<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended: JUNE 30, 1999

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File Number: 0-28318

                             Multimedia Games, Inc.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


<TABLE>
           <S>                                                <C>
                       Texas                                              74-2611034
           -------------------------------                    ------------------------------------
           (State or Other Jurisdiction of                    (IRS Employer Identification Number)
                   Incorporation)
</TABLE>


                        8900 Shoal Creek Blvd., Suite 300
                               Austin, Texas 78759
                    ----------------------------------------
                    (Address of Principal Executive Offices)

                                 (512) 371-7100
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


                     (Former name, former address and former
                   fiscal year, if changed since last report)


Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:

                              Yes [X]    No [ ]

As of June 30, 1999 there were 5,494,050 shares of the Company's Common Stock,
par value $.01, outstanding.

<PAGE>   2
                                    FORM 10-Q

                                      INDEX



Part I.  Financial Information


   Item 1.  Financial Statements


         Consolidated Balance Sheets
         (June 30, 1999 and September 30, 1998)

         Consolidated Statements of Operations
         (Three months ended June 30, 1999 and 1998)

         Consolidated Statements of Operations
         (Nine months ended June 30, 1999 and 1998)

         Consolidated Statements of Cash Flows
         (Nine months ended June 30, 1999 and 1998)

         Notes to Unaudited Consolidated Financial Statements

         Report of Review By Independent Accountants


   Item 2.  Management's Discussion and Analysis



Part II.  Other Information

   Item 1.  Legal Proceedings

   Item 4.  Submission of Matters to a Vote of Security Holders

   Item 6.  Exhibits and Reports on Form 8-K


                                       -2-
<PAGE>   3
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                   AS OF JUNE 30, 1999 AND SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                  ASSETS                                           JUNE           SEPTEMBER
                                                                   1999              1998
                                                               ------------      ------------
                                                                (Unaudited)
<S>                                                            <C>               <C>
Current assets:
   Cash and cash equivalents                                   $    865,000      $  1,881,000
   Accounts Receivable:
     Trade, net of allowance for doubtful accounts
         of $305,000 and $181,000                                 1,896,000         2,005,000
   Other receivables                                                192,000           637,000
   Inventory                                                      4,975,000         2,534,000
   Prepaid expenses                                                 622,000           568,000
   Notes receivable                                               1,002,000           783,000
   Notes receivable - related parties                                  --           1,227,000
   Deferred tax asset                                               304,000           246,000
                                                               ------------      ------------

Total current assets                                              9,856,000         9,881,000

Restricted cash and cash equivalents                              1,666,000         1,636,000
Property and equipment, net                                      11,795,000         7,653,000
Other assets                                                        196,000           110,000
Goodwill, net                                                       424,000           445.000
                                                               ------------      ------------

Total assets                                                   $ 23,937,000      $ 19,725,000
                                                               ============      ============

   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes Payable                                               $    865,000      $     70,000
   Current portion of long-term debt                                242,000           336,000
   Accounts payable and accrued expenses                          6,017,000         4,371,000
   Hall's Share of Surplus                                          365,000              --
   Prize fulfillment fees payable                                   282,000           296,000
                                                               ------------      ------------

Total current liabilities                                         7,771,000         5,073,000
                                                               ------------      ------------

Long - term debt                                                    372,000           531,000
Other long - term liabilities                                     1,461,000         1,429,000
Deferred tax liability                                              629,000            15,000

Stockholders' equity:
   Preferred stock, Series A, $.01 par value, 2,000,000
      shares authorized, 90,789 issued and outstanding                1,000             1,000
   Common stock, $.01 par value, 25,000,000 shares
      authorized 5,528,049 and 5,439,824 shares issued and
      5,494,050 and 5,405,825 shares outstanding                     55,000            54,000
   Additional paid - in capital                                  13,049,000        12,803,000
   Stockholder notes receivable                                    (817,000)         (817,000)
   Treasury stock, 33,999 shares at cost                            (87,000)          (87,000)
   Retained earnings                                              1,503,000           723,000
                                                               ------------      ------------
Total stockholders' equity                                       13,704,000        12,677,000
                                                               ------------      ------------

Total liabilities and stockholders' equity                     $ 23,937,000      $ 19,725,000
                                                               ============      ============
</TABLE>

            See notes to unaudited consolidated financial statements.


                                       -3-
<PAGE>   4
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   1999              1998
                                                               ------------      ------------
<S>                                                            <C>               <C>
Revenues:
   Gaming revenue                                              $ 20,940,000      $ 16,402,000
   Electronic player station sales                                1,273,000           536,000
   Electronic player station sales - related party                     --           1,400,000
   Electronic player station lease revenue                          873,000           921,000
   Other                                                             73,000           217,000
                                                               ------------      ------------

Total revenues                                                   23,159,000        19,476,000

Operating costs and expenses:
   Bingo prizes and related costs                                 1,626,000         2,134,000
   Allotments to hall operators                                  14,410,000        10,737,000
   Cost of electronic player stations sold                          721,000           283,000
   Cost of electronic player stations sold - related party             --             716,000
   Salaries and wages                                             1,184,000           828,000
   Selling, general and administrative expenses                   2,750,000         2,504,000
   Amortization and depreciation                                  1,383,000           814,000
                                                               ------------      ------------

Total operating costs and expenses                               22,074,000        18,016,000
                                                               ------------      ------------

Operating income                                                  1,085,000         1,460,000

Interest income                                                      15,000            84,000
Interest expense                                                    (38,000)          (23,000)
                                                               ------------      ------------

Income before income taxes                                        1,062,000         1,521,000
Income taxes                                                       (425,000)         (577,000)
                                                               ------------      ------------

Net income                                                     $    637,000      $    944,000
                                                               ------------      ------------

Basic earnings per share                                       $        .11      $        .17
                                                               ------------      ------------

Diluted earnings per share                                     $        .10      $         15
                                                               ------------      ------------
</TABLE>


            See notes to unaudited consolidated financial statements.


                                       -4-
<PAGE>   5
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE NINE MONTHS ENDED JUNE, 1999 AND 1998
                                   (Unaudited)

<TABLE>
                                                                   1999              1998
                                                               ------------      ------------
<S>                                                            <C>               <C>
Revenues:
   Gaming revenue                                              $ 61,866,000      $ 42,383,000
   Electronic player station sales                                1,642,000           580,000
   Electronic player station sales - related party                     --           3,750,000
   Electronic player station lease revenue                        2,177,000         2,352,000
   Other                                                            831,000           223,000
                                                               ------------      ------------

Total revenues                                                   66,516,000        49,288,000

Operating costs and expenses:
   Bingo prizes and related costs                                 6,011,000         6,831,000
   Allotments to hall operators                                  41,820,000        26,730,000
   Cost of electronic player stations sold                          911,000           310,000
   Cost of electronic player stations sold - related party             --           1,878,000
   Salaries and wages                                             3,439,000         2,275,000
   Selling, general and administrative expenses                   9,177,000         6,753,000
   Amortization and depreciation                                  3,779,000         2,160,000
                                                               ------------      ------------

Total operating costs and expenses                               65,137,000        46,937,000
                                                               ------------      ------------

Operating income                                                  1,379,000         2,351,000

Interest income                                                     156,000           225,000
Interest expense                                                   (110,000)          (81,000)
                                                               ------------      ------------

Income before income taxes                                        1,425,000         2,495,000
Income taxes                                                       (570,000)         (948,000)
                                                               ------------      ------------

Net income                                                     $    855,000      $  1,547,000
                                                               ------------      ------------

Basic earnings per share                                       $        .14      $        .28
                                                               ------------      ------------

Diluted earnings per share                                     $        .13      $        .23
                                                               ------------      ------------
</TABLE>


            See notes to unaudited consolidated financial statements.


                                       -5-
<PAGE>   6
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            1999            1998
                                                                        -----------      -----------
<S>                                                                     <C>              <C>
Cash flows from operating activities:
   Net income                                                           $   855,000      $ 1,547,000
   Adjustments to reconcile net income to cash
      provided by (used for) operating activities:
         Amortization and depreciation                                    3,779,000        2,160,000
         Deferred taxes                                                     556,000          252,000
         Other non-cash expenses                                               --             (7,000)
         (Increase) decrease in:
         Accounts and notes receivable                                       33,000       (1,129,000)
         Inventory                                                       (2,441,000)      (1,803,000)
         Prepaid expenses                                                   (54,000)         159,000
         Other assets                                                       (86,000)            --
      Increase (decrease) in:
         Accounts payable and accrued expenses                            1,646,000        1,113,000
         Hall's Share of Surplus                                            902,000             --
         Prize fulfillment fees payable                                     (14,000)         (75,000)
                                                                        -----------      -----------
Net cash provided by (used for ) operating activities:                    5,176,000        2,217,000
                                                                        -----------      -----------

Cash flows from investing activities:
         Acquisition of property and equipment                           (6,972,000)      (3,336,000)
         Increase in cash balances in restricted escrow                       2,000          (10,000)
                                                                        -----------      -----------

Net cash provided by (used for) investing activities                     (6,970,000)      (3,346,000)
                                                                        -----------      -----------

Cash flows from financing activities:
   Proceeds from sale of common stock                                       246,000          299,000
   Increase in notes payable                                                795,000             --
   Principal repayments on debt                                            (253,000)        (325,000)
   Payment of preferred stock dividends                                     (25,000)         (80,000)
   Stockholder Notes Receivable                                              15,000             --
                                                                        -----------      -----------

Net cash provided by (used for) financing activities                        778,000         (106,000)
                                                                        -----------      -----------

Net change in cash and cash equivalents                                  (1,016,000)      (1,235,000)

Cash and cash equivalents, beginning of period                            1,881,000        2,380,000
                                                                        -----------      -----------

Cash and cash equivalents, end of period                                $   865,000      $ 1,145,000
                                                                        ===========      ===========

Supplemental disclosure of non-cash investing activities:
   Acquisition of equipment through cancellation of note receivable     $   992,000      $      --
                                                                        ===========      ===========
</TABLE>


            See notes to unaudited consolidated financial statements.


                                       -6-
<PAGE>   7
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS


1.  SIGNIFICANT ACCOUNTING POLICIES

   The accompanying financial statements should be read in conjunction with the
   Company's financial statements for the twelve months ended September 30, 1998
   contained within the Company's Annual Report on Form 10-KSB.

   The financial statements included herein as of June 30, 1999 and for each of
   the three and nine months ended June 30, 1999 and 1998, have been prepared by
   the Company, without an audit, pursuant to generally accepted accounting
   principles and the rules and regulations of the Securities and Exchange
   Commission. The information presented reflects all adjustments (consisting
   solely of normal recurring adjustments) which are, in the opinion of
   management, necessary for a fair statement of results for the periods.
   Results for the three and nine months ended June 30, 1999, are not
   necessarily indicative of the results which will be realized for the year
   ending September 30, 1999. The September 30, 1998 consolidated balance sheet
   data was derived from audited financial statements, but does not include all
   disclosures required by generally accepted accounting principles.

   Our independent accountants have performed a review of these interim
   financial statements in accordance with standards established by the American
   Institute of Certified Public Accounts. Pursuant to Rule 436(C) under the
   Securities Act of 1933, their report of that review should not be considered
   a part of any registration statements prepared or certified by them within
   the meaning of Sections 7 and 11 of that Act.

   INCOME PER COMMON SHARE - Income per common share is computed in accordance
   with Statement of Financial Accounting Standards No. 128 ("FAS 128").
   Presented below is a reconciliation of income available to common
   shareholders and the differences between actual weighted average shares
   outstanding, which are used in computing basic earnings per share and diluted
   weighted average shares, which are used in computing diluted earnings per
   share.


<TABLE>
<CAPTION>
                                            FOR THE THREE MONTHS ENDED                  FOR THE THREE MONTHS ENDED
                                                  JUNE 30, 1999                               JUNE 30, 1998
                                    ------------------------------------------    ---------------------------------------
                                                                     Per Share                                  Per Share
                                       Income          Shares          Amount      Income          Shares         Amount
                                    ---------         ---------      ---------    ---------       ---------     ---------
<S>                                 <C>               <C>            <C>          <C>             <C>           <C>
Net Income                          $ 637,000                                     $ 944,000
Less: preferred stock dividends       (25,000)                                      (25,000)
                                    ---------                                     ---------

Basic EPS:
   Income available to
    common shareholders               612,000         5,462,998         $  .11      919,000       5,374,144         $ .17

Effect of Dilutive Securities:
   Options                                              529,890                                     325,143
   Warrants                                              47,564                                      29,811
   Convertible preferred stock         25,000           435,195                      25,000         435,195
                                    ---------         ---------                   ---------       ---------
Diluted EPS:
   Income available to common
   shareholders plus assumed
   conversions                      $ 637,000         6,475,647         $  .10    $ 944,000       6,164,293         $ .15
                                    ---------         ---------                   ---------       ---------
</TABLE>

                                       -7-
<PAGE>   8
<TABLE>
<CAPTION>
                                            FOR THE NINE MONTHS ENDED                  FOR THE NINE MONTHS ENDED
                                                  JUNE 30, 1999                               JUNE 30, 1998
                                    ------------------------------------------    ---------------------------------------
                                                                     Per Share                                  Per Share
                                       Income          Shares          Amount       Income          Shares        Amount
                                    ---------         ---------      ---------    ----------      ---------     ---------
<S>                                 <C>               <C>            <C>          <C>             <C>           <C>
Net Income                          $855,000                                      $1,547,000
Less: preferred stock dividends      (75,000)                                        (80,000)
                                    --------                                      ----------
Basic EPS:
   Income available to
       common shareholders           780,000          5,456,366      $     .14     1,467,000      5,311,400     $     .28

Effect of Dilutive Securities:
   Options                                              501,315                                     595,948
   Warrants                                              37,989                                     434,787
   Convertible preferred stock        75,000            435,195                       80,000        444,359

Diluted EPS:
   Income available to common
   shareholders plus assumed
   conversions                      $855,000          6,430,865      $     .13    $1,547,000      6,786,494     $     .23
                                    ---------         ---------                   ----------      ---------
</TABLE>


At June 30, 1999, warrants to purchase 2,074,643 shares of common stock at
prices ranging from $7.00 to $9.44, were outstanding but not included in the
computation of EPS because the assumed exercise of the warrants would have an
anti-dilutive effect on EPS.

2.  COMMITMENTS AND CONTINGENCIES

MEGAMANIA LITIGATION. On December 31, 1997, the U.S. Attorney for the Northern
District of Oklahoma filed a civil forfeiture action in Federal District Court
challenging the Class II status of the Company's interactive bingo game,
MegaMania. On October 23, 1998, the District Court issued a judgment holding
that MegaMania was legal Class II gaming. The decision found that MegaMania was
a game of bingo and that the EPS used to play MegaMania were technological aids
to the play of bingo as permitted by IGRA and were not gambling devices. On
January 21, 1999, the District Court denied a motion filed by the U.S. Attorney
that requested the District Court to alter or amend its judgment.

On May 14, 1998, the Assistant U.S. Attorney for the Northern District of
California filed a civil forfeiture in Federal District Court that also
challenged the Class II status of MegaMania. On November 23, 1998, the District
Court issued a Memorandum and Order holding that MegaMania was legal Class II
gaming. As with the decision of the Oklahoma District Court, the Order of the
California District Court found that MegaMania was a game of bingo and that the
EPS used to play MegaMania were technological aids to the play of bingo as
permitted by IGRA and were not gambling devices.

The government has appealed both decisions to the appropriate Circuit Court of
Appeals. The Company believes it will prevail on the merits but the outcome
cannot be predicted with certainty.

No assurances can be given that there will be no other challenges made to the
legality of some other aspects of the Company's activities or that, if made, the
Company will be successful on the merits. If MegaMania is ultimately determined
to be Class III gaming, the loss of the MegaMania business could have a material
adverse effect upon the Company's financial condition and results of operation.
In addition, if the type of EPS used to aid the play of MegaMania is ultimately
held to be a gambling


                                       -8-
<PAGE>   9
device, all of the other interactive Class II bingo games currently offered by
the Company and other vendors would likely be adversely effected which would
have a material adverse effect upon the Company's financial condition and
results of operation. Even if the Company is successful on the merits, the legal
fees and expenses to be incurred by the Company related to the MegaMania
litigation or any future litigation challenging other aspects of the Company's
activities will likely be significant.

OTHER LITIGATION

NETWORK GAMING LITIGATION. On January 23, 1998, the Company filed a complaint
against Network Gaming International Corporation ("NGI") in the Federal District
Court for the Northern District of Oklahoma alleging breach of contract. On
February 2, 1998, NGI filed a complaint against the Company in the same Federal
District Court alleging, among other things, breach of contract,
misappropriation of trade secrets, fraud and interference with prospective
advantage. The complaint by NGI seeks $62 million in damages and other specified
and unspecified relief. The Company intends to vigorously defend against the
claims of NGI and to prosecute its own claim. Discovery has been virtually
completed and the matter is scheduled for trial in September 1999. While the
Company believes that it will ultimately prevail on the merits, no assurances to
that effect can be given. In any event, the cost of defending the actions has
been and through the trial will continue to be substantial.

SHAREHOLDER CLASS ACTIONS. On May 29, 1998, a shareholder class action was filed
against the Company in the Federal District Court for the Southern District of
California. Also named as defendants were Gordon T. Graves and Larry D.
Montgomery, the Chief Executive Officer and former President, respectively, of
the Company. The action, which seeks an unspecified amount of damages on behalf
of all similarly situated shareholders, alleges that the Company violated
federal securities laws by making allegedly false and misleading statements
regarding the legality of MegaMania. On July 24, 1998, a similar class action
was filed in the Federal Court for the Northern District of Oklahoma. In January
1999, the two cases were consolidated in the Northern District of Oklahoma. On
March 22, 1999, the class action plaintiffs filed an amended complaint that also
named Clifton E. Lind, the Company's President and Chief Operating Officer, as
an additional defendant and included allegations that the Company violated
federal securities laws by making allegedly false and misleading statements
regarding transactions between the Company and Equipment Purchasing LLC and
Equipment Purchasing II LLC. On April 19, 1999, the Company filed its Motion to
Dismiss all of the claims of the plaintiffs. The Court has yet to rule on the
Company's Motion. The Company intends to vigorously defend against these claims
and expects to prevail on the merits, although no assurances to that effect can
be given. In any event, the cost of defending against the claims could be
substantial.


3.  RELATED PARTY TRANSACTIONS

On October 1, 1998, the Company exercised its option to acquire 356 electronic
player stations and related equipment (EPS) for $1,349,000 from Equipment
Purchasing LLC ("EP LLC"), a limited liability company owned by an affiliate of
Gordon T. Graves, the Chairman and Chief Executive Officer of the Company. The
Company had originally sold the EPS to EP LLC in June and September 1997 at an
aggregate sales price of approximately $2,436,000. Pursuant to agreements
entered into at the time of the June and September 1997 sale transactions, the
Company had an option to repurchase the EPS from EP LLC at fair market value.
While the purchase price paid by the Company was not the result of an
arms-length negotiation with an unaffiliated third party, the Company believes
that such purchase price is comparable to what the Company would have paid to an
unaffiliated third party. The purchase price was paid by (i) cancellation by the
Company of $992,000 in notes receivable due from EP LLC, (ii) the assumption by
the Company of $77,800 in debt owed by the affiliate of Mr. Graves to a
financial institution, (iii) the payment by the Company of $133,000 to EP LLC,
(iv) the delivery to EP LLC of a 6% promissory note of the Company in the
principal amount of $133,000 due on April 1, 1999 (which was later extended to
September 30, 1999), (v) the issuance of 50,000 warrants to purchase shares of
common stock of the Company at $3.81 per share expiring on June 30, 2002, and
(vi) the issuance of 50,000 warrants to purchase shares of common stock of the
Company at $3.81 per share expiring on September 30, 2002. On October 1, 1998,
the closing price of the Company's common stock as quoted on the Nasdaq SmallCap
market was $2.50 per share. The warrants, which were valued by the Company and
EP LLC at $12,000, were issued in cancellation of warrants to purchase the same
number of shares that had been granted to EP LLC in connection with the June and
September 1997 sale transactions at exercise prices of $11.00 and $13.38 per
share. The $133,000 paid to EP LLC was applied by the affiliate of Mr. Graves to
pay a portion of outstanding notes due the Company by such affiliate.


                                       -9-
<PAGE>   10
4.  SUBSEQUENT EVENTS

FINANCING. On July 29,1999 the Company completed a $10,000,000 revolving credit
facility with Coast Business Credit, a Division of Southern Pacific Bank,
located in Los Angeles, California. The credit facility is asset based and is
secured by all assets of the Company and the personal guarantee of $1,500,000
from the Company's Chairman and CEO Gordon T. Graves. The initial application of
the funds available under this revolving credit line were used to free up the
collateral held by Bank of Oklahoma and Norwest Bank which secured notes payable
and a working capital line of credit, the combination of which totaled
approximately $1,900,000. Also drawn on this credit facility were funds totaling
approximately $2,400,000 used for the repurchase of EPS owned by the EP LLC II
partnership. Approximately $4,000,000 was drawn to relieve outstanding accounts
payable, which for the most part included components for the manufacture of
Class III Video Lottery devices and past due legal and professional fees. The
remaining credit availability will be applied as needed for system and component
upgrades to accommodate next generation game and video technology.

EPS REPURCHASE. On July 31,1999 the Company exercised its option to acquire 663
EPS for $2,373,623 from EP LLC II, a limited liability company controlled by an
affiliate of Gordon T. Graves, the Chairman and Chief Executive Officer of the
Company, and of which an affiliate of Mr. Graves and Clifton E. Lind, the
Company's President and Chief Operating Officer, each owned 6.36%. The Company
had originally sold the EPS to EP LLC II in March and June 1998 at an aggregate
sales price of approximately $3,750,000. Pursuant to agreements entered into at
the time of the March and June 1998 sale transactions, the Company had an option
to repurchase the EPS from EP LLC II at fair market value if, after giving
effect to the repayment and the income previously received by EP LLC II, EP LLC
II would receive at least a 20% return on its net investment. While the purchase
price paid by the Company was not the result of an arms-length negotiation, the
Company believes that such purchase price is comparable to what the Company
would have paid to an unaffiliated third party.

                                      -10-
<PAGE>   11
                         INDEPENDENT ACCOUNTANT'S REPORT


To the Board of Directors and Stockholders
Multimedia Games, Inc.


         We have reviewed the accompanying consolidated balance sheet of
Multimedia Games, Inc. and Subsidiaries as of June 30, 1999, and the related
consolidated statements of operations for the three and nine month periods ended
June 30, 1999 and 1998 and cash flows for the nine month periods ended June 30,
1999 and 1998. These financial statements are the responsibility of the
Company's management.

         We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

         Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.

         We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of September 30, 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
December 4, 1998, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of September 30, 1998 is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.



PricewaterhouseCoopers LLP


Tulsa, Oklahoma
August 9, 1999


                                      -11-
<PAGE>   12
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL. The Company designs and develops interactive high-speed Class II bingo
games and related electronic player stations (EPS) and equipment that are
marketed to Native American bingo halls located throughout the United States.
The Company operates its interactive bingo games on behalf of its tribal
customers through a multi-pathed communications network. The network
interconnects EPS located at multiple bingo halls thereby enabling players to
simultaneously participate in a live bingo game and to compete against one
another to win a common pooled prize. The Company also produces high stakes TV
bingo game shows that are televised live to multiple participating Indian bingo
halls linked via closed circuit satellite and broadband telephone communications
networks.

Prior to August 1995, the Company's principal business was providing its TV
bingo game shows. In August 1995, the Company introduced MegaMania, its first
interactive high-speed Class II bingo game. MegaMania, and the other interactive
high speed bingo games subsequently designed, developed and introduced by the
Company, are live Class II bingo games transmitted to EPS that are
interconnected to one another through the Company's communications network. The
EPS enable players to log on to the network, select the bingo cards of their
choice and to interact with the game to make game decisions such as whether to
continue a card in play, daubing or "covering" a number on a card and declaring
a winning bingo. The Company's games and equipment are designed and operated to
meet the requirements for Class II gaming as defined in the Indian Gaming
Regulatory Act of 1988 (IGRA) and are marketed to bingo halls owned and operated
on behalf of American Indian tribes. The Company believes that its interactive
games have significantly increased the bingo hall's earnings per player position
at those bingo halls where its interactive games are played. As of June 30,
1999, there were 3,607 EPS in operation at 73 independently owned Indian bingo
halls located in 9 different states. Also, as of June 30, 1999, the Company's
live TV bingo game show, MegaBingo, was being delivered to 37 independently
owned Indian bingo halls located in 12 different states.

During the third quarter of 1999 the Company was licensed by the state of
Washington to sell and operate Class III Video Lottery gaming devices. In
preparation for entrance into this market, the Company began the process of
retrofitting low producing Class II EPS to a Video Lottery configuration. By the
end of the third quarter the Company reduced the number of Class II EPS from
4,024 at March 31, 1999 to 3,607 at June 30, 1999, as compared to 3,295 at
September 30, 1998 and 2,690 at June 30, 1998. At June 30, 1999, the Company had
deployed 165 Class III Video Lottery gaming devices.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 AND 1998

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) amounted
to $2,468,000, for the third fiscal quarter, up 9% from 1998's $2,274,000. Net
income was $637,000 for the third quarter of fiscal 1999 compared to $944,000
for the third quarter of fiscal 1998, a decrease of 33%. Total operating costs
and expenses increased 23% to $22,074,000 for the third quarter of fiscal 1999
compared to $18,016,000 for the third quarter of fiscal 1998. During the second
quarter of fiscal 1998 the Company began recording substantial legal and
professional fees related to the MegaMania and NGI litigation. Legal and
professional fees for the third quarter of fiscal 1999 decreased $166,000, or
24% from the third quarter of fiscal 1998. The amount of depreciation and
amortization recorded for the third quarter of fiscal 1999 increased $569,000,
or 70% over the third quarter of fiscal 1998, primarily due to the increase in
the number of rental EPS placed in service in 1999 compared to 1998.

REVENUES totaled $23,159,000 for the third quarter of fiscal 1999 compared to
$19,476,000 for the third quarter of fiscal 1998, an increase of $3,683,000, or
19%. This growth was primarily due to the increase in the Company's interactive
games which generated revenues of $18,945,000 for the three months ended June
30, 1999 as compared to $13,468,000 in the third quarter of fiscal 1998, an
increase of 41%. The average daily revenue per EPS was $56 for the three months
ended June 30, 1999 compared to $59 for the three months ended June 30, 1998.
This reduction in average daily revenue resulted from an increase in competition
and a lower level of player interest in two new games introduced by the Company
during the later part of fiscal 1998. EPS sales for the third quarter of 1999
amounted to $1,273,000, which included a sale to one tribal customer amounting
to $1,076,000. EPS sales in the third quarter of 1998 totaled $1,936,000 and
included a related party sale of $1,400,000. TV bingo game show revenues of
$1,995,000 declined $939,000 or 32% for the three months ended June 30, 1999
from 1998's $2,934,000, reflecting the continuation of the trend experienced
during fiscal 1998 of player participation declining on the TV


                                      -12-
<PAGE>   13
bingo game show across the country. In addition, a reduction in the number of
halls participating in MegaBingo during fiscal 1998 is also being experienced in
fiscal 1999.

The Company believes interactive gaming revenues will increase throughout the
remainder of fiscal 1999 over fiscal 1998, primarily as the result of an
increase in the average number of EPS that are expected to be in daily operation
over fiscal 1998 levels. TV bingo game show revenues, however, may continue to
decrease as the result of decreased MegaBingo play at the halls.

Lease Revenues from EPS under contract to Native American Tribes decreased 5%
from $921,000 in the third quarter of fiscal 1998 to $873,000 in the current
quarter of 1999. During the month of June 1999 165 Class III Video Lottery games
were installed in two halls and generated $113,000 in lease revenue for the
period. The overall decrease was primarily due to the maturity of lease/purchase
contracts entered into during fiscal year 1998 which reduced the number of EPS
under lease.

Other revenues for the current quarter totaled $67,000, and included management
fees on the related party equipment contracts of $46,000 along with maintenance
service fees of $16,000. Class III back office fees of $6,000 were also recorded
in the third quarter of 1999. This compares to 1998's level of $217,000, which
included management fees on the related party equipment contracts of $106,000
and revenue from MegaRacing of $101,000. MegaRacing operations started in late
fiscal 1998 and were suspended in January 1999.


OPERATING COSTS AND EXPENSES totaled $22,074,000 for the third quarter of fiscal
1999 compared to $18,016,000 for the third quarter of fiscal 1998, up $4,058,000
or 23%:

Bingo Prizes and Related Costs consists primarily of prizes paid to players of
the Company's TV bingo game shows and amounted to $1,626,000 for the three
months ended June 30, 1999 compared to $2,134,000 for the three months ended
June 30, 1998, a decrease of $508,000, or 24%. The decrease in TV bingo game
show prizes reflects the trend in declining TV bingo game show play, as
discussed above. Interactive gaming revenues are recorded net of prize costs;
therefore, the prizes are not reflected in bingo prizes and related costs.

Allotments to Hall Operators consists primarily of each bingo halls' share of
the interactive gaming revenues after prizes and allocable prize costs.
Allotments to hall operators increased $3,673,000, or 34% to $14,410,000 for the
three months ended June 30, 1999 compared to $10,737,000 for the three months
ended June 30, 1998. The increase was mainly related to the growth in the
Company's interactive gaming network of EPS and the introduction of new games.
Hall commissions related to TV bingo game shows declined as a result of the
decrease in the play of MegaBingo.

Cost of Electronic Player Stations Sold decreased $278,000 to $721,000 for the
three months ended June 30, 1999 from $999,000 for the three months ended June
30, 1998, due to a fewer number of EPS sold during the current period. The gross
margin recorded on EPS sales was $552,000, or 43% for the third quarter of
fiscal 1999 compared to $937,000, or 48%, in the third quarter of fiscal 1998.

Salaries and Wages amounted to $1,184,000 for the three months ended June 30,
1999 compared to $828,000 for the three months ended June 30, 1998, an increase
of $356,000, or 43%. Most of this increase relates to additional operations
personnel hired to assist in the installation, training, operations and
maintenance related to the interactive gaming network. Also contributing to this
increase were the payroll costs associated with additions to corporate staff.

Selling, General and Administrative Expenses increased $246,000, or 10% to
$2,750,000 for the three months ended June 30, 1999 compared to $2,504,000 for
the three months ended June 30, 1998. Contributing factors to the increase in
the overall cost structure for the current quarter were gaming network repairs,
maintenance, supplies and shipping costs, up $106,000, or 68%; employee
benefits, sales commissions and relocation expenses, up $222,000, or 150%; and
advertising and promotions, up $28,000, or 22%. Other general expenses increased
$118,000, or 9% in the third quarter. Reduced expense levels were realized in
legal and professional fees from $690,000 in the third quarter of fiscal 1998 to
$524,000 for the third quarter of fiscal 1999, down $166,000, or 24%.


                                      -13-
<PAGE>   14
Amortization and Depreciation increased $569,000, or 70% to $1,383,000 for the
three months ended June 30, 1999 compared to $814,000 for the three months ended
June 30, 1998. The increase results from EPS and software programming costs
capitalized during fiscal 1998 and 1999. The Company made $6.0 million in
capital additions during fiscal 1998. Capital additions thus far in fiscal 1999
total $7.0 million.

Interest Income consists primarily of interest earned on notes receivable and
amounted to $15,000 for the three months ended June 30, 1999 compared to $84,000
for the three months ended June 30, 1998.

Interest Expense amounted to $38,000 for the three months ended June 30, 1999
compared to $23,000 for the three months ended June 30, 1998, an increase of
$15,000, or 65%. This increase resulted from the use of a working capital line
of credit put in place during the first quarter of fiscal 1999.

Income Tax amounted to $425,000 for the three months ended June 30, 1999
compared to $577,000 for the three months ended June 30, 1998, a decrease of
approximately $152,000 which was due to lower pre-tax income.


NINE MONTHS ENDED JUNE 30, 1999 AND 1998

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) amounted
to $5,158,000, for the nine months ended June 30, 1999, up 14% from 1998's
$4,511,000. Net income was $855,000 for the nine months ended June 30, 1999
compared to $1,547,000 in 1998, a decrease of 45%. In 1998 the Company recorded
a sale of electronic player stations to a related party which produced operating
income of $1,872,000. Total operating costs and expenses increased 39% to
$65,137,000 through June 30, 1999 compared to $46,937,000 for 1998. During the
second quarter of fiscal 1998 the Company began recording substantial legal and
professional fees related to the MegaMania and NGI litigation. Legal and
professional fees for the nine months ended June 30, 1999 totaled $1,974,000, a
decrease of $194,000, or 9% from the nine months ended June 30, 1998. The amount
of depreciation and amortization recorded for the nine months ended June 30,
1999 increased $1,619,000, or 75% over the first nine months of fiscal 1998,
primarily due to the increase in the number of EPS placed in service. MegaRacing
started operations during the third quarter of fiscal 1998 and posted a loss of
$3,000 in the third quarter of 1998. Operations were suspended on January 31,
1999, and through June 30, 1999 a loss of $86,000 has been recorded. Fiscal
year-to-date operations were also adversely effected by the disappointing
performance of two interactive games that were introduced in the later part of
fiscal 1998. Another new game was introduced at the end of the first fiscal 1999
quarter and thus far player acceptance has been positive.

REVENUES totaled $66,516,000 for the nine months ended June 30, 1999 compared to
$49,288,000 for the first nine months of fiscal 1998, an increase of
$17,228,000, or 35%. This growth was primarily due to the increase in the
Company's interactive games which generated revenues of $54,510,000 for the nine
months ended June 30, 1999 as compared to $33,096,000 in the first nine months
of fiscal 1998, an increase of 65%. The average daily revenue per EPS was $53
for the nine months ended June 30, 1999 compared to $57 for the nine months
ended June 30, 1998. This reduction in average daily revenue resulted from an
increase in competition and a lower level of player interest in the two new
games introduced during the later part of fiscal 1998. EPS sales for the nine
months ended June 30, 1999 amounted to $1,642,000, which included a sale to one
tribal customer amounting to $1,076,000. EPS sales in 1998 totaled $4,330,000
and included related party sales totaling $3,750,000. TV bingo game show
revenues of $7,356,000 declined $1,931,000 or 21% for the nine months ended June
30, 1998 from 1998's $9,287,000, reflecting the continuation of the trend
experienced during fiscal 1998 of player participation declining on the TV bingo
game show across the country. In addition, the reduction in the number of halls
participating in MegaBingo during fiscal 1999 also affected fiscal year-to-date
performance.

The Company believes interactive gaming revenues will increase throughout the
remainder of fiscal 1999 over fiscal 1998, primarily as the result of an
increase in the average number of EPS that are expected to be in daily
operation. TV bingo game show revenues, however, may continue to decrease as the
result of decreased MegaBingo play at the halls.

EPS Sales Revenue generated from 265 EPS amounted to $1,642,000 for the nine
months ended June 30, 1999, a decrease of $2,688,000 from 1998's $4,330,000. The
$4,330,000 in sales in 1998 were primarily due to related party sales, to EP
LLC, $2,350,000 in the second quarter and $1,400,000 in the third quarter. No
such related party sales were made in fiscal 1999.


                                      -14-
<PAGE>   15
Lease Revenues from EPS under contract to Native American Tribes amounted to
$2,177,000 in the first nine months of fiscal 1999, down 7% from 1998's
$2,352,000. 165 Class III Video Lottery games were installed in two halls during
the month of June 1999 and generated $113,000 in revenue. The overall decrease
was primarily due to the maturity of lease/purchase contracts entered into
during fiscal year 1998 which reduced the number of EPS under lease.

Other Revenues increased to $825,000 in the nine months ended June 30, 1999
mainly due to the inclusion of $626,000 of revenues from MegaRacing. The
remainder of other revenue was contributed by Class III back office fees of
$6,000, management fees on the related party equipment contracts totaling
$153,000 and equipment service revenue amounting to $40,000 for the nine months
ended June 30, 1999.


OPERATING COSTS AND EXPENSES totaled $65,137,000 for the nine months ended June
30, 1999 compared to $46,937,000 for the first nine months of fiscal 1998, up
$18,200,000 or 39%:

Bingo Prizes and Related Costs consists primarily of prizes paid to players of
the Company's TV bingo game shows and amounted to $6,011,000 for the nine months
ended June 30, 1999 compared to $6,831,000 for the nine months ended June 30,
1998, a decrease of $820,000, or 12%. Interactive gaming revenues are recorded
net of prize costs; therefore, the prizes are not reflected in bingo prizes and
related costs.

Allotments to Hall Operators consists primarily of each bingo halls' share of
the interactive gaming revenues after prizes and allocable prize costs.
Allotments to hall operators increased $15,090,000, or 56% to $41,820,000 for
the nine months ended June 30, 1999 compared to $26,730,000 for the nine months
ended June 30, 1998. The increase was mainly related to the growth in the
Company's interactive gaming network of EPS and the introduction of new games.
Hall commissions related to TV bingo game shows declined as a result of the
decrease in the play of MegaBingo.

Cost of Electronic Player Stations Sold decreased $1,277,000 to $911,000 for the
nine months ended June 30, 1999 from $2,188,000 for the nine months ended June
30, 1998 due to a fewer number of EPS sold in the current period. The gross
margin recorded on EPS sales was $731,000, or 45%, for the first nine months of
fiscal 1999 compared to $2,142,000, or 49%, in the first nine months of fiscal
1998. The cost and gross margin associated with the sales to related parties
amounted to $1,878,000 and $1,872,000, or 50%, for fiscal 1998.

Salaries and Wages amounted to $3,439,000 for the nine months ended June 30,
1999 compared to $2,275,000 for the nine months ended June 30, 1998, an increase
of $1,164,000, or 51%. Most of this increase relates to additional operations
personnel hired to assist in the installation, training, operations and
maintenance related to the interactive gaming network. Also contributing to this
increase were the labor costs associated with additions to corporate staff.

Selling, General and Administrative Expenses increased $2,424,000, or 36% to
$9,177,000 for the nine months ended June 30, 1999 compared to $6,753,000 for
the nine months ended June 30, 1998. Contributing factors to the increase in the
overall cost structure were MegaRacing costs of $495,000, facilities and
communications expenses, up $451,000, or 27%; employee benefits, sales
commissions and relocation expenses, up $413,000, or 93%; gaming network
repairs, maintenance, supplies and shipping costs, up $323,000, or 89%;
consulting and contract labor, up $240,000, or 38%; travel costs, up 198,000 or,
28%; other tax expense $252,000; and advertising and promotions, up 65,000, or
15%. Reduced expense levels were realized in legal and professional fees from
$2,169,000 in the nine months of fiscal 1998 to $1,974,000 for the nine months
of fiscal 1999, down $195,000, or 9%.

Amortization and Depreciation increased $1,619,000, or 75% to $3,779,000 for the
nine months ended June 30, 1999 compared to $2,160,000 for the nine months ended
June 30, 1998. The increase results from EPS and software programming costs
capitalized during fiscal 1999 and 1998. The Company made $6.0 million in
capital additions during fiscal 1998. Capital additions for the first nine
months of fiscal 1999 totaled $7.0 million.

Interest Income consists primarily of interest earned on notes receivable and
amounted to $156,000 for the nine months ended June 30, 1999, compared to
$225,000 for the nine months ended June 30, 1998.


                                      -15-
<PAGE>   16
Interest Expense amounted to $110,000 for the nine months ended June 30, 1999
compared to $81,000 for the nine months ended June 30, 1998, an increase of
$29,000, or 36%. This increase resulted from the use of a working capital line
of credit put in place during the first quarter of fiscal 1999.

Income Tax amounted to $570,000 for the nine months ended June 30, 1999,
compared to $948,000 for the nine months ended June 30, 1998, a decrease of
$378,000, or 40%, due to lower pre-tax income.


LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended June 30, 1999, $5,176,000 of cash was provided by
operating activities versus $2,217,000 provided by operations in the comparable
period of fiscal 1998. At June 30, 1999, the Company had unrestricted cash and
cash equivalents of $865,000, a $1,016,000 decrease from September 30, 1998.
Working capital at the end of the third quarter amounted to $2,085,000 compared
to $4,808,000 at September 30, 1998. Working capital was applied in the
development and manufacture of EPS which were distributed into lease/purchase
and rental pools as well as direct cash sales, resulting in the use of cash
generated from operations to finance the growth of the Company's interactive
gaming network. In preparation for entrance into the Class III Video Lottery
market in the state of Washington, the Company began the retrofit process on
Class II equipment and initiated the development and manufacture of new EPS and
software to accommodate the Class III games. The resultant increase in inventory
amounted to $2,441,000 over the inventory at September 30, 1998, which
negatively impacted cash flows from operations. The Company used $6,970,000 in
investing activities during the nine months ended June 30, 1999, primarily in
the development of Class III Video Lottery gaming assets and the upgrade of
Class II EPS. These software development and manufacturing costs are expected to
continue at a high level to meet customer demand for internally financed lease
and rental products until such time that the Company identifies a third party to
finance these products for its customers.

The expansion of the Company's Class II interactive gaming network has increased
cash requirements to install, operate, market, maintain and monitor the network.
In addition, the installation of 165 Class III Video Lottery devices will also
contribute to higher expense levels which are expected to be sustained at a
higher level to support the overall growth in revenue for both product lines.
The Company is planning system and component upgrades to accommodate next
generation game and video technology, which again, will step up cash
requirements through the remainder of fiscal 1999 and beyond.

On July 29,1999 the Company completed a $10,000,000 revolving credit facility
with Coast Business Credit, a Division of Southern Pacific Bank, located in Los
Angeles, California. The credit facility is asset based and is secured by all
assets of the Company and the personal guarantee of $1,500,000 from the
Company's Chairman and CEO Gordon T. Graves. The initial application of the
funds available under this revolving credit line were used to free up the
collateral held by Bank of Oklahoma and Norwest Bank which secured notes payable
and a working capital line of credit, the combination of which totaled
approximately $1,900,000. Also drawn on this credit facility were funds totaling
approximately $2,400,000 used for the repurchase of the remaining EPS owned by
the EP LLC II partnership (see "Note 4" to the unaudited consolidated financial
statements). Approximately $4,000,000 was drawn to relieve outstanding accounts
payable, which for the most part included components for the manufacturing of
Class III Video Lottery devices and past due legal and professional fees. The
remaining credit availability will be applied as needed for system and component
upgrades to accommodate next generation game and video technology.

During the nine months ended June 30, 1999 the Company used $795,000 of its
revolving credit line and the application of funds collected on outstanding
accounts receivable to reduce a back-log of legal and professional service fees
as well as manufacturing billings, accounts payable and accrued expenses. Legal
and professional fees continue at a high level, primarily due to pending
litigation. Year-to-date legal and professional fees amounted to $1,974,000 for
the first nine months of fiscal 1999 compared to 1998's $2,169,000. Quarter to
quarter declines continue as the third quarter of fiscal 1998 totaled $690,000
compared to $524,000 for the current quarter; the second quarter of fiscal 1998
amounted to $1,288,000 compared to $672,000 for the second quarter of fiscal
1999. It is expected that legal and professional fees during the fourth
quarter of fiscal 1999 will continue at the same rate experienced during the
third quarter, primarily due to the NGI trial that is scheduled to
commence in September 1999, but there are no assurances that this will be the
case.

As a result of the MegaMania litigation, the Company is evaluating alternative
investment strategies to insure that the elimination of one product line will
not subject the Company to financial turmoil in the future. Diversification to
protect the asset base of the Company is being explored to position the Company
for future growth and stability. To accomplish this goal corporate


                                      -16-
<PAGE>   17
development staff was hired during fiscal 1998 and in the first quarter of
fiscal 1999. Costs associated with this effort are currently funded from
operations, but it is expected that new product lines and/or expanded network
opportunities will begin to cover these development costs during the fourth
quarter of fiscal 1999.

The growth in the Company's interactive gaming network experienced during fiscal
1998 was fueled by related party financings and the use of internally generated
funds. The Company is current on all federal tax liabilities with the filing of
this report. The Company is currently working to resolve deficiencies in prior
state tax filing requirements. It is anticipated that these state tax
deficiencies will be resolved during the fourth quarter of fiscal 1999 and will
not have a significant effect on results of operations or financial position.

The Company reported an interactive game reserve deficit that exceeded
$1,000,000 for the quarter ended December 31, 1998. Improvements realized at the
beginning of the third quarter have reversed the deficit and brought it to a
surplus of $365,000 as of June 30, 1999. This was accomplished by modifying the
prize payout structure in a manner that did not have a negative influence on
player participation in interactive gaming. Reducing the deficit in the
interactive game reserve as well as improving on the timeliness in the
collection of accounts receivable improved the Company's cash position during
the third quarter. Accounts receivable from the halls totaled $1,896,000 at June
30, 1999 and $1,890,000 at March 31, 1999 compared to $2,403,000 at December 31,
1998 and $2,005,000 at September 30, 1998.

On July 31,1999 the Company exercised its purchase option to acquire 663 EPS
that had been sold in March 1998 and June 1998 to EP LLC II. The combined
repurchase (buy-back) price was $2,373,623. It is expected that revenue derived
from these EPS will increase reported revenue and cash flow by approximately
$150,000 per month.

On October 1, 1998 the Company exercised its purchase option to acquire 356 EPS
that had been sold in June 1997 and September 1997 to EP LLC. The combined
repurchase (buy-back) price was $1,349,000. Revenue derived from these EPS has
increased reported revenue and cash flow by approximately $90,000 per month.

The Company believes that its current operations, including the payment of its
expected legal fees and expenses and the manufacture of EPS to meet expected
demand, can be sustained from cash from operations and from borrowings under the
line of credit with Coast Business Credit. However, assembly and installation of
additional EPS to further expand the Company's interactive gaming operations
will require additional funding from external sources. There is no assurance
that such additional funding will be available.

The inability to obtain additional financing when needed could have a material
adverse effect on the Company's ability to achieve its planned objectives as
well as any expectations the market might have about the Company's future
performance.


CONTINGENCIES

For information regarding contingencies, see "PART II - Item 1. Legal
Proceedings."


INFLATION AND OTHER COST FACTORS

The Company's operations have not been, nor are they expected to be, materially
affected by inflation. However, the Company's operational expansion is affected
by the cost of hardware components, which are not considered to be inflation
sensitive, but rather sensitive to changes in technology and competition in the
hardware markets. In addition, the Company expects it will continue to incur
increased legal and other similar costs associated with compliance with
regulatory requirements and the uncertainties present in the operating
environment in which the Company conducts its business.

IMPACT OF YEAR 2000 ("Y2K")

The "Year 2000 Issue" is the result of computer programs that were written using
two digits rather than four to define the applicable year. If the Company's
computer programs with date-sensitive functions are not Y2K compliant, they may
recognize a date using "00" as the Year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing


                                      -17-
<PAGE>   18
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.

The Company has identified its Y2K risk in three categories: Internal business
software, interactive game software and TV bingo game show software.

INTERNAL BUSINESS SOFTWARE. During 1997 and 1998, as part of a business
modernization program intended to reduce time and improve profitability, the
Company purchased the windows system of MAS 90, which the software vendor has
indicated is Y2K compliant. The Company is in the implementation phase for this
system and other ancillary financial systems with full implementation scheduled
for October 31, 1999. This system will include a detailed manufacturing and
inventory system. Based on this schedule, the Company expects to be in full Y2K
compliance with its internal financial systems before the year 2000. However, if
due to unforeseen circumstances, the implementation is not completed on a timely
basis, the Y2K could have a material impact on the manufacturing operations of
the Company. Contingency plans have been established in this area, where the
Company believes there is some risk if the system is not implemented before the
year 2000. Those plans include adapting some of the Company's currently existing
MAS 90 systems to be Y2K compliant. The cost of making those adaptations is not
expected to be material and would be expensed in the period incurred.

INTERACTIVE GAME SOFTWARE. The Company's interactive games have been configured
using the Microsoft four digit system which is Y2K compliant. All current games
as well as future games will also be in Y2K compliance.

TV BINGO GAME SHOW SOFTWARE. The Company is currently gathering data to assess
the impact of the Y2K on its TV bingo game show system. If the Company is unable
to achieve Y2K compliance for this system, the Y2K could have a material impact
on the TV bingo game show operations of the Company. Since the Company is in the
information gathering phase, the Company does not currently have a contingency
plan in place.


FUTURE EXPECTATIONS AND FORWARD LOOKING STATEMENTS

This Quarterly Report and the information incorporated herein by reference
contains various "forward-looking statements" within the meaning of Federal and
state securities laws, including those identified or predicated by the words
"believes," "anticipates," "expects," " plans," or similar expressions. Such
statements are subject to a number of uncertainties that could cause the actual
results to differ materially from those projected. Such factors include, but are
not limited to, the uncertainties inherent to the outcome of any litigation of
the type described in this quarterly report under "PART II - Item 1. Legal
Proceedings," as well as those other factors as described under "Item 1.
Description of Business - Risk Factors," contained in the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1998, which are
incorporated herein by this reference. Given these uncertainties, readers of
this Quarterly Report are cautioned not to place undue reliance upon such
statements.


                                      -18-
<PAGE>   19
                                     PART II

                                OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS

MEGAMANIA LITIGATION. On December 31, 1997, the U.S. Attorney for the Northern
District of Oklahoma filed a civil forfeiture action in Federal District Court
challenging the Class II status of the Company's interactive bingo game,
MegaMania. On October 23, 1998, the District Court issued a judgment holding
that MegaMania was legal Class II gaming. The decision found that MegaMania was
a game of bingo and that the EPS used to play MegaMania were technological aids
to the play of bingo as permitted by IGRA and were not gambling devices. On
January 21, 1999, the District Court denied a motion filed by the U.S. Attorney
that requested the District Court to alter or amend its judgment.

On May 14, 1998, the Assistant U.S. Attorney for the Northern District of
California filed a civil forfeiture in Federal District Court that also
challenged the Class II status of MegaMania. On November 23, 1998, the District
Court issued a Memorandum and Order holding that MegaMania was legal Class II
gaming. As with the decision of the Oklahoma District Court, the Order of the
California District Court found that MegaMania was a game of bingo and that the
EPS used to play MegaMania were technological aids to the play of bingo as
permitted by IGRA and were not gambling devices.

The government has appealed both decisions to the appropriate Circuit Court of
Appeals. The Company believes it will prevail on the merits but the outcome
cannot be predicted with certainty.

No assurances can be given that there will be no other challenges made to the
legality of some other aspects of the Company's activities or that, if made, the
Company will be successful on the merits. If MegaMania is ultimately determined
to be Class III gaming, the loss of the MegaMania business could have a material
adverse effect upon the Company's financial condition and results of operation.
In addition, if the type of EPS used to aid the play of MegaMania is ultimately
held to be a gambling device, all of the other interactive Class II bingo games
currently offered by the Company and other vendors would likely be adversely
effected which would have a material adverse effect upon the Company's financial
condition and results of operation. Even if the Company is successful on the
merits, the legal fees and expenses to be incurred by the Company related to the
MegaMania litigation or any future litigation challenging other aspects of the
Company's activities will likely be significant.

DEVELOPING LEGAL ENVIRONMENT. The environment in which the Company conducts its
business is relatively new and presents significant legal and operating
challenges and uncertainties. Fundamental issues concerning the scope and intent
of IGRA remain unresolved, as do issues relating to the jurisdiction and
authority of different Federal, State, local and tribal governments and
agencies. For example, prior to the initiation by the Department of Justice of
the MegaMania litigation, the Company had received and had relied upon opinions
from the National Indian Gaming Commission ("NIGC") that MegaMania was Class II
gaming. While the NIGC has its own powers of enforcement, the Department of
Justice has been maintaining that it retains enforcement powers over gambling
devices and is not bound by NIGC determinations. As a result, the Company faces
uncertainty as to whether other actions will be initiated by the Department of
Justice in the future.

There can be no assurance that the NIGC, either on its own initiative or as the
result of pressure from or cooperation with other agencies such as the
Department of Justice, will not enact additional regulations or reinterpret
existing regulations or opinions in a manner that would have a material and
adverse effect upon the Company, including requiring the Company to restructure
its existing contractual arrangements with Indian tribes or requiring changes in
the way the Company's games are conducted so that such games are classified as
Class II. Any such restructuring of the Company's games has the additional risk
that such games will no longer appeal to consumers or be acceptable to the
tribes. There can also be no assurance that IGRA or other Federal laws will not
be amended, or new legislation or regulations enacted, so as to limit the
authority of tribes to self-regulate Class II gaming or to change the definition
of Class II gaming in a manner adverse to the Company's business.

NETWORK GAMING LITIGATION. On January 23, 1998, the Company filed a complaint
against Network Gaming International Corporation ("NGI") in the Federal District
Court for the Northern District of Oklahoma alleging breach of contract. On
February 2, 1998, NGI filed a complaint against the Company in the same Federal
District Court alleging, among other things, breach of contract,
misappropriation of trade secrets, fraud and interference with prospective
advantage. The complaint by NGI


                                      -19-
<PAGE>   20
seeks $62 million in damages and other specified and unspecified relief. The
Company intends to vigorously defend against the claims of NGI and to prosecute
its own claim. Discovery has been completed and the matter is scheduled for
trial in September 1999. While the Company believes that it will ultimately
prevail on the merits, no assurances to that effect can be given. In any event,
the cost of defending the actions has been and through the trial will continue
to be substantial.

SHAREHOLDER CLASS ACTIONS. On May 29, 1998, a shareholder class action was filed
against the Company in the Federal District Court for the Southern District of
California. Also named as defendants were Gordon T. Graves and Larry D.
Montgomery. The action, which seeks an unspecified amount of damages on behalf
of all similarly situated shareholders, alleges that the Company violated
federal securities laws by making allegedly false and misleading statements
regarding the legality of MegaMania. On July 24, 1998, a similar class action
was filed in the Federal Court for the Northern District of Oklahoma. In January
1999, the two cases were consolidated in the Northern District of Oklahoma. On
March 22, 1999, the class action plaintiffs filed an amended complaint that also
named Clifton E. Lind, the Company's President and Chief Operating Officer, as
an additional defendant and included allegations that the Company violated
federal securities laws by making allegedly false and misleading statements
regarding transactions between the Company and Equipment Purchasing LLC and
Equipment Purchasing II LLC. On April 19, 1999, the Company filed its Motion to
Dismiss all of the claims of the plaintiffs. The Court has yet to rule on the
Company's Motion. The Company intends to vigorously defend against these claims
and expects to prevail on the merits, although no assurances to that effect can
be given. In any event, the cost of defending against the claims could be
substantial.

OTHER. The Company is a party to various other lawsuits and claims arising out
of the ordinary course of its business. No accrual for potential loss has been
made in the accompanying financial statements, as management does not believe
that the likelihood of a material loss is probable at this time.


                                      -20-
<PAGE>   21
ITEM 4.  SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS

On May 11, 1999, the Company held its 1999 Annual Shareholder Meeting. The
meeting involved the election of five nominees to be Directors, and the
following persons were elected, constituting all of the member of the Board of
Directors of the Company: Gordon T. Graves, Larry D. Montgomery, Gregory N.
Stern, Thomas W. Sarnoff and Robert D. Bullock.

A separate tabulation with respect to each nominee is as follows:

<TABLE>
                  <S>                       <C>                        <C>
                  Gordon T. Graves          4,841,963 votes for        68,023 votes against or withheld
                  Larry D. Montgomery       4,842,313 votes for        67,273 votes against or withheld
                  Gregory N. Stern          4,842,713 votes for        67,273 votes against or withheld
                  Thomas W. Sarnoff         4,841,213 votes for        68,773 votes against or withheld
                  Robert D. Bullock         4,841,213 votes for        68,773 votes against or withheld
</TABLE>

1.       In addition to the above, a proposal to ratify and approve the
         appointment of Pricewaterhouse Coopers LLP as the Company's independent
         auditors was voted upon at the Meeting and received the requisite
         number of votes necessary to pass, as follows:

<TABLE>
                  <S>                       <C>                                   <C>
                  4,861,781 votes for       31,502 votes against or withheld      16,703 votes abstaining
</TABLE>

2.       In addition to the above, a proposal to ratify and approve the adoption
         of the Company's 1998 Presidents's Stock Option Plan was voted upon at
         the Meeting and received the requisite number of votes necessary to
         pass, as follows:

<TABLE>
                  <S>                       <C>                                   <C>
                  1,624,346 votes for       351,342 votes against or withheld     38,003 votes abstaining
</TABLE>

3.       In addition to the above, a proposal to ratify and approve the adoption
         of the Company's 1998 Senior Executive Stock Option Plan was voted upon
         at the Meeting and received the requisite number of votes necessary to
         pass, as follows:

<TABLE>
                  <S>                       <C>                                   <C>
                  1,616,171 votes for       356,520 votes against or withheld     41,000 votes abstaining
</TABLE>

4        In addition to the above, a proposal to ratify and approve the adoption
         of amendments to the Company's 1996 Stock Incentive Plan was voted upon
         at the Meeting and received the requisite number of votes necessary to
         pass, as follows:

<TABLE>
                  <S>                       <C>                                   <C>
                  1,708,924 votes for       284,017 votes against or withheld     20,750 votes abstaining
</TABLE>


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

         (a) The exhibits filed as part of this Quarterly Report on Form 10-Q
are listed in the attached Index to Exhibits.

         (b) No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.


                                      -21-
<PAGE>   22
                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated August 13, 1999                    Multimedia Games, Inc.


                                         By: /s/ GEORGE J. AKMON
                                            ------------------------------------
                                            George J. Akmon, Vice President and
                                            Chief Financial Officer



                                      -22-
<PAGE>   23

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER              DESCRIPTION
-------             -----------
<C>                 <S>
  15                Letter regarding Unaudited Interim Financial Information

  27                Financial Data Schedule
</TABLE>