 30 consecutive business days commencing 45 business
days before the day in question. The market price for
each day shall be: (1) if the Common Stock is listed or
admitted to the trading on a national securities exchange,
the closing price on the NYSE-Consolidated Tape (or any
successor composite tape reporting transactions on
national securities exchanges) or, if such a composite
tape shall not be in use or shall not report transactions
in the Common Stock, the last reported sales price regular
way on the principal national securities exchange on which
the Common Stock is listed or admitted to trading (which
shall be the national securities exchange on which the
greatest number of shares of Common Stock have been traded
during such 30 consecutive trading days), or, if there is
no transaction on any such day in any such situation, the
mean of the bid and asked prices on such day, or (2) if
the Common Stock is not listed or admitted to trading on
any such exchange, the last sales price, if reported, or,
if the last sales price is not reported, the average of
the closing bid and asked prices as reported by the
National Association of Securities Dealers Automated
Quotations System or a similar source selected from time
to time by the Corporation for the purpose, or (3) if the
Common Stock is not quoted by any such organization, the
fair value of the Common Stock on such date as determined
in good faith by the Board of Directors of the
Corporation.
A-10
<PAGE> 11
(h) Consolidation Merger, Sale of Assets Reorganization
or Reclassification. If any consolidation or merger of the
Corporation with or into another corporation, or the sale or all
or substantially all of its assets to another corporation shall
be effected, or in case of any capital reorganization or
reclassification of the capital stock of the Corporation, then,
as a condition of such consolidation, merger or sale,
reorganization or reclassification, lawful and adequate provision
shall be made whereby the holders of record of the Series A
Preferred Stock shall thereafter have the right to receive upon
the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of Series
A Preferred Stock, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a
number of outstanding shares of Common Stock equal to the number
or shares of Common Stock immediately theretofore so receivable
by such holder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any
such case appropriate provision shall be made with respect to the
rights and interest of such holder to the end that the provisions
hereof (including without limitation provisions for adjustment of
the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of such
conversion rights.
(i) Notice of Adjustment of Conversion Price. Upon any
adjustment of the Conversion Price, then and in each such case
the Corporation shall give written notice thereof, by first class
mail, postage prepaid, to each holder of record of Series A
Preferred Stock, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
(j) Notice of Certain Actions. In case at any time:
(i) the Corporation shall declare to the holders
of its shares of Common Stock any cash dividend at a rate
in excess of the rate of the last cash dividend
theretofore paid;
(ii) the Corporation shall declare any dividend
upon its shares of Common Stock payable in stock or make
any special dividend or other distribution (other than a
cash dividend to the holders of its shares of Common
Stock);
(iii) the Corporation shall offer for subscription
pro rata to the holders of its shares of
A-11
<PAGE> 12
Common Stock any additional shares of stock of any class
or other rights;
(iv) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation,
or consolidation or merger of the Corporation with, or
sale of all or substantially all its assets to, another
corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;
then, in any one or more of said cases, the Corporation
shall give written notice, by first class mail, postage
prepaid, to each holder of record of Series A Preferred
Stock, of the date on which (A) the books of the
Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (B)
such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up shall
take place, as the case may be. Such notice shall also
specify the date as of which the holders of shares of
Common Stock of record shall participate in such dividend,
distribution or subscription rights or shall be entitled
to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, as the case may
be. Such written notice shall be given at least 30 days
prior to the action in question and not less than 30 days
prior to the record data or the date on which the
Corporation's transfer books are closed in respect
thereto.
(k) Reservation of Shares. The Corporation shall at
all times reserve and keep available out of its authorized shares
of Common Stock or its treasury shares, solely for the purpose of
issue upon the conversion of shares of Series A Preferred Stock,
such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares of Series A
Preferred Stock. The Corporation shall not take any action which
results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such
action upon conversion of the Series a Preferred Stock would
exceed the total number of shares of Common Stock then authorized
by the Articles of Incorporation of the Corporation.
(l) Taxes. The issuance of certificates of shares of
Common Stock upon the conversions of Series A Preferred Stock
shall be made without charge to the holders thereof for any
A-12
<PAGE> 13
issuance tax in respect thereto; provided, however, that the
Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the
holders of record of Series A Preferred Stock, respectively.
(m) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any shares of
Common Stock issued or issuable upon the conversion of any shares
of Series A Preferred Stock in any manner which interferes with
the timely conversion of Series A Preferred Stock.
(n) Miscellaneous. Notwithstanding any other provision
of this Paragraph 4, conversion of the Series A Preferred Stock
shall be subject to the requirement that if at any time the Board
of Directors shall determine that the registration, listing or
qualification of the shares of Common Stock covered thereby upon
any securities exchange or under any federal or state law, or the
consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with,
the acquisition of shares of Common Stock upon conversion, no
such conversion may be effected unless and until such
registration, listing, qualification, consent or approval shall
have been effected or obtained free of any conditions not
acceptable to the Board of Directors. The Company may require
that any person converting Series A Preferred Stock shall make
such representations and agreements and furnish such information
as it deems appropriate to assure compliance with the foregoing
or any other applicable legal requirement.
5. Certain Restrictions. Whenever quarterly dividends
payable on the Series A Preferred Stock as provided in Paragraph 2
hereof are in arrears for two consecutive quarterly periods, thereafter
and until all accrued and unpaid dividends, whether or not earned or
declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(a) declare or pay dividends on any shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(b) declare or pay dividends on any shares ranking pari
passu (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are
then entitled;
A-13
<PAGE> 14
(c) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at
any time, redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of this
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; and
(d) redeem or purchase or otherwise acquire for
consideration shares of Series A Preferred Stock, or any shares
of stock ranking pari passu with the Series A Preferred Stock
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rate and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
6. Reacquired Shares. Any shares of the Series A Preferred
Stock purchased or otherwise acquired by this Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued as shares of Preferred Stock and may be reissued
as Series A Preferred Stock or as part of a new series of Preferred
Stock subject to the conditions and restrictions of issuance set forth
herein, in the Articles of Incorporation or as otherwise required by
law.
7. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation, dissolution or winding up of
this Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends, or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock unless prior thereto, the holders of shares of Series A
Preferred Stock shall have received $10 per share, plus an amount
equal to accrued and unpaid dividends thereon, whether or not
declared or earned, to the date of such payment. After such
payments to holders of Series A Preferred Stock, the holders
thereof, as such, shall not have any right to participate in any
further distribution of or payment out of the assets of the
Corporation.
(b) If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets
available for distribution to holders of shares of Series A
Preferred Stock shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such
A-14
<PAGE> 15
assets shall be distributed ratably among the shares of Series A
Preferred Stock in accordance with the respective preferential
amounts, including unpaid cumulative dividends, if any, payable
with respect thereto.
8. Optional Redemption. Each share of Series A Preferred
Stock shall, out of funds legally available for that purpose, be subject
to redemption, at the election of the Corporation, on any date (the
"Redemption Date") subsequent to issuance, at a redemption price of $10,
plus an amount equal to all accrued and unpaid dividends on such share,
whether or not declared or earned, to the Redemption Date. Notice of
each redemption shall be mailed at least 30 days prior to the Redemption
Date with respect thereto, shall state that the Series A Preferred
Stock, or part thereof, shall be redeemed, and the date, place and
purchase price of such redemption, upon surrender of the certificates
representing shares of Series A Preferred Stock, and shall be given to
the holders of record of the shares of Series A Preferred Stock to be
redeemed, by first class mail, postage prepaid, at such holder's address
of record. In the event that the Corporation at any particular time
proposes to redeem fewer than all of the then outstanding shares of
Series A Preferred Stock, the shares of Series A Preferred Stock to be
redeemed shall be selected to such manner that the number of shares of
Series A Preferred Stock (to the nearest full share) to be redeemed from
each holder of record of Series A Preferred Stock shall bear the same
proportional relationship to all shares of Series A Preferred Stock held
by such holder is the aggregate number of shares to be redeemed bears to
all the shares of Series A Preferred Stock then outstanding. On the
Redemption Date, all dividends on the shares to be redeemed shall cease
to accrue, all rights with respect to such shares so to be redeemed
shall forthwith on such date cease and determine (except only the right
of the holder to receive the redemption price therefor, but without any
interest) and such shares so called for redemption shall no longer be
deemed outstanding. On or before each Redemption Date, the respective
holders of record of shares to be redeemed shall deliver to the
Corporation the certificates for the shares to be redeemed.
9. Junior Stock; Common Stock. For purposes hereof: (a) the
term "junior stock" shall mean the Common Stock and any other class of
stock of the Corporation hereinafter authorized which shall rank junior
to the Series A Preferred Stock as to all dividends or preference on
dissolution, liquidation or winding up of the Corporation; and (b) the
term "Common Stock" shall mean shares of the common stock, $.01 par
value, of the Corporation and shall also include shares of any capital
stock of any class of the Corporation hereinafter authorized which shall
not be limited to a fixed sum or percentage or par value in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Corporation; provided, however, that the shares of
Common Stock receivable upon conversion, of shares of Series A Preferred
Stock
A-15
<PAGE> 16
shall include only shares of Common Stock, as constituted on January 11,
1995 (including any stock into which it may be changed, reclassified or
converted).
10. No Pre-Emption Amendment. No right to subscribe for or
to take any stock of any class or any securities convertible to any
stock, at any time issued by the Corporation shall vest in or accrue to
any holder of shares of Series A Preferred Stock with respect to any
shares which he holds. The Articles of Incorporation of this
Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series
A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Series A Preferred Stock, voting together as a single series.
Furthermore, whenever the Series A Preferred Stock shall have elected
the Board of Directors of the Corporation in accordance with the
provisions of Subparagraph (c) of Paragraph 3 hereof, and until such
right shall terminate, the Articles of Incorporation of this Corporation
shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them favorably without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Common Stock, voting together as a single series.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000), consisting of money, labor done or property actually received.
ARTICLE SIX
PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
No shareholder or other person shall have any preemptive right
whatsoever. Cumulative voting shall not be permitted.
ARTICLE SEVEN
AGENT FOR PROCESS
The street address of the Corporation's initial registered office is
1301 West 25th Street, Suite 300, Austin, Texas, and the name of its initial
registered agent at such address is Gordon Graves.
A-16
<PAGE> 17
ARTICLE EIGHT
DIRECTORS
The number of directors constituting the Corporation's initial board of
directors is two (2), and the names and addresses of the persons who are to
serve as directors until the first meeting of the shareholders or until their
successors are elected and have qualified are:
NAME ADDRESS
---- -------
Gordon Graves 1301 West 25th Street
Suite 300
Austin, Texas 78705
Don Wilson 2250 Ridgepoint, #503
Austin, Texas 78754
ARTICLE NINE
ACTION OF SHAREHOLDERS WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action which may be taken
at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders
of all shares entitled to vote on the action were present and voted.
ARTICLE TEN
EXEMPTION OF DIRECTORS FROM LIABILITY
A director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except to the extent that any applicable law may
prevent such director from being relieved of such personal liability. Any
repeal or modification of this Article shall be prospective only and shall not
adversely affect any limitation of the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
A-17
<PAGE> 18
ARTICLE ELEVEN
INCORPORATORS
The name and address of the incorporator of the Corporation is:
NAME ADDRESS
---- -------
Gordon Graves 1301 West 25th Street
Suite 300
Austin, Texas 78705
A-18
<PAGE> 1
EXHIBIT 10.1
PRESS RELEASE
April 9, 1997
Multimedia Games, Inc. ("MGAM") announced today that the Company has
signed a memorandum of understanding with the National Indian Gaming Commission
("NIGC") to implement certain changes to the Company's high-speed video game,
MegaMania(TM), in order to maintain the Commission's classification of the game
as bingo. Classification as a bingo game allows MegaMania(TM) to be offered by
high-stakes Indian bingo halls in all 47 of those States where charity bingo is
allowed by State law as long as the game occurs on Indian trust land.
The changes were developed in response to an analysis by the NIGC, the
Department of Justice, and the U.S. Attorney in the Northern District of
Oklahoma which began an investigation of this subject approximately one year
ago. The Commission originally requested that these changes be made by April
11, 1997, but agreed in the memorandum to extend that time sufficiently to
assure a more orderly conversion and allow the present game to continue until
the new changes are completed.
Gordon Graves, Chief Executive Officer of MGAM, said, "It is our intent
to comply with the Commission's request as rapidly as possible. We believe the
changes will probably make the game even more attractive to the consumer than
the present version. The lower tier prize patterns will change to a more
conventional format, but the overall percentage prize payment and the frequency
of win by all participants will remain the same. We are on a fast track to
complete the changes and are pleased that the Government has granted us
reasonable time to comply. Receipt of this letter closes a chapter of legal
uncertainty that has clouded our status for the past nine months or more. We
are relieved to have that situation behind us."
Multimedia Games, Inc., through its wholly owned subsidiary
MegaBingo(R), Inc., has exclusive contracts with over 50 Indian nations to
provide linked games that are integrated among multiple halls. Multimedia
Games, Inc. is the nations leading provider of linked high-stakes bingo games,
electronic based interactive bingo games, and associated data processing
services and products to the Indian gaming industry.
Contact: Gordon Graves or Multimedia Games, Inc.
Fred Roll (800)-729-2464
<PAGE> 1
EXHIBIT 10.2
MEMORANDUM OF UNDERSTANDING
REGARDING REGULATORY COMPLIANCE
BETWEEN MULTIMEDIA GAMES AND
THE NATIONAL INDIAN GAMING COMMISSION
Whereas, Multimedia Games (MGAM) and the National Indian Gaming
Commission (NIGC) have jointly undertaken a process to resolve concerns as to
whether Multimedia Games' MegaMania game is in full compliance with the Class
II requirements of the Indian Gaming Regulatory Act and NIGC regulations;
Whereas, MGAM has agreed to and has undertaken to comply with all of the
changes to the MegaMania game requested in the NIGC's letter of March 28, 1997;
Whereas, the NIGC has determined in its letter of April 8, 1997, that,
following implementation of the changes described in that letter and in this
agreement, MegaMania is a Class II game;
Now, therefore, in order to establish efficient procedures for resolving
concerns as to that compliance, MGAM and the NIGC agree to the following:
1. The proposed modifications to MegaMania are: 1) Numbers or
objects will be drawn from a bingo blower, rather than from a random number
generator; 2) An act will be required by the card holder to daub the cards,
after the numbers or objects are identified, rather than the present fully
automatic system; 3) An act will be required by the card holder to indicate a
bingo to win, replacing the present fully automatic system; and 4) the present
2 of 3 and 3 of 3 shotgun bingo game will be replaced by the four corners bingo
game.
2. MGAM will implement the changes to the MegaMania game according
to the following schedule:
<TABLE>
<CAPTION>
Agreed MGAM Game NGI Bingo King
Modification MB2000 Tech System System 12
<S> <C> <C> <C> <C>
Bingo Blower
Design 100% 100% 100% 100%
Program 50% 50% 50% 50%
Lab Test 4/14 4/14 4/14 4/14
Beta Test 4/21 4/21 4/21 4/21
Install 4/28 4/28 4/28 4/28
Complete 4/28 4/28 4/18 4/28
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Agreed MGAM Game NGI Bingo King
Modification MB2000 Tech System System 12
<S> <C> <C> <C> <C>
Daubing by Card Holder
Design 100% 100% 80% 80%
Program 100% 100% 20% 20%
Lab Test 4/07 4/07 4/07 4/14
Beta Test 4/14 4/12 4/14 4/18
Install 4/21 4/21 4/21 5/07
Complete 4/28 4/28 4/28 5/21
Declaring Bingo
Design 100% 100% 80% 80%
Program 100% 100% 20% 20%
Lab Test 4/07 4/07 4/07 4/14
Beta Test 4/14 4/12 4/14 4/1
Install 4/21 4/21 4/21 5/07
Complete 4/28 4/28 4/28 5/21
Four Corners Game
Design 100% 100% 50% 60%
Program 60% 60% 10% 20%
Lab Test 4/21 4/21 5/20 5/07
Beta Test 4/28 4/28 6/01 5/15
Install 5/12 5/12 6/15 6/01
Complete 6/15 6/15 7/15 7/01
</TABLE>
All changes, as indicated above, will be complete by July 15, 1997. If,
for technical reasons, or reasons, beyond the control of MGAM, these deadlines
cannot be met, MGAM agrees to explain in writing immediately the reasons for
the delay in completion of the changes. The NIGC may grant such extensions as
it may deem appropriate. MGAM shall provide weekly written reports on the
status of its implementation of the changes.
3. The NIGC will not issue a Notice of Violation, Civil Fine or
Temporary Closure Order during the pendency of the changes to the MegaMania
game.
-2-
<PAGE> 3
The terms of this Memorandum of Understanding are agreed to and accepted
this 8th day of April, 1997.
MULTIMEDIA GAMES
- -----------------------------------
Larry Montgomery
President
NATIONAL INDIAN GAMING COMMISSION
- -----------------------------------
Ada E. Deer
Chair (Acting)
-3-
<PAGE> 1
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Multimedia Games, Inc.
Registration on Form S-3 and S-8
We are aware that our report dated May 6, 1997 on our review of the interim
financial information of Multimedia Games, Inc. for the periods ended
March 31, 1997, and included in this Form 10-QSB is incorporated by reference
in the Company's registration statements on Form S-3 (File No. 333-16729) and
on Form S-8 (File No. 333-23123). Pursuant to Rule 436 (C) under the Securities
Act of 1933, this report should not be considered a part of the registration
statements prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 973
<SECURITIES> 0
<RECEIVABLES> 1,399
<ALLOWANCES> 60
<INVENTORY> 368
<CURRENT-ASSETS> 2,862
<PP&E> 5,575
<DEPRECIATION> 1,270
<TOTAL-ASSETS> 9,653
<CURRENT-LIABILITIES> 2,193
<BONDS> 0
0
1
<COMMON> 41
<OTHER-SE> 5,223
<TOTAL-LIABILITY-AND-EQUITY> 9,653
<SALES> 403
<TOTAL-REVENUES> 15,850
<CGS> 217
<TOTAL-COSTS> 15,726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 37
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>