SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______  TO________

                           Commission File No. 0-22482

                    INNOVATIVE GAMING CORPORATION OF AMERICA
                    ----------------------------------------
             (Exact name of registrant as specified in its charter)

               MINNESOTA                              41-1713864
               ---------                              ----------
        (State or other jurisdiction                (I.R.S. Employer
        of incorporation or organization)          Identification No.)

           333 ORVILLE WRIGHT CT
             LAS VEGAS, NEVADA                           89119
               ------------                              -----
   (Address of principal executive offices)            (Zip Code)

                                 (702) 614-7199
              (Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of April 10, 2002, 25,756,241 shares of the Registrant's common stock (the
"Common Stock") were outstanding. The aggregate market value of the Common Stock
held by non-affiliates of the Registrant on such date, based upon the last sale
price of the Common Stock as reported on the Nasdaq Small Cap Market on April
10, 2002, was $11,590,308. For purposes of this computation, affiliates of the
Registrant are the Registrant's executive officers and directors.



<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

PART III - Portions of the Registrant's definitive proxy statement in connection
with the annual meeting of the shareholders are incorporated by reference into
Items 10 through 13, inclusive.





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ITEM 1.  BUSINESS

     The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of Innovative Gaming Corporation of America (the "Company") could
differ materially from the Company's historical results of operations and those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
in "Certain Factors."

     Innovative Gaming Corporation of America ("IGCA") and its wholly owned
operating subsidiary, Innovative Gaming, Inc. ("IGI"), together (the "Company"),
develop, manufacture, market and distribute computerized video gaming machines
and multi-station gaming machines to regulated gaming markets world-wide. The
Company has two primary product lines: computerized video/slot gaming machines
and multi-player/multi-station video based games with a state of the art
operating system providing superior graphic and sound capabilities. As of
December 31, 2001, the Company had 47 employees.

     During 2001, the Company's management team was reorganized through the
Board's selection of a new Chairman and Chief Executive Officer, Thomas J.
Foley, and the appointment of Laus M. Abdo, the Company's Chief Financial
Officer, as President. The new management team was charged to reorganize and
restructure the Company and refocus the Company's business on its core
technology.

     The Company intends to expand its existing market through new product
offerings, including new game themes for its computerized video gaming machines,
second screen bonusing features, the introduction of a poker game series and a
networked bingo game targeted primarily to Indian casinos. In developing its new
product offerings, the Company will utilize the technological advantages of its
current computerized video gaming machines, and exploit technological
improvements to its operating system such as ticket-in ticket-out, tokenization,
multi-game and multi-denomination.

     The new management team has concentrated the Company's efforts and
resources on its core business of developing and installing its computerized
gaming machines either through direct sale or under participating agreements
where the Company participates in the revenues from the machine on a percentage
or flat-fee basis. Accordingly, the Company has terminated pursuits that were
not consistent with its strategic business strategy.

     In December 1999 the Company entered into a merger agreement under which it
would have been merged into nMortgage, Inc., a subsidiary of Equitex, Inc. In
conjunction with this merger agreement, in February 2000 the Company entered
into a separate agreement to sell substantially all of its gaming assets to
Xertain, Inc. The Company subsequently determined that the merger with nMortgage
was inadvisable and terminated the merger plan.

     In October 2000, the Company entered into an Agreement and Plan of Merger
with Xertain, Inc. and IGCA Acquisition Corp. (the "Xertain Merger Agreement").
The Company subsequently determined that the merger with Xertain was inadvisable
and terminated the Xertain Merger Agreement during the fourth quarter of 2001.

     The Company will continue to pursue opportunities to compliment its
internal resources through strategic alliances and acquisitions. The primary
purpose of these acquisitions and alliances is to increase new product
offerings, reach complimentary markets and acquire additional technological
capabilities. This strategy is evidenced by the recent agreement to acquire 100%
of GET USA, Inc.

     On February 15, 2002, the Company entered into an Agreement and Plan of
Merger by and among GET USA, Inc., Innovative Gaming Corporation of America and
Innovative Gaming Technology Corp. (the "GET Merger Agreement"). GET USA, Inc.
is a Nevada corporation formed in 2000 to own certain intellectual property
relating to the gaming industry with a focus on Internet and networked gaming
systems. GET USA owns a proprietary Internet Casino Operating Platform and
proprietary technology with application in a broad range of gaming markets.
Pursuant to the GET Merger Agreement, GET USA, Inc. will be merged into
Innovative Gaming Technology Corp., a Nevada corporation and wholly owned


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subsidiary of the Company. Following the merger, GET USA's shareholders will own
49% of the Company. Final closing of the merger is anticipated to occur in
late-2002, subject to shareholder, regulatory and various governmental agencies'
approval.

     IGCA's primary target markets have historically been gaming jurisdictions
in North America, including the states of Arizona, Colorado, Iowa, Louisiana,
Mississippi, Minnesota, Nevada, New Mexico, South Dakota, North Carolina and
international markets such as Australia and Holland. The Company has submitted
and has pending applications in Connecticut and Indiana. The Company remains
registered with Alberta, Manitoba and the Atlantic Lottery Corporation and has
an application pending in British Columbia. As of December 2000, the Company's
single player computerized video slot machine has been approved for sale in
Colorado, Iowa, Louisiana, Minnesota, New Mexico, Nevada and California.

     The Company distributes its products directly or under lease, sales (for
cash or on extended payment terms) or participation agreements. Under
participation agreements the Company shares in the revenue from the machines on
a percentage or a flat-fee basis.

     The Company believes that its multi-line, multi-coin, video gaming machines
will appeal to casinos, clubs, lotteries and slot route operators seeking to
enhance the entertainment experience by providing new and unique forms of
gaming. IGCA employs advanced technology to enhance the entertainment features
of its games while retaining many of the popular features of video gaming
machines.

BUSINESS STRATEGY

     The Company has embarked on a strategy to emphasize its core business of
developing and installing its computerized gaming machines either through direct
sale or under participating agreements where the Company participates in the
revenues from the machine on a percentage or flat-fee basis. The Company
believes that increased focus on the acquisition of revenue streams from
participation agreements will allow the Company to approach profitability. To
make the revenue-sharing strategy attractive to licensees, IGCA intends to both
develop new products and continue producing popular existing games and license
games (content) from third-party (independent) game developers.

     The Company believes that multi-line, multi-coin, video-based games are
currently among the most popular games on the casino floor. To tap into this
popularity and increase its market share, the Company has enhanced its operating
system to include multi-denomination, tokenization and ticket-in, ticket-out
technology. In addition, the Company intends to introduce 15 to 20 new game
themes annually. The Company is also enhancing its ability to penetrate markets
through the licensing of a video poker game series and a networked bingo game.

     The Company believes it will capitalize on future opportunities by:

     o    developing and licensing innovative new products including proprietary
          games and operating systems and popular existing games
     o    Implementing technological improvements such as ticket-in, ticket-out,
          multi-denomination and tokenization
     o    developing new proprietary games and operating systems
     o    focusing on sales and customer service
     o    Continued focus on sales and customer service
     o    expanding the Company's distribution  infrastructure in order to bring
          games to market more rapidly and better serve the Company's customers
     o    expanding and  developing the Company's  placement of proprietary  and
          licensed games distributed under revenue-sharing arrangements

     PRODUCTS AND TECHNOLOGY

     Proprietary & Licensed Games - The Company will continue to develop and
license games for sale or participation. In late 2001, IGCA began installing
revenue-sharing games. The Company intends to continue installing
revenue-sharing games in fiscal year 2002 and hopes to reach new markets and
expand its customer base. In addition, the Company has entered into licensing


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agreements under which it will expand its product offerings. Specifically, the
Company expects to introduce 15-20 new titles per year for its video slots,
introduce a video poker game and a networked bingo game and will pursue
additional licensing agreements with independent game developers.

     Game Development - IGCA has developed a modular manufacturing process in
order to increase efficiency and lower production costs. This modular platform
allows IGCA to rapidly bring new games to market, and provides opportunities
outside the gaming market for its components. Furthermore, the Company believes
its modular platform will allow independent game designers to bring their own
game concepts to IGCA in return for royalties since it interfaces easily with
the PC-based hardware, Linux operating system and Java programming predominantly
used by independent game designers. The Company believes this approach will
increase its ability to develop innovative games that will provide streams of
revenue while simultaneously minimizing personnel costs.

     Intellectual Property - IGCA has spent considerable effort and expense
developing and implementing its proprietary operating system software for slot
machine operations. The Company has applied for patent protection for this
technology.

     PRODUCT STRATEGY

     Video Slot - The Company plans to continue introducing game content in a
variety of cabinet configurations including upright units, slant-top units and
bar-top units. Moreover, the Company plans on expanding its current game library
by 15 to 20 new game titles during 2002, and each year thereafter. The video
cabinets, upright and slant-top will become the high-end product line targeted
for multiple denominations for video slot games, video poker platform and other
internally developed or licensed games.

     Low Cost Cabinet - The Company is introducing a low cost cabinet to house
its entire video library in 1-cent, 2-cent and higher denominations and/or
multi-denomination format. The target market for this product is the tertiary
casino operator. This new platform will be printer only, with a bill acceptor,
and will be a low-cost alternative to casino offerings. This cabinet is a
stand-alone unit and will not require a slot stand.

     Proprietary Games - The Company intends to develop and license proprietary
games from which it will receive a daily rental fee or percentage of revenue for
licensing, and is currently working with several game designers on proprietary
games for this strategy.

PRODUCT DEVELOPMENT STRATEGY

     The Company's product development strategy is to develop and maintain a
competitive advantage by focusing on three key elements: (a) exercising
sufficient control over the development and manufacturing process to enable
quick reaction to the ever-changing technology environment; (b) concentrating
efforts on the development of gaming machine platforms and games that are
protected by patents or other property rights, and (c) licensing third party
game themes, concepts and technologies.

     The Company has two primary product lines: computerized video gaming/slot
machines and multi-player/multi-station video gaming machines incorporating a
state of the art operating system with superior graphics and sound capabilities.

VIDEO/SLOT GAMING MACHINES

     This series of gaming machines incorporates a unique PC based platform. The
Company believes the operating system and game software provide powerful
performance gains and excellent cost advantages over traditional gaming
operating systems. Its modular software structure enables rapid development of
new games without affecting basic machine functions. This quick game development
capability overcomes a current video slot problem, in that the games are not
easily modified/customized as required by most customers. This product line
currently includes the titles Monster Money, Area 51, Tiki Treasure and Wild


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Jungle with additional titles under development. Video/slot gaming machines
accounted for an aggregate of 53% of game sales in 2001, 30% of sales in 2000,
and 21% of sales in 1999.

MULTI-PLAYER/MULTI-STATION VIDEO TABLE GAMES

     BJ BLITZ(TM) AND LIVE VIDEO BLACKJACK(R) are electronic audio/video
multi-player blackjack games. Each blackjack machine consists of a central
"dealer" and three or five "player" stations that face the dealer in a
semicircle, in the same configuration as a live action blackjack table. The
dealer and each player station have video display screens. The dealer screen
displays the cards as they are shuffled and dealt, and the dealer's hand. The
electronic dealer directs the action with spoken instructions, and indicators
flash on the video display screen of the player whose turn it is to bet. Each
player station has lighted controls that the players can push to hit, stand,
bet, double down, split or buy insurance. Between games, players can also push
buttons to display the rules and the odds. The machines incorporate
electronically generated voices, sound effects, lights and music into the game.
A "21 Stud" game is offered by the Company on the blackjack game platform. "21
Stud" is an automated blackjack game with a stud poker game player option. At
the end of each hand of blackjack, the player has a chance at additional awards
according to a five-card poker hand completed from the dealer's original hand.
These blackjack games accounted for an aggregate of 7% of game sales in 2001,
26% of sales in 2000, and 21% of sales in 1999.

     HOT SHOT DICE(TM) AND LIVE VIDEO CRAPS(R) are electronic craps machines
management believes are the first entirely electronic multi-player video craps
games in the world, which consist of a rectangular table that is approximately
half the size of a live action craps table, with a lighted canopy. Each table
accommodates six players, two on each side, and one at each end. Except for a
border that contains the player controls, the table consists of two large video
display screens that reproduce a craps tabletop. Each player has a hand-sized
trackball that the player rotates with his palm to roll the dice. The trackball
also controls a video "hand" that the player moves around the playing field to
place his bet of video "chips" in the appropriate spot. The odds are displayed
as the hand passes over each betting spot on the field. Each player has his own
distinctly colored video hand and chips. The video rolling dice are superimposed
on the playing field and the roll of the dice responds to the force and
direction with which the player spins the track ball. The game incorporates
sound effects such as rolling dice, and visual effects such as a croupier rake
that wipes away chips, in addition to electronically generated voices, music and
flashing lights. These electronic craps games accounted for an aggregate of 6%
of game sales in 2001, 5% of sales in 2000, and 12% of sales in 1999.

     LIGHTNING STRIKE(TM) ROULETTE AND LIVE VIDEO ROULETTE(R) are roulette
machines that management believes are the first entirely electronic multi-player
video roulette games in the world, which consist of a rectangular table that is
approximately half the size of a live action roulette table. The table
accommodates five players, two on each side and an additional player at one end.
The other end of the table has a stand-up cabinet that incorporates a 29-inch
video monitor that employs what the Company believes is the most advanced
computer graphics available in the industry today. On the top of the cabinet, a
simulated roulette wheel is displayed that incorporates rotating lights
coordinated with the play of the game. Except for a border that contains the
player controls, the table consists of two large video display screens that
reproduce a roulette table betting field. Each player has a hand-sized trackball
that the player rotates with his palm to control a video hand that the player
moves around the playing field to place his bet of video "chips" in the
appropriate spot. The odds are displayed as the hand passes over each betting
spot on the field. Each player has his own distinctly colored video hand and
chips. The cabinet video monitor displays sharp, 3 dimensional graphics of
rotating dealers, roulette wheel action, betting, instructional game play
features, and game summary data. These roulette games accounted for an aggregate
of 25% of game sales in 2001, 30% of sales in 2000, and 20% of sales in 1999.

ITEM Platform

     The Company's newest product line, the ITEM incorporates all of the
advantages of the video/slot operating system in addition to a newly designed
hardware platform incorporating a multiple monitor array that eliminates the use


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of static screened graphics for game identification, pay tables, and other
traditional uses in gaming machines. The platform additionally conforms to
design specifications for use in the Company's new multi-game products. The
Company has initiated efforts for patent protection on several elements of this
new platform.

MANUFACTURING AND SUPPLY ARRANGEMENTS

     The Company's products are assembled at its production facility in Las
Vegas, Nevada at the Company's corporate headquarters. The products collectively
are assembled utilizing various parts and components from a large base of
vendors. The Company has developed new technology to replace the electronic
components previously purchased from its Japanese multi-game vendor and the
Company has identified alternate sources of supply for significant parts and
components in the event any of its current vendors fail to meet order
requirements.

INTELLECTUAL PROPERTY

     The Company has spent considerable effort and expense developing and
implementing its proprietary operating system software for slot machine
operations. This software revolves around the Linux operating system and Java
software and operates on standard PC computer hardware platforms and proprietary
interface circuits. The Company has filed for patent protection for these
technologies.

     On February 2, 1996, the Company acquired the balance of all remaining
intellectual property including patents, trademarks, picture rights and
copyrights for its games from its Japanese suppliers in exchange for an
aggregate 225,000 shares of IGCA Common Stock. The Company has exclusive
ownership and licenses pertaining to its blackjack, craps, roulette and
Supersuits Progressive Blackjack in gaming markets worldwide.

     IGCA(R), BJ Blitz(TM), Hot Shot Dice(TM), Lightning Strike Roulette(TM),
Live Video Blackjack(R), Live Video Craps(R), Live Video Roulette(R), Bonus
Streak(TM), Cascade of Diamonds(TM), Mythical Reels(TM) and Supersuits (R) are
all trademarks of Innovative Gaming Corporation of America. The Company has
either federally registered or applied for federal registration of these
trademarks. In November 1997, IGCA received notification that it was granted a
trademark and design registration for Lightning Strike Roulette in Australia.

     The Company believes that the technical know-how, trade secrets and
creative skills of its employees and contract personnel are substantial assets
of the Company. The Company requires customers, employees, contract personnel
and other significant contacts of the Company who have access to proprietary
information concerning the Company's products to sign non-disclosure agreements.
The Company relies on such agreements, other security measures, and trade secret
law to protect such proprietary information. No assurance can be given that
pending applications for intellectual property will be granted. There also can
be no assurance that patents or other intellectual property rights will not be
infringed, or that others will not develop technology that will not violate
these rights.

DISTRIBUTORSHIP AND SALES AGENCY ARRANGEMENTS

     The Company distributes and/or anticipates distributing its products
directly to gaming markets. In the past, the Company has utilized licensed
distributors in certain jurisdictions. The Company may consider working with
distributors in the future to the extent they will provide the Company with
access to new markets on a cost-effective basis.

     In February 1996, the Company entered into an exclusive distribution
agreement with Aristocrat Leisure Industries of New South Wales, Australia for
the marketing and distribution of multi-player games in Australia, New Zealand,
and neighboring South Pacific jurisdictions. Pursuant to this agreement, the
Company sold an aggregate of 99 games in 1997, 86 games in 1998 and no games in
1999. Due to the declining multi-player game sales in their territory, the
Company and Aristocrat terminated the distribution agreement in March 2000.
Aristocrat continues to purchase and distribute multi-player games in Australia
and New Zealand on a limited basis.



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     The Company has submitted its applications for licensure in New Jersey and
Connecticut, and will apply for approval of its various games. As of December
2001, the applications for licensure are still pending.

SIGNIFICANT CUSTOMERS

     During 2001, the Company entered into a licensing agreement accounting for
38% of gross sales and made game sales to Delta Automaten accounting for 26% of
gross sales. During 2000, the Company made sales to Delta Automaten and Casino
Arizona accounting for 22.26% and 12.76% of gross sales respectively. During
1999, the Company made sales to one customer, a distributor, Black Hills Novelty
Co., which accounted for 18.9% of sales for the year.

COMPETITION

     Many gaming equipment companies, several of which are large and well
established, supply the casino and video lottery industries with video gaming
machines and other gaming equipment. Management believes that Aristocrat,
Alliance Gaming, International Game Technology, and WMS Gaming are among the
largest and most-established gaming machine suppliers. Management believes that
none of these companies currently offer video gaming machines that are similar
to the Company's multi-station products. However, Sigma Games distributes a
multi-player horserace game. Furthermore, the Company's single game product is
currently in competition with products developed by all of the above-mentioned
companies and there can be no assurance that the single player games developed
by the Company will have continued acceptance in such competitive markets. There
can be no assurance that these competitors, or another competitor, will not
develop gaming machines that are similar to the Company's multi player gaming
machines in the future.

REGULATION

GENERAL - The manufacture, sale and distribution of gaming machines are subject
to various federal, state, county, tribal, municipal and international laws,
regulations and ordinances, which are administered by the relevant regulatory
agency or agencies in each jurisdiction (the "Regulatory Authorities"). These
laws, regulations and ordinances vary from jurisdiction to jurisdiction, but
primarily concern the responsibility, financial stability and character of
gaming equipment manufacturers and distributors, as well as persons financially
interested or involved with gaming equipment manufacturers and distributors.
Furthermore, regulations also require various technical standards and
specifications approval and adherence, which are conducted by state and/or
private laboratories. There are substantial similarities in the basic
provisions, which are described below. In the future, Regulatory Authorities may
also significantly curtail or eliminate gaming in jurisdictions that currently
or hereafter allow gaming.

INDIAN GAMING - The operation of gaming on Indian land, including the terms and
conditions of contracts to sell or lease gaming equipment to Indian tribes, is
subject to the Indian Gaming Regulatory Act of 1988 ("IGRA"), which has
delegated oversight responsibility to the Bureau of Indian Affairs (the "BIA")
and the National Indian Gaming Commission ("NIGC"), and also is subject to the
provisions of statutes relating to contracts with Indian tribes, which are
administered by the BIA. The regulations and guidelines under which the BIA and
the National Indian Gaming Commission will administer IGRA are incomplete and
evolving. IGRA is subject to interpretation by the Secretary of the Interior and
the NIGC and may be subject to judicial and legislative clarification or
amendment.

The NIGC is empowered to inspect and audit all Indian gaming facilities, to
conduct background checks on all persons associated with Indian gaming, to hold
hearings, issue subpoenas, take depositions, adopt regulations and to assess
fees. Civil penalties for violations of IGRA, and/or other applicable law, may
be imposed. In addition, IGRA provides for criminal penalties for illegal gaming
on Indian land and for theft from Indian gaming facilities.

IGRA classifies games that may be played on Indian land into three categories.
Class I gaming includes traditional Indian games and private social games
engaged in as a part of; or in connection with, tribal ceremonies or


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celebrations. These games, under IGRA, are regulated exclusively by the
respective tribes.

Class II gaming includes bingo and, additionally, pull tabs, lotto, punch
boards, tip jars, instant bingo, and other games similar to bingo, if those
games are played at a location where bingo is played. Class II gaming explicitly
excludes electronic or electromechanical facsimiles of any games of chance or
slot machines of any kind. This classification is also reserved for tribal
regulation, but under federal oversight. Class II gaming is permitted on Indian
land if: (i) the state in which the Indian gaming is located permits such gaming
for any purpose by any person, (ii) the gaming is not otherwise specifically
prohibited on Indian land by federal law, (iii) the gaming is conducted in
accordance with a tribal ordinance which has been approved by the Chairman of
the NIGC (provided that gaming may be conducted under unapproved ordinances or
resolutions adopted prior to the enactment of IGRA unless and until such
ordinances or resolutions are disapproved by the Chairman), (iv) an Indian tribe
has sole proprietary interest and responsibility for the conduct of gaming
(subject to certain exceptions), (v) the primary management officials, key
employees and the facility are tribally licensed; and (vi) several other
specified requirements are met, including the existence of any adequate system
which ensures background investigations are conducted on primary management
officials, all contracts for supplies, services or concessions in excess of
$25,000 annually are subject to independent audit and the construction and
maintenance of the gaming facility is conducted in a manner which adequately
protects the environment and the public health and safety.

Class III gaming includes all other forms of gaming, such as video casino games
(e.g., video slots, video blackjack), slot machines, table games (e.g.,
blackjack, craps, roulette), and other gaming (e.g., sports betting and
pari-mutuel wagering). The machines manufactured and distributed by the Company
are classified as Class III gaming devices. Class III gaming is permitted on
Indian land only if such activity is: (i) authorized by a tribal ordinance
meeting the requirements of IGRA and approved by the Chairman of the NIGC
(provided that gaming may be conducted under unapproved ordinances or
resolutions adopted prior to the enactment of IGRA unless and until such
ordinances or resolutions are disapproved by the Chairman), (ii) located in a
state that permits gaming defined as Class III by any person for any purpose,
(iii) governed by requirements similar to those described for Class II gaming,
and (iv) conducted in compliance with the terms of a written tribal-state
compact entered into between the Indian tribe and the state in which the subject
gaming is located and which has been approved by the Secretary.

TRIBAL ORDINANCES - Under IGRA, except to the extent otherwise provided in a
tribal-state compact, Indian tribal governments have primary regulatory
authority over gaming on land within the tribe's jurisdiction. Therefore,
persons engaged in gaming activities, including the Company, are subject to the
provisions of tribal ordinances and regulations regarding gaming. Such
ordinances and regulations must be consistent with IGRA and with any applicable
tribal-state gaming compact, and cannot impose criminal penalties upon
non-Indians. However, the civil remedies imposed by such tribal government
regulations, if otherwise valid, will likely apply to the Company and its
employees and customers. Tribal ordinances also require participants involved in
Indian gaming enterprises to obtain tribal licenses. The Company as a
manufacturer/distributor of gaming equipment is usually required to obtain a
tribal license before making any equipment sales. Management companies and their
officers, directors and significant shareholders are also subject to licensing
requirements. Tribes have great discretion to deny such licenses, fail to renew
current licenses or revoke such licenses. An Indian tribe has the right to
revoke any tribal gaming ordinance and, pursuant to such revocation, render
Class III gaming illegal on the lands of the tribe.

The Company must also comply with regulations promulgated pursuant to the tribal
state compacts entered into between the State and the particular Indian tribe.
These compacts vary significantly from state to state.

Indian tribes are sovereign nations with their own courts and governmental
systems. The Company intends to seek waivers of Sovereign immunity, where
appropriate, from tribes with whom the Company does business although there can
be no assurance that such waivers will be obtained.



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UNITED STATES CODE SECTION 81 - Title 25, Section 81 of the United States Code
states that "no agreement shall be made by any person with any tribe of Indians,
or individual Indians not citizens of the United States, for the payment or
delivery of any money or other thing of value . . . in consideration of services
for said Indians relative to their lands . . . unless such contract or agreement
be executed and approved" by the Secretary or his or her designee. An agreement
or contract for services relative to Indian lands which fails to conform to the
requirements of Section 81 will be void and unenforceable. All money or other
thing of value paid to any person by any Indian or tribe for or on his or their
behalf, on account of such services, in excess of any amount approved by the
Secretary or his or her authorized representative will be subject to forfeiture.

The Company has sold and intends to sell gaming machines directly to Indian
tribes. The Company has not submitted its past gaming machine sales contracts
with Indian tribes to the Secretary for approval for a number of reasons. In the
Company's opinion, its sales contracts are not for services. The Company
believes it is engaged in the sale of goods, namely gaming machines, and
therefore Section 81 does not apply to its activities. The Company also believes
that its sales of gaming machines are not "relative to Indian lands." Although
the gaming machines ultimately may be used on Indian lands, the Company believes
the machines themselves are not related to Indian land. The Company intends to
continue its practice of not submitting its sales contracts to the Secretary for
approval. The position of regulatory authorities relative to approval of
contracts of this kind has not been clear.

NEVADA

The manufacture and distribution of gaming devices in Nevada are subject to: (i)
the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the "Nevada Act"); and (ii) various local regulations. Generally,
gaming activities may not be conducted in Nevada unless licenses are obtained
from the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board"), and appropriate county and municipal
licensing agencies. The Nevada Commission, the Nevada Board, and the various
county and municipal licensing agencies are collectively referred to as the
"Nevada Gaming Authorities."

The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company.

Manufacturer and distributor licenses require the periodic payment of fees and
taxes and are not transferable. No person may become a stockholder of, or
receive any percentage of profits from, IGI, the wholly-owned subsidiary of
IGCA, without first obtaining licenses and approvals from the Nevada Gaming
Authorities. IGCA is registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and IGI was granted all requisite
licenses in May 1996 to manufacture gaming devices used in Nevada and to
distribute such devices, subsequent to technical product approvals. As such, the
Company is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information that the
Nevada Commission may require.

All gaming devices that are manufactured, sold or distributed for use or play in
Nevada, or for distribution outside of Nevada, must be manufactured by licensed
manufacturers and distributed or sold by licensed distributors. All gaming
devices manufactured for use or play in Nevada must be approved by the Nevada
Commission before distribution or exposure for play. The approval process for
gaming devices includes rigorous testing by the Nevada Board, a field trial and
a determination as to whether the gaming device meets strict technical standards
that are set forth in the regulations of the Nevada Commission.


                                       10
<PAGE>

The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors and certain key employees of
IGI must file applications with the Nevada Gaming Authorities and are required
to be licensed by the Nevada Gaming Authorities. Officers, directors and key
employees of IGCA who are actively and directly involved in the gaming
activities of IGI may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing or a finding of suitability for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position. If
the Nevada Gaming Authorities were to find an officer, director or key employee
unsuitable for licensing or to continue having a relationship with the Company,
the companies involved would have to sever all relationships with such person.
In addition, the Nevada Commission may require the Company to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.

The Company is required to submit detailed financial and operating reports to
Nevada Gaming Authorities. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company, must be reported
to or approved by the Nevada Commission.

If it was determined that the Nevada Act was violated by IGI, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
IGI, IGCA and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Limitation, conditioning or suspension of any gaming license could
(and revocation of any gaming license would) materially adversely affect the
Company.

Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.

The Nevada Act requires any person who acquires more than 5% of the Company's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of the Company's voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails a written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than 10% but not more than 15%
of the Company's voting securities, may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
voting securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities that are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all



                                       11
<PAGE>

matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.

Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value. Additionally, the Clark County
Liquor and Gaming Licensing Board has taken the position that they have the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.

The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file an application, be investigated and
found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.

The Company is required to maintain a current stock ledger in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any Securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that such securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on the Company.

The Company may not make a public offering of any securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.

Changes in control of the Company through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and the Nevada Commission concerning a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or


                                       12
<PAGE>

involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process of the transaction.

The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
board of directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.

Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are also required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or a finding of suitability in Nevada on the ground of personal unsuitability.

NEW JERSEY

The manufacture and distribution of slot machines and casino gaming activities
in New Jersey are subject to extensive state regulation under the New Jersey
Casino Control Act, N.J.S.A. 5:12-1 et seq. (the "New Jersey Act"). The New
Jersey Act created the New Jersey Casino Control Commission ("New Jersey
Commission"), which is authorized to decide all license applications and other
matters and to promulgate regulations. The New Jersey Act also created the New
Jersey Division of Gaming Enforcement (the "New Jersey Division"), which is
authorized to investigate all license applications, make recommendations to the
New Jersey Commission, and prosecute violations of the New Jersey Act. The New
Jersey Act requires any manufacturer or distributor of slot machines to be
licensed as a gaming related casino service industry ("CSI") by the New Jersey
Commission prior to transacting any business with a casino. The Company's wholly
owned subsidiary, Innovative Gaming, Inc. ("IGI"), has filed an application for
a CSI license, but it has not yet been deemed complete by the New Jersey
Commission.

In order for the requisite CSI license to be issued to IGI and maintained, the
Company's and IGI's officers, directors and key employees and all beneficial
owners of five percent (5%) or more of the Company's Common Stock must be found
qualified by the New Jersey Commission after an investigation by the New Jersey
Division. In order to be found qualified, the Company and IGI, its officers,
directors, key employees and five percent (5%) or greater shareholders must
demonstrate by clear and convincing evidence their good character, honesty and
integrity, and their financial stability, integrity and responsibility. However
"institutional investors" (as defined in the New Jersey Act) holding five
percent (5%) or more of the shares of the Company may be granted a waiver of the
requirement to be found qualified by the New Jersey Commission. Any other
shareholder or other person associated with the Company or IGI whom the New



                                       13
<PAGE>

Jersey Commission deems appropriate, in its discretion, is also required to be
qualified. If a person is required to and fails to submit for qualification or
submits for qualification and is found disqualified by the New Jersey
Commission, the New Jersey Commission may prohibit casinos in New Jersey from
doing business with the Company and IGI.

The New Jersey Commission may permit a company to transact business with a
casino prior to licensure if the company has filed a complete application for
CSI licensure and the New Jersey Division does not object to the transaction. A
request for permission to conduct a business transaction with a casino prior to
CSI licensure may be made 30 days after the filing of a complete CSI license
application with New Jersey Commission.

A CSI license is issued for an initial period of two years and is thereafter
renewable for four-year periods. There is no guarantee that IGI will be granted
an initial license or that, following the issuance of an initial CSI license or
any renewal thereof, IGI will continue to be granted renewals of the license.
Additionally, upon application of the New Jersey Division, the New Jersey
Commission may at any time review any license issued by it and determine to
suspend, revoke or place conditions on such license.

In addition to the required CSI license, the gaming equipment manufactured,
distributed or sold by IGI to New Jersey casinos is subject to a technical
examination by the New Jersey Division and approval by the New Jersey Commission
for, at a minimum, quality, design, integrity, fairness, honesty and
suitability. The review process includes the submission of a model of the
machine to the New Jersey Division for testing, examination and analysis. Prior
to a decision by the New Jersey Commission to approve a particular model of
machine, it may require up to a 60-day trial period to test the machine in a
casino. During the trial period, the manufacturer or distributor of the machine
shall not be entitled to receive revenue of any kind whatsoever. Once a model is
approved by the New Jersey Commission, all machines of that model placed in
operation in casinos shall operate in conformity with the model approved by the
New Jersey Commission. Any changes in the design, function or operation of the
machine are subject to prior approval by the New Jersey Commission, after
testing by the New Jersey Division.

OTHER JURISDICTIONS.

Each of the other jurisdictions in which the Company does business requires
various licenses, permits and approvals in connection with the manufacture
and/or distribution of gaming devices typically involving restrictions similar
in many respects to those of Nevada.

UNITED STATES - FEDERAL - The Federal Gambling Devices Act of 1962 (the "Federal
Act") makes it unlawful for a person to manufacture, deliver or receive gaming
machines and components thereof across interstate lines unless that person has
first registered with the Attorney General of the United States. The Company is
so registered and must renew its registration annually. In addition, various
record keeping and equipment identification requirements are imposed by the
Federal Act. Violation of the Federal Act may result in seizure or forfeiture of
equipment, as well as other penalties.

CERTAIN FACTORS

In addition to the factors discussed elsewhere in this Report, such as
regulation, competition and dependence on significant customers, the following
are important factors that could cause actual results or events to differ
materially from those contained in any forward-looking statements made by or on
behalf of the Company.

SHORT-TERM LIQUIDITY AND NEED FOR ADDITIONAL FINANCING - As of March 31, 2002,
the Company had cash of approximately $140,297. Although the Company is in the
process of obtaining short-term financing from a third party lender, no
assurance can be given that such financing will be obtained. Furthermore, the
Company believes that any such financing would result in dilution to the
Company's existing shareholders. The Company has experienced negative cash flow
from operations of $4.9 million, $1.7 million, and $5.1 million for the years
ended December 31, 2001, 2000, and 1999, respectively. The Company estimates
that if current sales forecasts are met and its additional financing is


                                       14
<PAGE>

obtained, its cash and anticipated funds from operations will be adequate to
fund cash requirements through April 18, 2002. Management believes that the
costly process of product development and introduction will require the Company
to seek additional financing beyond the short term financing to successfully
complete any such future development and introduction. There can be no assurance
that the Company will be successful in obtaining the proposed short-term
financing or any additional financing on terms acceptable to the Company.
Failure to obtain short-term financing 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.

LACK OF PROFITABILITY - The Company has had losses attributable to common
shareholders of $15.1 million in 2001, $2.3 million in 2000 and $13.5 million in
1999. Although management is implementing plans to restore the Company to
profitability, there can be no assurance that these plans will be successful.

FAILURE TO REGISTER CERTAIN SHARES - 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 April 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.

DEVELOPMENT RISKS - Although the Company was formed in 1991, the Company
continues to face the risks, expenses and difficulties frequently encountered by
new and expanding businesses, including, but not limited to, negative cash flow,
initial high development costs of new products without corresponding sales
pending receipt of corporate and product regulatory approvals and market
introduction and acceptance of new products. There is no assurance that the
Company's products will be accepted in the marketplace and that regulatory
approvals will be obtained.

PRODUCT ACCEPTANCE - The Company's success as a gaming machine manufacturer and
supplier is dependent upon numerous factors, including its ability to design,
manufacture, market and service gaming machines that achieve player and casino
acceptance while maintaining product quality and acceptable margins and to
compete against gaming machine suppliers with greater financial resources, name
recognition and established service networks and customer relationships. To
date, the sales of the Company's multi-player games have been significantly



                                       15
<PAGE>

lower than anticipated by the Company. In order to diversify and expand sales,
the Company has begun licensing, marketing and selling single player games such
as Bonus Streak. Additionally, the Company has developed other single player
games such as its single player video slot machines incorporating state of the
art graphics and sound. There can be no assurance that such single player games
will be accepted by the market. The Company believes that it will need to
develop gaming machines that offer technological advantages or unique
entertainment features in order for the Company to be able to compete
effectively in the gaming machine market.

GOVERNMENT REGULATION - The manufacture and distribution of gaming machines are
subject to extensive federal, state, provincial, tribal, international and local
regulation. Furthermore, the Company's financing plans may require approval of
gaming regulators which may not occur on a timely basis if at all. These
regulations are constantly changing and evolving, and may permit additional
gaming or curtail gaming in various jurisdictions in the future, which may have
a material adverse impact on the Company. The Company and its key personnel
undergo extensive investigation before each jurisdictional license is issued.
The Company's gaming machines are subjected to independent testing and
evaluation prior to approval from each jurisdiction in which the Company does
business. Generally, regulatory authorities have broad discretion when granting,
renewing or revoking such game approvals and licenses. The failure of the
Company, any of its key personnel, or its gaming machines to obtain or retain a
license in any jurisdiction could have a material adverse effect on the Company
or on the ability of the Company, its key personnel, and its gaming machines to
obtain or retain required licenses in other jurisdictions. If the Company enters
into lease participation agreements under which the Company shares in the
revenues generated by gaming machines, the Company may be subject to additional
regulation as a gaming operator. Regulatory authorities may require significant
shareholders to submit to background investigations and respond to questions
from regulatory authorities, and may deny a license or revoke the Company's
licenses based upon their findings. See "Regulation", for additional discussion
regarding governmental regulation.

RAPIDLY CHANGING TECHNOLOGY - The Company's business is characterized by rapidly
changing technology and frequent new product introductions and enhancements. The
Company's success as a gaming-equipment manufacturer depends on its ability to
enhance its existing products, to introduce in a timely manner new products
meeting regulatory requirements and evolving customer expectations and to
achieve market acceptance. There can be no assurance that the Company will be
successful in identifying, developing and marketing new products or enhancing
its existing products. The Company's business will be adversely affected if the
Company experiences delays in developing new products or enhancements or if such
products or enhancements do not meet and receive all regulatory approvals and/or
gain customer acceptance.

FACTORS AFFECTING PROFITABILITY AND GROWTH - All of the Company's revenues have
been derived from the gaming industry. The growth of the Company's business is
substantially dependent upon factors that are beyond the control of the Company,
including, among others, the pace of development, changes in gaming regulation,
expansion and renovation of casinos and other forms of casino gaming in new
jurisdictions, and the continued popularity of casino gaming as a leisure
activity. The expansion of the gaming industry has slowed in recent years and
the continued expansion of gaming markets is dependent upon political, legal and
other factors, which are beyond the control of the Company. As a result of these
and other factors, there is no assurance of the Company's growth or
profitability.

DEPENDENCE UPON RELATIONSHIP WITH VENDORS, SUPPLIERS AND DISTRIBUTORS - A
significant interruption or delay in the delivery of components from suppliers
or the loss of a significant distributor could have a material adverse effect on
the Company's results of operations. In addition, the failure of the Company to
arrange for delivery of components from suppliers on acceptable terms could have
a material adverse effect on the Company. Furthermore, the Company's recent
limited cash position and its difficulty obtaining credit from suppliers has
made it difficult in some situations to obtain adequate supplies of materials to
produce products.

PRODUCT PROTECTION - The Company's products are technology-based and as such,
the Company faces several intellectual property risks. The Company's business is
dependent upon its ability to protect its proprietary software, hardware and
other intellectual property. The Company relies primarily on a combination of
non-disclosure agreements for its key employees, license agreements with its
customers and suppliers and trade secret protection to protect such intellectual
property. Despite the Company's precautions, it may be possible for unauthorized
parties to copy or to "reverse engineer" certain portions of the Company's
products or to obtain and use information that the Company believes is
proprietary, Therefore, there is no assurance that precautionary steps taken by
the Company in this regard will be adequate to deter misappropriation of its
intellectual property or independent third party development of functionally
equivalent products or that the Company can meaningfully protect its rights to
such proprietary intellectual property.

The Company relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect its rights pertaining to its products. The Company holds patents for its


                                       16
<PAGE>

blackjack, craps and roulette machines. There can be no assurance that such
patents are valid. The Company may file for patents on certain features of
products that the Company may develop in the future. No assurance can be given
that, if applied for, any patents will be issued, or, if issued, that such
patents will be valid or will provide any significant competitive protection for
such products. Only certain features of the Company's blackjack, craps, and any
other products the Company may develop in the future may be eligible for patent
protection. Such protection may not preclude competitors from developing
products with features similar to the Company's products.

Second, although the Company is not aware of any infringement, the Company may
be subject to claims from third parties alleging that the Company has infringed
the proprietary intellectual property of such third parties. Such claims could
have a material adverse effect on the Company given the costs associated with
intellectual property litigation, the potential diversion of management's
resources to litigation and the risk of some injunction or other delay in the
offering of the Company's products. See "Business - Intellectual Property" for
additional discussion regarding product protection.

REVENUE VOLATILITY - The Company's operating results have varied substantially
from quarter to quarter. Revenues in any quarter are substantially dependent on
regulatory approval, receipt of orders and delivery and installation in that
quarter. Because the Company's staffing and operating expenses are based on
anticipated revenue levels, and a high percentage of the Company's costs are
fixed, in the short-term, the loss of any one order, or the failure to obtain
new orders as existing orders are completed, could have a material adverse
effect or cause significant fluctuations in the Company's revenues and cash flow
from quarter to quarter.

STOCK PRICE VOLATILITY AND NASDAQ LISTING - The market price of the Company's
Common Stock has been highly volatile. In order to maintain its listing on the
NASDAQ Small Cap Market, the Company must maintain a closing sales price of at
least $1.00 per share for a certain period of time. Since January 2, 2002 the
Company's Common Stock has traded between $0.73 and $0.29 per share. No
assurance can be given that the Company's Common Stock will continue to trade
above the NASDAQ Small Cap Market minimum requirements or that the Company can
maintain its NASDAQ Small Cap Market listing. If the Company fails to maintain
the NASDAQ standards for quotation, the Company's Common Stock could be traded
in the over-the-counter market, which would make it more difficult to dispose
of, or obtain accurate quotations as to the price of the Company's Common Stock.
In addition, the Company could then be subject to certain rules of the
Securities and Exchange Commission relating to "penny stocks". Such rules
require broker-dealers to make a suitability determination for purchasers and to
receive the purchaser's prior written consent for a purchase transaction, thus
restricting the ability of purchasers and broker-dealers to sell the stock in
the open market. Furthermore, on February 14,2002, the Company received a letter
from Nasdaq indicating that for the past 30 days the Company's Common Stock had
closed below the minimum $1 per share requirement for continued inclusion under
Marketplace Rule 4310(c)(4) and that in accordance with Marketplace Rule
4310(c)(8)(D) the Company would be provided 180 days until August 13, 2002, to
regain compliance. If the Company's Common Stock doesn't close at or above $1
per share for a minimum of 10 consecutive trading days before August 13, 2002,
the Company can obtain an additional six months to regain compliance provided
the Company meets the initial listing criteria for the Nasdaq Small Cap Market
under Marketplace Rule 4310(c)(2)(A). Finally, the Company's proposed merger
with GET USA would most likely require the Company to reapply for listing with
the NASDAQ Small Cap Market. A new listing application would require, among
other things, a minimum closing bid price of $4.00.

DEPENDENCE ON KEY PERSONNEL - The Company is highly dependent upon the personal
efforts and abilities of certain key personnel. The loss of the services of any
of these key personnel could have a substantial adverse effect on the Company.

UNDESIGNATED STOCK - The Board of Directors, without action by the Company's
shareholders, is authorized to designate and issue shares in such classes or
series (including classes or series of preferred stock) as it deems appropriate
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. The rights of holders of
preferred stock and other classes of commons stock that may be issued may be


                                       17
<PAGE>

superior to the rights granted to the holders of the Company's Common Stock.
Further, the ability of the Board of Directors to designate and issue such
undesignated shares could impede or deter an unsolicited tender offer or
takeover proposal regarding the Company, and the issuance of additional shares
having preferential rights could adversely affect the voting power and other
rights of holders of Common Stock.


ITEM 2. PROPERTIES

     The Company leases approximately 15,000 square feet of warehouse and office
space in Las Vegas, Nevada for its main facility, which includes administrative,
sales, and warehousing operations. The combined rent under the lease, which
expires on July 31, 2005, was approximately $238,810 in 2001, with provisions
for annual rent increases. The Company also leases approximately 12,534 square
feet of warehouse, manufacturing and office space in Las Vegas, Nevada as its
technology facility, which includes engineering, manufacturing, and warehousing
operations. The rent under the lease, which expires on June 30, 2006, was
approximately $41,364 in 2001, with provisions for annual rent increases. The
Company leases approximately 4,000 square feet of warehouse and office space in
Reno, Nevada for its Reno sales and service operations. The rent under the Reno
lease, which expires in September 30, 2006, was approximately $8,400 in 2001,
with provisions for annual rent increases. The Company formerly leased
approximately 53,100 square feet of warehouse and office space in Reno, Nevada
for its Reno manufacturing, sales and service operations. The rent under this
Reno lease, which expired on October 31, 2001, was approximately $254,600 in
2001.


ITEM 3.  LEGAL PROCEEDINGS

     The Company is plaintiff in a lawsuit filed in Colorado district court
which alleges improper use of its proprietary technology. Although the Company
believes it will be successful in this lawsuit, the possible financial effects
to the Company cannot be predicted. The Company is plaintiff in a lawsuit filed
in Washoe County District Court, in Reno, Nevada, which alleges improper use of
its proprietary technology. Although the Company believes it will be successful
in this lawsuit, the possible financial effects to the Company cannot be
predicted. Any other lawsuits will have no substantial financial effect to the
company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended December 31, 2001.


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Our Common Stock is traded on the NASDAQ SmallCap Market under the symbol
"IGCA". Our Common Stock was also traded on the NASDAQ SmallCap Market from May
28, 1993, the date of the Company's initial public offering, through September
20, 1994. During the period from September 21, 1994 until December 22, 2000, our
Common Stock was traded on the NASDAQ National Market.

The following table summarizes the high and low closing sales prices per share
of the Common Stock for the periods indicated as reported on the NASDAQ SmallCap
Market or the NASDAQ National Market:


FYE 12/31/00                                 HIGH                  LOW
------------                                 ----                  ---

First Quarter                               $2.56                 $1.44
Second Quarter                               1.81                  0.56
Third Quarter                                1.06                  0.56
Fourth Quarter                               1.03                  0.44


                                       18
<PAGE>

FYE 12/31/01                                 HIGH                  LOW
------------                                 ----                  ---

First Quarter                               $1.13                 $0.41
Second Quarter                               1.80                  0.60
Third Quarter                                2.18                  0.70
Fourth Quarter                               1.00                  0.21

On April 10, 2002, the last reported sale price for the Common Stock was $0.45
per share. As of April 11, 2002, the Company had 198 record holders of Common
Stock plus an estimated 1,000 additional beneficial holders of Common Stock.

IGCA's Board of Directors has not declared any dividend on our Common Stock
since the Company's inception, and does not intend to pay out any cash dividends
on its Common Stock in the foreseeable future. The Board of Directors presently
intends to retain all earnings, if any, for use in the Company's business for
the foreseeable future. Any future determination as to declaration and payment
of dividends will be made at the discretion of the Board of Directors.

Recent Sales of Unregistered Securities

     All sales of unregistered securities made during 2001 are disclosed in the
Company's quarterly filings with the Securities and Exchange Commission on Form
10-Q.

ITEM 6. SELECTED FINANCIAL DATA

The following is a summary of certain consolidated statement of operations, cash
flow and balance sheet information for the Company as of and for the years ended
December 31, 2001, 2000, 1999, 1998, and 1997. The following financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements of Innovative Gaming Corporation of America and Subsidiary
(in thousands except per share data).

<TABLE>
<CAPTION>


                                   For the          For the        For the        For the        For the
                                  Year Ended       Year Ended     Year Ended     Year Ended     Year Ended
                                 December 31,     December 31,   December 31,   December 31,   December 31,
                                     2001             2000           1999           1998           1997
                                 ------------     ------------   ------------   ------------   -------------
<S>                              <C>              <C>            <C>            <C>            <C>
Statement of operations data:
  Net sales                          $8,082          $8,936          $4,026         $8,509        $10,292
  Gross profit                        4,372           4,045          (4,605)         1,375          3,103
  Operating loss                    (11,072)           (458)        (12,729)        (4,444)        (2,182)


  Net loss                          (12,683)           (742)        (12,876)        (4,338)        (1,935)
  Net loss per common share:          (0.85)          (0.23)          (1.80)         (0.63)         (0.43)

Cash flow data:
   Cash provided by (used for):
     Operating activities            (4,826)         (1,707)         (5,123)        (2,106)        (7,516)
     Investing activities              (199)            (98)            (38)           (92)           555
     Financing activities             4,725           1,986           3,684          3,297          4,486
   Increase (decrease) in cash
      and cash equivalents             (300)            181          (1,477)         1,099         (2,475)

Balance sheet data (end of period):
  Cash, cash equivalents and
   available-for-sale                    21             321             140          1,617            518
   securities
  Working capital                      (422)           6,927          4,580         12,100         12,603
  Total assets                        9,343           11,094          8,058         17,093         18,461
  Long-term debt (net of
     current maturities)                  7              578          3,131            856            509
Total stockholders' equity            2,886            8,505          3,189         16,872         16,482
</TABLE>


                                       19
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion and this Form 10-K 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, 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 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.

As noted in Item 1-Business and the Notes to the Company's Consolidated
Financial Statements, in December 1999 the Company entered into a merger
agreement under which it would have been merged into nMortgage, Inc., a
subsidiary of Equitex, Inc. In conjunction with this merger agreement, in
February 2000 the Company entered into a separate agreement to sell
substantially all of its gaming assets to Xertain, Inc. The Company subsequently
determined that the merger with nMortgage was inadvisable and terminated the
merger plan.

On September 19, 2000, the Company's Board of Directors entered into a letter of
intent with Xertain, Inc., whereby the Company would effect a merger with
Xertain. On October 12, 2000, the Company entered into an Agreement and Plan of
Merger whereby Xertain would become a wholly owned subsidiary of the Company.
The Company subsequently determined that the merger with Xertain was inadvisable
and terminated the Xertain Merger Agreement during the fourth quarter of 2001.
Pursuant to this termination agreement, the Company recognized a loss on the
amount of its initial investment in Xertain, as well as amounts due from
Xertain. Total amount of the losses recognized was $1,501,000.

     On February 15, 2002, the Company entered into an Agreement and Plan of
Merger by and among GET USA, Inc., Innovative Gaming Corporation of America and
Innovative Gaming Technology Corp. (the "GET Merger Agreement"). Pursuant to the
GET Merger Agreement, GET USA, Inc. will be merged into Innovative Gaming
Technology Corp., a Nevada corporation and wholly owned subsidiary of the
Company. Following the merger, GET USA's shareholders will own 49% of the
Company. Final closing of the merger is anticipated to occur in late-2002,
subject to shareholder, regulatory and various governmental agencies' approval.

     GET USA, Inc. is a Nevada corporation formed in 2000 to own certain
intellectual property relating to Internet gaming. GET USA owns an Internet
Casino Operating Platform.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2000

For the year ended December 31, 2001, the Company reported a net loss
attributable to common shareholders of $15,101,000, or $ 0.85 per share compared
to a net loss attributable to common shareholders of $2,278,000, or $0.23 per


                                       20
<PAGE>

share, for the year ended December 31, 2000. Results from operations for both
years have been adjusted for preferred stock accretion and preferred stock
dividends paid.

         Sales, cost of sales and gross profit

Net sales were $8,082,000 during the year ended December 31, 2001 compared to
$8,936,000 for the year ended December 31, 2000, due to decreased sales of
gaming machines. The Company attributes these decreased sales to difficulties
raising sufficient working capital to develop and produce new products.

The following table presents the comparative sales revenue and percentage of
revenue derived from each of the Company's product lines recorded for the years
ending December 31, 2001 and 2000:


                                       Year ended            Year ended
                                   December 31, 2001      December 31, 2000
                                 ---------------------  ----------------------

 Sales revenue                             $8,082,000             $8,936,000
                                 ---------------------   ---------------------
 Product line:                   Percentage of revenue   Percentage of revenue:
                                 ---------------------   ---------------------
    Multi-player games                             21%                    61%
    Single player games                            30%                    30%
    Parts sales and other                           4%                     6%
    Lease participation                             8%                     3%
      License Sales                                37%                     0%
                                  --------------------- ----------------------
       Total                                      100%                   100%
                                  ===================== ======================

The Company recorded a gross margin of 54.1% in 2001 compared to a gross margin
of 45.3% in 2000. The sale of a one-time license of the Company's technology in
the second quarter of 2001 had no associated direct cost, which significantly
increased the gross margins for the for the year ending December 31, 2001. The
gross margins for the fiscal 2001 periods were also favorably affected by
reductions in inventory reserves that were recorded in the fourth quarter of
1999 due to the then-planned divestiture of the Company's gaming assets to
Xertain, Inc. These gross margin levels may not be repeated in future periods.

     Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended December 31,
2001 were $15,444,000 compared to $4,503,000 during 2000. The increase in
expenses for 2001 was primarily attributable to bad debt expenses for the
European market as well as substantial additions to the Company's engineering
Department and to corporate management. The Company has reversed the trend of
significantly higher selling, general and administrative expenses and reduced
its payroll through the elimination of several management positions as well as
other professional and non-professional positions since September 2001.

     Interest income and expense

Net interest expense for the year ended December 31, 2001 was $622,000 compared
to net interest expense of $284,000 for fiscal year 2000. Interest expense
increased due to higher levels of short-term borrowing.

     Preferred stock accretion adjustment

During 2001, the Company recorded accretion adjustments on preferred stock of
$1,235,000, compared to $1,373,000 for 2000. These adjustments are explained
more fully in the Notes to the financial statements. The increase in 2001 & 2000
was attributable to the Company's increased reliance on convertible preferred
stock as a means for raising needed working capital.


                                       21
<PAGE>

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1999

     For the year ended December 31, 2000, the Company reported a net loss
attributable to common shareholders of $2,278,000, or $ 0.23 per share compared
to a net loss attributable to common shareholders of $13,547,000, or $1.80 per
share, for the year ended December 31, 1999. Results from operations for both
years have been adjusted for preferred stock accretion and preferred stock
dividends paid. The reduction in net loss in 2000 was primarily due to the
Company's efforts at increasing sales revenues and reducing operating costs.

     Sales, cost of sales and gross profit

     Net sales were $8,936,735 during the year ended December 31, 2000 compared
to $4,026,000 for the year ended December 31, 1999. This increase in sales is
due to substantial increases in sales of substantially all of the Company's
product lines.

     The following table presents the comparative sales revenue and percentage
of revenue derived from each of the Company's product lines recorded for the
years ending December 31, 2000 and 1999:

                                        YEAR ENDED              YEAR ENDED
                                     DECEMBER 31, 2000       DECEMBER 31, 1999
                                   ---------------------   ---------------------

Sales revenue....................  $           8,936,735   $           4,026,000
                                   ---------------------   ---------------------
Product line:....................  Percentage of revenue   Percentage of revenue
                                   ---------------------   ---------------------
  Multi-player games.............                    61%                     53%
  Single player games............                    30%                     21%
  Parts sales and other..........                     6%                     17%
  Lease participation............                     3%                      9%
                                   ---------------------   ---------------------
       Total.....................                   100%                    100%
                                   =====================   =====================

     The Company recorded a gross margin of 45.3% in 2000 compared to a negative
gross margin in 1999. The improvement in 2000 was attributable to better
absorption of overhead expenses at the increased level of production.
Additionally, there was a write-down of inventory of $1.8 million in 1999 due to
the anticipated divestiture of the Company's gaming assets to Xertain, Inc. The
Company's sales in 2000 included substantial amounts of product which had
previously been included in this market write-down, which also contributed to
the improved gross margins.

     Selling, general and administrative expenses

     Selling, general and administrative expenses for the year ended December
31, 2000 were $4,503,000 compared to $6,787,000 during 1999. The decrease in
expenses for 2000 was primarily attributable to substantial reductions in
corporate management and engineering expenses during 2000.

     Interest income and expense

     Net interest expense for the year ended December 31, 2000 was $284,000
compared to net interest expense of $147,000 for fiscal year 1999. Interest
expense increased due to increased debt service.

     Preferred stock accretion adjustment

     During 2000, the Company recorded accretion adjustments on preferred stock
of $1,373,000, compared to $547,000 for 1999. These adjustments are explained
more fully in the Notes to the financial statements. The increase in 2000 was
attributable to the Company's increased reliance on convertible preferred stock
as a means for raising additional working capital.


                                       22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     PREFERRED STOCK ISSUES - The Company raised proceeds from the issuance of
convertible preferred stock of $6.6 million in 2001, $2.6 million in 2000, $3.7
million in 1999 and $2.8 million in 1998. These stock issuances are discussed
more fully in the Notes to the Financial Statements. Preferred stock issuances
have represented the Company's primary source of non-operating cash over the
most recent four-year period.

     CONVERTIBLE DEBT FINANCING - During 1999, three-year convertible secured
notes totaling $1.5 million were issued to a group of investors including a
current shareholder of the Company. Interest was payable quarterly at a rate of
12% per annum, and the notes had an original maturity date of June 1, 2002.
During 2000, the holders of $1.3 million of these notes exchanged the notes for
preferred stock. Additionally, the holders of $1.0 million of notes previously
issued to redeem Common Stock exchanged their notes for preferred stock. These
arrangements are more fully discussed in the Notes to the Financial Statements.

     LIQUIDITY - The Company had $21,000 and $321,000 in cash and cash
equivalents as of December 31, 2001 and December 31, 2000, respectively. The
Company has experienced negative cash flow from operations of $4.8 million, $1.7
million, $5.1 million and $2.1 million for the years ended December 31, 2001,
2000, 1999, and 1998, 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.

Furthermore, as of March 31, 2002, the Company had approximately $140,297 in
cash and cash equivalents. As of such date, the Company was negotiating the
terms of some short-term financing with a third party lender. There can be no
assurance that the Company will be successful in obtaining such 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 could 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.

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 April 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.

The Company has a $1.0m revolving working capital line of credit with NHC, the
line can be increased to $3m based upon certain criteria. As of March 31, 2001
the Company had drawn a total of $741,837 leaving $258,163 as unused available
credit.

     COMMON STOCK REDEMPTION - As disclosed in the Notes to the Financial
Statements, during 1999 the Company repurchased a total of 1.1 million shares of
its outstanding Common Stock in exchange for notes totaling $1.3 million. As
noted above in "Convertible Debt Financing" the holders of these notes exchanged
them for convertible preferred stock in 2000.


                                       23
<PAGE>

     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. In addition, statements containing expressions such as
"believes," "anticipates," "hopeful" or "expects" used in the 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: the ability to obtain additional financing through leasing, equity or
other arrangements; 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; 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 this Form 10-K in ITEM 1. - BUSINESS,
under the caption "Certain Factors". 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.


ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk

The Company's financial instruments include cash and cash equivalents and
long-term debt. The Company considers all financial instruments which are highly
liquid and have original maturities of three months or less to be cash and cash
equivalents which are readily convertible into cash. The Company's cash and cash
equivalents are not subject to significant interest rate risk due to the short
maturities of these instruments. The total outstanding long-term debt of the
Company as of December 31, 2001 was $6,500. The Company's long-term debt is not
subject to interest rate risk because all of the Company's long-term debt has
fixed rates of interest. The Company does not enter into contracts for
speculative or investment purposes.

Gains and losses on foreign currency transactions are reconciled currently in
earnings. The Company's revenues from foreign markets are typically negotiated
for payment in United States currency, and the Company does not consider foreign
transactions to be a significant risk at this time.


                                       24
<PAGE>


                         ITEM 8.  FINANCIAL STATEMENTS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Innovative Gaming Corporation of
America:

     We have audited the accompanying consolidated balance sheets of Innovative
Gaming Corporation of America and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Innovative
Gaming Corporation of America and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
negative cash flow from operations that raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to addressing the future liquidity and cash flow requirements of the Company are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

     Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule is
presented for purposes of complying with the Securities and Exchange Commission
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.


                                                 KAFOURY, ARMSTRONG & CO.

Reno, Nevada
April 15, 2002


                                       25
<PAGE>
<TABLE>
<CAPTION>


                         INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                                       Consolidated Balance Sheets
                                    (In Thousands, Except Share Data)


                                                                                    As of December 31,
                                                                                 -----------------------
                                                                                   2001           2000
                                                                                 --------       --------
<S>                                                                              <C>           <C>
                                                  ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                      $     21       $    321
  Accounts receivable, net of allowances                                              300          3,168
  Current portion of notes receivable                                                  95             93
  Inventories, net                                                                  4,400          4,123
  Prepaid expenses and other                                                        1,212          1,233
                                                                                 --------       --------
     Total current assets                                                           6,028          8,938

NOTES RECEIVABLE, less current portion                                                118            190
INVESTMENT IN XERTAIN, INC.                                                             -            989
PROPERTY AND EQUIPMENT, net                                                           770            350
PREPAID NONCURRENT                                                                  1,985              -
INTANGIBLES ASSETS, net                                                               442            627
                                                                                 --------       --------

          TOTAL ASSETS                                                           $  9,343       $ 11,094
                                                                                 ========       ========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                               $  3,169       $  1,106
  Accrued liabilities                                                                 706            715
  Accrued Preferred Stock Dividends                                                   319              -
  Accrued Wages                                                                       164             54
  Deferred Revenue Lease Back                                                         197              -
  Notes payable - current portion                                                   1,895            136
                                                                                 --------       --------

     Total current liabilities                                                      6,450          2,011

  Notes payable - net of current portion                                                7            578
                                                                                 --------       --------

     Total liabilities                                                              6,457          2,589
                                                                                 --------       --------

COMMITMENTS AND CONTINGENCIES (Note 9)                                                  -              -

STOCKHOLDERS' EQUITY:
  Series B Convertible Preferred Stock, $.01 par value, nonvoting,
    4,000 shares authorized, 0 and 30 shares outstanding, respectively                  -              -
  Series C Convertible Preferred Stock, $.01 par value, nonvoting,
    2,000 shares authorized, 0 and 630 shares outstanding, respectively                 -              -
  Series D Convertible Preferred Stock, $.01 par value, nonvoting,
    3,000 shares authorized, 0 and 1,132 shares outstanding, respectively               -              -
  Series E Convertible Preferred Stock, $.01 par value, nonvoting,
    400,000 shares authorized, 42,000 and 210,000 shares outstanding, respectively      -              2
  Series F Convertible Preferred Stock, $.01 par value, nonvoting,
    400,000 shares authorized, 230,000 and 306,250 shares outstanding, respectively     2              3
  Series J convertible preferred stock, $.01 par value, nonvoting, 1,500,000
     shares authorized, 50,000 and O shares outstanding, respectively                   1             --
  Series K convertible preferred stock, $.01 par value, nonvoting, 5,000
     shares authorized, 4,553 and O shares outstanding, respectively                   --             --
  Common stock, $.01 par value, 100,000,000 shares authorized,
   24,208,339 and  11,930,837 shares issued and outstanding, respectively             242            119
  Additional paid-in capital                                                       51,445         42,085
  Accumulated deficit                                                             (48,804)       (33,704)
                                                                                 --------       --------

     Total stockholders' equity                                                     2,886          8,505
                                                                                 --------       --------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  9,343       $ 11,094
                                                                                 ========       ========

</TABLE>


                           The accompanying notes are an integral part of these
                                       consolidated balance sheets.


                                                   26

<PAGE>
<TABLE>
<CAPTION>


                    INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                             Consolidated Statements of Operations
                             (In Thousands, Except Per Share Data)


                                                   For the Year  For the Year   For the Year
                                                      Ended         Ended          Ended
                                                   December 31,   December 31,   December 31,
                                                      2001           2000           1999
                                                    --------       --------       --------
<S>                                                 <C>            <C>            <C>
NET SALES GAMES                                     $  5,082       $  8,936       $  4,026
NET SALES LICENSES                                     3,000           --             --
                                                    --------       --------       --------
TOTAL NET SALES                                        8,082          8,936          4,026

COST OF SALES GAMES                                    3,710          4,891          5,313
WRITE DOWN INVENTORY TO MARKET VALUE                    --             --            3,318
                                                    --------       --------       --------

    Gross profit                                       4,372          4,045         (4,605)


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES          15,444          4,503          6,787
WRITE DOWN ASSETS TO MARKET VALUE                       --             --            1,337
                                                    --------       --------       --------

    Operating loss                                   (11,072)          (458)       (12,729)

OTHER INCOME (EXPENSE), net                             (622)          (284)          (147)
LOSS ON INVESTMENT IN XERTAIN                           (989)
                                                    --------       --------       --------

    Loss before income taxes                         (12,683)          (742)       (12,876)

PROVISION FOR INCOME TAXES                              --             --             --
                                                    --------       --------       --------


   Net loss                                          (12,683)          (742)       (12,876)

PREFERRED STOCK DIVIDENDS                              1,182            163            124

PREFERRED STOCK ACCRETION                              1,235          1,373            547
                                                    --------       --------       --------

  Net loss attributable to common shareholders      ($15,100)      ($ 2,278)      ($13,547)
                                                    ========       ========       ========


LOSS PER SHARE OF COMMON STOCK                      ($  0.85)      ($  0.23)      ($  1.80)
                                                    ========       ========       ========


  Weighted average common shares outstanding          17,841          9,774          7,525
                                                    ========       ========       ========

</TABLE>



                     The accompanying notes are an integral part of these
                              consolidated financial statements.

                                              27


<PAGE>
<TABLE>
<CAPTION>


                                       INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                                           Consolidated Statements of Stockholders' Equity
                                                           (In Thousands)



                                                               Convertible                               Unrealized
                                       Common Stock         Preferred Stock   Additional               Gain/(Loss) on
                                     -----------------      ---------------    Paid-in   Accumulated   Available-for-
                                      Shares    Amount      Shares   Amount    Capital     Deficit     Sale Securities      Total
                                     -------   -------      ------   ------   ---------   ---------    ---------------    ---------
<S>                                  <C>       <C>          <C>      <C>      <C>         <C>          <C>                <C>
BALANCE, December 31, 1998            7,535         75          3          -     32,676    (17,879)                -        14,872
  Series C preferred stock issued         -          -          1          -      1,291          -                 -         1,291
  Series D preferred stock issued         -          -          3          -      2,389          -                 -         2,389
  Preferred stock conversions to
    common stock:
       Series B preferred stock       1,410         14         (2)         -        (14)         -                 -             0
       Series C preferred stock         388          4          -          -         (4)         -                 -             0
       Series D preferred stock         674          7         (1)         -         (7)         -                 -             0
  Series B preferred stock
   redemption                             -          -         (1)         -     (1,100)         -                 -        (1,100)
  Preferred stock accretion
   adjustments                            -          -          -          -        547       (547)                -             0
  Preferred stock dividends               7          -          -          -          9       (124)                -          (115)
  Repurchase of common stock         (1,100)       (11)         -          -     (1,302)         -                 -        (1,313)
  Stock options exercised                38          1          -          -         40          -                 -            41
  Net loss                                -          -          -          -          -    (12,876)                -       (12,876)
                                   --------   --------   --------   --------   --------   --------          --------      --------

BALANCE, December 31, 1999            8,952   $     90          3        $ -   $ 34,525   $(31,426)                -      $  3,189
  Series E preferred stock issued         -          -        210          4      4,118          -                 -         4,122
  Series F preferred stock issued         -          -        306          1        800          -                 -           801
  Preferred stock conversions to
    common stock:
       Series B preferred stock          89          1          -          -         (1)         -                 -             -
       Series C preferred stock         617          6          -          -         (6)         -                 -             -
       Series D preferred stock         826          8          -          -         (8)         -                 -             -
  Preferred stock conversions to
    preferred stock:
       Series E preferred stock           -          -       (206)        (2)    (2,058)         -                 -        (2,060)
       Series F preferred stock           -          -        206          2      2,060          -                 -         2,062
  Preferred stock accretion
   adjustments                            -          -          -          -      1,373     (1,373)                -             -
  Preferred stock dividends               -          -          -          -          -       (163)                -          (163)
  Stock issued for Xertain, Inc.      1,092         11          -          -        978          -                 -           989
  Stock options exercised                30          -          -          -         33          -                 -            33
  Stock issued for expenses             325          3          -          -        271          -                 -           274
  Net loss                                -          -          -          -          -       (742)                -          (742)
                                   --------   --------   --------   --------   --------   --------          --------      --------

BALANCE, December 31, 2000           11,931   $    119        519        $ 5   $ 42,085   $(33,704)                -      $  8,505
  Series E preferred stock issued                              55          -        550                                        550
  Series G preferred stock issued         -          -          -          -        400          -                 -           400
  Series H preferred stock issued         -          -          -          -                     -                 -             -
  Series I preferred stock issued                               -                                                                -
  Series J preferred stock issued                             150          2      1,814                                      1,816
  Series K preferred stock issued                               5          -      2,603                                      2,603
  Preferred stock conversions to
    common stock:
       Series C preferred stock         220          2         (1)                   (2)                                         -
       Series E preferred stock       2,579         26       (188)       (2)        (36)                                       (12)
       Series F preferred stock       1,381         14        (76)       (1)        167                                        180
       Series G preferred stock       1,830         19         (1)                  (28)                                        (9)
       Series H preferred stock       1,104         11         (1)                 (107)                                       (96)
       Series I preferred stock       1,040         10         (1)                  (17)                                        (7)
       Series J preferred stock       1,000         10       (100)       (1)         (9)                                         -
       Series K preferred stock         131          1                               (1)
  Preferred stock conversions to
    preferred stock:
       Series B                                                                     (30)                                       (30)
       Series C                                                (1)                 (530)                                      (530)
       Series D                                                (1)               (1,132)                                    (1,132)
       Series E                                               (36)                 (358)                                      (358)
       Series G                                                 1                   810                                        810
       Series H                                                 1                   700                                        700
       Series I                                                 1                   624                                        624

  Preferred stock accretion
   adjustments                            -          -          -          -      1,235     (1,235)                -             -
  Preferred stock dividends               -          -          -          -          -     (1,182)                -        (1,182)
  Stock options exercised               173          2          -          -        178          -                 -           180
  Stock Issued for Dividends            878          9                              779                            -           788
  Stock issued for expenses           1,905         19          -          -      1,739                            -         1,758
  Stock issued for Emp. stock purchase   36                                          11                                         11
    Net loss                              -          -          -          -          -    (12,683)                -       (12,683)
                                   --------   --------   --------   --------   --------   --------          --------      --------

BALANCE, December 31, 2001           24,208   $    242        326        $ 3   $ 51,445   $(48,804)                -      $  2,886
                                   ========   ========   ========   ========   ========   ========          ========      ========







                                         Theaccompanying notes are an integral part of these
                                                 consolidated financial statements.


                                                                 28
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                              INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                                       Consolidated Statements Of Cash Flows
                                                  (In Thousands)



                                                                      For the Year   For the Year   For the Year
                                                                         Ended          Ended          Ended
                                                                      December 31,    December 31,   December 31,
                                                                         2001           2000            1999
                                                                      ------------  ------------  --------------
<S>                                                                   <C>           <C>           <C>
OPERATING ACTIVITIES:
  Net loss                                                            ($ 12,683)       ($ 742)     ($12,876)
   Adjustments to reconcile net loss to
    cash flows used for operating activities -
   Depreciation and amortization                                            674           593         1,194
   Provision for inventory obsolescence                                    (813)       (1,678)        1,170
   Write down inventory to market value                                    (469)         (767)        3,318
   Write down assets to market value                                          -             -         1,337
      Provision for bad debts                                                 -             -           198
   Changes in operating assets and liabilities:
     Accounts and notes receivable                                        2,866        (2,236)          470
     Inventories                                                          1,023         2,899            29
     Prepaid expenses and other                                           1,304          (303)         (272)
     Accounts payable and accrued expenses                                3,272           527           309

                                                                       --------      --------      --------

     Net cash used for operating activities                              (4,826)       (1,707)       (5,123)
                                                                       --------      --------      --------

INVESTING ACTIVITIES:
  Release of restricted investments                                           -             -           700
  Inventory (capitalized for use in) returned from gaming operations        543            66          (511)
  Purchases of property and equipment                                      (302)          (84)          (77)
  Purchases of intangible assets                                            (42)          (80)         (150)
                                                                       --------      --------      --------

     Net cash provided by (used for) investing activities                  (199)          (98)          (38)
                                                                       --------      --------      --------

FINANCING ACTIVITIES:
  Proceeds from financing agreements                                      2,858             -         2,028
  Payments on long-term obligations                                      (1,979)         (559)         (840)
  Preferred stock dividends paid                                              -           (99)         (125)
  Net proceeds from sale of common stock                                    180            33            40
  Net proceeds from sale of preferred stock                               3,666         2,611         3,681
  Payment to redeem preferred stock                                           -             -        (1,100)
                                                                       --------      --------      --------

     Net cash provided by financing activities                            4,725         1,986         3,684
                                                                       --------      --------      --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           (300)          181        (1,477)

CASH AND CASH EQUIVALENTS, beginning of period                              321           140         1,617
                                                                       --------      --------      --------

CASH AND CASH EQUIVALENTS, end of period                               $     21      $    321      $    140
                                                                       ========      ========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
  Cash paid for interest                                               $    361      $    249      $    214
                                                                       ========      ========      ========
  Cash paid (refund received) for income taxes                         $      -      $      1      $      1
                                                                       ========      ========      ========
  Non-cash transactions:
     Preferred Stock converted to common stock                         $     56      $  1,008      $  2,957
                                                                       ========      ========      ========
     Preferred Stock dividends paid with common stock                  $    788      $      -      $      9
                                                                       ========      ========      ========
     Preferred Stock issued for expenses                               $  1,935      $      -      $
-
                                                                       ========      ========      ========
     Expenses paid with common stock                                   $  1,758      $    274      $      -
                                                                       ========      ========      ========
     Penalty shares issued to preferred stockholders                   $    771      $      -      $      -
                                                                       ========      ========      ========
     Long-term obligations converted to preferred stock                $    550      $  2,310      $      -
                                                                       ========      ========      ========




                                Theaccompanying notes are an integral part of these
                                        consolidated financial statements.

                                                        29
</TABLE>

<PAGE>



INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)


1.      NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS AND RISK FACTORS

Innovative Gaming Corporation of America ("the Company") was incorporated in the
State of Minnesota on September 19, 1991. The Company, through its wholly owned
subsidiary, Innovative Gaming, Inc.("IGI"), is in the business of developing,
manufacturing, marketing and distributing computerized gaming equipment. The
Company distributes its products to certain gaming markets worldwide.

On October 8, 1999, the Company entered into a non-binding letter of intent with
Equitex, Inc.("Equitex"), which outlined the terms of a contemplated merger
between the Company and Equitex's subsidiary, nMortgage, Inc. ("nMortgage") in a
tax-free exchange of stock (the "Merger"). On December 21, 1999, IGCA
Acquisition Corporation was created in anticipation of this merger. On December
31, 1999, the Company, Equitex and nMortgage executed a definitive merger
agreement governing the Merger. Pursuant to the merger agreement, the
stockholders of the Company were to retain 25% of the surviving corporation to
the merger on a post-merger basis. As a condition to the Merger, concurrent with
the Merger, the Company was to divest substantially all of its gaming assets. In
September 2000, the Company and Equitex terminated their merger agreement.

Subsequent to canceling the nMortgage merger, in October 2000 the Company
entered into a plan to merge Xertain, Inc. into a subsidiary of the Company. The
Company subsequently determined that the merger with Xertain was inadvisable and
terminated the Xertain merger agreement during the fourth quarter of 2001.

In February 2002, the Company entered into a merger agreement with GET USA, Inc.
a company involved in Internet gaming and other game development efforts. The
details of this agreement are more fully described in Note 10.

The Company has experienced negative cash flow from operations of $4.9
million,$1.7 million, $5.1 million and $2.1 million for the years ended December
31, 2001, 2000, 1999, and 1998, 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. There
can be no assurance that the Company will be successful in obtaining any
additional financing on terms acceptable to the Company. Failure to obtain
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.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Ultimate results could differ from those estimates.

REGULATION

The manufacture, distribution and sale of the Company's products are regulated
by various jurisdictions and entities, including requirements to obtain licenses
and product approval. The Company is presently seeking licenses and product
approval in several jurisdictions. Failure to successfully obtain licenses,
approvals, or meet other regulatory requirements could materially impact the
future operation of the Company.


                                       30
<PAGE>

CERTAIN RISKS AND UNCERTAINTIES

A significant portion of the Company's operations are generated from a limited
number of gaming jurisdictions. A change in general economic conditions or the
regulatory environment of these jurisdictions could adversely affect the
Company's operating results.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Innovative Gaming
Corporation of America and its wholly owned subsidiaries, Innovative Gaming,
Inc., Innovative Gaming Finance Corp., Innovative Gaming Technology Corp., Game
Card Technologies, Inc., Card Technologies, Inc. and IGCA Acquisition Corp. All
significant intercompany transactions have been eliminated.

CASH AND CASH EQUIVALENTS

The Company considers all financial instruments which are highly liquid and have
original maturities of three months or less to be cash and cash equivalents
which are readily convertible to cash.

The Company classifies all investments which are not cash equivalents as
available-for-sale securities with all gross unrealized gains or losses included
as a separate component of equity.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company has provided for an allowance for doubtful accounts for the years
ended December 31, 2001 and 2000,of $5,176 and $113 respectively based on
management's estimate of the collectibility of accounts receivable.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost with depreciation provided for using
the straight-line method over the useful lives of the assets or the lease term,
whichever is shorter. Maintenance, repairs and minor renewals are expensed when
incurred. Depreciation expense recorded in the years ended December 31, 2001,
2000 and 1999 was $446, $375, and $852, respectively.


                                       Useful Life        2001         2000
                                       ------------     ------        -------


Office equipment                       5 years           $567           $913
Display games                          5 years              0             66
Gaming operations equipment            2.5 years          532            265
Manufacturing equipment                5 years            757            359
Leasehold improvements                 Life of             89            321
                                       lease
                                                       ------        -------
  Total property and equipment                          1,945          1,924
  Less:  Accumulated depreciation                        (857)        (1,256)
         Write down to market value                      (318)          (318)
                                                       ------        -------
      Total property and equipment, net                  $770           $350
                                                       ======         ======



                                       31
<PAGE>


INVENTORIES

Inventories are recorded at the lower of cost or market value. Cost is
determined according to the weighted average accounting method. Inventories
consisted of the following at December 31:


                                                     2001           2000
                                                   -------         -------

     Game components and parts                     $ 3,828         $ 4,416
     Work in process                                   356             422
     Finished goods                                  1,575           1,926
     Inventory reserves                               (795)         (1,608)
     Write down to market value                       (564)         (1,033)
                                                   -------         -------
        Total inventories, net                     $ 4,400         $ 4,123
                                                   =======         =======


INTANGIBLES

The Company amortizes intangibles on a straight-line basis over their estimated
economic lives while the technologies are being utilized (See Note 4).

PRODUCT SALES/REVENUE RECOGNITION

The Company makes product sales for cash, on normal terms of 90 days or less,
and over longer term installments until the purchase price is paid. Revenues
from the sale of products are recognized upon transfer of title and risk of loss
to the customer. Deposits received from customers in advance of delivery are
deferred.

CONCENTRATIONS OF RISK

During 2001, the Company made sales to Delta Automaten accounting for 63.5%,
during 2000, the Company made sales to Delta Automaten and Casino Arizona
accounting for 22.26% and 12.76% of gross sales respectively. During 1999, the
Company made sales to a distributor, Black Hills Novelty Co., which accounted
for 18.9% of sales for the year. In March 2000, the Company and Aristocrat
terminated the distribution agreement. For the years ended December 31, 2000,
1999, and 1998, no other distributors or customers accounted for greater than
10% of sales.

The Company maintains deposits in excess of federally insured limits. Statement
of Financial Accounting Standards No. 105 identifies these items as a
concentration of risk requiring disclosure, regardless of the degree of risk.
The risk is managed by maintaining all deposits in high quality financial
institutions.

The financial instruments that subject the Company to concentrations of credit
risk consists principally of accounts and notes receivable. Accounts and notes
receivable are concentrated in specific legalized gaming jurisdictions. Notes
receivable are collateralized by the equipment sold. The Company has no secured
interest in the trade accounts receivable.

At December 31, 2001, the following concentrations of credit risk existed:


             Holland                                       86%
             Nevada                                         6%
             Other (less than 6% each)                      8%
                                                        ------
                 Total                                    100%
                                                        ======



                                       32
<PAGE>


RESEARCH AND DEVELOPMENT COSTS

The Company engages in the development of new and existing products. Research
and development costs are expensed as incurred. The Company expensed
approximately $2,678,$1,190 and $3,309 for the years ended December 31, 2001,
2000 and 1999, respectively. These amounts are included in selling, general and
administrative expenses.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 -"Accounting for Income Taxes" (SFAS No. 109),
whereby deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be removed or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

To the extent the amount deductible for income tax purposes from stock option
plans exceeds the amount charged to operations for financial statement purposes,
the related tax benefits are credited to capital stock when realized.

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 all periods
presented is based on weighted average common shares outstanding and on the same
basis as "basic" earnings per share 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.

FOREIGN CURRENCY TRANSACTIONS

Transactions that occur in currencies other than U.S. dollars are translated to
U.S. dollars for financial reporting purposes. Gains and losses from this
process are recorded in the results of operations.

LONG-LIVED ASSETS

SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" established accounting standards for the recognition
and measurement of impairment of long-lived assets and certain identifiable
intangibles and goodwill either to be held or disposed of.

Management reviews long-lived assets, including intangibles, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. For assets which produce future cash flows, an
estimate of undiscounted future cash flows is compared to the carrying amount to
determine if impairment exists. For assets which do not produce quantifiable
future cash flows, such as intangibles, impairment is measured at the enterprise
level. At December 31, 1999, the carrying values of long-lived assets were
evaluated, and taking into consideration the planned sale of the gaming assets
to Xertain, Inc. which was a prerequisite to the proposed merger with
nMortgage.com, the carrying values were reduced to reflect the amount expected
to be realized upon the closing of the asset sale and merger. The total
impairment amount of $1,337, which is presented separately on the face of the
statement of operations, was attributable to the write-down to market value of
property and equipment in the amount of $318 and intangible assets in the amount
of $1,019. No impairment existed at December 31, 2001 or 2000.



                                       33
<PAGE>


2.      RELATIONSHIP WITH LAKES GAMING, INC.:

Lakes Gaming, Inc. ("LGI") (formerly Grand Casinos, Inc.) is in the business of
managing and developing casinos. Lyle Berman, who was Chairman of the Board of
the Company until June 24, 1998, is a principal shareholder and Chairman of the
Board of LGI, and was Chief Executive Officer of LGI from October 1991 through
March 1998. Mr. Berman served on the Board of Directors of the Company until
July 16, 1999. Under an existing machine purchase agreement, LGI may purchase up
to an aggregate of 125 of the Company's multi-station blackjack, craps and
roulette games in quantity purchases at distributor level prices. Previous
quantity sales were also made to LGI at distributor level prices for the purpose
of testing, evaluating and marketing the Company's blackjack, craps and roulette
games. Under a 1998 agreement between the Company and LGI, used multi-player
machines that LGI previously purchased from the Company could be placed on
consignment with the Company to be refurbished and sold into legal markets. The
proceeds from sales of up to three of the consignment games could be applied to
the purchase of one new Bonus Streak game from the Company and with minimum
proceeds of $5,000 to be credited to LGI for each game sold by the Company.
During 1998, LGI submitted 15 such used multi-player games to the Company for
sale under the consignment agreement. In the first quarter of fiscal 1999, the
Company delivered 5 Bonus Streak games to casinos managed by LGI in exchange for
the used multi-player games submitted to the Company for sale under this
agreement. The Company made sales of six Bonus Streak(TM) games and no
multi-player machine sales to LGI during 1998 and no machine sales in 1999 and
2000.

In April 1999, in order to expedite the timing of gaming regulatory approval in
certain jurisdictions, the Company repurchased 700,000 shares of Common Stock
from LGI in exchange for convertible notes totaling $875. On November 1, 2000 a
portion of these notes were redeemed as discussed in Note 6.


3.        NOTES RECEIVABLE:

The Company has granted certain customers extended payment terms under sales
contracts. These contracts are generally for terms of one to five years with
interest recognized at prevailing rates and are collateralized by the equipment
sold. The contracts typically have no stated interest to be paid, and interest
is imputed at prime plus 2%. At December 31, 2001 and 2000 the face amount of
notes receivable was $213 and respectively. The carrying value of notes
receivable approximates their fair value. The following table represents the
estimated future collections of notes receivable, net of amounts to be
recognized as interest income, at December 31, 2001:


              Years Ending December 31,               Estimated
                                                      Receipts

              2002                                   $       95
              2003                                           51
              2004                                           40
              2005                                           27
                                                     ----------
                 Total                               $      213
                                                     ==========



                                       34
<PAGE>


4.      INTANGIBLE ASSETS:

Intangible assets consisted of the following at December 31:


                                              Useful Life      2001        2000
                                              -----------  ---------   --------

       Product patent and technology rights   5 to 10      $   3,204   $  3,162
                                              years
       Nevada distribution rights             10 years           250        250
                                                           ---------   --------
          Total intangible assets                              3,454      3,412
          Less: accumulated amortization                      (1,993)    (1,766)
                write down to market value                    (1,019)    (1,019)
                                                           ---------   --------
                Total intangible assets, net               $     442   $    627
                                                           =========   ========


Amortization recorded for intangibles was $228, $218 and $977 in the years ended
December 31, 2001, 2000 and 1999, respectively.

During 1998, the Company entered into agreements with various companies to
acquire rights to technology and intellectual property for use in games which
the Company intends to develop, manufacture and market totaling $750. During
1999, $650 of these costs were fully written down based on management's
estimation that no economic benefit would be realized in the future.

During 2000, the Company entered into agreements with various companies to
acquire rights to domain name, technology and intellectual property for use in
games which the Company intends to develop, manufacture and market totaling $80.


5.      FINANCING ARRANGEMENTS:

NOTES PAYABLE

Notes payable consists of convertible notes issued for the repurchase of Common
Stock of the Company from Lakes Gaming, Inc. and another shareholder,
convertible notes issued to a group of investors as part of a financial
restructuring to raise operating capital, amounts owed IGT, a wholly-owned
subsidiary of International Game Technology, for the purchase of slant top slot
machines incorporated in the Company's Bonus Streak game, and an operating
capital loan from Finova Capital Corporation.

In March 1998, Innovative Gaming, Inc., a wholly-owned subsidiary of the
Company, entered into a loan commitment securing available funding of $2 million
from Finova Capital Corporation. The initial funding of approximately $910 was
completed on April 13, 1998. The loan is payable in 36 equal installments
including interest paid in arrears at a rate of 12.06 percent. This financing is
secured by certain of the Company's long-term receivables and a corporate
guarantee from the Company. The Company's borrowing capacity under this
arrangement was dependent upon the level of receivables generated through
"bucket sales" agreements. The Company did not borrow any additional amounts
under this arrangement.

In March 1999, in order to expedite the timing of gaming regulatory approval in
certain jurisdictions, the Company repurchased 400,000 shares of its outstanding
Common Stock, at market price, from a shareholder. The Company entered into a
stock redemption agreement with such shareholder pursuant to which the Company
redeemed 400,000 shares of Common Stock beneficially owned by such shareholder
in exchange for a four-year convertible note in the amount of $438 and a warrant
to purchase 50,000 shares of the Common Stock. On November 1, 2000, $437 was
converted to Series E Preferred Stock. In April 1999, the Company redeemed
700,000 shares of Common Stock from Lakes Gaming, Inc. in exchange for a
four-year convertible note in the amount of $875 and a warrant to purchase
87,500 shares of Common Stock. This redemption was also undertaken to expedite
the timing of gaming regulatory approval in certain jurisdictions. These notes
are unsecured, pay interest of 5% per annum and are convertible to Common Stock
at $1.09375 and $1.25 per share, respectively. Interest is paid quarterly on the


                                       35
<PAGE>

first note and is due at maturity on the second note. The notes may not be
converted in the first year following issuance. The exercise price of the
warrants is the same as the conversion price of the notes. On November 1, 2000,
$575 of the convertible debt was converted to Series E Preferred Stock.

On June 1, 1999, the Company completed a financial restructuring which included
a private placement of three-year convertible secured notes totaling $1,550
issued to a group of investors. Interest on such notes is paid quarterly at a
rate of 12% per annum, and the principal balance is due June 1, 2002. At any
time after June 1, 2000, and until the principal balance is paid in full, the
holders of the notes may convert the notes into Common Stock at a conversion
price of $1.50 per share. The note holders may not convert the notes into Common
Stock if such conversion would result in beneficial ownership by such note
holder of more than 4.9% of the Company's issued and outstanding Common Stock.
These notes are secured by the furniture, fixtures and equipment, inventory and
intangible property of the Company. On November 1, 2000, $1,300 of the
convertible debt was converted to Series E Preferred Stock.

Under the agreement with IGT, the Company shares equally in the net revenues
received from customers under participation agreement sales until IGT is paid in
full for the sales price of the slant top slot machine acquired by the Company.
Thereafter the Company receives 90% and IGT receives 10% of the net revenues
from the customer. For cash sales, the Company must pay IGT the purchase price
of the slant top slot machines from the proceeds of the sale. IGT has agreed to
accept the return of the slant top slot machines and grant credit for the
balance due on the games returned. Management has estimated the portion of
current notes payable to represent those amounts expected to be paid to IGT
under participation arrangements and from cash sales in 2000.

On April 2, 2001, the Company borrowed $300 and issued an unsecured one-year
note. Interest is payable quarterly at an annual rate of 8 percent. The Company
also agreed to issue 200,000 shares of its Common Stock as additional
consideration for the loan. The shares will be treated as additional interest
payments.

Also on April 2, 2001, the Company borrowed an additional $100 and issued an
unsecured one-year note. Interest is payable quarterly at an annual rate of 8
percent. The Company also agreed to issue 64,000 shares of its Common Stock as
additional consideration for the loan. The shares will be treated as additional
interest payments.

On April 12, 2001, the Company borrowed $1 million on an unsecured 90-day note.
Interest is payable at 12 percent, of which $12 was paid in advance and the
remaining $17 is due when the note matures. On July 10, 2001, this note was
repaid with proceeds from an unsecured six-month note payable to a bank. This
note was extended for an additional six months after December 31, 2001.

On May 17, 2001, the Company borrowed $300 on an unsecured one-year note.
Interest is payable quarterly at an annual rate of 8 percent. The Company also
agreed to issue 200,000 shares of its Common Stock as additional consideration
for the loan. The shares will be treated as additional interest payments.

On December 18, 2001, the company entered into a Bridge Loan Agreement with GET
USA, Inc. This loan agreement is for six months at a rate of 10%. GET USA Inc
has the irrevocable right to convert all or any portion of the principal balance
into share of common stock. On December 18, 2001, the Company borrowed $60
against this loan agreement and on December 28,2001 the Company borrowed another
$98.


                                       36
<PAGE>

The following table represents the estimated future payments of notes payable at
December 31, 2001:

              Years Ending December 31,                    Estimated
                                                           Payments

                  2002                                        1,895
                  2003                                            0
                  2004                                            7
                                                             ------
                     Total                                   $1,902
                                                             ======


6.      STOCKHOLDERS' EQUITY:

PREFERRED STOCK

On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") at a price and stated value of
$1,000 per share in a private placement for total proceeds of $3,000, prior to
any offering expenses. The stated par value per share is $.01, resulting in a
total par value of thirty dollars being recorded as Series B Convertible
Preferred Stock, and the balance of approximately $3.0 million is included in
Additional Paid-in Capital. An annual dividend of 4% shall be paid quarterly in
arrears either in shares of Series B Preferred Stock or cash at the Company's
discretion.

Each share of Series B Preferred Stock is convertible into shares of the
Company's Common Stock at a conversion price of 91% of the three consecutive day
average of the lowest closing bid price of the Company's Common Stock over the
twenty-day trading period ending the day prior to conversion (the "Conversion
Price"). The Conversion Price may not exceed $5.16, which represents 135 % of
the ten-day average of the closing bid price of the Company's Common Stock
ending on May 12, 1998. The maximum number of shares of Common Stock that may be
issued upon conversion is 1,505,000. In the event a holder of Series B Preferred
Stock is unable to convert shares of Series B Preferred Stock into Common Stock
at a discount because 1,505,000 shares have been issued at a discount, then the
Company may either 1) redeem any unconverted Series B Preferred Stock for cash
at a price equal to 115% of the liquidation value of the shares or 2) issue
Series C Convertible Preferred Stock in an amount equal to the economic value
that would have been received by such holder if able to convert at a discount.
The Company has the right to redeem the Series B Preferred Stock at 115% of
stated value in cash. On June 1 1999, the Company redeemed $1,100 of the Series
B Preferred Stock at 100% of stated value in cash. As of December 31, 1999,
shares representing $1,620 of Series B Preferred Stock had been converted into
Common Stock, and all of the remaining outstanding balance of $280 of Series B
Preferred Stock is convertible into Common Stock, at the election of the holder
thereof. A holder of Series B Preferred Stock may not convert such stock into
Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's Common Stock.

The 9% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series B
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $297, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series B Preferred Stock to the earliest
conversion date. Income available to holders of Common Stock was reduced by
approximately $141, $144 and $12 during the second, third and fourth quarters of
1998, respectively.

During March 2000, 157 shares were converted to 89,015 of common shares. Also in
March 2000, 93 shares were converted to 93 shares of Series C. On June 15, 2001
30 shares were converted to Series H.

On June 1, 1999, as part of a financial restructuring, the Company issued 1,400
shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock")
at a price and stated value of $1,000 per share in a private placement for total
proceeds of $1,400 prior to any offering expenses. The par value per share is
$.01, resulting in a total par value of fourteen dollars being recorded as


                                       37
<PAGE>

Series C Convertible Preferred Stock, and the balance of approximately $1.4
million is included in Additional Paid-in Capital. An annual dividend of 4%
shall be paid quarterly in arrears either in shares of Series C Preferred Stock
or cash at the Company's discretion. Each share of Series C Preferred Stock is
convertible into shares of the Company's Common Stock at a conversion price of
91% of the three consecutive day average of the lowest closing bid price of the
Company's Common Stock over the twenty-day trading period ending the day prior
to conversion (the "Conversion Price"). The Conversion Price may not exceed
$1.877, which represents 135% of the ten day average of the closing bid price of
the Company's Common Stock ending on May 28, 1999. As of December 31, 1999,
shares representing $500 of Series C Preferred Stock had been converted into
Common Stock, and all of the remaining outstanding balance of $900 of Series C
Preferred Stock is convertible into Common Stock, at the election of the holder
thereof. The maximum number of shares of Common Stock that may be issued upon
conversion is 1,331,500. The Company has the right to redeem the Series C
Preferred Stock at 115% of stated value in cash beginning August 31, 1999. The
effective date of the Registration Statement filed with the Securities and
Exchange Commission relating to the Common Stock to be issued upon conversion of
the Series C Convertible Preferred Stock was September 24, 1999, and all
necessary gaming regulatory approvals have been received. A holder of Series C
Preferred Stock may not convert such stock into Common Stock if, following such
conversion, the holder beneficially owns in excess of 4.9% of the Company's
Common Stock.

The 9% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series C
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $138, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series C Preferred Stock to the earliest
conversion date. Income available to holders of Common Stock was reduced by
approximately $33, $87 and $18 during the second, third and fourth quarters of
1999, respectively.

In March 2000, 93 shares of Series B was converted to Series C and later that
same month was converted to 57,091 of common shares. During the 4th quarter of
2000, a total of 270 shares were converted to 560,064 of common shares. In
January 2001 an additional 100 shares converted to 220,548 of common shares. On
June 15, 2001 480 shares and on July 27, 2001 50 shares were converted to Series
H.

During October 1999, the Company issued a total of 2,450 shares of Series D
Convertible Preferred Stock (the "Series D Preferred Stock") at a price and
stated value of $1,000 per share in a private placement for total proceeds of
$2,450, prior to any offering expenses, and warrants (the "Warrants") to acquire
245,000 shares of the Company's Common Stock at $2.75 per share. The par value
per share is $.01, resulting in a total par value of twenty-five dollars being
recorded as Series D Preferred Stock, and the balance of approximately $2.4
million is included in Additional Paid-in Capital. An annual dividend of 6%
shall be paid quarterly in arrears either in Common Stock of the Company or cash
at the Company's discretion. Each share of Series D Preferred Stock is
convertible into shares of the Company's Common Stock at a conversion price of
the lesser of $3.00 or 75% of the average of closing bid price of the Company's
Common Stock for the five consecutive days immediately preceding the conversion
date. The Company has reserved 1,750,000 shares of Common Stock for issuance
upon conversion of the Series D Preferred Stock and 245,000 shares of Common
Stock to be issued upon the exercise of the Warrants. The Company has the right
to redeem the Series D Preferred Stock at 135% of stated value in cash if the
market price is lower than the market price on the date the Series D Preferred
Stock was issued. A registration statement related to the Common Stock to be
issued has been filed by, and at the expense of, the Company pursuant to
obligations contained in Registration Rights Agreements dated October 14 to 22,
1999. Such Registration Statement was declared effective by the Securities and
Exchange Commission on May 18, 2001.

The 25% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series D
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $816, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series D Preferred Stock to the earliest


                                       38
<PAGE>

conversion date. Income available to holders of Common Stock is being reduced by
approximately $408 in the fourth quarter of 1999 and approximately $408 in the
first quarter of 2000. All outstanding shares of Series D Preferred Stock will
automatically be converted into Common Stock on the fifth anniversary of its
issuance. A holder of Series D Preferred Stock may not convert such stock into
Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's Common Stock.

The Registration Rights Agreements relating to the Company's October 1999
issuance of the Company's Series D Convertible Preferred Stock require the
Company to register the shares of Common Stock issuable upon conversion of such
preferred shares within 180 days or by April 13, 2000 or pay certain liquidated
damages. These provisions include 2% of the gross proceeds of the Series D
Convertible Preferred Stock sold (i.e. $49) if such Common Stock is not
registered by April 13, 2000 and 3.5% per month (i.e. $86) for each month
thereafter that such Common Stock is not registered. A registration statement
relating to such Common Stock was filed with the Securities and Exchange
Commission on January 13, 2000. A majority of the Company's holders of Series D
Convertible Preferred Stock agreed to amend the Registration Rights Agreement
relating to such shares to provide that the Company can issue additional shares
of Common Stock, at its option, in lieu of any cash payment due for liquidated
damages resulting from the delay in having such registration statement declared
effective.

During the second quarter of 2000, 275 shares were converted to 397,872 of
common stock. The third quarter of 2000, 87.5 shares were converted to 198,582
of common stock and the fourth quarter of 2000, an additional 118 shares
converted to 229,052 of common stock. In January 2001 632 shares were converted
to Series G and during June 2001 500 shares were converted to Series I.

On November 1, 2000, the Company issued a total of 416,250 shares of Series E
Convertible Preferred Stock (the "Series E Preferred Stock") at a price and
stated value of $10 per share in a private placement for total proceeds of
$4,162, prior to any offering expenses, and warrants (the "Warrants") to acquire
210,000 shares of the Company's Common Stock at $1.00 per share. The par value
per share is $.01, resulting in a total par value of four hundred sixteen
dollars being recorded as Series E Convertible Preferred Stock, and the balance
of approximately $4,118 is included in Additional Paid in Capital. An annual
dividend of 6% shall be paid quarterly in arrears either in Common Stock or cash
at the Company's discretion. Each share of Series E Preferred Stock is
convertible into shares of Common Stock at a conversion price of the lesser of
$.8125 or 70% of the Common Stock's average of closing bid price for the five
consecutive days immediately preceding the conversion date. The Company has
reserved 1,935,255 shares of Common Stock for issuance upon conversion of the
Series E Preferred Stock and 416,250 shares of Common Stock for issuance upon
the exercise of the Warrants. The Company has the right to redeem the Series E
Preferred Stock at 135% of its stated value in cash if the market price is lower
than $1.50 per share. A registration statement relating to such Common Stock was
filed February 14, 2001 and was declared effective as of May 18, 2001.

The 25% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series E
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $715, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series E Preferred Stock to the earliest
conversion date. Income available to holders of Common Stock is being reduced by
$715 in the fourth quarter of 2000. All outstanding shares of Series E Preferred
Stock will automatically be converted into Common Stock on the fifth anniversary
of its issuance. A holder of Series E Preferred Stock may not convert such stock
into Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's Common Stock.

On June 8, 2001, two long term debts were converted to 25,000 shares of Series
E. During the second quarter of 2001 a total of 172,138 shares were converted to
2,196,900 shares of commons. On July 1, 2001 a long term debt was converted to
30,000 shares of Series E. During the third quarter of 2001, 15,091 shares were
converted to 185,741 of common and 17,771 shares were converted to Series G.


                                       39
<PAGE>

During the fourth quarter of 2001 18,000 shares were converted to 96 shares of
Series H and 97 shares of Series I.

On November 1, 2000, the Company issued a total of 100,000 shares of Series F
Convertible Preferred Stock (the "Series F Preferred Stock") at a stated value
and price of $10 per share in a private placement for total proceeds of $1,000,
prior to any offering expenses, and warrants (the "Warrants") to acquire 100,000
shares of the Company's Common Stock at $1.00 per share. The par value per share
is $.01, resulting in a total par value of one thousand dollars being recorded
as Series F Preferred Stock, and the balance of approximately $999 is included
as Additional Paid-in Capital. An annual dividend of 6% shall be paid quarterly
in arrears either in Common Stock or cash at the Company's discretion. Each
share of Series F Preferred Stock is convertible into shares of Common Stock at
a conversion price equal to the lesser of $.8125 or 70% of the Common Stock's
average closing bid price for the five consecutive days immediately preceding
the conversion date. Concurrent with this issuance, the Company converted
206,250 shares of Series F Preferred Stock with a private investor for 206,250
shares of Series F Preferred Stock. The Company has reserved 2,062,096 shares of
Common Stock for these issuances upon conversion of the Series F Preferred Stock
and 100,000 shares of Common Stock to be issued upon the exercise of the
Warrants. The Company has the right to redeem the Series F Preferred Stock at
135% of its stated value in cash if the market price is lower than $1.50 per
share. A registration statement relating to such Common Stock was filed February
14, 2001 and was declared effective as of May 18, 2001.

The 30% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date of the Series F
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $250, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series F Preferred Stock to the earliest
conversion date. Income available to holders of Common Stock is being reduces by
$250 in the fourth quarter of 2000. All outstanding shares of Series F Preferred
Stock will automatically be converted into Common Stock on the fifth anniversary
of its issuance. A holder of Series F Preferred Stock may not convert such stock
into Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's Common Stock.

In the second quarter of 2001 42,500 shares were converted to 561,167 shares of
common. During the third quarter of 2001 20,000 shares were converted to 246,914
shares of common and during the fourth quarter 13,750 shares were converted to
572,916 shares of common.

On December 1, 2000, the Company approved the issuance of 3,000 shares of
Preferred Stock as Series G 6% Convertible Preferred Stock with a par value of
$.01 per share, and a stated value and price of $1,000 per share. Each share of
Series G Preferred Stock is convertible into shares of Common Stock at a
conversion price equal to the lesser of $3.00 or 75% of mean price of the
previous 5 days bid price. In January 2001 632 shares were converted from Series
D and on April 6, 2001 400 shares were of new issue. During the first quarter of
2001 375 shares of Series G were converted to 784,109 shares of common and the
second quarter of 2001 657 shares were converted to 819,984 shares of common.
During September 2001 17,771 shares of Series E were converted to 178 shares of
Series G and then converted to 225,616 shares of common during the same month.
As of December 31, 2001 no shares remained outstanding under this series.

The 25% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date of the Series G
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $274, which reduces income available for holders of the Company's
Common Stock and therefore reduces earnings per share on a pro rata basis over
the period from issuance of the Series G Preferred Stock to the earliest
conversion date. Income available to holders of Common Stock is being reduces by
$274 in the first quarter of 2001. All outstanding shares of Series G Preferred
Stock will automatically be converted into Common Stock on the fifth anniversary
of its issuance. A holder of Series G Preferred Stock may not convert such stock
into Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's Common Stock.


                                       40
<PAGE>

During June 2001, the Company issued 554 shares of Series H Convertible
Preferred Stock (the "Series H Preferred Stock") at a stated value and price of
$1,000 per share in exchange for shares representing $30,000 of Series B
Preferred Stock, $480,000 of Series C Preferred Stock, and $44,000 of accrued
dividends. This was done because prior conversions of Series B and C Preferred
Stock had exhausted the shares of Common Stock reserved for issuance to Series B
and C Preferred Stock shareholders. The par value of Series H Preferred Stock is
$.01, resulting in a total par value of five dollars being recorded as Series H
Preferred Stock, and the balance of approximately $500,000 is included in
Additional Paid-in Capital. An annual dividend of 6% is payable quarterly in
arrears either in Common Stock or cash at the Company's discretion. Each share
of Series H Preferred Stock is convertible into shares of Common Stock at a
conversion price equal to the lower of $1.27 or 91% of the three consecutive day
average of the lowest closing bid price of the Common Stock over the twenty-day
trading period ending the day prior to conversion.

The 9% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series H
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $106,786, which reduced income available for holders of the
Company's Common Stock and therefore reduced earnings per share for the three
months ended June 30, 2001. All outstanding shares of Series H Preferred Stock
will automatically be converted into Common Stock on the fifth anniversary of
its issuance. A holder of Series H Preferred Stock may not convert such stock
into Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's outstanding Common Stock.

During July 2001, 50 shares of Series C converted to Series H. For the third
quarter of 2001 a total of 604 shares were converted to 587,409 shares of
common. During December 2001 96 shares of Series E converted to Series H and
converted to 520,325 shares of common.

During June 2001, the Company issued 527 shares of Series I Convertible
Preferred Stock (the "Series I Preferred Stock") at a stated value and price of
$1,000 per share in exchange for shares representing $500,000 of Series D
Preferred Stock and $27,000 of accrued dividends. This was done because prior
conversions of Series D Preferred Stock had exhausted the shares of Common Stock
reserved for issuance to Series D Preferred Stock shareholders. The par value of
Series I Preferred Stock is $.01, resulting in a total par value of five dollars
being recorded as Series I Preferred Stock, and the balance of approximately
$500,000 is included in Additional Paid-in Capital. An annual dividend of 6% is
payable quarterly in arrears either in Common Stock or cash at the Company's
discretion. Each share of Series I Preferred Stock is convertible into shares of
the Company's Common Stock at a conversion price of 75% of the Common Stock's
average closing bid price for the five consecutive days immediately preceding
the conversion date.

The 25% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series I
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend is $90,016, which reduced income available for holders of the
Company's Common Stock and therefore reduced earnings per share for the three
months ended June 30, 2001. All outstanding shares of Series I Preferred Stock
will automatically be converted into Common Stock on the fifth anniversary of
its issuance. A holder of Series I Preferred Stock may not convert such stock
into Common Stock if, following such conversion, the holder beneficially owns in
excess of 4.9% of the Company's outstanding Common Stock.

The 75% beneficial conversion feature was accounted for as an additional
preferred stock dividend, which was determined on the date the Series H and I
Preferred Stock was issued. The total value of the beneficial conversion feature
or dividend was $197,000, which reduced income available for holders of the
Company's Common Stock and therefore reduced earnings per share for the three
months ended June 30, 2001.


                                       41
<PAGE>

During June 2001 60 shares were converted to 57,413 shares of common. In the
month of July 2001 467 shares were converted to 457,171 shares of common. In
December 2001 97 shares were converted from Series E and converted to 525,745
shares of common.

During July 2001, the Company issued 150,000 shares of Series J Convertible
Preferred Stock (the "Series J Preferred Stock") as payment for expenses
totaling $1,979, which is being amortized over five years. Each share of the
Series J Preferred Stock is convertible into 10 shares of Common Stock; there is
no conversion price. The Series J Preferred Stock does not pay dividends and is
not redeemable except through conversion into Common Stock. The par value of the
Series J Preferred Stock is $.01, resulting in a total par value of $1,500 being
recorded as Series J Preferred Stock, and the balance of approximately $1,978is
included as Additional Paid-in Capital. During November 2001 100,000 shares were
converted to common stock.

During August 2001, the Company issued 4,667 shares of Series K Convertible
Preferred Stock (the "Series K Preferred Stock") in exchange for net cash
proceeds of approximately $3,402, which represented a 25% discount from the
stated value and price of $1,000 per share, less commissions and offering costs.
The par value of Series K Preferred Stock is $.01, resulting in a total par
value of $47 being recorded as Series K Preferred Stock, and the balance of
approximately $3,401 is included in Additional Paid-in Capital. An annual
dividend of 7% is payable quarterly in arrears either in Common Stock of the
Company or cash at the Company's discretion. Each share of Series K Preferred
Stock is convertible into shares of the Company's Common Stock at a conversion
price equal to the Common Stock's average closing bid price over the five
trading period ending the day prior to conversion.

The beneficial conversion feature was accounted for as an additional preferred
stock dividend, which was determined on the date the Series K Preferred Stock
was issued. The total value of the beneficial conversion feature or dividend is
$564, which reduced income available for holders of the Company's Common Stock
and therefore reduced earnings per share for the three months ended September
30, 2001. All outstanding shares of Series K Preferred Stock will automatically
be converted into Common Stock on the fifth anniversary of its issuance. A
holder of Series K Preferred Stock may not convert such stock into Common Stock
if, following such conversion, the holder beneficially owns in excess of 4.9% of
the Company's outstanding Common Stock.

During 2001 114 shares were converted to 131,253 of common shares.

COMMON STOCK REDEMPTION

In March 1999, in order to expedite the timing of gaming regulatory approval in
certain jurisdictions, the Company repurchased 400,000 shares of its outstanding
Common Stock, at market price, from a shareholder. The Company entered into a
stock redemption agreement with such shareholder pursuant to which the Company
redeemed 400,000 shares of Company Common Stock beneficially owned by such
shareholder in exchange for a four-year convertible note and a warrant to
purchase 50,000 shares of the Company's Common Stock. In April 1999, the Company
redeemed 700,000 shares of Common Stock from Lakes Gaming, Inc. on substantially
the same terms as the redemption described above. This redemption was also
undertaken to expedite the timing of gaming regulatory approval in certain
jurisdictions. These notes are unsecured, pay interest of 5% per annum and are
convertible at the closing market price of the Company's Common Stock on the
date of the issuance of the notes. The notes may not be converted in the first
year following issuance. The exercise price of the warrants will be the same as
the conversion price of the notes. The Company also granted "piggyback"
registration rights for shares of Common Stock issuable upon conversion of both
the notes and the warrants.

STOCK OPTIONS AND WARRANTS

The Company has a 1992 Employee Stock Option and Compensation Plan (the "1992
Plan"), pursuant to which options and other awards to acquire an aggregate of
1,350,000 shares of the Company's Common Stock may be granted. Stock options,
stock appreciation rights, restricted stock, other stock and cash awards may be
granted under the Plan. All employees are eligible to participate in the 1992
Plan. The Company also has a 1998 Non-Executive Stock Option Plan (the "1998
Plan"), pursuant to which options to acquire an aggregate of 492,950 shares of


                                       42
<PAGE>

the Company's Common Stock may be granted. Non-Executive employees who are
full-time employees of the Company are eligible to participate in the 1998 Plan.
Both the 1992 Plan and the 1998 Plan are administered by a stock option
committee which has the discretion to determine the number and purchase price of
shares subject to stock options (which may be below the fair value of the Common
Stock on the date thereof), the term of each option and the time or times during
its term when the option becomes exercisable. Options are generally exercisable
in equal amounts over a five-year period from the date of grant. During 1995 and
1994, the exercise prices of certain options ranging from $6.00 to $15.75 were
reduced to $4.00 (fair market value on the date of repricing). On October 8,
1996, the exercise prices of certain options ranging from $7.00 to $11.50 were
reduced to $4.75 (fair market value on the date of repricing). In December 1998,
current employees of the Company were allowed to elect repricing of outstanding
options, adjusting the exercise price to the current market price in exchange
for delaying the vesting of one-half of all then unvested options by twelve
months. All current employees elected to reprice their options under the terms
offered. The existing options were cancelled and the repriced options were
recorded as new grants. The new grants to all Non-Executive employees totaled
313,050, which were issued from the 1998 Plan.

The Company accounts for both stock option plans under Accounting Principles
Board ("APB") Opinion No. 25 -"Accounting for Stock Options Issued to
Employees", under which no compensation cost has been recognized. Statement of
Accounting Standards No. 123 -"Accounting for Stock-Based Compensation" (SFAS
No. 123), was issued in 1995 and, changes the methods for recognition of cost on
plans similar to that of the Company. Adoption of SFAS No. 123 is optional;
however, pro forma disclosures as if the Company had adopted the cost
recognition method are required. Had compensation cost for the Plan been
determined consistent with SFAS No. 123, the Company's results of operations and
earnings per share would have been changed to the following pro forma amounts:


                                                          2001           2000
                                                          ----           ----

       Net loss:                       As reported     $(15,101)      $(2,278)
                                       Pro forma       $(18,173)      $(2,633)
       Primary and fully-diluted EPS:  As reported     $  (0.85)      $ (0.23)
                                       Pro forma       $  (1.02)      $ (0.26)


A summary of the status of the 1992 Employee Stock Option and Compensation Plan
at December 31, 2001, 2000 and 1999, and changes during the periods then ended
is presented in the tables and narrative below:
<TABLE>
<CAPTION>

                          December 31, 2001       December 31, 2000        December 31, 1999
                        ----------------------   ---------------------   ----------------------
                                     Wtd Avg                  Wtd Avg                   Wtd Avg
                          Number    Ex Price      Number     Ex Price        Number    Ex Price
                        ----------- ----------   ---------- ----------   ----------- ----------
<S>                     <C>         <C>          <C>        <C>          <C>         <C>
Outstanding at
beginning of period       875,000       $1.37      745,000       $1.53      610,000      $1.56
  Granted                       0        -         300,000        1.00      250,000       2.06
  Exercised               (25,000)       1.13      (28,000)       1.13          -            -
  Forfeited               (15,000)       1.13     (150,000)       1.88     (115,000)      2.87
  Expired                    -           -            -          -            -           -
                        ---------                 --------                --------
Outstanding at end of
period                    835,000       $1.13      875,000       $1.37      745,000      $1.53
                        =========                 ========                ========
Exercisable at end of
period                    835,000       $1.13      875,000       $1.37      383,000      $1.30
Weighted average fair
value of options
granted on grant date      $.00                     $.99                    $1.76
</TABLE>


                                       43
<PAGE>

          Detail composition of options outstanding December 31, 2001:
    -------------------------------------------------------------------------
                                           Avg. contractual
        Options             Exercise        life remaining         Options
      outstanding            price             (Years)           exercisable
    ----------------     -------------    -----------------     -------------

             35,000          $4.00              3.29                  35,000
            600,000           1.00              7.00                 600,000
            200,000           2.0625            8.72                 200,000
            -------                                                 --------
            835,000                                                  835,000
            =======                                                 ========





The fair value of each option granted under the 1992 Employee Stock Option and
Compensation Plan is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for the 2000, 1999 and
1998 grants: risk-free interest rate of 5.0, 6.5 and 4.9; expected dividend
yield of 0.0 percent; expected lives of 5 years; expected volatility of 179.47,
121.5, and 91.5 percent, respectively.

A summary of the status of the 1998 Stock Option Plan at December 31, 2001 and
2000 and changes during the periods then ended is presented in the table and
narrative below:


                           December 31, 2001           December 31, 2000
                        ------------------------    -------------------------
                                      Wtd Avg                     Wtd Avg
                          Number     Ex Price          Number     Ex Price
                        ----------- ------------    ------------ ------------

Outstanding at
beginning of period       314,675       $1.33          414,625       $1.36
  Granted               3,074,250        1.01            -            -
  Exercised                  -           -              (9,975)       1.08
  Forfeited              (920,575)       1.04          (89,975)       1.48
  Expired                    -           -               -            -
                          -------                     -------
Outstanding at end of
period                  2,468,350       $1.04          314,675       $1.33
                          =======                      =======
Exercisable at end of
period                    289,700       $1.06          180,600       $1.33
Weighted average fair
value of options
granted on grant date       $0.87                       $ -


      Detail composition of options outstanding December 31, 2001:
-------------------------------------------------------------------------
                                      Avg. contractual
    Options            Exercise        life remaining         Options
  outstanding            price            (Years)           exercisable
----------------     -------------    -----------------     -------------

         20,000             $0.96                10.79                 -
      2,205,600             $1.00                10.17           226,900
          4,650              1.13                 7.02             4,650
         43,600              1.18                 6.97            43,600
          7,500              1.06                 6.97             3,500
          1,000              1.25                 7.40                 -
         15,000              1.88                 7.57            11,050
         27,500              1.31                10.67                 -
        100,000              1.33                10.17                 -



                                       44
<PAGE>

         16,000              1.47                10.50                 -
         17,500              1.59                10.54                 -
         10,000              1.77                10.60                 -
        -------                                                  -------
      2,468,350                                                  289,700
        =======                                                  =======



The fair value of each option granted under the 1998 Stock Option Plan is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for the 2001 and 1999 grants: risk-free interest
rate of 4.38 and 6.5 percent; expected dividend yield of 0.0 percent; expected
life of 5 years; expected volatility of 171.98% and 99.5%, respectively.



                                       45
<PAGE>


The Company adopted a Director Stock Option Plan (the "Director Option Plan") in
1997, pursuant to which options and other awards to acquire an aggregate of
550,000 shares of the Company's Common Stock may be granted.

A summary of the status of the Directors Option Plan at December 31, 2001, 2000
and 1999, and changes during the periods then ended is presented in the table
and narrative below:

<TABLE>
<CAPTION>

                          December 31, 2001       December 31, 2000        December 31, 1999
                        ----------------------   ---------------------   ----------------------
                                     Wtd Avg                 Wtd Avg         Number   Wtd Avg
                          Number    Ex Price      Number     Ex Price                 Ex Price
                        ----------- ----------   ---------- ----------   ----------- ----------
<S>                     <C>         <C>          <C>        <C>          <C>         <C>
Outstanding at
beginning of period       100,000       $1.00       99,000       $1.42       10,000      $5.13
  Granted                 250,000        1.00       60,000        1.00       99,000       1.42
Exercised                     -           -            -           -            -           -
  Forfeited                   -           -        (59,000)       1.70      (10,000)      5.13
  Expired                     -           -            -           -            -           -
                          -------                  -------                  -------
Outstanding at end of
period                     350,000      $1.00       100,000      $1.00       99,000      $1.42
                           =======                  =======                  ======
Exercisable at end of
period                     195,000      $1.00       90,000       $1.00       15,000      $1.00
Weighted average fair
value of options
granted on grant date      $0.97                     $0.96                    $1.09
</TABLE>


         Detail composition of options outstanding December 31, 2001
   -------------------------------------------------------------------------
                                          Avg. contractual
       Options             Exercise        life remaining         Options
     outstanding            price              (Years)          exercisable
   ----------------     -------------    -----------------     -------------

           350,000             $1.00                10.21           195,000
           =======                                                   ======

The fair value of each option granted under the Director Stock Option Plan is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for the 2001 and 2000 grants: risk-free interest
rate of 4.38 and 5.0 percent; expected dividend yield of 0.0 percent; expected
life of 5 years; expected volatility of 164.79% and 182.75%, respectively.



                                       46
<PAGE>

The Company has issued stock purchase warrants with a variety of terms and
conditions. The following table summarizes stock purchase warrant transactions
during the period:

                                                              Exercise
                                                Number         Prices
                                               ---------   --------------

              Outstanding December 31, 1998      282,500     3.19 - 13.00
                Granted                        1,285,000    1.063 -  2.75
                Exercised                              -                -
                Canceled/Expired                (177,500)    7.00 - 13.00
                                               ---------   --------------
              Outstanding December 31, 1999    1,390,000   $1.063 - $9.00
                Granted                          516,250             1.00
                Exercised                              -                -
                Canceled/Expired                 (105,00)   1.063 -  3.19

                                               ---------   --------------
              Outstanding December 31, 2000    1,390,000   $1.063 - $9.00
                Granted                        3,457,950     0.81 - 10.00
                Exercised                        120,000             0.75
                Canceled/Expired                 (115,00)            1.50
                                               ---------   --------------

              Outstanding December 31, 2001    4,612,950    $0.81 - 10.00
                                               =========   ==============

At December 31, 2001, 3,312,950 warrants were exercisable. The warrants expire
at various dates through September, 2006.

At the Company's annual shareholder meeting on June 15, 2001, the Company's
shareholders approved the 2001 Employee Stock Purchase Plan (the "Plan") to
provide employees of the Company and its subsidiaries (as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended) an opportunity to share
in the Company's financial growth through ownership of the Company's Common
Stock made available to employees at preferential prices. The Plan is intended
as an incentive for continuing employment with the Company and to encourage
employees to take an ownership interest in the Company's future. On September
18, 2001, the Company filed a Form S-8 Registration Statement registering
2,000,000 shares of stock for issuance under the Plan.

7.      INCOME TAXES:

The provision for income taxes consists of the following components:


                          For the Year   For the Year    For the Year
                              Ended          Ended          Ended
                          Dec. 31, 2001  Dec. 31, 2000  Dec. 31, 1999
                          -------------  -------------- ---------------

Current:
   Federal                          $ -            $ -             $ -
   State                              -              -               -
                          -------------  -------------- ---------------
      Subtotal                        -              -               -
Deferred                              -              -               -
                          -------------  -------------- ---------------
      Total                         $ -            $ -             $ -
                          =============  ============== ===============



                                       47
<PAGE>

The tax effects of temporary differences giving rise to the deferred items are
as follows for the years ended December 31:


                                                     2001           2000
                                                    ------         ------

     Deferred tax assets:
     Net operating loss carry forwards             $ 13,786       $  9,697
     Inventory reserves                                 213            503
     Other                                            3,227          1,500
                                                   --------       --------
           Total deferred tax assets                 17,226         11,700
             Valuation allowance                    (17,226)       (11,700)
                                                   --------       --------
           Deferred tax assets, net of             $   --         $   --
            allowance                                ======         ======


In accordance with SFAS No. 109, the gross deferred tax asset at December 31,
2001 and 2000, of $17,226 and $11,700, respectively, has been reduced to zero by
a full valuation allowance.

At December 31, 2001, the Company has approximately $39,388 of net operating
loss carry forwards for federal income tax purposes. These losses expire
beginning 2009 through 2015.


8.      COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

The Company has entered into certain noncancelable operating lease agreements
related to office and warehouse space and equipment. Total lease expense under
operating leases was $535, $313 and $317 for the years ended December 31, 2001,
2000 and 1999, respectively. The minimum annual rental commitments under
operating leases are as follows for the years ending December 31:


              2002                                358
              2003                                370
              2004                                381
              2005                                282
              2006                                 76
                                                 ----
                 Total                         $1,467
                                                 ====

SALE-LEASEBACK

In October 2001, the company received the first funding from a new $10 million
participation line of credit, whereby the Company executes a sale and leaseback
of its gaming machines for placement in revenue-sharing arrangements with
casinos and other gaming properties. The gains realized are $230 with $33
recorded at December 31, 2001 and $197 was deferred.


LITIGATION

The Company is involved in legal actions in the ordinary course of its business.
While no reasonable estimates of potential liability can be determined,
management believes that such legal actions will be resolved without a material
effect on the Company's financial position or results of operations.

EMPLOYMENT CONTRACTS

The Company has employment contracts with various officers with remaining terms
ranging from two to three years at amounts approximating their current levels of
compensation. The Company's remaining aggregate commitment at December 31, 2001,


                                       48
<PAGE>

under such contracts is approximately $891. Certain of these agreements may also
include additional compensation to sales staff related to sales commission
bonuses that are contingent on the amount of the Company's sales. The Company
and the former Chief Operating Officer entered into a Severance Agreement in
March 2002. The year end accrual for the underlying employment agreement was
adjusted to conform to the obligations in the Severance Agreement.


TERMINATION OF XERTAIN MERGER

In October 2001, the company reached an agreement to terminate its planned
merger with Xertain, Inc. Pursuant to this termination agreement, the Company
recognized a loss on the amount of its initial investment in Xertain, as well as
amounts due from Xertain. Total amount of the losses recognized was $1,501.

ASSETS PLEDGED

The following assets at December 31, 2001 have been pledged to secure financing:
Inventories of $4,400 and Fixed Assets of $770.

9.     DISTRIBUTORSHIP AND SALES AGENCY AGREEMENTS:

In February 1996, the Company entered into an exclusive distribution agreement
with Aristocrat Leisure Industries ("Aristocrat") of New South Wales, Australia
for the marketing and distribution of games in Australia, New Zealand, Papua New
Guinea, Taiwan, New Caledonia, Malaysia, the Philippines and Singapore
(hereinafter "Australasia"). The Company granted Aristocrat an initial five-year
exclusive license expiring February 2001 to distribute its blackjack, craps and
roulette games to all legalized Australian video gaming jurisdictions. Pursuant
to the agreement, the Company has agreed to sell its games at discounted
distributor's pricing in exchange for a minimum purchase quantity of 100 units
per year. Aristocrat commenced marketing the Company's blackjack and roulette
games subsequent to obtaining technical approval from New South Wales, Australia
gaming authorities in September 1997. Pursuant to this agreement, the Company
sold an aggregate of 99 games in 1997 and 86 games in 1998. Due to the declining
multi-player game sales in their territory, sales to this distributor declined
in the third and particularly fourth quarters of 1998, there were no sales to
this distributor in 1999, and there were no sales to this distributor in the
first quarter of 2000. In March 2000, the Company and Aristocrat terminated the
distribution agreement.

In May 1998, the Company entered into a one-year exclusive agency agreement with
Bill Engle, an individual. Under the agreement, the agent represents the
Company's products for sale in the Canadian provinces of British Columbia,
Ontario, Nova Scotia (for casino customers only), Saskatchewan, Alberta and
Manitoba. The agent receives a commission equal to the difference between the
amount received for sales initiated by the agent and prices stated in the
agreement for each product. This agreement provides for up to two successive
one-year terms upon the agreement of the parties and on the terms and conditions
set forth in the agency agreement. In May 1999, this agreement was renewed for
an additional one-year period and expired in May 2000.

In December 1998, the Company entered into a three-year exclusive agreement with
DGS, Inc. ("DGS") for the distribution and service of the Company's blackjack
and 21 Stud products in the State of South Carolina. The Company and DGS will
negotiate minimum sales targets for each year of the agreement. If DGS fails to
purchase for resale the minimum number of units in any contract year, the
Company may give notice to terminate the agreement. During 2000 the Company
terminated this agreement.

The Company has submitted its applications for licensure in New Jersey and
Connecticut, and will apply for approval of its various games. Once the Company
is able to sell product in these jurisdictions, it will be represented by Par 4
("Agent") under terms of a two-year exclusive agency agreement entered into in
January 1999. Under the agreement, the agent represents certain of the Company's
products for sale in Atlantic City, New Jersey and the State of Connecticut. The
Company and Agent will negotiate minimum sales targets for each year of the
agreement. If Agent fails to obtain sales orders for at least 75 percent of the


                                       49
<PAGE>

target number of units in any contract year, the Company may give notice to
terminate the agreement. This agreement provides for automatic renewal annually
after the original term and may be terminated by either party under certain
circumstances.

In April 1999, the Company entered into a two-year exclusive agency agreement
with Stuart Black, an individual. Under the agreement, the agent represents the
Company's products for sale in specific territories in Europe. The agent
receives a commission on sales of the Company's products. The Company and Agent
negotiate minimum sales targets for each year of the agreement. If Agent fails
to obtain sales orders for at least 75 percent of the target number of units in
any contract year, the Company may give notice to terminate the agreement. This
agreement provides for automatic renewal annually after the original term and
may be terminated by either party under certain circumstances.

The Company also has an exclusive distributorship agreement with Vista Gaming
Corporation. The Company has also an agreement with Vista Gaming for game
rights.

10.      BAD DEBT ADJUSTMENTS

During September 2001, the Company determined that the collectibility of notes
receivable from its distributor in Holland was in doubt. Therefore, the Company
reserved the amounts of these notes and recorded a loss in the amount of $5,140.
Additionally, the Company booked a bad debt adjustment of $500 related to a sale
to another distributor that occurred in 2000. In connection with the termination
of the Company's planned merger with Xertain, Inc., the Company also booked a
bad debt of $512 related to advances made to Xertain.

11.      Subsequence Events

AGREEMENT FOR MERGER:

On February 15, 2002, the Company entered into an Agreement and Plan of Merger
by and among GET USA, Inc., Innovative Gaming Corporation of America and
Innovative Gaming Technology Corp. (the "GET Merger Agreement"). Pursuant to the
GET Merger Agreement, GET USA, Inc. will be merged into Innovative Gaming
Technology Corp., a Nevada corporation and wholly owned subsidiary of the
Company. Following the merger, GET USA's shareholders will own 49% of the
Company. Final closing of the merger is anticipated to occur in late-2002,
subject to shareholder, regulatory and various governmental agencies' approval.

     GET USA, Inc. is a Nevada corporation formed in 2000 to own certain
intellectual property relating to Internet gaming. GET USA owns an Internet
Casino Operating Platform.

SERIES K LIQUIDATED DAMAGES

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. 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 April 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.



                                       50
<PAGE>

<TABLE>
<CAPTION>

             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                 Schedule II - Valuation and Qualifying Accounts
                                 (In Thousands)


Description                             Balance    Charged to   Amount    Balance
-----------                            Beginning   Costs and   Written     End of
                                       of Period   Expenses      Off      Period
                                       ---------- ------------ --------- ----------
<S>                                    <C>        <C>          <C>       <C>
Reserve for inventory obsolescence
    and write down to market value:

 For the year ended 12/31/99             $   947        4,488       347      5,088

 For the year ended 12/31/00               5,088         (882)    1,565      2,641

 For the year ended 12/31/01               2,641       (1,078)      204      1,359

                                                    Charged/
Description                             Balance    (Credited)      Amount    Balance
-----------                            Beginning    to Costs      Written    End of
                                       of Period   and Expenses     Off      Period
                                       ---------- ------------- ---------  ---------

Allowance for doubtful notes
    and accounts receivable:

 For the year ended 12/31/99                $ 85        $ 198        $ 3      $280

 For the year ended 12/31/00                 280            0        167       113

 For the year ended 12/31/01                 113        5,640        577     5,176

</TABLE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information provided under the caption "Election of Directors" in the
Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's year ended December
31, 2000 and forwarded to stockholders prior to the Company's 2002 Annual
Meeting of Shareholders (the "2002 Proxy Statement") is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information in the 2002 Proxy Statement under the caption "Executive
Compensation" is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in the 2002 Proxy Statement under the caption "Voting Securities
and Principal Holders Thereof" is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in the 2002 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.


                                       51
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements:
<TABLE>
<CAPTION>

                                                                                                          Page
<S>                                                                                                       <C>
Report of Independent Public Accountants - Kafoury, Armstrong & Co.                                        25
Consolidated Balance Sheets as of December 31, 2001 and 2000                                               26
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999                 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999       28
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                 29
Notes to the Consolidated Financial Statements                                                             30
</TABLE>


(a)(3)  Exhibits:

3.1(a)    Articles of Incorporation, as amended (Incorporated herein 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 B Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 4 to the Company's
          report on Form 10-Q for the quarter ended March 31, 1998) (the "March
          31, 1998 10-Q")

3.1(c)    Certificate of Designation relating to Series C Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3.1(d) to the
          Company's Registration Statement on Form S-3 filed August 3, 1999)

3.1(d)    Certificate of Designation relating to Series D Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3.1 to the
          Company's Registration Statement on Form S-3 filed January 13, 2000)

3.1(e)    Certificate of Designation relating to Series E Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3.1(f) to the
          Company's report on Form 8-K filed February 14, 2001) (the "February
          14, 2001 8-K")

3.1(f)    Certificate of Designation relating to Series F Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3.1(g) to the
          February 14, 2001 8-K)

3.1(g)    Certificate of Designation relating to Series G Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3.1(g) to the
          February 14, 2001 8-K)

3.1(h)    Amended and Restated Certificate of Designation relating to Series H
          Convertible Preferred Stock (Incorporated herein by reference to
          Exhibit 3(1) to the Company's report on Form 10-Q filed on August 14,
          2001) (the "August 14, 2001 10-Q")

3.1(i)    Amended and Restated Certificate of Designation relating to Series I
          Convertible Preferred Stock (Incorporated herein by reference to
          Exhibit 3(2) to the August 14, 2001 10-Q)

3.1(j)    Amended and Restated Certificate of Designation relating to Series J
          Convertible Preferred Stock (Incorporated herein by reference to
          Exhibit 3(3) to the August 14, 2001 10-Q)

3.1(k)    Certificate of Designation relating to Series K Convertible Preferred
          Stock (Incorporated herein by reference to Exhibit 3(4) to the August
          14, 2001 10-Q)

3.2       Bylaws (Incorporated herein by reference to Exhibit 3.2 to the SB-2)


                                       52
<PAGE>

10.1      1992 Stock Option and Compensation Plan, as amended (Incorporated
          herein by reference to Annex C to the Company's Schedule 14A filed
          December 20, 2000)

10.4      Loan Agreement between the Company and Finova Capital Management dated
          as of April 13, 1998 (Incorporated herein by reference to Exhibit 10.1
          to the Company's March 31, 1998 10-Q)

10.5      Form of Subscription Agreement dated June 1, 1999 (Incorporated herein
          by reference to Exhibit 10.8 to the Company's Registration Statement
          on Form S-3 filed August 3, 1999)

10.6      Securities Purchase Agreement dated October 13, 1999 (Incorporated
          herein by reference to Exhibits 10.1 to the Company's Registration
          Statement on Form S-3 filed January 13, 2000)

10.7      Form of Securities Purchase Agreement dated November 1, 2000
          (Incorporated herein by reference to Exhibits 10.1 and 10.3 to the
          February 14, 2001 8-K)

10.8      Form of Securities Purchase Agreement dated December 1, 2000
          (Incorporated herein by reference to Exhibit 10.4 to the February 14,
          2001 8-K)

10.9      Securities Exchange Agreement dated December 1, 2000 (Incorporated
          herein by reference to Exhibits 10.6 and 10.7 to the February 14, 2001
          8-K)

10.10     Severance Agreement dated October 17, 2001

10.11     Form of Registration Rights Agreement dated June 1, 1999 (Incorporated
          herein by reference to Exhibit 10.9 to the Company's Registration
          Statement on Form S-3 filed August 3, 1999)

10.12     Form of Registration Rights Agreement dated October 13, 1999
          (Incorporated herein by reference to Exhibit 10.2 to the Company's
          Registration Statement on Form S-3 filed January 13, 2000)

10.13     Form of Registration Rights Agreement for Series E Convertible
          Preferred Stock dated November 1, 2000 (Incorporated herein by
          reference to Exhibit 10.2 to the February 14, 2001 8-K)

10.14     Form of Registration Rights Agreement for Series F Convertible
          Preferred Stock, dated December 1, 2000 (Incorporated herein by
          reference to the February 14, 2001 8-K)

10.15     Form of Registration Rights Agreement for Series G Convertible
          Preferred Stock dated April 2001 (Incorporated herein by reference to
          the February 14, 2001 8-K)

10.16     Form of Registration Rights Agreement for Series H Convertible
          Preferred Stock dated April 2001 (Incorporated herein by reference to
          the February 14, 2001 8-K)

10.17     Form of Registration Rights Agreement for Series K Convertible
          Preferred Stock dated August 1, 2000 (Incorporated herein by reference
          to Exhibit 10(4) to the August 14, 2001 10-Q)

10.18     2001 Employee Stock Purchase Plan (Incorporated herein by reference to
          Annex A to the Company's Schedule 14A filed May 1, 2001)

10.19     1997 Director Stock Option Plan, as amended (Incorporated herein by
          reference to Annex B to the Company's Schedule 14A filed May 1, 2001)

10.20     1998 Non-Executive Employee Stock Option Plan (Incorporated herein by
          reference to Exhibit 10.17 to the Company's report on Form 10-K for
          the fiscal year ended December 31,1998) (the "December 31, 1998 10-K")


                                       53
<PAGE>

10.21     Agreement between the Company and Edward G. Stevenson dated January 1,
          1999 (Incorporated herein by reference to Exhibit 10.18 to the
          December 31, 1998 10-K)

10.22     Agreement and Plan of Merger dated December 31, 1999, by and among
          nMortgage Inc., Equitex Inc., Innovative Gaming Corporation of America
          and IGCA Acquisition Corp, (Incorporated herein by reference to Annex
          B to the Company's Schedule 14A filed March 1, 2000)

10.23     Agreement and Plan of Merger by and among Xertain, Inc., Innovative
          Gaming Corporation of America and IGCA Acquisition Corp., as amended
          (Incorporated herein by reference to the Company's Preliminary
          Schedule 14A filed February 15, 2001)

10.24     Amendments No. 2 and No. 3 to the Agreement and Plan of Merger by and
          among Xertain, Inc., Innovative Gaming Corporation of America and IGCA
          Acquisition Corp. (Incorporated herein by reference to Exhibits 2(1)
          and 2(2) to the August 14, 2001 10-Q)

10.25     Note to Blake Capital Partners, LLC, dated April 12, 2001
          (Incorporated herein by reference to Exhibit 4(1) to the August 14,
          2001 10-Q)

10.26     Securities Purchase Agreement with Blake Capital Partners, LLC, dated
          April 12, 2001 (Incorporated herein by reference to Exhibit 4(1) to
          the August 14, 2001 10-Q)

10.27     Amended and Restated Consulting Agreement, dated April 4, 2001
          (Incorporated herein by reference to Exhibit 10(2) to the August 14,
          2001 10-Q)

10.28     Consultant Agreement, dated July 1, 2001 (Incorporated herein by
          reference to Exhibit 10(5) to the August 14, 2001 10-Q)

10.29     Form of Change of Control Agreement by and between the Company and
          each of Roland M. Thomas, Michael Mackenzie, Steven Peterson and Loren
          A. Piel (Incorporated herein by reference to Exhibit 10(6) to the
          August 14, 2001 10-Q)

10.30     Factoring Agreement, dated May 22, 2001 (Incorporated herein by
          reference to Exhibit 10(7) to the August 14, 2001 10-Q)

21        List of Subsidiaries (Incorporated herein by reference to Exhibit 21
          to the Company's December 31, 1998 10-K)

23        Consent of Kafoury, Armstrong & Co.

(b) Reports on Form 8-K

     On February 5, 2002, the Company filed a Form 8-K to report the execution
of the merger agreement with GET USA, Inc.




                                       54
<PAGE>


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                      INNOVATIVE GAMING CORPORATION OF AMERICA



Date:  April __, 2002                 By:  /S/  Thomas J. Foley
                                         ------------------------------------
                                     Name:   Thomas J. Foley
                                     Title: Chief Executive Officer and Chairman

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
April __, 2002.



     Name                            Title
     ----                            -----

 /S/ Thomas J. Foley                 Chief Executive Officer and Chairman
-----------------------------        (principal executive officer, principal
                                     accounting officer)


 /S/ Ronald A. Johnson               Director
-----------------------------


 /S/ Andrew Tottenham                Director
-----------------------------






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