ADVANCED GAMING TECHNOLOGY INC (AGTI)
Quarterly Report (SEC form 10QSB)
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, 1997.
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.
On August 26, 1998 the Company filed a petition for reorganization in Las Vegas pursuant to Chapter 11 of the U. S. Bankruptcy Code. The Company was unable to make payments on long term obligations. All debt is classified as current on the accompanying balance sheet at September 30, 1998. The Company believes it had exhausted all sources of financing. The Company, as debtor-in-possession, continues to operate and expects to file a plan of reorganization with the court by the end of 1998.
After the close of business on June 30, 1998 the Company effected a 4 for 1 reverse stock split to reduce the number of shares outstanding. This transaction was previously approved at the Company's annual meeting. The number of shares outstanding immediately prior to the split was 143,594,531. During the third quarter conversions of notes payable to common stock resulted in an increase in the number of shares outstanding to 110,185,448.
The principal place of business for the Company is Las Vegas, Nevada.
Results of Operations -
1998 Compared to 1997
The net loss for the nine months ended September 30, 1998 was $1,622,164 compared to $5,094,995 for the same period in 1997. This improvement was due to reduced operating expenses and the benefit of a $1.5 million one time licensing fee received in the first quarter of 1998. The net loss for the third quarter of 1998 was $578,444 compared to $1,877,951 in 1997. Reduced expenses were the primary reason for the improvement.
Total revenue was $313,719 for the first nine months of 1998 compared to $1,027,864 for the same period in 1997. Due to the Max-Plus licensing arrangement the Company will experience lower Max-Plus revenue until the contract produces royalty revenue. Revenue from the Max-Lite product has also decreased due to placement of fewer units. Growth of this product has been hampered by limited cash resources available for promotion and distribution.
Cost of revenue decreased significantly to $122,980 in 1998 from $409,827 in 1997. This decrease is due to the licensing arrangement of the Max-Plus product. Cost of revenue for the three months ended September 30, 1998 was $10,270 vs. $169,353 in the second quarter of 1997.
Research and development expenses were $273,986 for the nine months compared to $918,370 for the same period in 1997. This decrease is due to limited cash resources available to fund development. This decrease is expected
to continue until the Company is able to obtain additional funding. These costs were $1,000 for the second quarter compared to $389,487 in 1997.
General and Administrative expenses decreased $1,261,243 to $1,901,137 for the first nine months of 1998 from $3,162,380 in 1997. This decrease is due to lower operating costs as a result of the Max-Plus licensing arrangement and a Company wide cost reduction program. These expenses were $501,726 for the third quarter compared to $1,060,231 for the third quarter of 1997.
The reduction in expenses caused the loss from operations to improve to $1,984,384 at September 30, 1998 from $3,462,713 in 1997. This was achieved despite the short-term decrease in Max-Plus revenue caused by the licensing agreement. The loss from operations for the third quarter of 1998 was $444,332 compared to $1,314,409 in 1997.
Other income and expenses provided income of $362,220 for the nine months ended June 30, 1998 compared to an expense of $1,632,282 in 1997. This improvement is due to the one time licensing fee of $1.5 million discussed above. Other income and expenses resulted in an expense of $134,112 for the third quarter of 1998 vs. $563,542 in 1997. The primary component is interest expense.
Liquidity and Capital Resources -
The Company filed a petition for reorganization pursuant to Chapter 11 of the U. S. Bankruptcy Code on August 26, 1998. The Company was unable to make interest payments on long-term obligations. All debt is classified as current on the accompanying balance sheet. The Company received $75,000 of debtor-in-possession financing during the third quarter. This funding was necessary to continue operations.
The Company will require additional financing to continue operations. New financing will be proposed in conjunction with a plan of reorganization. The Company expects to file a plan of reorganization by the end of 1998.
The Company experienced a decrease in convertible notes outstanding at September 30, 1998 to $748,750 from $3,477,500 at December 31, 1997. The decrease is due to conversion of such notes to common stock of the Company. Conversions of notes and other transactions during the first six months resulted in an increase in the number of shares outstanding to 143,594,531 at June 30, 1998. A reverse stock split after the close of business on June 30, 1998 reduced the number of shares to 35,898,633. Subsequent conversions of notes in the third quarter caused the outstanding shares to increase to 110,185,448 at
September 30, 1998. There were 98,439,431 shares outstanding at December 31, 1997.
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. |
