SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1999 Commission File No.
0-6518
TRILOGY GAMING CORPORATION
State of Incorporation I.R.S. Employer
Identification No.
Delaware 87-0280129
1717 E. Bell Road, Suite 12
Phoenix, Arizona 85022
Telephone: (602) 788-5801
Securities Registered Pursuant to Section 12 (b) of this Act:
Title of Each Class Name of Each Exchange on Which Registered
None
None
Securities Registered Pursuant to Section 12 (g) of this Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Voting Stock,
None
Par Value $0.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all
annual, quarterly and other reports
required to be filed with the Commission, and (2) has been
subject to the filing requirements for at least
the past ninety days.
Yes x No
The Issuer's Revenue for the most recent fiscal year was
$ 00.00
As of June 30, 1999 there were 3,035,752 shares of Common
Stock, .001 Par Value issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There is no annual report, proxy statement, or prospectus to
incorporate by reference.
PART I
ITEM 1. BUSINESS OF THE COMPANY
The name of the Company is Trilogy Gaming Corporation,
incorporated in the State of Delaware on
3/7/1972.
The Company's address is 1717 E. Bell Road, Suite 12, Phoenix,
Arizona 85022 (602) 788-5801.
The Company is a public Trading company. The Company's trading
symbol listed with the National
Association of Securities Dealers Automated Quotation ("NASDAQ")
System , on the Bulletin Board, is
"TGGC". As a reporting company, the Company intends to furnish
its shareholders with annual reports
containing financial statements and may distribute other
information from time to time.
All outstanding Common Shares, excluding control persons holding
10% or more of the common stock of
the Company and all restricted shares, are eligible to be sold
in the open market. Sales of substantial
amounts of common stock of the Company in a public market, may
have a depressive effect on the market
price of the common stock.
THE COMPANY'S AUTHORIZED CAPITAL
75,000,000 Common non-cumulative voting shares, par value $0.001
per share,
5,000 Preferred non-cumulative voting shares, par value $0.01 per
share
5,000 Preferred non-cumulative, non-voting shares, par value
$0.01 per share
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the
shareholders. Holders of common stock are entitled to receive
such dividends as may be declared from
time to time by the Board of Directors out of funds legally
available therefore after preferred dividend
payments have been paid to the Preferred shares.
BUSINESS OF THE COMPANY
The Company has from the patent owner, who is the CEO, President
and majority shareholder of the
Company, the exclusive license for the United States to patent #
5,158,293 (referred to in this document as
the Trilogy progressive jackpot tab/lotto type game) and patent
#2,128,150 for the trade name "Trilogy"
and the " Game with Multiple Incentives and Multiple Levels of
Game Play and combination Lottery
Game" With Time of Purchase Win Progressive Jackpot" .
The operations of the Company ending 06/30/1999 were financed by
selling a 98 Unit private placement for
480,000 common shares of the Company's common stock for $2 per
share, for $980,000. Each Unit is for
$10,000 for 5,000 common shares for $2 per share and (1) one non
detachable series A warrant to
purchase on or before 12/31/99, 5,000 common shares for $3 per
share and (1) one non detachable series B
warrant to purchase on or before 6/30/2000, 5,000 common shares
for $7 per share. As of 06/30/99 the
Company had sold all 490,000 shares for $980,000. The Units were
sold by Private placement to accredited
investors only.
The Law firm of Snell & Wilmer of Phoenix, AZ has given its legal
opinion to the Company that the
Trilogy multiple jackpot game is a Class II game pursuant to the
definitions set forth by the United States
Congress to NIGC and has submitted the Company's Trilogy scratch
tab game to the NIGC for Class II
classification or Class II use. The Company cannot state the
length of NIGC classification review process.
SUMMARY PATENT LICENSE AGREEMENTS
Wayne Mullins, the Company's CEO, President and Director, owns
patent # 5,158,293 "Lottery game and
method for playing same" and Trilogy trademark patent Reg. #
1,533,082. In 1993 Mr. Mullins granted
the exclusive U. S. licensee agreement to patent # 5,158,293 and
Reg. # 1,533,082 to the Company, which
states in part that;
Licensee (the Company) will pay Licensor (Mr. Mullins): 1%
Royalties payments due and payable to
Licensor by the end of each month for all royalties earned by the
end of the preceding month along with
an accurate accounting of all sales/revenues covered by the
license agreement. Said minimum royalty
payments are due December 31 of each year of the license
agreement and payable to Licensor or his
assigns on or before 30 days following each said minimum royalty
payment due date. (ii) 1,310,00
common voting shares of Trilogy Gaming Corporation and (iii)
3,690 convertible non-voting preferred
shares issued to Licensor. Said preferred shares shall be
increased or decreased in proportion to the exact
number of shares resulting from any and all stock splits of TGC
or its successors common stock until all
said preferred shares and splits therefrom have been issued to
Licensor. For each 1,000 new common
shares issued by the Company, from time to time, Beginning March
1, 1998, said Preferred shares are
convertible at the rate of "one Preferred share for 1,000 common
shares" until all said preferred shares
have been converted. The licensee Agreement renews annually
providing the License is not in default.
Mr. Mullins is the inventor of the " Game with Multiple
Incentives and multiple Levels of Game Play and
combination Lottery Game With Time of Purchase Win Progressive
Jackpot" (patent pending) and
referred to in this document as the Trilogy 9-Jackpot tab/card
table game. Mr. Mullins Licensed the
Company the Trilogy 9-Jackpot tab/card table game, which states
in part that:
Licensee (the Company) will pay Licensor (Mr. Mullins): [i] a
royalty of one percent (1%) of the gross
dollar amount, of all revenues generated from all game plays
(excluding revenues generated from patent #
5,158,293) and progressive jackpot "drops" generated directly or
indirectly by Licensee, its agents and/or
sub-licensees, who use any part of above stated invention to
generate game play and/or multiple
progressive jackpot game plays, or the annual minimum royalty
payment of $50,000, whichever is greater.
Royalties are due and payable to Licensor by the end of each
month for all royalties earned by the end of
the preceding month along with an accurate accounting of all
sales/revenues covered by the license
agreement. Said minimum royalty payments are due December 31 of
each year of the license agreement
and payable to Licensor or his assigns on or before 30 days
following each said minimum royalty payment
due date. and [ii] 3,500 convertible non-voting preferred shares
issued to Licensor. Said preferred shares
shall be increased or decreased in proportion to the exact number
of shares resulting from any and all
stock splits of TGC or its successors common stock until all said
preferred shares and splits therefrom
have been issued to Licensor. For each 1,000 new common shares
issued by the Company, from time to
time, Beginning January 2, 2000, said Preferred shares are
convertible at the rate of "one Preferred share
for 1,000 common shares" until all said preferred shares have
been converted. The licensee Agreement
renews annually providing the License is not in default.
The license agreements further states that; the licensee
agreement shall be in default in the event Licensee
fails to pay Licensor the consideration stated above.
CONFLICTS OF INTEREST
Wayne Mullins, the Company's CEO, President and Director, owns
the Company's Trilogy game and
Trilogy trademark patents. Mr. Mullins granted the Company the
exclusive U. S. licensee agreement to
patent # 5,158,293 "lottery game and method for playing same" and
U. S. patent/Trademark Reg. #
1,533,082 for the Trilogy mark and the Trilogy 9-Jackpot tab/card
table game, patent pending.
Mr. Mullins as President, CEO and Director of the Company, will
be in the position to represent both the
patent Licensor (Mr. Mullins) and the patent Licensee (the
Company) and his interest will most likely be
first to himself as the Licensor. In the event of a default of
the patent license agreement by the Company,
Mr. Mullins will be in a position to make demand upon the Company
to cure the default pursuant to the
provisions of the license Agreement and to terminate the license
agreement if the default is not cured
pursuant to the license agreement. Because of this disclosure by
the Company regarding these
circumstances surrounding the Patent Licensor and the Patent
Licensee, neither the Company as Patent
Licensee, or any of its shareholders, Officers or Directors,
shall have or make any claim or demand that a
conflict of interest existed anytime prior to, during or after
any default demand or upon termination of the
patent license agreement in the event Mr. Mullins, as Patent
Licensor, enforced any default of the license
agreement including, but not limited to, termination of the
license Agreement.
ITEM 2. PROPERTIES None
ITEM 3. LEGAL PROCEEDINGS None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
SHAREHOLDER MATTERS.
A. DECEASE IN AMOUNT OUTSTANDING OF SECURITIES OR INDEBTEDNES
None.
B. INCREASE IN AMOUNT OUTSTANDING OF SECURITIES OR INDEBTEDNES
185,625
The following table shows the high and low bid prices for the
Company's Common Stock as
reported by the NASD electronic bulletin board (Bulletin Board
Symbol -- TGGC) for the year
ended December 31,1998. The company started trading in the
fourth quarter of 1998.
1999 HIGH LOW
FIRST QUARTER MARCH 31,1999 4.500 3.250
SECOND QUARTER JUNE 30,1999 2.500 1.500
THIRD QUARTER SEPTEMBER 30,1999
FOURTH QUARTER DECEMBER 31, 1999
Approximate number of equity securities holders:
Title of Class
Approximate number of
Record Holders (as of
March 31, 1999
Common stock $.001 Par Value
525
Dividends:
The Company paid no dividends in the years ended December
31, 1997 nor 1998
Recent Sale of Unregistered Securities:
The Company began a $ 980,000 financing thru the placement
of common shares and warrants
to be placed only by Qualified Investors. The Company placed
322,000 units @ $2.00 each for a total of
$ 645,000 for the year ended 12/31/98. And an additional
185,625 shares for $635,000 in the first
half of 1999
ITEM 6. MANAGEMENTS PLAN OF OPERATION.
SUMMARY OF OPERATIONS
The Company is in the business of marketing its products to
Indian Gaming enterprises, Charitable
Gaming entities and State Lotteries in the United States. Gaming
& Wagering magazine reported in 1995
in the United States: Indian Reservation Gaming Revenues of 49
billion dollars, Charitable Gaming
revenues of 9.8 billion dollars and State Lottery sales of 38.8
billion dollars. Most Indian Gaming
enterprises market bingo, pull-tabs, and video slot games. There
are Charitable Gaming enterprises that
market bingo, raffle and pull-tabs games. State lotteries market
on-line lottery drawings, or numbers type
games, scratch or instant type scratchier tickets games.
The Company is presently in the final development stage of design
of its Class II designed electronic
video visual ticket display pull tab game dispensing machines.
The Company's initial plans are to market
its Patented/Licensed Trilogy pull tab Progressive Mega Cash
jackpot scratch tabs to Indian gaming
casinos. Sales to and Revenues from Indian gaming casinos are
targeted to begin in 1999.
The Company does not plan to operate or manage any gaming
enterprise marketing Trilogy scratch tabs.
The primary business of the Company is to sell its Trilogy
scratch tabs on consignment, administer the
progressive jackpots and communication system. Therefore, the
Company's work force should be
relatively small. Most of the Company's work should be performed
by experienced contracted
manufacturers, installers, dispenser hardware and software, tab
manufacturers, technicians, field
consultants and commissioned sales professionals.
The Company has two employees, the President and Chief Operating
Officer of the Company. They are
salary approved but as of 12/31/98 they have elected to defer
the approved salary. See the attached Notes
to Financial Statements for further details
Registrant has announced its intention to provide supplemental
information to its stockholders and other
interested parties from time to time; and in all cases, the
information contained herein must be read in
light of subsequent information which may be issued, including
but not limited to more recent financial
statements herein contained are current as of their date, and are
presumed to be "current" for a period of
six months after their date, barring extraordinary circumstances.
No inference can be drawn that the
financial condition of the Registrant has not changed since the
effective date of any financial statement
contained herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FILED
(A) Financial Statements.
(1) Report of Certified Public Accountants on Schedules as
of 03/31/99.
(I) Compiled Balance Sheet ending 06/30/99
(II) Audited Statement of Operations from 1/1/1989 to
12/31/97
(III)Compiled Statement of Changes in Shareholders Equity as
of 06/30/99
(1V) Compiled Statement of Common Stock issued from 1/1/1989
ending 06/30/99
Compiled Statement of Cash Flows from 1/1/1989 ending 06/30/99
Notes to Financial Statements ending 06/30/99 (consisting of 15
Notes)
(B) No reports on Form 8-K have been filed during any
quarter from 10-1-77 to 9-31-98.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE. None
PART III
ITEM 9. DIRECTORS OF THE REGISTRANT
Wayne Mullins age 62. CEO/President and Director. He is a
former Insurance Executive and inventor
holding several patents. The United States Patent Office granted
Mr. Mullins the registered trademark
Trilogy ( and a patent for his Trilogy "Lotto game and method for
playing same". Mr. Mullins has
licensed his patent, registered trademark and patent pending to
the Company.
Mike Maledon, age 47. Chief Operating Officer, Secretary,
Treasurer and Director. He has held senior
financial and controllership management positions with American
Express, American Hospital Supply
Corp. and Bally Mfg. Corporation.
Jim Holmes, Director. age 56. He is President of Multimedia
Games Inc. MG provides the
communications network and its "MegaMania" bingo game played from
3,200 bingo machines at Tribal
bingo/casinos located in multiple states. He is former
Executive Vice-President of Gamma International
and directed the company's satellite network marketing program
for its "Million Dollar Mega Bingo"
played in multiple Indian Gaming locations. He is the former
Missouri Lottery Director.
John Wertheim, Director. age 55. President and Director of
Single Stick, Inc., Phoenix, Arizona, SSI
packages and markets individually packaged premium and miniature
cigars. He is the former President
and CEO of J. W. & Associates, a consulting firm specializing in
providing financing capital to small to
medium size companies. He is a Founder of First Business Bank of
Arizona which begin operations in
1985. FBA was merged with Century Bank, the name was changed to
Caliber Bank in 1990. During Mr.
Wertheim's tenure as President and CEO of Caliber Bank, CB grew
to $250 million in assets with nine
branches. He is the former President and CEO of Valley Bank
Corp., Inc. and Valley Bank of Arizona, a
full-service commercial and consumer bank service Phoenix,
Arizona
Robert Rettig, age 70. Director. Former Executive
Vice-President of Illinois Tool Works, Inc. from 1983
to 1990. He is presently a TWI Director and consultant. From
1976 to 1983 he was President of
Packaging Systems and Instrument Group.
Joseph M. Imhoff Director Mr. Imhoff is a Senior VP of
Peacock, Hislop,Stanley & Givens, Inc. A Securities brokerage
firm Phoenix,AZ. Mr. Imhoff has been in the investment banking
and bond underwriting business for the past 40 years.
Prior to his moving to Scottsdale AZ he was Exwcutive VP
and Director of a Denver based NYSE firm. Mr. Imhoff has
been involved in numerous national and regional
investment banking organizations as both a Director
and a Officer.
At Registrants special meeting of the Shareholders of the Company
held on November 16, 1998, the above
named Directors were elected and shall hold office until his
successor shall have been elected and
qualified.
ITEM 10. EXECUTIVE COMPENSATION AND REMUNERATION
The following table shows the compensation of each executive
officer and significant employee
during the fiscal years ended December 31,1996,1997, and 1998.
Name and Year Salary Bonus Restricted Securities
All Other
Principal Position Stock Underlying
Compensation
Award(s) Options
($) (#)
1999 18,000
Wayne Mullins 1998 36,235
President CEO 1997 17,750
1996 22,276
1999 0
Michael Maledon 1998 0 62,500 50,000
Coo 1997 0
Secretary/Treasurer 1996 0
The Board of Directors approved the following options for common
stock granted to the Chief
Operating Officer of the Company as of September 1, 1998 and
exercisable for a period of three years
from 3/1/1999 for 150,000 common shares at the price of $1.25 per
share and three years from 3/1/2000
for 150,000 common shares at the price of $1.25 per share
The Registrant has no annuity, pension or retirement
benefits proposed to be paid to any of its
officers or directors. There is no existing plan for the payment
of such benefits.
ITEM 11. PRINCIPAL SECURITY HOLDERS AND SECURITY HOLDERS OF
MANAGEMENT
(A) Voting Securities owned of record or beneficially in
excess of five percent (10%) of the
issued and outstanding stock of Registrant.
(1) (2) (3) (4) (5)
Title of Class Name and Address Type of Amount
Percent
Ownership Owned of Class
Common Voting Wayne Mullins Restrictive 1,265,000 41.7%
Stock Par Value 1717 E. Bell Rd, # 12
$0.001 Per share Phoenix, AZ 85022
(B) Equity Securities of the Registrant beneficially owned
directly or indirectly by all directors and
officers of the Registrant as a group.
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of
Class
Common Voting Stock 1,596,260 51.5%
Par Value $0.001 Per share
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
B. No Director, Officer or person holding an excess of ten
percent (10%) of the outstanding
securities of the Registrant, or any relative or spouse of any
such persons or relative or spouse of
such person, had any interest in any transactions or presently
proposed transactions to which the
Registrant was a party, except Registrants patent licensor Wayne
Mullins, who is a Director and
Officer of Registrant.
B. No Director or Officer of the Registrant or associate of any
such Director or Officer has been
indebted to the Registrant from 12/ 31/ 1997 to 6/30/ 1999.
C. There were no transactions since the beginning of the
Registrant's last fiscal year (December
31, 1997), and are presently no proposed transactions wherein any
retirement, saving or other
similar plan will be provided by the Registrant to any person.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
none
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly
authorized.
DATED this 8th day of September 1999.
TRILOGY GAMING CORPORATION
By: __________________________________________
Mike Maledon, Chief Operating Officer and Secretary
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 1999
TABLE OF CONTENTS
Page No.
ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Shareholders' Equity 4 - 6
Statement of Cash Flows 7 - 8
Notes to Financial Statements 9 - 14
ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders
Trilogy Gaming Corporation
Phoenix, Arizona
We have reviewed the accompanying balance sheet
of Trilogy Gaming Corporation as of June 30, 1999,
and the related statements of operations, changes in
shareholders' equity and cash flows for the six months
then ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
All information included in these financial
statements is the representation of the management
of Trilogy Gaming Corporation.
A review consists principally of inquiries of
company personnel and analytical procedures applied
to financial data. It is substantially less in scope
than an audit 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 I am not aware of any material
modifications that should be made to the accompanying
financial statements in order for them to be in
conformity with generally accepted accounting principles.
Moffitt & Company, P.C.
Scottsdale, Arizona
August 30, 1999
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<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1999
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,315
Inventory of tickets, at cost 55,930
TOTAL CURRENT ASSETS 60,245
PROPERTY AND EQUIPMENT
Construction in process for gaming tables and
computers 571,743
TOTAL PROPERTY AND EQUIPMENT 571,743
OTHER ASSETS
Equipment lease security deposits 12,506
TOTAL OTHER ASSETS 12,506
TOTAL ASSETS 644,494
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 120,850
Accrued officers' salaries and expenses 231,36
1
TOTAL CURRENT LIABILITIES 352,211
REDEEMABLE PREFERRED STOCK
Non-cumulative, non-voting shares
Par value $0.01 per share
Authorized 5,000,000 shares
Issued and outstanding - 6 shares
0
SHAREHOLDERS' EQUITY
Capital stock
Preferred stock, convertible, non-cumulative
Voting shares
Par value $0.01 per share
Authorized 5,000,000 shares
Issued and outstanding - 3,690 shares
37
Common stock
Par value $0.001 per share
Authorized 75,000,000 non-cumulative voting shares
Issued and outstanding - 3,035,752 shares
3,036
Paid in capital in excess of par value of stock
2,603,596
Advance on stock subscription
7,500
Retained earnings (deficit) (
477,376)
Deficit accumulated during the development stage (
1,844,510)
TOTAL SHAREHOLDERS' EQUITY
292,283
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 644,494
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<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 1999
January 1, 1989
Six (Date of
Months Inception of
Ended Development)
June 30, to June 30,
1999 1999
<S> <C> <C>
REVENUE 0 0
DEVELOPMENT COSTS 212,759 1,844,510
NET (LOSS) $ ( 212,759) ( 1,844,510)
NET (LOSS) PER COMMON SHARE
Basic and diluted $ ( .07)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 3,009,919
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<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 1999
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1989
(DATE OF INCEPTION OF
DEVELOPMENT) 0 $ 0 49,985,211 1979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1989 0 0 0
0
BALANCE, DECEMBER 31, 1989 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1990 0 0 0
0
BALANCE, DECEMBER 31, 1990 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1991 0 0 0
0
BALANCE, DECEMBER 31, 1991 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1992 0 0 0
0
BALANCE, DECEMBER 31, 1992 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1993 0 0 0
0
BALANCE, DECEMBER 31, 1993 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1994 0 0 0
0
BALANCE, DECEMBER 31, 1994 0 0 49,985,211
1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1995 0 0 0
0
BALANCE, DECEMBER 31, 1995 0 $ 0 49,985,211
1,979
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<CAPTION>
Paid in Deficit
Capital Accumulated
in Excess Advance Retained
Durin
g the
of Par on Stock Earnings
Devel
opment
Value of Stock Subscription (Deficit)
Stag
e
<C> <C> <C> <C>
$ 1,003,753 $ 0 $ ( 447,376) $
0
0 0 0 ( 47,037)
1,003,753 0 ( 447,376)
(
47,037)
0 0 0 ( 160,296)
1,003,753 0 ( 447,376)
(
207,333)
0 0 0 ( 111,886)
1,003,753 0 ( 447,376)
(
319,219)
0 0 0 ( 37,250)
1,003,753 0 ( 447,376)
(
356,469)
0 0 0 ( 52,882)
1,003,753 0 ( 447,376)
(
409,351)
0 0 0 ( 39,250)
1,003,753 0 ( 447,376)
(
448,601)
0 0 0 ( 27,075)
$ 1,003,753 $ 0 $ ( 447,376) $
(
475,676)
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<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 1999
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCE AFTER REVERSE
STOCK SPLIT -
MARCH 1, 1996 0 $ 0 494,684 $
0
MERGER OF INTERNATIONAL
LOTTERY PRODUCTIONS LTD. 0 0 1,596,
893 0
ISSUANCE OF COMMON
STOCK FOR
Cash
0 0 118,000 118
Royalties 0 0 78,750 0
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1996 0 0 0
0
BALANCE, DECEMBER 31, 1996 0 0 2,288,327
2
,097
ISSUANCE OF PREFERRED
STOCK FOR CASH 3,690 37 0
0
ISSUANCE OF COMMON
STOCK FOR
Services rendered 0 0 6,200
62
Cash 0 0 15,000 150
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1997 0 0 0
0
BALANCE, DECEMBER 31, 1997 3,690 $ 37 2,309,
527 2,309
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<CAPTION>
Paid in Deficit
Capital Accumulated
in Excess Advance Retained
Durin
g the
of Par on Stock Earnings
Devel
opment
Value of Stock Subscription (Deficit)
Stag
e
<C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 0
0 0 0 0
147,382 0 0 0
0 0 0 0
0 0 0 ( 167,434)
1,151,135 0 ( 477,376)
(
643,110)
0 0 0 0
7,688 0 0 0
34,850 0 0 0
0 0 0 ( 74,748)
$ 1,193,673 $ 0 $ ( 477,376) $
(
717,858)
</TABLE>
<TABLE>
selected financial data
<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 1999
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK
FOR
Cash, net of commission paid 0 $ 0 386,50
0 387
Services rendered 0 0 50,000
50
Directors' fee 0 0 105,000 105
CORRECTION OF ISSUED
SHARES 0 0 ( 900) ( 1)
OUTSTANDING STOCK
OPTIONS 0 0 0 0
ADVANCE ON STOCK
SUBSCRIPTION 0 0 0 0
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1998 0 0 0
0
BALANCE, DECEMBER 31, 1998 3,690 37 2,850,
127 2,850
ISSUANCE OF COMMON
STOCK FOR CASH, NET OF
COMMISSIONS PAID 0 0 185,625
186
NET LOSS FOR THE SIX
MONTHS ENDED JUNE
30, 1999 0 0 0 0
BALANCE, JUNE 30, 1999 3,690 $ 37 3,035,752
3
,036
</TABLE>
<TABLE>
selected financial data
<CAPTION>
Paid in Deficit
Capital Accumulated
in Excess Advance Retained
Durin
g the
of Par on Stock Earnings
Devel
opment
Value of Stock Subscription (Deficit)
Stag
e
<C> <C> <C> <C>
$ 627,464 $ 0 $ 0 $ 0
62,450 0 0 0
209,895 0 0 0
0 0 0 0
225,000 0 0 0
0 7,500 0 0
0 0 0 ( 913,893)
2,318,482 7,500 ( 477,376)
(
1,631,751)
285,114 0 0 0
0 0 0 ( 212,759)
$ 2,603,596 $ 7,500 $ ( 477,376)
(1,844,510)
</TABLE>
<TABLE>
selected financial data
<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 1999
January 1, 1989
Six (Date of
Months Inception of
Ended Development)
June 30, to June 30,
1999 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (212,759) ( 1,844,510)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Capital and stock issued for expenses and services 0
50
5,250
Merger of International Lottery Productions Ltd. 0
52
7,608
Increases (decreases) in:
Inventory of tickets ( 55,930) ( 55,930)
Prepaid expenses 7,350 0
Accounts payable 87,000 120,850
Accrued officers' salaries and expenses 88,263
231,3
61
NET CASH (USED) BY OPERATING
ACTIVITIES ( 86,076) ( 515,371)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in process for gaming tables
and computers ( 271,846) ( 571,743)
NET CASH (USED) BY INVESTING
ACTIVITIES ( 271,846) ( 571,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of company stock,
net of commissions paid 285,300 1,095,650
Equipment lease security deposits 0 ( 12,506)
Advance on stock subscription 0 7,500
NET CASH PROVIDED BY FINANCING
ACTIVITIES 285,300 1,090,644
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 72,622 $ 3,530
</TABLE>
<TABLE>
selected financial data
<CAPTION>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 1999
January 1, 1989
Six (Date of
Months Inception of
Ended Development)
June 30, to June 30,
1999 1999
<S> <C> <C>
CASH AND CASH EQUIVALENTS BALANCE AT
BEGINNING OF PERIOD $ 76,937 $ 785
CASH AND CASH EQUIVALENTS BALANCE AT
END OF PERIOD $ 4,315 $ 4,315
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 0 $ 0
Taxes paid $ 0 $ 0
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock for expenses and
services $ 505,250
Issuance of company stock for merger of
International Lottery Productions Ltd. $ 527,608
</TABLE>
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Nature of Business
Trilogy Gaming Corporation was incorporated in
the State of Delaware for the primary business purpose
of selling its Trilogy scratch tab/lotto type tickets
on consignment and administering the progressive jackpots
and communication systems.
Accounting Estimates
Management uses estimates and assumptions in
preparing financial statements in accordance with
generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates
that were used.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the company considers all highly liquid debt instruments
purchased with a maturity of three months or less to
be cash equivalents.
Income Taxes
Provisions for income taxes are based on taxes
payable or refundable for the current year and deferred
taxes on temporary differences between the amount of
taxable income and pretax financial income and between
the tax bases of assets and liabilities and their
reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the
financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets
and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109,
Accounting for Income Taxes. As changes in tax laws or
rate are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Net Loss Per Share
Net loss per common share is computed by dividing
net loss by the weighted average number of shares outstanding
during the period. In accordance with FASB 128, potentially
dilutive warrants and options that would have an anti-dilutive
effect on net loss per share are excluded.
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 2 DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
As of June 30, 1999, the company was in the
development stage of operations. According to the
Financial Accounting Standards Board of the Financial
Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities
to establishing a new business activity. In addition,
planned principle activities have not commenced, or have
commenced and have not yet produced significant revenue.
FAS-7 requires that all development costs be
expensed during the development period. The company
expensed $212,759 of development costs for the six
months ended June 30, 1999 and $1,844,510 from
January 1, 1989 (date of inception of development)
to June 30, 1999.
The ability of the company to continue as
a going concern is dependent on obtaining additional
capital and financing to acquire gaming tables,
computers and equipment. The financial statements
do not include any adjustments that might be necessary
if the company is unable to continue as a going concern.
NOTE 3 DEFERRED TAX ASSET
The deferred tax asset arises from the difference
between the accounting for development stage costs.
For financial statement purposes, development stage costs
are expensed as incurred. For tax purposes, these expenses
are capitalized and will be amortized over 60 months once
operations begin.
The components of the deferred tax asset are as follows:
Deferred tax asset from development costs 756,000
Less valuation allowance 756,000
Net deferred tax asset 0
NOTE 4 LICENSING AGREEMENT WITH RELATED PARTY
The company has a licensing agreement with the
company's Chief Executive Officer for the exclusive right
to use the officer's patents and trade marks for the
Trilogy lotto game.
The agreement provides that the Chief Executive
Officer will receive the following:
A. 1,310,000 common voting shares of stock
B. 3,690 shares of convertible preferred shares
C. Minimum royalty payments of $100,000 beginning
in the year 1999
The term of the agreement is for one year plus
renewable one year options.
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 5 BEARER ROYALTY CERTIFICATES
The company has issued 61 five year Trilogy
Lotto royalty interests. The royalty units will receive
a 6% minimum royalty payment for two years plus a five year
royalty of .01% of pre tax income. Payments begin the first
year the company receives gross profits and royalty earnings
payments from each state lottery marketing the Trilogy Lotto
game.
NOTE 6 CONVERTIBLE PREFERRED STOCK
As part of the licensing agreement described
in footnote number 4, the Chief Executive Officer received
3,690 shares of convertible, non-cumulative voting preferred
shares of stock. These shares are convertible at the rate
of one preferred share for 1,000 common shares for a total
of 3,690,000 common shares. There is no expiration date
on this option.
NOTE 7 REDEEMABLE PREFERRED STOCK
Regulation S-X of the Securities and Exchange
Commission states that preferred stock subject to mandatory
redemption requirements must be presented separately in
the balance sheet and not be included in the shareholders'
equity section. The non-cumulative, non-voting shares have
a redemption value of $10,000 payable from 25% of the
company's quarterly pre-tax earnings as a preferred stock
dividend. When the preferred stock dividends paid under
this formula equals $10,000 per unit, the preferred unit
shares will be terminated on the books of the company.
At June 30, 1999, the company was contingently
liable to redeem $60,000 of preferred stock from 25% of
pre-tax earnings.
NOTE 8 INCENTIVE QUALIFIED EMPLOYEE STOCK OPTION PLAN
The company has adopted an incentive qualified
employee stock option plan. The plan is designed for key
employees and will be administered by the Compensation
Committee of the Board of Directors and/or the company's
Chief Executive officer. The plan will provide that
employee options granted by the company are vested in the
employee after services have been performed or after one
year of full time employment and may be exercised after
the options are vested and prior to the termination date
of the vested option. The options are exercisable for
$1.25 per share and each option shall be vested for
services performed for the company or after one year
as a full time employee of the company.
The company granted the chief operating
officer the following options:
Three year option for 150,000 shares
of common stock from March 1, 1999.
Three year option for 150,000 shares
of common stock from March 1, 2000.
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 8 INCENTIVE QUALIFIED EMPLOYEE STOCK OPTION PLAN (CONTINUED)
A summary of the stock options is as follows:
Option Price
Shares Per Share
Outstanding at January 1, 1999 300,000 1.25
Granted during the year 0 0
Outstanding at June 30, 1999 300,000 1.25
The company has reserved 1,500,000 shares from its
authorized common stock under its Incentive Qualified
Employee stock option plan.
Information regarding stock options outstanding
as of June 30, 1999 is as follows:
Options Outstanding
Weighted Weighted Average
Average Remaining
Price Exercise Contractual
Range Shares Price Life
1.25 300,000 $ 1.25 3 years, 2months
Options Exercisable
Weighted
Average
Price Exercise
Range Shares Price
$ 1.25 0 N/A
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 9 EXECUTIVE EMPLOYMENT AGREEMENTS
The company has entered into employment contracts
with the Chief Executive Officer and Chief Operating
Officer. The terms for each agreement are as follows:
A. Annual base salary of $104,000
B. $600 monthly automobile allowance
C. Medical insurance coverage
D. Annual bonus of $10,000 for each $1,000,000
pre tax earnings
E. Seven year term for the Chief Executive Officer
and five year term for the Chief Operating Officer
NOTE 10 DIRECTORS' COMPENSATION
The stockholders approved the following compensation
for the Directors of the company:
A. Issuance of common stock
5,000 shares to each director for
each full year of service from November 1, 1995 to
November 1, 1998 and 10,000 shares for each full year
from November 16, 1998.
and
B. Bonus
An annual director bonus of up to 1,000 common
shares for each $1,000,000 of pre tax earnings generated
to the company during each of the company's fiscal year
the director served on the Board of Directors of the
Company.
NOTE 11 PUBLIC OFFERING
The Board of Directors have the authority, prior
to November 1, 1999, to register with the Securities and
Exchange Commission a public offering for up to 10,000,000
common shares of the company's common stock.
NOTE 12 EXECUTIVE BONUSES
Eight corporation officers have been granted
an Executive Bonus program whereby they will receive,
for each full year as a full time employee and officer
of the company, 10,000 common shares of the company for
each $1,000,000 of pre tax earnings generated to the
company during the company's fiscal year.
TRILOGY GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 13 RENT
The company rents its office space on a month-
to-month basis. The rent expense for the six months
ended June 30, 1999 is $5,040.
NOTE 14 STOCK SPLIT
The Board of Directors are authorized to split
the company's outstanding common shares up to a total
of five for one. This authorization expires on
December 31, 1999.
NOTE 15 WARRANTS TO ACQUIRE COMMON STOCK
The company has issued the following
common stock warrants:
1 Series A warrant to acquire 566,825 common
shares on or before December 31, 1999 for the price
of $3.00 per share
and
1 Series B warrant to acquire 566,825 common
shares on or before June 30, 2000 for the price
of $7.00 per share
