-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VNwU1i60/gaq6Axw1e6yL7mu2tVnUQ0guM/pBMOH8cLktVXKzFWLq6IWiEdQr8Hc H6okT3sc1NUzfk3lfKfERw== 0001096906-02-000580.txt : 20020814 0001096906-02-000580.hdr.sgml : 20020814 20020814152340 ACCESSION NUMBER: 0001096906-02-000580 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE GAMING CORP OF AMERICA CENTRAL INDEX KEY: 0000897795 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 411713864 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22482 FILM NUMBER: 02735705 BUSINESS ADDRESS: STREET 1: 333 ORVILLE WRIGHT COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7758233000 MAIL ADDRESS: STREET 1: 333 ORVILLE WRIGHT COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 10-Q 1 inngam10qsb_june02.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 ----------------------------------------------- [ ] 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 0-22482 ------------------------------------- INNOVATIVE GAMING CORPORATION OF AMERICA -------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Minnesota 41-1713864 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 333 Orville Wright Court, Las Vegas, NV 89119 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (702) 614-7199 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Address, 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At July 17, 2002 there were 29,783,255 shares of common stock, $0.01 par value, outstanding. Page 1 of 15 INNOVATIVE GAMING CORPORATION OF AMERICA Form 10-Q Index June 30, 2002 Part I: Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - June 30, 2002 (Unaudited) and December 31, 2001 3 Consolidated Condensed Statements of Operations - for the three and six months ended June 30, 2002 and 2001 (Unaudited) 4 Consolidated Condensed Statements of Cash Flows - for the six months ended June 30, 2002 and 2001 (Unaudited) 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II: Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Matters 13 Item 6. Exhibits and Reports 14 Signatures 14 Page 2 of 15
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) June 30, December 31, 2002 2001 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1 $ 21 Accounts receivable 1,444 300 Current portion of notes receivable 265 95 Inventories 3,630 4,400 Prepaid expenses and other 1,283 1,212 -------- -------- Total current assets 6,623 6,028 NOTES RECEIVABLE, LESS CURRENT PORTION 80 118 PROPERTY AND EQUIPMENT, NET 592 770 PREPAID NONCURRENT 1,750 1,985 INTANGIBLE ASSETS, NET 668 442 -------- -------- TOTAL ASSETS $ 9,713 $ 9,343 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $ 3,244 $ 3,169 Accrued liabilities 1,057 706 Accrued Preferred Stock Dividends 170 319 Accrued Wages 245 164 Deferred Revenue Lease-Back 99 197 Notes payable - current portion 2,387 1,895 -------- -------- Total current liabilities 7,202 6,450 Notes payable - net of current portion 6 7 -------- -------- TOTAL LIABILITIES 7,208 6,457 -------- -------- COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY: Series B convertible preferred stock, $.01 par value, nonvoting, 4,000 shares authorized, 0 and 0 shares outstanding, respectively -- -- Series C convertible preferred stock, $.01 par value, nonvoting, 2,000 shares authorized, 0 and 0 shares outstanding, respectively -- -- Series E convertible preferred stock, $.01 par value, nonvoting, 400,000 shares authorized, 30,000 and 42,000 shares outstanding, respectively -- -- Series F convertible preferred stock, $.01 par value, nonvoting, 400,000 shares authorized, 209,170 and 230,000 shares outstanding, respectively 2 2 Series J convertible preferred stock, $.01 par value, nonvoting, 1,500,000 shares authorized, 0 and 0 shares outstanding, respectively -- 1 Series K convertible preferred stock, $.01 par value, nonvoting, 5,000 shares authorized, 4,297 and 4,553 shares outstanding, respectively -- -- Common stock, $.01 par value, 100,000,000 shares authorized, 26,368,772 and 24,208,339 shares issued and outstanding, respectively 319 242 Additional paid-in capital 53,451 51,445 Accumulated deficit (51,267) (48,804) -------- -------- Total stockholders' equity 2,505 2,886 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,713 $ 9,343 ======== ======== See Notes to Consolidated Condensed Financial Statements. Page 3 of 15
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Six months Ended June 30, Ended June 30, --------------------- --------------------- 2002 2001 2002 2001 ------- ------- ------- ------- SALES $ 2,628 $ 4,728 $ 3,848 $ 6,819 COST OF SALES 1,247 1,722 1,922 2,330 ------- ------- ------- ------- Gross profit (loss) 1,381 3,006 1,926 4,489 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 2,011 2,455 3,638 3,694 ------- ------- ------- ------- Income (loss) from operations (630) 551 (1,712) 794 INTEREST EXPENSE, NET (259) (151) (527) (168) ------- ------- ------- ------- NET INCOME (LOSS) (889) 400 (2,239) 626 Preferred stock accretion adjustment -- 197 -- 464 Preferred stock dividends 107 93 224 881 ------- ------- ------- ------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (996) $ 110 $ (2,463) $ (719) ======= ======= ======= ======= BASIC - INCOME (LOSS) PER SHARE OF COMMON STOCK $ (0.03) $ 0.01 $ (0.09) $ (0.05) ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 29,522 15,558 27,438 14,398 ======= ======= ======= ======= See Notes to Consolidated Condensed Financial Statements.
Page 4 of 15
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Six months Ended June 30, ------------------- 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(2,239) $ 626 Adjustments to reconcile net loss to cash flows from operating activities - Depreciation and amortization 181 210 Provision for inventory obsolescence (14) (24) Write down inventory to market value (128) (291) Changes in operating assets and liabilities 1,076 (2,483) ------- ------- CASH FLOWS (USED FOR) OPERATING ACTIVITIES (1,124) (1,962) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Inventory returned from (capitalized for use in) gaming operations 106 (23) Purchases of property and equipment -- (115) Purchase of intangible assets (334) (11) ------- ------- CASH FLOWS (USED IN) INVESTING ACTIVITIES (228) (149) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 391 32 Proceeds from sale of preferred stock -- 471 Proceeds from financing agreements 942 1,700 Payments on long-term obligations (1) (116) ------- ------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 1,332 2,087 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20) (24) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21 321 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1 $ 297 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid for interest $ 164 $ 40 ======= ======= Non-cash Transactions: Preferred stock converted to common stock $ 1,364 3,598 ======= ======= Notes Payable converted to common stock $ 450 -- ======= ======= Preferred Stock Dividends paid with common stock $ 373 221 ======= ======= Common Stock issued for expenses $ 824 -- ======= ======= See Notes to Consolidated Condensed Financial Statements. Page 5 of 15
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) (1) BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim consolidated condensed financial statements be read in conjunction with the Company's most recent audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been made. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current period interim financial statements. These reclassifications had no effect on previously reported net income or stockholders' equity. (2) COMMITMENTS AND CONTINGENCIES The manufacture, distribution and sale of the Company's products are regulated by various jurisdictions and entities, including requirements to obtain licenses and product approvals in several jurisdictions. The Company has obtained required licenses and product approvals in certain jurisdictions and is continuing efforts to obtain such approvals in other jurisdictions. Failure to successfully obtain and/or maintain such licenses and approvals, or meet other regulatory requirements could materially impact the future operation of the Company. Additionally, there is no assurance that the Company's products will be accepted in the marketplace upon obtaining regulatory approvals. (3) INCOME TAXES The Company has adopted Statement of Financial Accounting Standards No. 109- "Accounting for Income Taxes" - (SFAS No. 109) under which deferred income tax assets and liabilities are recognized for differences between financial and income tax reporting basis of assets and liabilities based on currently enacted rates and laws. The Company had cumulative federal net operating loss carry forwards of approximately $39,388,000 as of December 31, 2001. These losses, if not used, begin to expire in 2009 through 2015. Future changes in the ownership of the Company may place limitations on the use of these net operating loss carry forwards. (4) EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share"-(SFAS No. 128). The earnings per share data for the periods presented is based on weighted average common shares outstanding, which is equivalent to "basic" earnings per share as calculated under SFAS No. 128. Diluted earnings per share is not presented because the resulting earnings per share would be antidilutive for each period reported. Page 6 of 15 INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) (5) STOCKHOLDERS' EQUITY PREFERRED STOCK During the three months ended June 30, 2002, 50,000 shares of Series J Convertible Preferred Stock were converted into 500,000 shares of common stock. During the three months ending June 30, 2002, 135 shares of Series K Convertible Preferred Stock were converted to 313,953 shares of common stock. COMMON STOCK During the three months ending June 30, 2002, 319,413 shares of common stock were issued for payment of dividends on Series K convertible preferred stock that were due for the period ending June 30, 2002. During the three months ending June 30, 2002, 35,430 shares of common stock were issued pursuant to the employee stock purchase program. During the three months ending June 30, 2002, 1,266,667 shares of common stock were issued in connection with financings for an aggregate of $350,000. During the three months ending June 30, 2002, 2,066,276 shares of common stock were issued for expenses. (6) SHORT-TERM DEBT: On April 16, 2002, the Company borrowed $125,000 on an unsecured 30 day note. Interest is payable at maturity at an annual rate of 8 percent. The Company also agreed to issue 150,000 shares of its common stock for extensions of the note. The shares will be treated as additional interest payments. On May 9, 2002, the Company received $225,000 from the sale of a two-year 6% convertible debenture with interest due at maturity. A $1,000,000 secured note matured on June 15, 2002 and was extended at the same interest rate of 6.5% with a maturity date of January 30,2003. (7) SUBSEQUENT EVENTS: On August 13, 2002, the Company and GET USA, Inc.("GET") agreed to terminate that certain Agreement and Plan of Merger dated February 13, 2002. The Company and GET also agreed in principal to enter into one or more joint development agreements. On August 1, 2002, the Company received notice from NASDAQ that it does not meet NASDAQ's new $2,500,000 stockholder equity requirement. As of March 31, 2002, the Company's stockholder equity was $2,217,000. As of June 30, 2002, the Company's stockholder's equity was $2,505,000. On August 13, 2002, the Company failed to gain compliance with NASDAQ Marketplace Rules requiring that the company's common stock trade above $1.00 per share for a certain period of time. The compliance deadline of August 13, 2002 was indicated in NASDAQ's letter of February 14, 2002 to the Company. The Company is expecting to receive a notification from NASDAQ indicating that it will be delisted from the NASDAQ Small Cap Market within a certain number of business days. The Company anticipates that it will request a hearing with NASDAQ that will stay the delisting until the hearing date. Page 7 of 15 In connection with such potential delisting, the Company has initiated a 1-for-10 reverse stock split, with a record date of August 30, 2002 to be effective as of September 9, 2002. The Company believes that the reverse split, in conjunction with improved performance, will help the Company maintain its NASDAQ listing. On August 1, 2002, the Company received notice from NASDAQ that the Company does not have a sufficient number of independent directors, as is required under NASDAQ Marketplace Rules. The Company intends to submit a specific plan to NASDAQ for complying with the Marketplace Rules. On July 31, 2002, the Company borrowed $400,000 on secured notes with a due date on or before September 30, 2002. Interest is payable at maturity at an annual rate of 10 percent. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and this Form 10-Q contain forward-looking statements that involve risks and uncertainties relating to future events. Actual events or the Company's results may differ materially from those discussed in such forward-looking statements. Factors that might cause actual results to differ from those indicated by such forward-looking statements include, but are not limited to: the need for and ability to obtain additional financing on terms favorable to the Company, the management of the Company's accounts payable, customer acceptance of the Company's products, preferred stock conversions, decline in demand for gaming products or reduction in the growth rate of new markets, failure or delay in obtaining gaming licenses and gaming or financing regulatory approvals, delays in developing or manufacturing new products, delays in orders and shipment of products, changing economic conditions, approval of pending patent applications or infringement upon existing patents, the effects of regulatory and governmental actions, the ability of the Company to maintain its listing on the NASDAQ Stock Market, and increased competition. OVERVIEW The Company was formed in 1991 to develop, manufacture, market and distribute multi-player and other specialty video gaming machines. The Company manufactures, markets and distributes its products to certain gaming markets worldwide. Since inception, the Company has focused most of its resources on the development of games, the regulatory approval process and the sale and installation of its games. The Company has begun to expand and diversify its product line by developing and marketing single-player games incorporating state of the art graphics and sound. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001 For the three months ended June 30, 2002, the Company recorded a loss attributable to Common Stock shareholders of $996,000, or $.03 per share, compared to an income of $110,000, or $.01 per share, for the three months ended June 30, 2001. For the six months ended June 30, 2002, the Company recorded a loss attributable to Common Stock shareholders of $2,463,000, or $.09 per share, compared to a loss of $719,000, or $.05 per share, for the six months ended June 30, 2001. The income or loss attributable to common shareholders for each period included adjustments for preferred stock accretion and preferred stock dividends. The unfavorable change in operating results for the fiscal 2002 periods was primarily attributable to a one time sale in 2001 for a licensing agreement in the amount of $3,000,000 in addition to reduced sales for the six months ending June 30, 2002 as the Company was unable to finance the production of products. As of June 30, 2002, the Company had not yet received fees associated with such license agreement. Page 8 of 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED Accounts Receivable increased at June 30, 2002 to $1,444,000 from December 31, 2001 balance of $300,000. This increase is the result of increased sales on account from 2nd quarter 2002 of $2,628,000 compared to 4th quarter 2001 of $532,000. Notes Receivable increased at June 30, 2002 to $345,000 from December 31, 2001 balance of $213,000 from a sale with an 18 month note for $170,000. Accounts Payable at June 30, 2002 is $3,244,000 of which $2,482,000 are 91 days or more past due. The Company has made payment plans with 77% of the amount of the 91 days or more past due balances. Notes Payable increased to $2,393,000 at June 30, 2002 from $1,902,000 at December 31, 2001. This increase came from third party short term financing and a two year Debenture of $350,000. SALES, COST OF SALES AND GROSS PROFIT Total sales for the quarter ended June 30, 2002, were $2,628,000 compared to $4,728,000 recorded in the quarter ended June 30, 2001. This decrease in revenues was due to the sale of a $3 million one-time license in 2001 to a European distributor. Total sales for the six months ended June 30, 2002, were $3,848,000 compared to $6,819,000 in the six months ended June 30, 2001. The table below presents the comparative sales revenue and percentage of revenue derived from each of the Company's product lines for the three and six-month periods ended June 30, 2002 and 2001:
Three months ended Three months ended Six months ended Six months ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 Sales revenue $2,628,000 $4,728,000 $3,848,000 $6,819,000 Product line: Percentage of revenue: Percentage of revenue: Percentage of revenue: Percentage of revenue: ---------------------- ---------------------- ---------------------- ---------------------- Multi-player games 43% 10% 40% 24% Single player games 41% 22% 37% 27% Parts sales and other 5% 2% 6% 2% Lease participation 11% 2% 17% 3% License fees --% 64% --% 44% Total 100% 100% 100% 100%
Overall Company revenues will continue to be volatile due to, among other things, the ability of the Company to continue financing its operations and obtain supplies and parts, fluctuations in demand for the Company's current products, market acceptance of new products introduced by the Company and the Company's ability to obtain licensing and successfully market its products in new jurisdictions. The Company recorded gross margins of 52.5% and 50.1% for the three-month and six-month periods ended June 30, 2002, respectively, compared to 63.6% and 65.8% for the three-month and six-month periods ended June 30, 2001. The sale of a one-time license of the Company's technology had no associated direct cost, which significantly increased the gross margins for the quarter ended June 30, 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense for the three months ended June 30, 2002 was $2,011,000 compared to $2,455,000 for the three months ended June 30, 2001. Selling, general and administrative expense for the six months ended June 30, 2002 was $3,638,000 compared to $3,694,000 for the six months ended June 30, 2001. Beginning in the fourth quarter 2001, the Company reduced selling, general and administrative expenses through a combination of reductions in force and other cost-cutting measures. The Company does not anticipate that it will be materially reducing selling, general and administrative expenses over the balance of fiscal 2002. Page 9 of 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED INTEREST EXPENSE In the quarter ended June 30, 2002, net interest expense was $259,000 compared to $151,000 in the quarter ended June 30, 2001. For the six months ended June 30, 2002, net interest expense was $527,000 compared to $168,000 in the six months ended June 30, 2001. These increases in net interest expense were due to additional interest expense incurred on increased debt. ACCUMULATED DEFICIT The Company had an accumulated deficit of $51,267,000 as of June 30, 2002. Due to the Company's short-term capital requirements, the high degree of regulation and other factors of the business environment in which the Company operates, the likelihood of future profitable quarters, if any, cannot be predicted. Future short-term results are highly dependent on the Company's ability to, among other things, finance production and distribution new products, gain customer acceptance of its existing and new products and the necessary Company licenses and/or product approvals in various jurisdictions in order to expand its market base. There can also be no assurance as to the time frame during which such anticipated approvals may occur due to uncertain time periods involved in the regulatory approval process. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY The Company had $1,000 and $21,000 in cash as of June 30, 2002 and December 31, 2001, respectively. The Company has experienced negative cash flow from operations of $4.8 million, $1.7 million, and $5.1 million for the years ended December 31, 2001, 2000, and 1999, respectively. Management believes that the costly process of product development and introduction will require the Company to seek additional financing to successfully compete in the market place. On April 30, 2002, the Company had two private placements of common stock. Pursuant to the first private placement, 1,100,000 shares of Common Stock were issued for an aggregate of $330,000. In a subsequent private placement, the Company issued 166,667 shares of Common Stock for $50,000. Additionally, on May 9, 2002, the Company sold a two-year 6% convertible debenture for $225,000 to a third party investor. The holder of the convertible debenture is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of the debenture, all or any part of the principal amount of the debenture plus accrued interest into shares of the Company's common stock at the price per share equal to either(a) an amount equal to one hundred twenty percent (120%) of the closing bid price of the Common Stock or (b) an amount equal to eighty percent (80%) of the average of the three (3) lowest closing bid prices of the Common Stock for the five (5) trading days immediately preceding the conversion date. There can be no assurance that the Company will be successful in obtaining additional short-term financing or any additional financing on terms acceptable to the Company. The Company believes that any such short-term or long-term financing would be on terms that would be dilutive to the Company's existing shareholders. Failure to obtain short-term or additional financing would have a material adverse effect on the Company, and the Company would have to consider liquidating all or part of the Company's assets and potentially discontinuing operations. Page 10 of 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED The Registration Rights Agreement relating to the Company's recent issuances of the Company's Series K Convertible Preferred Stock requires the Company to register the shares of Common Stock issuable upon conversion of shares of Series K Convertible Preferred Stock within 180 days or pay certain liquidated damages. The liquidated-damages provisions were scheduled to take effect on January 29, 2002, and require the Company to pay 2% of the gross proceeds of the Series K Convertible Preferred Stock sold for the first 30 days after issuance if such Common Stock is not registered by January 29, 2002. In addition, the Company would be required to pay 3.5% of the gross proceeds to a major investor for each successive 30-day period thereafter during which the Common Stock is not registered. For other investors, the Company would be required to pay 2% of the gross proceeds for each successive 30-day period thereafter during which the Common Stock is not registered. Beginning April 1, 2002, the liquidated damages would be approximately $73,125 and would increase substantially each succeeding month, as further disclosed in the Notes to the Company's financial statements. A registration statement relating to such Common Stock was filed on September 28, 2001 and amended on January 16, 2002 and February 12, 2002, but had not been declared effective as of August 1, 2002. Unless the Company can obtain a waiver of such provisions from the holders of the Company's Series K Convertible Preferred Stock, the Company will be contractually required to make such payments, which could have a material adverse impact on the Company's liquidity. PREFERRED STOCK During the three months ended June 30, 2002, 50,000 shares of Series J Convertible Preferred Stock were converted into 500,000 shares of common. During the three months ending June 30, 2002, 135 shares of Series K Convertible Preferred Stock were converted to 313,953 shares of common. COMMON STOCK During the three months ending June 30, 2002, 319,413 shares of common stock were issued for payment of dividends on Series K convertible preferred stock that were due for the period ending June 30, 2002. During the three months ending June 30, 2002, 35,430 shares of common stock were issued pursuant to the employee stock purchase program. During the three months ending June 30, 2002, 1,266,667 shares of common stock were issued for the raising of funds of $350,000. During the three months ending June 30, 2002, 2,066,276 shares of common stock were issued for expenses. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the three months ending June 30, 2002 does not differ materially from that discussed in our Annual Report on From 10-K for 2001. Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including statements regarding the demand for the Company's products in certain key jurisdictions such as Nevada and Holland. In addition, statements containing expressions such as "believes", "anticipates", "hopeful" or "expects" used in the Page 11 of 15 Company's periodic reports on Forms 10-K and 10-Q filed with the SEC are intended to identify forward looking statements. The Company cautions that these and similar statements included in this report and in previously filed periodic reports including reports filed on Forms 10-K and 10-Q are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statement, including, without limitation, the following: ability to obtain additional financing through leasing, equity or other arrangements; the ability to achieve current sales forecasts; the Company's ability to manage its accounts payable, the inability to successfully develop, license, manufacture and market new products in a timely manner; decline in demand for gaming products or reduction in the growth rate of new markets; increased competition; the effect of economic conditions; a decline in the market acceptability of gaming; political and economic instability in developing international markets; a decrease in the desire of established casinos to upgrade machines in response to added competition from newly constructed casinos; the loss of a distributor; loss or retirement of key executives; approval of pending patent applications or infringement upon existing patents; the effect of regulatory and governmental actions; the ability of the Company to maintain its listing on the NASDAQ Stock Market; unfavorable determination of suitability by regulatory authorities with respect to officers, directors or key employees; the limitation, conditioning or suspension of any gaming license; adverse results of significant litigation matters; fluctuation in exchange rates, tariffs and other barriers. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the Company's report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2001. Many of the foregoing factors have been discussed in the Company's prior SEC filings and, had the amendments to the Securities Act of 1933 and Securities Exchange Act of 1934 become effective at a different time, would have been discussed in an earlier filing. Page 12 of 15 PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES During the three months ending June 30, 2002, 1,266,667 shares of unregistered Common Stock were issued raising an aggregate of $350,000 pursuant to the section 4(2) exemption under the Securities Act of 1933, as amended. During the three months ending June 30, 2002, 2,066,276 shares of unregistered Common Stock were issued for expenses in the amount of $742,137 pursuant to the section 4(2) exemption under the Securities Act of 1933, as amended. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. On June 27, 2002 the Company held its 2002 annual meeting of stockholders. b. The following individuals were elected as directors of the Company: Ronald A. Johnson Thomas Foley c. The following items were voted on: Against For (or Withheld) ---------- ------------- 1. Election of Directors Thomas Foley 21,781,256 642,129 Ronald A. Johnson 21,524,112 899,273 Item 5. OTHER MATTERS On August 1, 2002, the Company received notice from NASDAQ that it does not meet NASDAQ's new $2,500,000 stockholder equity requirement. As of March 31, 2002, the Company's stockholder equity was $2,217,000. As of June 30, 2002, the Company's stockholder's equity was $2,505,000. On August 13, 2002, the Company failed to gain compliance with NASDAQ Marketplace Rules requiring that the company's common stock trade above $1.00 per share for a period of time. The compliance deadline was indicated in NASDAQ's letter of February 14, 2002 to the Company. The Company is expecting to receive a notification from NASDAQ indicating that it will be delisted from the NASDAQ Small Cap Market within a certain number of business days. The Company anticipates that it will request a hearing with NASDAQ that will stay the delisting until the hearing date. In connection with such potential delisting, the Company has initiated a 1-for-10 reverse stock split, with a record date of August 30, 2002 to be effective as of September 9, 2002. The Company believes that the reverse split, in conjunction with improved performance, will help the Company maintain its NASDAQ listing. On August 1, 2002, the Company received notice from NASDAQ that the Company does not have a sufficient number of independent directors, as is required under NASDAQ Marketplace Rules. The Company intends to submit a specific plan to NASDAQ for complying with the Marketplace Rules. Page 13 of 15 Item 6. EXHIBITS AND REPORTS (a) Exhibits: Please refer to the Exhibit Index contained on page 15. (b) Reports on Form 8-K: None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INNOVATIVE GAMING CORPORATION OF AMERICA /s/ ---------------------------------------- Laus Abdo President, Chief Executive Officer, Chief Financial Officer Date: August 14, 2002 Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies in his capacity as an officer of Innovative Gaming Corporation of America (the "Company) that (a) the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (b) the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period. /s/ ---------------------------------------- Laus Abdo President, Chief Executive Officer, Chief Financial Officer Page 14 of 15
EXHIBIT INDEX Exhibit No. Description Manner of Filing - ----------- ----------- ---------------- 3.1(a) Articles of Incorporation Incorporated by reference to Exhibit 3.1 to the Company's registration statement on Form SB-2 (File No. 33-61492C) (the "SB-2"). 3.1(b) Certificate of Designation relating to Series E Incorporated by reference to Exhibit 3.1(f) to the Convertible Preferred Stock Company's report on Form 8-K filed February 14, 2001 (the "February 14, 2001 8-K"). 3.1(c) Certificate of Designation relating to Series F Incorporated by reference to Exhibit 3.1(g) to the February Convertible Preferred Stock 14, 2001 8-K. 3.1(d) Certificate of Designation relating to Series K Incorporated by reference to Exhibit 3(4) to the Company's Convertible Preferred Stock quarterly report on Form 10-Q, filed on August 14, 2001. 3.2 Bylaws Incorporated by reference to Exhibit 3.2 to the SB-2. 10.1 Form of Securities Purchase Agreement dated Incorporated herein by reference to Exhibits 10.1 and 10.3 November 1, 2000. to the February 14, 2001 8-K. 10.2 Form of Securities Purchase Agreement dated Incorporated by reference to Exhibit 10.4 to the February December 1, 2000 14, 2001 8-K. 10.3 Severance Agreement dated October 17, 2001. Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 16, 2002. 10.4 Form of Registration Rights Agreement for Series Incorporated by reference to Exhibit 10.2 to the February E Convertible Preferred Stock dated November 1, 14, 2001 8-K. 2000. 10.5 Form of Registration Rights Agreement for Series Incorporated by reference to the February 14, 2001 8-K. F Convertible Preferred Stock, dated December 1, 2000. 10.6 Form of Registration Rights Agreement for Series Incorporated by reference to Exhibit 10(4) to the August K Convertible Preferred Stock dated August 1, 14, 2001 10-Q. 2000. 10.7 Note to Blake Capital Partners, LLC, dated April Incorporated by reference to Exhibit 4(1) to the August 14, 12, 2001. 2001 10-Q. 10.8 Securities Purchase Agreement with Blake Capital Incorporated by reference to Exhibit 4(1) to the August 14, Partners, LLC, dated April 12, 2001. 2001 10-Q. 10.9 Amended and Restated Consulting Agreement, dated Incorporated by reference to Exhibit 10(2) to the August April 4, 2001. 14, 2001 10-Q. 10.10 Consultant Agreement, dated July 1, 2001. Incorporated by reference to Exhibit 10(5) to the August 14, 2001 10-Q. 10.11 Form of Change of Control Agreement by and Incorporated by reference to Exhibit 10(6) to the August between the Company and each of Roland M. Thomas, 14, 2001 10-Q. Michael Mackenzie, Steven Peterson and Loren A. Piel. 10.12 Subscription Agreement, dated April 30, 2002. Filed with this Report.
Page 15 of 15 EX-10.12 3 inngam10qsubagree.txt SUBSCRIPTION AGREEMENT This Subscription Agreement (the "Agreement"), dated as of April 30, 2002, is entered into by and between Innovative Gaming Corporation of America, a Minnesota corporation (the "Company"), and Fred Wilms (the "Investor"). INTRODUCTION Whereas, the Investor desires to purchase from the Company, and the Company desires to issue to the Investor, upon the terms and conditions contained in this Agreement, 1,100,000 shares of the Company's common stock, $.01 par value (the "Common Stock"), in exchange for $330,000 (the "Private Placement"); AGREEMENT Now, Therefore, in consideration of the foregoing premises and mutual covenants contained herein, the parties, intending to be legally bound, hereby agree as follows: Section 1. Issuance of Common Stock. 1.1 Issuance of Common Stock. Upon the terms and subject to the conditions contained in this Agreement, the Company hereby agrees to issue to the Investor 1,100,000 shares of Common Stock (the "Shares"), at a per-share purchase price of $0.30. 1.2 The Closing. The delivery of this Agreement and the issuance and delivery of the Shares by the Company to the Investor, and the delivery of the Purchase Price (as defined below) to the Company (the "Closing"), will take place at the offices of The Company, on April 30, 2002, or at such other time and place as the Company and the Investor may agree to orally or in writing. 1.3 Closing Deliveries. At the Closing: (a) The Investor will pay, or shall have paid, to the Company cash in immediately available funds in the amount of Three Hundred Thirty Thousand and No/100 US Dollars ($330,000), such amount representing the aggregate purchase price for the Shares to be received by the Investor (the "Purchase Price"). (b) The Investor or Agent therefor and the Company, as applicable, shall execute, or shall have executed, this Agreement. (c) The Company shall issue and deliver to the Investor a share certificate or certificates representing the Shares acquired hereunder by such Investor, which certificate or certificates shall be registered in such Investor's name or such name(s) as such Investor designates. Section 2. Representations and Warranties. The Company and the Investor hereby represent and warrant that the following are true. 2.1 Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor as of the date hereof that: (a) Organization, Good Standing, and Qualification. The Company is duly organized, validly existing, and in good standing under the laws of the State of Minnesota and has all requisite corporate power and authority to own and operate its assets and properties, to conduct its business as it is currently being conducted (the "Business"), to execute and deliver this Agreement and to issue and sell the Shares pursuant to this Agreement. The Company possesses all governmental and other permits, licenses, and other authorizations to own its properties as now owned and to conduct its Business, except where the failure to possess such governmental and other permits, licenses, and authorizations would not have a material adverse effect on the business, assets, financial condition, results of operation, or properties of the Company (a "Material Adverse Effect"). The Company is duly qualified to transact business and is in good standing in each jurisdiction wherein the properties owned or leased to the business transacted by the Company makes such qualification to do business as a foreign corporation necessary, except where the failure to be so qualified would not have a Material Adverse Effect. (b) Authorization. All corporate action on the part of the Company and its officers, directors, and shareholders necessary for the authorization, execution, and delivery of this Agreement and transactions contemplated hereby, the performance of all obligations of the Company hereunder, and the authorization, issuance, and delivery of the Shares being sold hereunder, have been taken or will be taken prior to the Closing. This Agreement has been duly executed by the Company, and will constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. (c) Valid Issuance of Common Stock. (i) When issued, sold, and delivered in accordance with the terms hereof and for the consideration herein stated, the Shares will be duly and validly issued, fully paid and nonassessable, and free of any and all liens and encumbrances, except such as may be created or suffered by the Investor, and will have the rights, preferences, and privileges described in the Company's articles of incorporation. 2 (ii) Subject to the accuracy of the Investor's representations in Section 2.2 hereof and the Investor's compliance with all applicable restrictions on transferability, the offer, sale, and issuance of the Shares by the Company in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Shares Act of 1933, as amended (the "Act"), and the qualification requirements of all applicable state Shares laws. 2.2 Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company and each officer, director, and agent of the Company that: (a) Receipt of Agreement. The Investor has received and reviewed this Agreement. (b) Restrictions on Transferability of Common Stock. The Investor is aware that the Shares, when issued, will not have been registered under the Act, that the offer and sale of the Shares are intended to be exempt from registration under the Act and the rules promulgated thereunder by the Commission, and that, because the Shares will not have been registered, the Shares may not be sold, assigned, transferred, or otherwise disposed of unless they are registered under the Act or an exemption from such registration is available. The Investor is also aware that sales or transfers of the Shares are further restricted by state securities laws and regulations, and the provisions of this Agreement, and that the certificate or certificates for the Shares will bear appropriate legends restricting their transfer pursuant to all such applicable laws, regulations, and agreements. (c) No Registration of Common Stock. The Investor understands and is aware that the Shares, when issued, will not have been registered under the Act, and that the Company has made no promise or covenant, contained in this Agreement or otherwise, to register the Shares with the Commission, and that, as a result, the Shares will not be freely transferable until either the Company has elected, at its sole discretion, to register the Shares, or until an exemption from registration is available under the Act. (d) Suitability of Investment. (i) The Investor is acquiring the Shares for its own account, or for the account of another "accredited investor" who is an affiliate of the Investor and who can make all of the representations contained herein, for investment purposes only and not with a view to the resale or distribution thereof. (ii) The Investor has not and will not, directly or indirectly, offer, sell, transfer, assign, exchange, or otherwise dispose of all or any part of the Shares except in accordance with applicable federal 3 and state securities laws, regulations, and the provisions of this Agreement. (iii) The Investor has such knowledge and experience in financial, business, and tax matters that the Investor is capable of evaluating the merits and risks relating to the Investor's investment in the Shares and making an investment decision with respect to the Company. (iv) To the full satisfaction of the Investor, the Investor has been given the opportunity to obtain information and documents relating to the Company and to ask questions of and receive answers from representatives of the Company concerning the Company and its investment in the Private Placement. (v) The Investor is able at this time, and in the foreseeable future, to bear the economic risk of a total loss of his investment in the Private Placement. (vi) The Investor is aware that there are risks incident to an investment in the Private Placement. The Investor understands that some of these risks have been set forth in the Company's most recent Report on Form 10-K for the year ended December 31, 2000, as filed with the Commission on April 10, 2001, and in the Company's most recent Registration Statement on Form S-3, as filed with the Commission on May 15, 2001 and amended on May 18 and June 29, 2001 (the "Commission Filings"). Furthermore, the Investor acknowledges that the Company has referred and directed the Investor to the risks contained in such Commission Filings. (vii) The Investor is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Act. (viii) The undersigned Investor understands that, unless he notifies the Company in writing to the contrary at or prior to the Closing, all of the Investor's representations and warranties contained in this Agreement will be deemed to have been reaffirmed and confirmed as of the Closing, taking into account all information received by the Investor. (ix) In making its investment decision, the Investor has not relied on materials, representations, or other information of any kind provided by any party other than the Company or specifically referred to herein. (x) The Investor acknowledges that the Company's Articles of Incorporation provide that no person or entity may become the beneficial owner of 5% or more of the Company's shares of capital stock of every series and class unless such person or entity agrees to provide personal background and financial information to gaming 4 authorities, consent to a background investigation and respond to questions from gaming authorities. Investor further acknowledges that the Company may, pursuant to the terms of its Articles of Incorporation repurchase shares held by any person or entity whose status as a shareholder jeopardizes the approval, continued existence or renewal by any gaming authority of a tribal, federal or state license or franchise held by the Company or any of its subsidiaries. The foregoing restrictions will be contained in a legend on each certificate of Common Stock. (e) Authorization. All action on the part of the Investor necessary for the authorization, execution, and delivery of this Agreement, and for the performance of all obligations of the Investor hereunder and thereunder has been taken. This Agreement has been duly executed and delivered by the Investor and will constitute valid and binding obligations of the Investor, enforceable against the Investor in accordance with their respective terms. Section 3. Transfer Restrictions. 3.1 Restrictions on Transfer. The Shares have not been registered under the Act and may not be sold, assigned, transferred, or otherwise disposed of unless they are registered under the Act or an exemption from such registration is available. Sales or transfers of the Shares are further restricted by state securities laws, regulations, and the provisions of this Agreement. 3.2 Legend. Unless sold pursuant to an effective registration statement, each certificate representing the Shares shall bear a legend substantially in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO THEIR DISTRIBUTION AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933 OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION, AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE SECURITIES LAWS. THE ARTICLES OF INCORPORATION OF THE CORPORATION IMPOSE CERTAIN RESTRICTIONS ON THE OWNERSHIP OF FIVE PERCENT OR MORE OF THE CAPITAL STOCK OF THE CORPORATION AND EMPOWER THE BOARD OF DIRECTORS TO REDEEM CAPITAL STOCK UNDER CERTAIN CIRCUMSTANCES. THE CORPORATION WILL FURNISH ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A COPY OF THE ARTICLES OF 5 INCORPORATION AND A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES. THESE SECURITIES ARE SUBJECT TO THE MISSISSIPPI GAMING CONTROL ACT AND THE REGULATIONS OF THE MISSISSIPPI GAMING COMMISSION. THESE SECURITIES ARE SUBJECT TO THE NEVADA GAMING CONTROL ACT AND THE REGULATIONS OF THE NEVADA GAMING COMMISSION. 3.3 Removal of Legend. The foregoing legend, if necessary, shall be removed from the certificates representing any of the Shares at the request of the holder thereof, at such time as (1) they are sold pursuant to an effective registration statement, (2) they become eligible for resale pursuant to Rule 144(k) under the Act or another provision of Rule 144 of the Act pursuant to which all or a portion of the Shares could be resold in a single transaction, or (3) an opinion of counsel reasonably satisfactory to the Company is obtained to the effect that the proposed transfer is exempt from the Act. The transfer agent for the Shares will issue a new certificate or certificates representing Shares without the legend upon a receipt of the certificate from the Investor stating that the Shares have been registered or transferred pursuant to an effective registration statement under the Act, upon confirmation that the Shares can be resold in reliance on Rule 144, or upon confirmation that the Company has received an opinion of counsel reasonably satisfactory to the Company to the effect that the proposed transfer is exempt from the Act. Section 4. Miscellaneous. 4.1 Survival of Warranties and Covenants. The representations and warranties set forth in Section 2 and the covenants contained in Section 3 hereof shall survive indefinitely. 4.2 Successors and Assigns. This Agreement may not be assigned by any Investor or the Company without the prior written consent of the other party hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement except as expressly provided in this Agreement. 6 4.3 Amendment and Waiver. Neither this Agreement nor any provisions hereof shall be modified, amended, discharged, or terminated except by a written instrument signed by the party against whom any modification, amendment, discharge, or termination is sought. Any term or condition of this Agreement may be waived at any time by the party entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 4.4 Governing Law and Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to contracts made and to be performed entirely within such jurisdiction. Each of the Investor and the Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the District of Nevada, and of any Nevada court sitting in the City of Las Vegas, for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby. Each of the Investor and the Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue or any such proceeding brought in such a court and any claim that any such proceeding brought in such court has been brought in an inconvenient forum. 4.5 Section and Other Headings. The section headings and subheadings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 4.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement. 4.7 Notices. Unless otherwise provided, any notice or other communication required or permitted to be given or effected under this Agreement shall be in writing and shall be deemed effective upon personal or facsimile delivery to the party to be notified or three business days after deposit with an internationally recognized courier service, delivery fees prepaid, and addressed to the party to be notified at the following respective addresses, or at such addresses as may be designated by written notice; provided, however, that any notice of change of address shall be deemed effective only upon actual receipt: If to the Company: Innovative Gaming Corporation of America Attention: Loren A. Piel, General Counsel 333 Orville Wright Court Las Vegas, Nevada, 89119 7 If to the Investor: At the address of such Investor indicated on the signature page hereof. 4.8 Entire Agreement. This Agreement supersedes all prior discussions and agreements among the parties hereto with respect to the subject matter herein, and contains the sole and entire agreement among the parties hereto with respect to the subject matter herein. 4.9 Expenses; Attorney's Fees. Both the Company and the Investor shall bear their own fees and expenses incurred by them or on their behalf in connection with this Agreement and any transactions contemplated hereby. 4.10 Further Assurances. Each party hereto shall execute and deliver such additional documents as may reasonably be necessary or desirable to consummate the transactions contemplated by this Agreement. 4.11 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law; but, if any provision of this Agreement shall nonetheless be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. (Signature Page Follows) 8 IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the 30th day of April, 2002. Investor By: / s / ---------------------------- Name: Alfred Wilms ---------------------------- Title: ---------------------------- ------------------------------------ Number and Street ------------------------------------ City, State, and Zip Code ------------------------------------ Investor's SSN or Tax ID Number ------------------------------------ Signature of Co-Owner, if applicable If Joint Ownership, please check one (n.b., both parties must sign above): | | Joint Tenants with Right of Survivorship | | Community Property | | Tenants in Common If Fiduciary or Corporation, please check one: | | Corporation | | Trust | | Estate | | Power of Attorney ACCEPTED BY: INNOVATIVE GAMING CORPORATION OF AMERICA a Minnesota corporation Dated: April 30, 2002 By: / s / -------------------------------- Name: Laus M. Abdo --------------------------------- Title: President & CFO --------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----