U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2002
COMMISSION FILE NO. 0-21991
ADVANCED GAMING TECHNOLOGY, INC.
--------------------------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
WYOMING 98-0152226
- ------------------------------- --------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
24165 1H 10WEST, SUITE 217125
SAN ANTONIO, TX 67257
- --------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (210) 697-8550
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE NONE
- ----------------------------- -------------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] or [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: June 30, 2002 - 21,430,587
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
F-1
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets................................................F-2
Consolidated Statements of Operations......................................F-3
Consolidated Statements of Stockholders' Equity (Deficit)..................F-4
Consolidated Statements of Cash Flows......................................F-5
Notes to Consolidated Financial Statements.................................F-6
F-2
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
Six Months Ended Year Ended
June 30, 2001 December 31, 2001
--------------------- --------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 31,792 $ 45,709
Prepaid expenses 0 1,000
--------------------- --------------------
Total current assets 31,792 46,709
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PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment, net 0 66,862
--------------------- --------------------
Total property and equipment 0 66,862
--------------------- --------------------
Total Assets $ 31,792 $ 113,571
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 5,206 $ 10,000
Notes payable 1,022,990 1,367,424
--------------------- --------------------
Total current liabilities 1,028,196 1,377,424
--------------------- --------------------
Total Liabilities 1,028,196 1,377,424
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-10% cumulative, $0.10 par value, 4,000,000
authorized; 0 issued and outstanding 0 0
Common stock, $0.005 par value, 150,000,000 authorized;
21,430,587 issued and outstanding 107,153 107,153
Additional paid-in capital 0 0
Accumulated deficit (1,103,557) (1,371,006)
--------------------- --------------------
Total stockholders' equity (deficit) (996,404) (1,263,853)
--------------------- --------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 31,792 $ 113,571
===================== ====================
The accompanying notes are an integral part of the financial statements
F-3
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2002 2001 2002 2001
--------------- ------------- -------------- --------------
REVENUES $ 0 $ 27,721 $ 0 $ 81,422
OPERATING EXPENSES
Salaries 41,875 56,250 98,125 112,500
Depreciation 51,862 15,000 66,862 30,000
Other operating expenses 6,206 31,445 10,141 63,521
--------------- ------------- -------------- --------------
Total operating expenses 99,943 102,695 175,128 206,021
--------------- ------------- -------------- --------------
Operating income (loss) (99,943) (74,974) (175,128) (124,599)
--------------- ------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest expense (26,727) (40,832) (54,949) (57,725)
Gain on forgiveness of debt 497,526 0 497,526 0
--------------- ------------- -------------- --------------
Total other income (expense) 470,799 (40,832) 442,577 (57,725)
--------------- ------------- -------------- --------------
Net income (loss) $ 370,856 $ (115,806) $ 267,449 $ (182,324)
=============== ============= ============== ==============
Net income (loss) per common share, basic $ 0.017 $ (0.005) $ 0.013 $ (0.007)
=============== ============= ============== ==============
Weighted average number of common shares
outstanding 21,430,587 25,000,000 21,430,587 25,000,000
=============== ============= ============== ==============
The accompanying notes are an integral part of the financial statements
F-4
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL
NUMBER ADDITIONAL STOCKHOLDERS'
OF COMMON PAID-IN RETAINED EQUITY
SHARES STOCK CAPITAL EARNINGS (DEFICIT)
------------- ------------ ----------- -------------- ----------------
BEGINNING BALANCE,
December 31, 1999 25,000,000 $ 125,000 $ 0 $ (394,895) $ (269,895)
Net loss 0 0 0 (564,441) (564,441)
------------- ------------ ----------- -------------- ----------------
BALANCE, December 31, 2000 25,000,000 125,000 0 (959,336) (834,336)
Cancellation of reserved shares (3,569,413) (17,847) 0 0 (17,847)
Net loss 0 0 0 (411,670) (411,670)
------------- ------------ ----------- -------------- ----------------
BALANCE, December 31, 2001 21,430,587 107,153 0 (1,371,006) (1,263,853)
Net income 0 0 0 267,449 267,449
------------- ------------ ----------- -------------- ----------------
ENDING BALANCE, June 30, 2002
(unaudited) 21,430,587 $ 107,153 $ 0 $ (1,103,557) $ (996,404)
============= ============ =========== ============== ================
The accompanying notes are an integral part of the financial statements
F-5
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)
2002 2001
------------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 267,449 $ (182,324)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 66,862 30,000
Gain on forgiveness of debt (497,526) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 0 (3,700)
(Increase) decrease in prepaid expenses 1,000 0
(Increase) decrease in other assets 0 33,000
Increase (decrease) in accounts payable and accrued liabilities (4,794) (242,019)
Increase (decrease) in notes payable 153,092 300,221
------------------ ----------------
Net cash provided (used) by operating activities (13,917) (64,822)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 0 (23,747)
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Net cash provided (used) by investing activities 0 (23,747)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from debt and notes 0 0
Repayment of debt and notes 0 0
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Net cash provided (used) by financing activities: 0 0
------------------ ----------------
Net increase (decrease) in cash and equivalents (13,917) (88,569)
CASH and equivalents, beginning of period 45,709 171,807
------------------ ----------------
CASH and equivalents, end of period $ 31,792 $ 83,238
================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash $ 0 $ 34,562
================== ================
The accompanying notes are an integral part of the financial statements
F-6
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with regard to the six months ended June 30, 2002 and 2001 is
unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
THE COMPANY The Company was incorporated under the laws of the State of
Wyoming in 1963 under the name of MacTay Investment Co. The Company
changed its name to Advanced Gaming Technology, Inc. in 1991. The
Company's executive offices are located in San Antonio, Texas where it
is principally engaged in the development and marketing of technology
for the casino and hospitality industry.
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. In
preparing the financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as
of the dates of the balance sheets and statements of operations for the
years then ended. Actual results may differ from these estimates.
Estimates are used when accounting for allowance for bad debts,
collectibility of accounts receivable, amounts due to service
providers, depreciation, litigation contingencies, among others.
Certain reclassifications have been made in the 2001 financial
statements to conform with the 2002 presentation.
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements is as follows:
A) CASH EQUIVALENTS The Company considers all highly liquid debt
instruments equivalents. At times during any year, there may be a
concentration of cash at any one bank or financial institution in
excess of insurance limits.
B) FIXED ASSETS Property and equipment is stated at cost. Depreciation
is computed on the straight-line method, based on the estimated useful
lives of the assets of generally three to five years. Expenditures for
maintenance and repairs are charged to operations as incurred. Major
overhauls and improvements are capitalized and depreciated over their
useful lives. Upon sale or other disposition of property and equipment,
the cost and related accumulated depreciation or amortization if
removed from the accounts, and any gain or loss is included in the
determination of income or loss.
C) NET INCOME (LOSS) PER COMMON SHARE, BASIC Net income (loss) per
share is computed by dividing the net income by the weighted average
number of shares outstanding during the period. Net income per share,
diluted, is not presented, as no potentially dilutive securities are
outstanding.
D) INTERIM FINANCIAL INFORMATION The financial statements for the six
months ended June 30, 2002 and 2001 are unaudited and include all
adjustments which in the opinion of management are necessary for fair
presentation, and such adjustments are of a normal and recurring
nature. The results for the six months are not indicative of a full
year results.
(2) INCOME TAXES Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company had net operating loss
carryforwards for income tax purposes of approximately $25,000,000,
expiring at various dates from December 31, 2008 and December 31, 2015.
A loss generated in a particular year will expire for federal tax
purposes if not utilized within fifteen years. The Internal Revenue
Code contains provisions that would reduce or limit the availability
and utilization of these net operating loss carryforwards if certain
ownership changes have been or will be taking place .In accordance with
SFAS No. 109, a valuation allowance is provided when it is more likely
than not that all or some portion of the deferred tax asset will not be
realized. Due to the uncertainty with respect to the ultimate
realization of the loss carryforwards, the Company established a
valuation allowance for the entire net deferred income tax asset of
$12,000,000 as of June 30, 2001.
F-7
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) STOCKHOLDERS' EQUITY The company has authorized 150,000,000 shares of
$0.005 par value common stock and 4,000,000 shares of $0.10 par value
preferred stock, with 21,430,587 and 0 shares issued and outstanding,
respectively. Rights and privileges of the preferred stock are to be
determined by the Board of Directors prior to issuance.
(4) CHANGE IN CONTROL On June 12, 2002, PowerHouse Management, Inc., of San
Antonio, Texas, purchased approximately 56% of the issued and
outstanding shares of common stock of the Company. At the same time,
all former officers and directors resigned after electing new directors
who appointed new officers.
(5) NOTES PAYABLE Notes payable consist of the following:
2002 2001
--------------- ----------------
Note payable, interest at 9%, due in monthly
payments of $6,200 beginning March 1, 2000.
The note is due in July of 2006. The note is
convertible into common stock at a rate of
$0.53 per share. $ 982,990 $ 940,939
Note payable, interest at prime plus 2%,
payable to an officer of the company and
secured by all assets of the company. 40,000 426,485
--------------- ----------------
Net long-term debt $ 1,022,990 $ 1,367,424
=============== ================
As part and parcel to the change in control, (see Note 4), the officer
owed the note payable agreed to forgive all but $40,000 of his note.
His note had included accrued salary and accrued interest. These
amounts were accrued up to the date of the change of control, June 12,
2002. As a result, the Company recognized a gain on the forgiveness of
debt of $497,526.
(6) COMMITMENTS AND CONTINGENCIES The Company filed for reorganization under
Chapter 11 of the US Bankruptcy Code in Las Vegas, Nevada on August 26,
1998. Under Chapter 11, certain claims against the Debtor in existence
prior to the filing of the petitions for relief under the Federal
Bankruptcy Laws are stayed while the Debtor continues business
operations as Debtor-in-possession. These claims were reflected in the
March 31, 1999 balance sheet as "liabilities subject to compromise".
The bankruptcy plan was approved June 29, 1999 and became effective on
August 19, 1999. On February 15, 2000, the Bankruptcy Court in the
District of Las Vegas approved the final decree of the Company closing
the Chapter 11 bankruptcy case of the Company.
Pursuant to the plan, obligations to secured creditors were
renegotiated. All remaining liabilities of the Company were fully
satisfied through issuance of new common stock. Unsecured creditors
received 1.88 shares of new common stock for each $1.00 of allowed
claim. The Company issued 25,000,000 shares of new common stock in
conjunction with the plan. The existing common stock was cancelled.
Existing shareholders of the company on the effective date received 1
share of new common stock for each 66 shares of common stock currently
owned. 21,430,587 shares were issued to creditors, existing
shareholders and new investors under this plan.
(7) REORGANIZATION ACCOUNTING The Company accounted for the reorganization
using fresh-start reporting. Accordingly, all assets and liabilities
were restated to reflect their reorganization value, which approximates
fair value at the date of reorganization.
F-8
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) GOING CONCERN The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States, which contemplates continued of the Company as a going concern.
However, the Company has sustained substantial operating losses in
recent years and has used substantial amounts of working capital in its
operations. Realization of a major portion of the assets reflected on
the accompanying balance sheet is dependent upon continued operations
of the Company which, in turn, is dependent upon the Company's ability
to meet its financing requires and succeed in its future operations.
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide them with the
opportunity for the Company to continue as a going concern.
(9) FIXED ASSETS Subsequent to the change in control, the Company elected
to write off the undepreciated value of its fixed assets. As a result,
the Company recorded $36,862 in depreciation in excess of the previous
$15,000 per quarter. In addition, the Company intends to dispose of
these fixed assets, which it believes have no value.
F-9
Item 2. Management's Discussion and Analysis
General -
This discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's
annual report on Form 10-KSB for the year ended December 31, 2001. The Company's
shares of capital stock are registered under Section 12 of the Securities
Exchange Act of 1934. The Company became a reporting issuer in March 1997. This
quarterly report on Form 10-QSB and the information incorporated by reference
herein contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements include, but are not limited
to, projected sales, gross margin and net income figures, the availability of
capital resources, plans concerning products and market acceptance.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which may not even
be anticipated. Future events and actual results, financial and otherwise, could
differ materially from those set forth in or contemplated by the forward-looking
statements herein and any forward- looking statements should be considered
accordingly.
In August of 1998, the Company filed for reorganization under Chapter 11 of the
US Bankruptcy Code in the District of Las Vegas. The Company operated as a
debtor-in-possession until June 29, 1999 when its plan was confirmed by the
court. The plan became effective on August 19, 1999.
Under the terms of the court-approved plan, the existing common stock interests
in Advanced Gaming Technology, Inc. were cancelled. The Company, as reorganized,
issued new common stock. The plan provided, generally, that unsecured creditors
of the Company holding allowed claims receive 1.88 shares of new common stock
for each $1 of allowed claim. Holders of common stock of the company received 7%
of the new common stock under the terms of the plan.
The Company has adopted fresh-start accounting on the effective date of the
plan, in accordance with AICPA Statement of Position 90-7 "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). The fresh
start reporting was first reflected in the September 30, 1999 Consolidated
Balance Sheet.
Liabilities subject to compromise immediately prior to the effective date were
discharged on the effective date. Depending on the nature of the claim, each
obligation was paid, exchanged for stock, discharged, or carried forward as a
new liability under the terms of the plan.
Results of Operations -
Six Months 2002 Compared to 2001
Operating loss for the six months ended June 30, 2002 was $175,128 compared to a
loss of $124,599 for the same period in 2001. The decrease in operating income
was the result of a decrease in revenue from placement of Max Lite and Max Plus
units. There was no revenue in the current quarter from electronic bingo
products. The electronic bingo units are not competitive due to the age and
quality of the product. Management does not expect revenue from existing
electronic bingo units in the future.
The Company is currently pursuing all possible options including the sale of
company assets, merger or dissolution.
Expenses for the first six months of 2002 were $175,128 compared to $124,599 in
the prior year. The increase is due to the Company writing off the remaining
book value of its fixed assets. In addition, $164,987 of the 2002 expenses were
non-cash expenses representing depreciation and unpaid salary. Salaries and
wages in the amount of $98,125 were accrued but not paid at the election of
management in both years. Management is making efforts to minimize cash outlays.
F-10
Other income (expense) for the first six months of 2002 was $442,577 compared to
$(57,725) in 2001.
Second Quarter 2002 Compared to 2001
Operating loss for the three months ended June 30, 2002 was $99,943 compared to
a loss of $74,974 for the same period in 2001. The decrease in operating income
was the result of a decrease in revenue from placement of Max Lite and Max Plus
units. There was no revenue in the current quarter from electronic bingo
products. The electronic bingo units are not competitive due to the age and
quality of the product. Management does not expect revenue from existing
electronic bingo units in the future.
The Company is currently pursuing all possible options including the sale of
company assets, merger or dissolution.
Expenses for the second quarter of 2002 were $99,943 compared to $102,695 in the
prior year. The decrease is due to the change in control, which ended the salary
accrual and writing off the remaining book value of its fixed assets. In
addition, $93,737 of the 2002 expenses were non-cash expenses representing
depreciation and unpaid salary. Management is making efforts to minimize cash
outlays.
Liquidity and Capital Resources -
The Company has a cash balance of $31,792. The Company will require additional
capital to continue operations. There is no assurance that capital will be
available.
The Company's debt was restructured, pursuant to the reorganization plan during
1999. Long-term debt was reduced to two notes totaling $2.6 million. In March of
2000, the Company further reduced long-term debt by eliminating a $1.75 million
note.
The Company disposed of its 22% interest in TravelSwitch, LLC, an Internet
travel service provider, during the second quarter of 2002. The Company did not
record any gain or loss on this transaction, as it had previously reduced its
net book value of this asset to zero, and it received no compensation to dispose
of this asset.
Change in Control
On June 12, 2002, PowerHouse Management, Inc., of San Antonio, Texas, purchased
approximately 56% of the issued and outstanding shares of common stock of the
Company. At the same time, all former officers and directors resigned after
electing new directors who appointed new officers.
Inflation and Regulation -
The Company's operations have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices. The Company encounters
competition from a variety of firms offering similar products in its market
area. Many of these firms have long-standing customer relationships and are well
staffed and well financed. The Company believes that competition in the industry
is based on competitive pricing, although the ability, reputation and technical
support of a concern is also significant. The Company does not believe that any
recently enacted or presently pending proposed legislation will have a material
adverse effect on its results of operations.
F-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed on June 13, 2002.
F-12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED GAMING TECHNOLOGY, INC.
(Registrant)
DATE: August 14, 2002 By: /s/ GARY L. CAIN
--------------------------------------------------
Gary L. Cain
Chief Executive Officer and Director
DATE: August 14, 2002 By: /s/ STEPHEN H. DURLAND
--------------------------------------------------
Stephen H. Durland, Acting Chief Financial Officer
F-13