<PAGE>   1

                       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, 1999

                                       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.)


                     4725 AIRCENTER CIRCLE
                     RENO, NEVADA                      89502
                     ------------                      -----
           (Address of principal executive offices)    (Zip Code)


                                 (775) 823-3000
              (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 March 21, 2000, 9,008,738 shares of the Registrant's 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 National Market on March 21, 2000,
was $16,273,963. For purposes of this computation, affiliates of the Registrant
are the Registrant's executive officers and directors.


                       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 multi-station and other specialty gaming
machines to regulated gaming markets world-wide. The Company has two primary
product lines: multi-player/multi-station video table games and single player
video slot machines incorporating state of the art graphics and sound.

On October 8, 1999, the Company entered into a non-binding letter of intent with
Equitex, Inc., 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 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 will 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 must divest substantially
all of its gaming assets. (See Note 11 of Notes to Consolidated Financial
Statements - Agreement for Merger and Note 12 - Subsequent Events - Discontinued
Operations/Asset Divestiture Agreement).

On February 1, 2000, the Company entered into a definitive asset purchase
agreement with Xertain, Inc. ("Xertain"), pursuant to which Xertain will
purchase substantially all of the Company's gaming assets. In exchange for the
gaming assets of the Company, Xertain will pay an aggregate purchase price of
$4,000,000 plus a promissory note payable to IGCA in an amount equal to the
accounts receivable of IGCA as of the closing date, adjusted for certain
payments to be made by Xertain and IGCA as provided for in the note, and Xertain
will assume certain liabilities of IGCA (the "Gaming Asset Divestiture"). The
accounts receivable promissory note will be secured by the accounts receivable
of IGCA which are being acquired by Xertain.

The Company's primary target markets have been gaming jurisdictions in North
America, including the states of Arizona, Colorado, Iowa, Louisiana,
Mississippi, Minnesota, Nevada, New Mexico, South Dakota, North Carolina and
South Carolina, and through a distributor in Australia. The Company has agents
to market its products in Canada and Europe. Throughout 1997, 1998 and 1999, the
Company has expanded its markets by obtaining gaming licenses in various gaming
jurisdictions. The Company has submitted and has pending applications in
Connecticut, New Jersey, Illinois and Indiana. Previously registered with
Alberta, Manitoba, Saskatchewan, Quebec and the Atlantic Lottery Corporation,
the Company has applications pending in British Columbia, Ontario and Nova
Scotia. As of March 2000, the Company's single player video slot machine has
been approved for sale in Colorado, Iowa, Louisiana, Minnesota and New Mexico,
and was on field trial at the New York, New York Casino in Las Vegas, Nevada for
the purpose of obtaining Nevada Gaming Control Board approval for sale in
Nevada.

The Company distributes its products directly and through distributors,
primarily on a cash sales basis. In Nevada, through its internal sales force,
the Company places its products under lease, sales (cash or extended payment
terms) or participation agreements. Under participation agreements the Company
retains ownership and shares in the net win of the games with the casino. In
Colorado, the Company sells or leases its products through its distributor.




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The Company believes that its 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.

BUSINESS STRATEGY

The Company's strategy is to develop and maintain a competitive advantage by
focusing on two key elements: (a) exercising sufficient control over the
development and manufacturing process to enable quick reaction to the ever
shortening game replacement life cycle; and (b) concentrating efforts on
specialty gaming machines that are protected by patents or other property rights
to maintain an exclusive or dominant position in the market.

PRODUCTS

The Company has two primary product lines: multi-player/multi-station video
table games and single player video slot machines incorporating state of the art
graphics and sound.

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 21% of sales in 1999, 40% in 1998 and 49% in 1997.

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 12%
of sales in 1999, 0% of sales in 1998 and 5% in 1997.

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



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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 20% of sales in 1999, 38% in 1998, and 38%
in 1997.


SINGLE PLAYER VIDEO SLOT MACHINES

This new series of slot machines incorporates a unique PC platform. The
operating system and software provide what the Company believes is very powerful
performance and excellent cost advantages over traditional operating systems.
Its modular software structure enables rapid development of new game
personalities 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. Various game
theme options will be available utilizing this new platform. The Company has
initiated efforts for patent protection on several elements of this new
platform.


MANUFACTURING AND SUPPLY ARRANGEMENTS

The Company's primary products are assembled at its production facility in Reno,
Nevada, utilizing various parts and components from a large base of vendors. On
February 2, 1996, the Company negotiated fixed pricing for a minimum of two
years for specific electronic components with its Japanese suppliers in its
efforts to reduce product cost. Deliveries scheduled under this agreement were
completed in July 1999. The Company has transitioned to utilizing a more
domestic base of vendors for a majority of components utilized in its products
to reduce the reliance on exchange rate sensitivities and to negotiate more
competitive prices on required components. The Company has developed new
technology to replace the electronic components previously purchased from the
Japanese vendor, and the Company has identified alternate sources of supply for
significant parts and components should any of its current vendors fail to meet
order requirements by the Company.


INTELLECTUAL PROPERTY

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



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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 to distribute its products both
directly to gaming markets and through licensed distributors. In certain
jurisdictions the Company may use an existing licensed distributor to sell its
products pursuant to any necessary Tribal or regulatory transaction approvals.

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 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 Australasia video gaming jurisdictions. Pursuant to such
agreement, the Company 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, 86 games in 1998 and no games in 1999.
Due to the declining multi-player game sales in their territory, the Company's
sales to this distributor declined in the third and particularly fourth quarters
of 1998, and the Company made no game sales to this distributor in 1999. In
March 2000, the Company and Aristocrat terminated the distribution agreement.

In March 1996, the Company entered into exclusive agreements with Ludi S.F.M.
and with S.A.M. Eurusa for the exclusive distribution of the Company's games in
France, Monaco, Morocco, Tunisia and Italy. Ludi and Eurusa are affiliated
entities. Under such agreement, Ludi and Eurusa have been granted three-year
exclusive licenses, expiring March 1999, to distribute the Company's blackjack,
craps and roulette games, subsequent to any and all regulatory approvals. These
agreements are renewed automatically for successive one-year terms up to a
cumulative maximum term of eight years unless terminated by one of the parties
under the terms and conditions set forth in the distribution agreements.
Pursuant to the agreement, the Company has agreed to sell its games to Ludi and
Eurusa at the Company's then current retail price less a distributor's discount.
No sales have been made under this agreement through December 31, 1999.

In January 1997, the Company entered into a three-year exclusive agreement with
Vista Gaming Corporation ("Vista") for the distribution and service of the
Company's products in Colorado. However, if Vista does not distribute of lease
at least 20 machines after six months and/or 35 machines after one year, this
agreement will revert to a non-exclusive distributorship. The lease rates will
be comparable to lease rates charged by other specialty game suppliers. This
agreement provides for automatic renewal annually after the original term and
may be terminated by either party under certain circumstances.

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 may be renewed 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, the agreement was
renewed for a one-year term.




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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 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. This agreement provides for automatic
renewal annually after the original term, up to a total of eight years, and may
be terminated by either party under certain circumstances.

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 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 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.


SIGNIFICANT CUSTOMERS

During fiscal 1999, the Company made sales to one customer, Black Hills Novelty
Co., which accounted for 18.9% of sales for the year. No other single customer
accounted for 10% or more of sales.


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 Industries 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. There can be no assurance that these competitors,
or another competitor, will not develop gaming machines that are similar to the
Company's gaming machines in the future. Furthermore, the Company is developing
games for the intensely competitive single player game market. There can be no
assurance that any single player games developed by the Company will be accepted
in such competitive markets.


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



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

Class II gaming includes bingo and, additionally, pulltabs, 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
parimutuel 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



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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.

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 with
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"),



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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.

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.



                                      -9-
<PAGE>   10

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
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



                                      -10-
<PAGE>   11

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
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.



                                      -11-
<PAGE>   12

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
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.



                                      -12-
<PAGE>   13

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
recordkeeping 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 Annual Report on Form
10-K, 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 17, 2000,
the Company had cash of approximately $224,000. The Company has experienced
negative cash flow from operations of $5.1 million, $2.1 million and $7.5
million for the years ended December 31, 1999, 1998, and 1997, respectively. The
Company estimates that if current sales forecasts are met its cash and
anticipated funds from operations will be adequate to fund cash requirements
through the date of the Merger. Management believes that the costly process of
product development and introduction will require the Company to seek additional
financing to successfully complete any such future development and introduction
if the Merger is not completed. 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.

RISK OF FAILURE TO COMPLETE MERGER WITH NMORTGAGE - On December 31, 1999, the
Company, Equitex and nMortgage executed a definitive merger agreement governing
the Merger. Pursuant to the merger agreement, nMortgage will be merged with and
into IGCA Merger Subsidiary, a Minnesota corporation and wholly-owned subsidiary
of the Company, upon closing of the Merger, with IGCA Merger Subsidiary being
the surviving corporation in the Merger. Upon closing of the Merger, the IGCA
would be renamed "nMortgage.com, Inc."



                                      -13-
<PAGE>   14

nMortgage is a direct lender headquartered in Fort Lauderdale, Florida, and
offers both retail and wholesale mortgage financing through its subsidiary,
First Bankers Mortgage Services, Inc.

As an additional condition to the Merger, concurrent with the merger, the
Company must divest substantially all of its gaming assets. On February 1, 2000,
the Company entered into a definitive asset purchase agreement with Xertain,
Inc. ("Xertain"), pursuant to which Xertain will purchase substantially all of
the Company's gaming assets. In exchange for the gaming assets of the Company,
Xertain will pay an aggregate purchase price of $4,000,000 plus a promissory
note payable to IGCA in an amount equal to the accounts receivable of IGCA as of
the closing date, adjusted for certain payments to be made by Xertain and IGCA
as provided for in the note, and Xertain will assume certain liabilities of IGCA
(" the "Gaming Asset Divestiture").

In addition to various standard conditions of closing, the Gaming Asset
Divestiture is subject to the simultaneous closing of the Merger, shareholder
approval and the termination of various employment agreements of certain key
employees of IGCA. There can be no assurance that all of these conditions will
be met and the anticipated transactions successfully consummated on a timely
basis, if at all.

If the Merger and related Gaming Asset Divestiture are not successfully
consummated, the Company will be required to seek additional financing. 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. Furthermore, in the event the
Merger is consummated on a timely basis, there can be no assurance that the
post-Merger Company would not have the same if not more serious demands for
capital to fund operations.

LACK OF PROFITABILITY - The Company has had losses of $14.1 million in 1999,
$4.7 million in fiscal 1998 and $2.9 million in fiscal 1997. The Company has not
had a profitable quarter since the fourth quarter of fiscal 1997 and does not
expect to be profitable prior to the merger with nMortgage.

FAILURE TO REGISTER CERTAIN SHARES - 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. $49,000)
if such Common Stock is not registered by April 13, 2000 and 3.5% per month
(i.e. $85,750) for each month thereafter that such Common Stock is not
registered. As of March 30, 2000, the Company has not registered such shares of
Common Stock with the Securities and Exchange Commission. Unless the Company can
register such shares by April 13, 2000 or obtain a waiver of such provisions
from the holders of the Company's Series D 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



                                      -14-
<PAGE>   15

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 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.

DEPENDENCE ON CUSTOMERS

During 1998, a substantial portion of the Company's sales were to one customer,
Aristocrat Leisure Industries ("Aristocrat") an Australian-based distributor,
which accounted for approximately 54% of sales. Due to the declining
multi-player game sales in their territory, the Company's sales to this
distributor declined in 1998, and the Company made no sales to this customer in
1999. In March 2000, the Company and Aristocrat terminated the distribution
agreement. Although the Company is attempting to diversify its customer base, no
assurance can be given that the Company will be successful in such
diversification, and failure to successfully diversify its customer base could
have a material adverse impact on the Company.

GOVERNMENT REGULATION

The manufacture and distribution of gaming machines are subject to extensive
federal, state, provincial, tribal, international and local regulation. 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 is dependent on its ability
to enhance its existing products and to introduce in a timely manner new
products that meet existing and future regulatory requirements and evolving
customer requirements 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.



                                      -15-
<PAGE>   16

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.

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
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.



                                      -16-
<PAGE>   17

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 National 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, 1999, the
Company's Common Stock has traded in the range of $0.81 to $2.72 per share,
reaching a low of $0.81 on January 14, 1999. No assurance can be given that the
Company's Common Stock will continue to trade above the NASDAQ National Market
minimum requirements or that the Company can maintain its NASDAQ National 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.

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
member of management 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
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 53,100 square feet of warehouse and office
space in Reno, Nevada for its main facility, which includes administrative,
sales, manufacturing and warehousing operations. The rent under the lease, which
expires in October 2001, was approximately $266,000 in 1999, with provisions for
annual rent increases. The Company also leases approximately 2,400 square feet
of office and warehouse space in Las Vegas, Nevada for sales and service
operations. The rent under the lease, which expires in February 2000, was
approximately $31,000 in 1999.



                                      -17-
<PAGE>   18

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business.


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, 1999.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

EDWARD G. STEVENSON, AGE 53, has been the Chairman of the Board and Chief
Executive Officer since June 1998 and Chief Financial Officer since September
1999, and served as President of the Company from February 1996 to October 1998.
Prior to joining the Company, Mr. Stevenson served as the President and Chief
Operating Officer of Little Six, Inc. d/b/a Mystic Lake Casino in Minneapolis,
from January 1995 to March 1996. From 1988-1991 and from October 1992 to January
1995, Mr. Stevenson was the President of CMS International/Summit Casinos of
Reno, Nevada.

BARRETT V. JOHNSON, AGE 67, joined the Company as Vice President of Engineering
in January 1998, and was named President and Chief Operating Officer in October
1998. Prior to joining the Company, Mr. Johnson held the positions of Vice
President of Operations and then Director/President of Aristocrat, Inc. from
1993 to 1997. From 1987 to 1993, Mr. Johnson progressed through a variety of
positions from Service Technician to General Manager of Universal Distributing
of Nevada, Inc. Prior to entering the gaming industry, Mr. Johnson served in the
United State Air Force for 30 years.



                                      -18-
<PAGE>   19

                                     PART II

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


                           PRICE RANGE OF COMMON STOCK

Since May 28, 1993, the date of the Company's initial public offering, through
September 20, 1994, the Company's Common Stock was traded on NASDAQ Small-Cap
Market under the ticker symbol "IGCA". On September 21, 1994 the Company's
Common Stock began trading on the NASDAQ National Market.

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

<TABLE>
<CAPTION>
                                                HIGH                     LOW
                                                ----                     ---
<S>                                            <C>                      <C>
FYE 12/31/98
First Quarter                                  $4.38                    $2.25
Second Quarter                                  4.13                     2.25
Third Quarter                                   3.88                     2.00
Fourth Quarter                                  2.00                     1.00

FYE 12/31/99
First Quarter                                  $1.38                    $1.00
Second Quarter                                  2.31                     1.00
Third Quarter                                   2.72                     1.50
Fourth Quarter                                  2.61                     1.19
</TABLE>


The Company has never declared or paid any dividends on its Common Stock, and
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.

On March 22, 2000, the last reported sale price for the Common Stock was $2.25
per share. As of March 21, 2000, the Company had 124 shareholders of record and
in excess of 1,000 beneficial shareholders of Common Stock.



                                      -19-
<PAGE>   20

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, 1999, 1998, 1997, 1996 and 1995. 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 Year   For the Year   For the Year   For the Year    Five Months
                                          Ended          Ended          Ended          Ended          Ended
                                       December 3,    December 31,   December 31,   December 31,   December 31,
                                           1999           1998           1997           1996           1995
                                      ------------   -------------   ------------   ------------   ------------
<S>                                   <C>            <C>             <C>            <C>            <C>
Statement of operations data:
  Net sales                              $  2,897       $  8,509       $ 10,292       $  2,664       $  6,352
  Gross profit                             (1,342)         1,375          3,103            529          1,589
  Operating loss                          (11,131)        (4,444)        (2,182)        (6,592)        (2,765)

  Loss on disposal of gaming
     manufacturing equipment               (2,221)            --             --             --             --
  Net loss                                (13,425)        (4,338)        (1,935)        (6,899)        (2,114)
  Net loss per common share:
     Operating loss                         (1.58)         (0.63)         (0.43)         (1.09)         (0.38)
     Loss on disposal of gaming
       manufacturing equipment              (0.29)            --             --             --             --

Cash flow data:
   Cash provided by (used for):
     Operating activities                  (5,123)        (2,106)        (7,516)        (2,726)           591
     Investing activities                     (38)           (92)           555          3,784         (4,399)
     Financing activities                   3,684          3,297          4,486          1,038            (87)
   Increase (decrease) in cash
      and cash equivalents                  1,477          1,099         (2,475)         2,096         (3,895)

Balance sheet data (end of period):
  Cash, cash equivalents and
   available-for-sale securities              140          1,617            518          5,959          8,749
  Working capital                           4,031         12,100         12,603         11,996         16,039
  Total assets                              8,058         17,093         18,461         15,256         18,929
  Long-term debt (net of
     current maturities)                    3,131            856            509             --             --
  Total stockholders' equity                2,640         14,872         16,482         14,730         18,531
</TABLE>




                                      -20-
<PAGE>   21

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

The following discussion and this Form 10-K contains 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: successful completion of the proposed merger with nMortgage, Inc.
and the related gaming asset divestiture, customer acceptance of the Company's
products, need for additional financing, 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 and increased competition.

On October 8, 1999, the Company entered into a non-binding letter of intent with
Equitex, Inc., 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 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 will 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 must divest substantially
all of its gaming assets. (See Note 11 - Agreement for Merger and Note 12 -
Subsequent Events - Discontinued Operations/Gaming Asset Divestiture Agreement).

On February 1, 2000, the Company entered into a definitive asset purchase
agreement with Xertain, Inc. ("Xertain"), pursuant to which Xertain will
purchase substantially all of the Company's gaming assets. In exchange for the
gaming assets of the Company, Xertain will pay an aggregate purchase price of
$4,000,000 plus a promissory note payable to IGCA in an amount equal to the
accounts receivable of IGCA as of the closing date, adjusted for certain
payments to be made by Xertain and IGCA as provided for in the note, and Xertain
will assume certain liabilities of IGCA (the "Gaming Asset Divestiture"). The
accounts receivable promissory note will be secured by the accounts receivable
of IGCA which are being acquired by Xertain.

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 BJ Blitz(TM), Hot Shot Dice(TM), Lightning
Strike Roulette(TM), Supersuits Progressive Blackjack(TM) and Bonus Streak(TM)
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 such as Bonus Streak and single player video slot machines incorporating
state of the art graphics and sound.

REGULATION - The Company distributes its products both directly to the gaming
marketplace and through licensed agents and distributors. The Company is
currently licensed and/or has the necessary regulatory approvals as a gaming
product manufacturer and distributor in Nevada, Colorado, Mississippi,
Louisiana, North Carolina, Minnesota, Iowa, Arizona, South Dakota, certain New
Mexico tribal jurisdictions, Quebec and the Atlantic Lottery (four Canadian
Maritime provinces). In certain jurisdictions where the Company is licensed,
such as Colorado, the Company may elect to market its products through a
licensed distributor pursuant to any necessary regulatory approvals. In certain
jurisdictions where licensure is not required, such as Australia, the Company
may use an existing licensed distributor to sell its products pursuant to any
necessary regulatory transaction approvals.



                                      -21-
<PAGE>   22

Previously registered in Alberta, Manitoba, Saskatchewan, Quebec and the
Atlantic Lottery Corporation, the Company has applications pending in British
Columbia, Ontario and Nova Scotia. The Company has an agents to market its
products in Canada and Europe. As of March 2000, the Company has submitted and
has pending applications in Connecticut, Illinois and Indiana, and has submitted
games for approval in New Jersey.

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 to
expedite the timing of gaming regulatory approvals in certain jurisdictions.
These notes are unsecured, pay interest of 5% per annum and will be 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 is 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. See "Common Stock Redemption" and Item 1. - "Business -
Regulation."

DISTRIBUTORS - In February 1996, the Company entered into a five-year
distribution agreement with Aristocrat Leisure Industries of New South Wales,
Australia to exclusively market and distribute the Company's multi-station
products in Australia, New Zealand and surrounding gaming markets. Sales to this
Australian distributor declined in the third and particularly fourth quarters of
1998, there were no game sales to this distributor in 1999 and there were no
game sales to this distributor in the first quarter of 2000. In March 2000, the
Company and Aristocrat terminated the distribution agreement. In March 1996, the
Company entered into a three-year exclusive distribution agreement with Ludi
S.F.M. of France and its related entity Eurusa, to market and distribute the
Company's multi-station products to select western European gaming markets. This
agreement provides for automatic one year extensions up to a cumulative maximum
term of eight years unless either party terminates the agreement. In January
1997, the Company granted a three-year exclusive distribution license to Vista
Gaming Corporation to distribute and service the Company's multi-station
blackjack and roulette, and Bonus Streak products in Colorado. In May 1999, the
Company granted an extension for one year to an exclusive agency agreement with
Bill Engle to represent certain of the Company's products for sale in specified
provinces of Canada. In December 1998, the Company granted a three-year
exclusive distribution license to DGS, Inc. to distribute the Company's
multi-station blackjack and 21 Stud products in South Carolina. In January 1999,
the Company granted a two-year exclusive distribution license to Par 4 to
distribute certain of the Company's products in Atlantic City, New Jersey and
Connecticut, subject to the Company's approval to sell products and approval of
its products. In April 1999, the Company entered into a two-year exclusive
agency agreement with Stuart Black to represent the Company's products for sale
in specific territories in Europe.

RELATIONSHIP WITH LAKES GAMING, INC. - Lakes Gaming, Inc. ("LGI") (formerly
Grand Casinos, Inc.) is in the business of managing and developing casinos.
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. Pursuant to this
agreement, the Company has sold 42 blackjack machines, 11 craps machines and 8
roulette machines. 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 which 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



                                      -22-
<PAGE>   23

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.

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. The Company entered into a Stock Redemption Agreement with LGI
pursuant to which the Company redeemed 700,000 shares of Company Common Stock in
exchange for a four-year convertible note and a warrant to purchase 87,500
shares of the Company's Common Stock. The note is unsecured, pays interest of 5%
per annum and is convertible at $1.25 per share (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 until April 22, 2000. The exercise price of the warrants is
$1.25 per share. The Company also granted "piggyback" registration rights for
shares of Common Stock issuable upon conversion of both the note and the
warrant.

OTHER - On February 2, 1996, the Company completed the acquisition of all
remaining patents, trademarks, copyrights and other intellectual property
related to its games from its principal supplier. The Company also signed an
agreement to receive discounted pricing on key game components for a two-year
period. The Company received the final delivery under this agreement in July
1999.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1998

For the year ended December 31, 1999, the Company reported a net loss of
$14,096,000, or $1.87 per share, including a loss on disposal of gaming
manufacturing equipment of $2,221,000, or $.29 per share. The Company recorded a
net loss of $4,710,000, or $.63 per share, for the year ended December 31, 1998.
Results from operations for both years have been adjusted for preferred stock
accretion and preferred stock dividends paid. As a result of the Company's
anticipated merger and divestiture of its gaming manufacturing asset, all
existing operations of the Company are reported as "Discontinued Operations"
(See Note 11 - Agreement for Merger and Note 12 - Subsequent Events -
Discontinued Operations/Gaming Asset Divestiture Agreement). The increased loss
in 1999 was primarily due to a write down of assets to market value, loss on
disposal of gaming manufacturing equipment, a decline in revenues and gross
profit and increased expenses incurred related to the Company's efforts to
develop/enhance and license its products and introduce those products into new
markets. As a result of the commitment to the merger plan and related
disposition of the gaming assets at the beginning of October 1999, all operating
revenue and expenses of the Company for the fourth quarter of 1999 are included
in the loss on disposal of gaming manufacturing equipment, which includes a
provision for operating expenses during the phase-out period.


SALES, COST OF SALES AND GROSS PROFIT

Net sales were $2,897,000 during the year ended December 31, 1999 compared to
$8,509,000 in the year ended December 31, 1998. This decrease is due in part to
inclusion of revenue for the fourth quarter of 1999 in the provision for
operating expenses during the phase-out period. The decrease is primarily due to
a decrease in sales of multi-player game sales from 123 in 1998 to 31 in the
1999.



                                      -23-
<PAGE>   24

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, 1999 and 1998:

<TABLE>
<CAPTION>
                                        Year ended                       Year ended
                                     December 31, 1999                December 31, 1998
                                  ----------------------------      ---------------------------
        <S>                       <C>                               <C>
        Sales revenue                              $2,897,000                       $8,509,000
                                  ============================      ===========================

        Product line:                  Percentage of revenue:           Percentage of revenue:
                                       ----------------------           ----------------------
           Multi-player games                             51%                              78%
           Single player games                            21%                               9%
           Parts sales and other                          19%                               8%
           Lease participation                             9%                               5%
                                  ----------------------------      ---------------------------
              Total                                      100%                             100%
                                  ============================      ===========================
</TABLE>


In the third quarter of 1997, the Company's multi-station blackjack and roulette
games received interim approval for use in the club market of New South Wales,
Australia. Subsequent to receiving such approval, the Company's Australian
distributor commenced marketing the Company's products in this market. The
decline in multi-station machine sales is partially attributable to reduced
purchases by this distributor in 1998. A total of 86 machines were sold to this
distributor in 1998. Due to the declining multi-player game sales in their
territory, sales to this distributor declined, particularly in the third and
fourth quarters of 1998, there were no game sales made to this distributor in
1999, and the Company has not forecasted sales to this distributor in 2000.

During 1997, 1998 and 1999, the Company has continued its efforts to expand its
markets by pursuing licensing in new jurisdictions, however, sales will continue
to be volatile until, among other things, the Company obtains new jurisdictional
licenses, marketing efforts are successfully completed and products are accepted
by the market place.

The Company also recognized lease/participation revenues in 1998 attributable to
placement of games in Colorado and Nevada casinos. In Nevada, game placements
under lease/participation agreements have been slower than originally expected
due to increasing customer resistance with participation arrangements. The
Company has expanded its marketing strategy in Nevada to attract a greater
number of casino operators by also offering its games for sale. To date, game
placements in Nevada have been fewer than anticipated by management.

The Company recorded a negative gross margin in 1999 compared to a gross profit
of 16.2% in 1998. The negative gross margin in 1999 was primarily due to
unabsorbed labor and overhead costs attributable to lower production volume. In
the years ended December 31, 1999 and 1998, there were no sales to LGI under
their discounted price arrangement.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expense for the year ended December 31, 1999
was $5,134,000 compared to $5,819,000 during fiscal year 1998. The decrease in
expense is due to inclusion of expenses for the fourth quarter of 1999 in the
provision for operating expenses during the phase-out period. Total expenses for
1999 included increased expenditures for engineering and development of new
products and enhancements to existing products. Expenses also increased related
to licensing the Company's products and costs to introduce those products into
new markets.



                                      -24-
<PAGE>   25

WRITE DOWN OF ASSETS TO MARKET VALUE

The $4,655,000 expense recorded in 1999 represents a reduction in carrying value
of the Company's assets to the amount expected top be realized upon the closing
of the anticipated divestiture of the Company's gaming assets. This write-down
is associated with the Company's inventories, property and equipment and
intangible assets (See Note 12 - Subsequent Events - Discontinued
Operations/Gaming Asset Divestiture Agreement).


INTEREST INCOME AND EXPENSE

Net interest expense for the year ended December 31, 1999 was $73,000 compared
to net interest income of $106,000 for fiscal year 1998. Interest expense
increased due to increased debt and interest income declined due to reduced
amounts invested in interest bearing accounts, and interest bearing notes
receivable from the sale of products.


PREFERRED STOCK ACCRETION ADJUSTMENT

On April 11, 1997, the Company issued 4,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") at a price of $1,000 per share
in a private placement (Note 7 of Stockholder's Equity-Preferred Stock). The
Series A Preferred Stock was convertible into shares of the Company's Common
Stock at a conversion price of 82% of the average closing bid price of the
Company's Common Stock over the ten-day trading period ending the day prior to
conversion. The intrinsic value of the beneficial conversion feature was
$878,048, which was accreted to Preferred Stock and charged against net income
or loss to arrive at net income or loss attributable to common shareholders over
the period in which the right to convert the Preferred Stock became vested. The
$878,048 value of the beneficial conversion feature was recognized during the
second and third quarters of 1997.

On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") at a price of $1,000 per share
in a private placement. The Series B Preferred Stock is convertible into shares
of the Company's Common Stock at a conversion price of 91% of the average
closing bid price of the Company's Common Stock 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 intrinsic
value of the beneficial conversion feature was $296,703, which was accreted to
Series B Preferred Stock and charged against net income or loss to arrive at net
income or loss attributable to common shareholders over the period in which the
right to convert the Preferred Stock became vested. The $296,703 value of the
beneficial conversion feature was recognized during the second, third and fourth
quarters of 1998.

On June 1, 1999, the Company issued 1,400 shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") at a price of $1,000 per share
in a private placement. The Series C Preferred Stock is convertible into shares
of the Company's Common Stock at a conversion price of 91% of the average
closing bid price of the Company's Common Stock 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 intrinsic
value of the beneficial conversion feature was $138,462, which was accreted to
Series C Preferred Stock and charged against net income or loss to arrive at net
income or loss attributable to common shareholders over the period in which the
right to convert the Preferred Stock became vested. The $138,462 value of the
beneficial conversion feature was recognized during the second, third and fourth
quarters of 1999.

During October 1999, the Company issued 2,450 shares of Series D Convertible
Preferred Stock (the "Series D Preferred Stock") at a price of $1,000 per share
in a private placement. The 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



                                      -25-
<PAGE>   26

average of closing bid price of the Company's Common Stock for the five
consecutive days immediately preceding the conversion date. The intrinsic value
of the beneficial conversion feature was $816,721, which is being accreted to
Series D Preferred Stock and charged against net income or loss to arrive at net
income or loss attributable to common shareholders over the period in which the
right to convert the Preferred Stock becomes vested. The $816,721 value of the
beneficial conversion feature is being recognized during the fourth quarter of
1999 and the first quarter of 2000.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1997.

For the year ended December 31, 1998, the Company reported a net loss of
$4,710,000, or $.63 per share, compared to a net loss of $2,889,000, or $.43 per
share, for the year ended December 31, 1997. Results from operations for both
years have been adjusted for preferred stock accretion and preferred stock
dividends paid. The greater loss in 1998 was primarily due to a decline in
revenues and gross profit and higher expenses for engineering and product
development.

SALES, COST OF SALES AND GROSS PROFIT

Sales decreased to $8,509,000 during the year ended December 31, 1998 compared
to $10,292,000 in the year ended December 31, 1997, due to a decrease in
multi-station machine sales from 166 in 1997 to 123 in 1998. This decrease was
partially offset by an increase in sales of single player Bonus Streak games
from 6 in 1997 to 53 in 1998. The following table presents the comparative sales
revenue and percentage of revenue derived from each of the Company's product
lines for the years ending December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                          Year ended                       Year ended
                                       December 31, 1999                December 31, 1998
                                  ----------------------------      ---------------------------
        <S>                         <C>                               <C>
        Sales revenue                           $8,509,000                       $10,292,000
                                  ============================      ===========================

        Product line:               Percentage of revenue:            Percentage of revenue:
                                  ----------------------------      ---------------------------
           Multi-player games                          78%                               92%
           Single player games                          9%                                1%
           Parts sales and other                        8%                                4%
           Lease participation                          5%                                3%
                                  ----------------------------      ---------------------------
              Total                                   100%                              100%
                                  ============================      ===========================
</TABLE>


The Company was granted technical game approval of its blackjack machine in
Colorado and its three multi-player video machines in Nevada in early 1997,
allowing the Company to pursue placement of its products in those jurisdictions.
In the third quarter of 1997, the Company's multi-station blackjack and roulette
games received interim approval for use in the club market of New South Wales,
Australia. Subsequent to receiving such approval, the Company's Australian
distributor commenced marketing the Company's products in this market. The
decline in multi-station machine sales is partially attributable to reduced
purchases by this distributor in 1998. A total of 86 machines were sold to this
distributor in 1998, with the majority of those sales occurring in the first and
second quarters, compared to 99 machines in 1997. Due to the declining
multi-player game sales in their territory, sales to this distributor declined,
particularly in the third and fourth quarters of 1998, and the Company has not
forecasted sales to this customer in 1999. Also contributing to the decreased
revenue were sales to a North Carolina casino, which purchased 12 machines in
1998 compared to 30 machines in 1997.



                                      -26-
<PAGE>   27

Delays in acquiring required gaming licenses in key gaming jurisdictions have
limited the markets available to expand sales of the Company's products in 1998.
During 1997 and 1998, the Company has continued its efforts to expand its
markets by pursuing licensing in new jurisdictions, however, sales will continue
to be volatile until, among other things, the Company obtains new jurisdictional
licenses, marketing efforts are successfully completed and products are accepted
by the market place.

The Company also recognized lease/participation revenues in 1998 attributable to
placement of games in Colorado and Nevada casinos. In Nevada, game placements
under lease/participation agreements have been slower than originally expected
due to increasing customer resistance with participation arrangements. The
Company has expanded its marketing strategy in Nevada to attract a greater
number of casino operators by also offering its games for sale. To date, game
placements in Nevada have been fewer than anticipated by management.

The gross margin in 1998 was 16.2% compared to 30.1% in 1997. The lower gross
margin in 1998 was primarily due to unabsorbed labor and overhead costs
attributable to lower production volume in the second half of the year. In the
years ended December 31, 1998 and 1997, there were no sales to LGI under their
discounted price arrangement.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expense for the year ended December 31, 1998
was $5,819,000 compared to $5,285,000 during fiscal year 1997. This increase in
expense is primarily attributable to higher expenditures for engineering and
development costs for new product development. Expenses also increased for
professional fees, particularly legal fees and other costs associated with
licensing and product approvals.


INTEREST INCOME

Interest income for the year December 31, 1998 was $106,000 compared to $247,000
for fiscal year 1997. This interest income decrease was due to reduced amounts
invested in interest bearing accounts, including interest bearing notes
receivable from the sale of product.


PREFERRED STOCK ACCRETION ADJUSTMENT

On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") at a price of $1,000 per share
in a private placement (see Note 7 of Notes to Consolidated Financial
Statements). The Series B Preferred Stock is convertible into shares of the
Company's Common Stock at a conversion price of 91% of the average closing bid
price of the Company's Common Stock 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 intrinsic value of the
beneficial conversion feature was $296,703, which was accreted to Series B
Preferred Stock and charged against net income or loss to arrive at net income
or loss attributable to common shareholders over the period in which the right
to convert the Preferred Stock became vested. The $296,703 value of the
beneficial conversion feature was recognized during the second, third and fourth
quarters of 1998.

On April 11, 1997, the Company issued 4,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") at a price of $1,000 per share
in a private placement (see Note 7 of Notes to Consolidated Financial
Statements). The Series A Preferred Stock was convertible into shares of the
Company's Common Stock at a conversion price of 82% of the average closing bid
price of the Company's Common Stock over the ten-



                                      -27-
<PAGE>   28

day trading period ending the day prior to conversion. The intrinsic value of
the beneficial conversion feature was $878,048, which was accreted to Preferred
Stock and charged against net income or loss to arrive at net income or loss
attributable to common shareholders over the period in which the right to
convert the Preferred Stock became vested. The $878,048 value of the beneficial
conversion feature was recognized during the second and third quarters of 1997.


LIQUIDITY AND CAPITAL RESOURCES

PREFERRED STOCK ISSUES

On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") at a price of $1,000 per share
in a private placement for total proceeds of $3,000,000 prior to any offering
expenses.

On June 1, 1999, the Company issued 1,400 shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") at a price of $1,000 per share
in a private placement for total proceeds of $1,400,000 prior to any offering
expenses. Each share of the Series B and Series C Preferred Stock (collectively
the "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 of the Preferred Stock may not exceed $5.16 for the Series B
Preferred Stock and $1.877 for the Series C Preferred Stock. The maximum number
of shares of Common Stock that may be issued upon conversion of the Series B and
Series C Preferred Stock is 1,505,000 and 1,331,500, respectively. In the event
a holder of Preferred Stock that is unable to convert shares of Preferred Stock
into Common Stock at a discount because the maximum number shares have been
issued at a discount, the Company may, in the case of the Series B Preferred
Stock, 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
Preferred Stock equal to the value that would have been received by such holder
if able to convert at a discount, or in the case of Series C Preferred Stock,
redeem any unconverted Series C Preferred Stock for cash at a price equal to
115% of the liquidation value. As of December 31, 1999, Series B Preferred Stock
totaling $1,620,000 had been converted into Common Stock of the Company and the
Company had redeemed $1,100,000 of the Series B Preferred Stock. The remaining
$280,000 of Series B Convertible Preferred Stock was convertible into Common
Stock of the Company at the election of the holder thereof. 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. The Company has the right to redeem the
Series C Preferred Stock at 115% of par in cash beginning August 31, 1999. As of
December 31, 1999, Series C Preferred Stock totaling $500,000 had been converted
into Common Stock of the Company and the remaining $900,000 of Series C
Convertible Preferred Stock was convertible into Common Stock of the Company at
the election of the holder thereof. All outstanding shares of Preferred Stock
will automatically be converted into Common Stock on June 1, 2001. A holder of
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.

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 of
$1,000 per share in a private placement for total proceeds of $2,450,000, 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. 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



                                      -28-
<PAGE>   29

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 par 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 had not been declared effective by the Securities and Exchange
Commission as of March 30, 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 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.


1999 CONVERTIBLE DEBT FINANCING

In June 1999, three-year convertible secured notes totaling $1,550,000 were
issued to a group of investors including a current shareholder of the Company.
Interest 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 of the Company 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. The note holders were also
granted an aggregate of 282,500 warrants to purchase shares of the Company's
Common Stock at an exercise price of $1.25 per share.


LIQUIDITY

The Company had $140,000 and $1,617,000 in cash, cash equivalents as of December
31, 1999 and December 31, 1998, respectively. The Company has experienced
negative cash flow from operations of $5.1 million, $2.1 million and $7.5
million for the years ended December 31, 1999, 1998, and 1997, respectively. As
of March 17, 2000, the Company had cash of approximately $224,000. The Company
presently estimates that if current sales forecasts are met its cash and
anticipated funds from operations will be adequate to fund cash requirements
through the date of the Merger. Management believes that the costly process of
product development and introduction will require the Company to seek additional
financing to successfully complete any such future development and introduction
if the Merger is not completed on a timely basis, if at all. There can be no
assurance that the Company will be successful in closing the Merger on a timely
basis, if at all, or 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.

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. $49,000) if such Common Stock is not
registered by April 13, 2000 and 3.5% per month (i.e. $85,750) for each month
thereafter that such Common Stock is not registered. As of March 30, 2000, the
Company has not registered such shares of Common Stock with the Securities and
Exchange Commission. Unless the Company can register such shares by April 13,
2000 or obtain a waiver of such provisions from the holders of the Company's
Series D 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.



                                      -29-
<PAGE>   30

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 to
expedite the timing of gaming regulatory approval in certain jurisdictions.
These notes are unsecured, pay interest of 5% per annum and will be 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. See Item 1. - - "Business - - Regulation."


OTHER

Gains and losses on foreign currency transactions are recognized 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.


YEAR 2000 UPDATE

During 1999, the Company completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date recognition
issues in the Company's computer systems, products and services, working with
third parties to address their Year 2000 issues, and developing contingency
plans to address potential risks in the event of Year 2000 failures. The
Company's Year 2000 computer testing and contingency planning was successful, as
the Company has experienced no problems with systems or customers' accounts as
the date changed from 1999 to 2000. The Company will continue to monitor its
computer systems, products and services, including interaction with clients,
major vendors and suppliers throughout 2000 to address any issues. The costs to
address the Year 2000 related issues through March 20, 2000, were approximately
$7,000. The Company does not anticipate such costs to become material in the
future. Although the Company is not aware of any material operational or
financial Year 2000 related issues not being addressed, the Company cannot
assure that its computer systems, products and services or the computers and
other systems of others upon which the Company depends will not incur Year 2000
issues, that the costs of its Year 2000 program will not become material or that
the Company's alternative plans will be adequate. If any such risks (either with
respect to the Company or its customers or suppliers) materialize, the Company
could experience material adverse consequences to its business.


PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of
1934, as amended, which represent the Company's expectations or beliefs
concerning future events, including statements regarding the demand for the
Company's products in certain key jurisdictions such as Nevada and Australia. 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



                                      -30-
<PAGE>   31

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 successful completion of the merger with nMortgage and the
related gaming asset divestiture, 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; ability to obtain additional financing through
leasing, equity or other arrangements; 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.



                                      -31-
<PAGE>   32

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 Subsidiary as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 generally accepted
auditing standards. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of Innovative Gaming
Corporation of America and Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.

           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.

           As more fully discussed in Note 12, during 1999, the Company made
plans to discontinue its gaming equipment manufacturing segment through the sale
of the assets related thereto. Historically, assets and operations of the gaming
equipment manufacturing segment have represented a substantial portion of the
Company's total assets and results of operations.

           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
March 21, 2000



                                      -32-
<PAGE>   33

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



<TABLE>
<CAPTION>
                                                                                     As of December 31,
                                                                                 -----------------------
                                                                                   1999           1998
                                                                                 --------       --------
<S>                                                                              <C>            <C>
                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                      $    140       $  1,617
  Restricted investments                                                               --            700
  Accounts receivable, net of allowances of $280 and $85                              759          1,186
  Current portion of notes receivable                                                 188            334
  Inventories, net                                                                  4,576          9,244
  Prepaid expenses and other                                                          655            384
                                                                                 --------       --------
     Total current assets                                                           6,318         13,465

NOTES RECEIVABLE, less current portion                                                268            362
PROPERTY AND EQUIPMENT, net                                                           707          1,389
INTANGIBLES ASSETS, net                                                               765          1,877
                                                                                 --------       --------

          TOTAL ASSETS                                                           $  8,058       $ 17,093
                                                                                 ========       ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                               $    585       $    313
  Accrued liabilities                                                               1,110            524
  Notes payable - current portion                                                     592            528
                                                                                 --------       --------

     Total current liabilities                                                      2,287          1,365

  Notes payable - net of current portion                                            3,131            856
                                                                                 --------       --------

     Total liabilities                                                              5,418          2,221
                                                                                 --------       --------

COMMITMENTS AND CONTINGENCIES (Note 9)                                                 --             --

STOCKHOLDERS' EQUITY:
  Series B Convertible Preferred Stock, $.01 par value, nonvoting,
    4,000 shares authorized, 280 and 3,000 shares outstanding, respectively            --             --

  Series C Convertible Preferred Stock, $.01 par value, nonvoting,
    2,000 shares authorized, 900 and 0 shares outstanding, respectively                --             --

  Series D Convertible Preferred Stock, $.01 par value, nonvoting,
    3,000 shares authorized, 1,612.5 and 0 shares outstanding, respectively            --             --

  Common stock, $.01 par value, 100,000,000 shares authorized,
    8,952,366 and  7,535,211 shares issued and outstanding, respectively               90             75

  Additional paid-in capital                                                       34,525         32,676
  Accumulated deficit                                                             (31,975)       (17,879)
                                                                                 --------       --------

     Total stockholders' equity                                                     2,640         14,872
                                                                                 --------       --------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  8,058       $ 17,093
                                                                                 ========       ========
</TABLE>

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



                                      -33-
<PAGE>   34

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



<TABLE>
<CAPTION>
                                                                For the Year   For the Year  For the Year
                                                                   Ended          Ended         Ended
                                                                December 31,   December 31,  December 31,
                                                                   1999           1998          1997
                                                                ------------   ------------  ------------
<S>                                                              <C>            <C>          <C>
DISCONTINUED OPERATIONS (Notes 11 and 12):

     NET SALES                                                   $  2,897       $ 8,509       $ 10,292

     COST OF SALES                                                  4,239         7,134          7,189
                                                                 --------       -------       --------

         Gross profit/(loss)                                       (1,342)        1,375          3,103


     SELLING, GENERAL AND ADMINISTRATIVE EXPENSE                    5,134         5,819          5,285
     WRITE DOWN OF ASSETS TO MARKET VALUE                           4,655            --             --
                                                                 --------       -------       --------

         Operating loss                                           (11,131)       (4,444)        (2,182)

     INTEREST INCOME, net                                             (73)          106            247
                                                                 --------       -------       --------

         Loss before income taxes                                 (11,204)       (4,338)        (1,935)

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

        Loss from operations of discontinued gaming
           equipment manufacturing (net of applicable
           income taxes of $0)                                    (11,204)       (4,338)        (1,935)
        Loss on disposal of gaming equipment manufacturing,
           including provision of $1,606 for operating
           losses during phase-out period (net of
           applicable income taxes of $0)                          (2,221)           --             --
                                                                 --------       -------       --------

        Net loss                                                  (13,425)       (4,338)        (1,935)

     PREFERRED STOCK DIVIDENDS                                        124            75             76

     PREFERRED STOCK ACCRETION                                        547           297            878
                                                                 --------       -------       --------

       Net loss attributable to common shareholders              ($14,096)      ($4,710)      ($ 2,889)
                                                                 ========       =======       ========


     LOSS PER SHARE OF COMMON STOCK:
        Loss from operations of discontinued gaming
           equipment manufacturing (net of applicable
           income taxes of $0)                                   ($  1.58)      ($ 0.63)      ($  0.43)
        Loss on disposal of gaming equipment
           manufacturing, including provision for
           operating losses during phase-out period
           (net of applicable income taxes of $0)                   (0.29)           --             --
                                                                 --------       -------       --------

       Net loss attributable to common shareholders              ($  1.87)      ($ 0.63)      ($  0.43)
                                                                 ========       =======       ========


       Weighted average common shares outstanding                   7,525         7,535          6,744
                                                                 ========       =======       ========
</TABLE>

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




                                      -34-
<PAGE>   35

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



<TABLE>
<CAPTION>
                                                                                                           Unrealized
                                                            Convertible                                  Gain/(Loss) on
                                         Common Stock     Preferred Stock      Additional                Available-for-
                                      -----------------   ----------------       Paid-in    Accumulated     Sale
                                      Shares     Amount   Shares    Amount       Capital      Deficit     Securities   Total
                                      ------     ------   ------    -------      --------   -----------   ----------  --------
<S>                                   <C>        <C>      <C>       <C>          <C>        <C>           <C>         <C>
BALANCE, December 31, 1996             6,477      $ 65      --           --      $ 24,951      $ (9,559)      (7)     $ 15,450
  Series A preferred stock issued         --        --       4        3,122           622            --       --         3,744
  Preferred stock accretion
   adjustment                             --        --      --          878            --          (878)      --             0
  Series A preferred stock
    conversion to  common stock        1,055        10      (4)      (4,000)        3,990            --       --             0
  Preferred stock dividends paid           3        --      --           --            12           (76)      --           (64)
  Unrealized gain on
   available-for-sale securities          --        --      --           --            --            --        7             7
  Net loss                                --        --      --           --            --        (1,935)      --        (1,935)
                                      ------      ----      --      -------      --------      --------       --      --------

BALANCE, December 31, 1997             7,535        75      --           --        29,575       (12,448)      --        17,202
  Series B preferred stock issued         --        --       3           --         2,804            --       --         2,804
  Preferred stock accretion
   adjustment                             --        --      --           --           297          (297)      --            --
  Preferred stock dividends paid          --        --      --           --            --           (76)      --           (76)
  Net loss                                --        --      --           --            --        (5,058)      --        (5,058)
                                      ------      ----      --      -------      --------      --------       --      --------

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                                --        --      --           --            --       (13,425)      --       (13,425)
                                      ------      ----      --      -------      --------      --------       --      --------

BALANCE, December 31, 1999             8,952      $ 90       3      $    --      $ 34,525      $(31,975)      --      $  2,640
                                      ------      ----      --      -------      --------      --------       --      --------
</TABLE>

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



                                      -35-
<PAGE>   36

             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                      Consolidated Statements Of Cash Flows
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                        For the Year   For the Year  For the Year
                                                                           Ended          Ended         Ended
                                                                        December 31,   December 31,  December 31,
                                                                            1999           1998          1997
                                                                        ------------   ------------  ------------
<S>                                                                     <C>            <C>           <C>
OPERATING ACTIVITIES:
  Net loss                                                                ($13,425)      ($4,338)      ($1,935)
   Adjustments to reconcile net loss to
    cash flows used for operating activities -
   Depreciation and amortization                                             1,194           936           889
   Loss on sale of assets                                                       --            --             2
   Provision for inventory obsolescence                                      1,170           571           112
   Write down assets to market value                                         4,655            --            --
   Estimated loss during phase-out period                                      549            --            --
   Book value of fixed assets charged to cost of sales                          --            26           424
   Provision for bad debts                                                     198            --             9
   Changes in operating assets and liabilities:
     Accounts and notes receivable                                             470           875        (2,106)
     Inventories                                                                29           376        (5,574)
     Prepaid expenses and other                                               (272)         (224)           14
     Accounts payable and accrued expenses                                     309          (171)          492
     Customer deposits                                                          --          (157)          157
                                                                          --------       -------       -------
     Net cash used for operating activities                                 (5,123)       (2,106)       (7,516)
                                                                          --------       -------       -------
INVESTING ACTIVITIES:
  Purchases of available-for-sale securities                                    --            --        (1,042)
  Release of restricted investments                                            700           300            --
  Proceeds from sale of available-for-sale securities                           --            --         4,013
  Inventory (capitalized for use in) returned from gaming operations          (511)          363        (2,028)
  Purchases of property and equipment                                          (77)         (255)         (388)
  Purchases of intangible assets                                              (150)         (500)           --
                                                                          --------       -------       -------
     Net cash provided by (used for) investing activities                      (38)          (92)          555
                                                                          --------       -------       -------

FINANCING ACTIVITIES:
  Proceeds from financing agreements                                         2,028           955           873
  Payments on long-term obligations                                           (840)         (402)          (67)
  Preferred stock dividends paid                                              (125)          (60)          (64)
  Net proceeds from sale of common stock                                        40            --            --
  Net proceeds from sale of preferred stock                                  3,681         2,804         3,744
  Payment to redeem preferred stock                                         (1,100)           --            --
                                                                          --------       -------       -------
     Net cash provided by financing activities                               3,684         3,297         4,486
                                                                          --------       -------       -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (1,477)        1,099        (2,475)

CASH AND CASH EQUIVALENTS, beginning of period                               1,617           518         2,993
                                                                          --------       -------       -------

CASH AND CASH EQUIVALENTS, end of period                                  $    140       $ 1,617       $   518
                                                                          ========       =======       =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
  Cash paid for interest                                                  $    214       $    80       $     1
                                                                          ========       =======       =======
  Cash paid (refund received) for income taxes                            $      1       ($    1)      ($    3)
                                                                          ========       =======       =======
  Noncash transactions:
     Preferred Stock converted to common stock                            $  2,957       $    --       $ 4,000
                                                                          ========       =======       =======
     Preferred Stock dividends paid with common stock                     $      9       $    --       $    12
                                                                          ========       =======       =======
     Notes payable issued to redeem common stock                          $  1,313       $    --       $    --
                                                                          ========       =======       =======
</TABLE>

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



                                      -36-
<PAGE>   37

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 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 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 will
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 must divest
substantially all of its gaming assets. (See Note 11 - Agreement for Merger and
Note 12 - Subsequent Events - Discontinued Operations/Gaming Asset Divestiture
Agreement).

nMortgage is a direct lender headquartered in Fort Lauderdale, Florida and
offers both retail and wholesale mortgage financing through its subsidiary First
Bankers Mortgage Services, Inc. Upon closing of the Merger, the Company would be
renamed "nMortgage.com, Inc." The closing of the Merger is subject to, among
other things, obtaining approval of the Company's shareholders and of certain
governmental authorities, as well as other customary pre-closing conditions.

The Company has experienced negative cash flow from operations of $5.1 million,
$2.1 million and $7.5 million for the years ended December 31, 1999, 1998, and
1997, respectively. As of March 17, 2000, the Company had cash of approximately
$224. The Company estimates that its cash and anticipated funds from operations
will be adequate to fund cash requirements through the date of the Merger.
Management believes that the costly process of product development and
introduction will require the Company to seek additional financing to
successfully complete any such future development and introduction if the Merger
is not completed. 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.



                                      -37-
<PAGE>   38

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 subsidiary, Innovative Gaming, Inc.
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. Cash equivalents consist primarily of
demand deposits.

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.

RESTRICTED INVESTMENTS

At December 31, 1998, the Company had restricted investments of $700, of which
$500 was pledged as collateral against certain bank credit arrangements.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company has provided for an allowance for doubtful accounts for the years
ended December 31, 1999 and 1998, based on management's estimate of the
collectibilty 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, 1999,
1998 and 1997 was $852, $584, and $537, respectively.

<TABLE>
<CAPTION>
                                                     Useful Life        1999       1998
                                                     -------------   -------    -------
         <S>                                         <C>             <C>        <C>
         Office equipment                            5 years         $   899    $   942
         Display games                               5 years             142        142
         Gaming operations equipment                 2.5 years           790        543
         Manufacturing equipment                     5 years             359        358
         Leasehold improvements                      Life of lease       317        307
                                                                     -------    -------
           Total property and equipment                                2,507      2,292
           Less:  Accumulated depreciation                            (1,482)      (903)
                     Write down to market value                         (318)       - -
                                                                     -------    -------
               Total property and equipment, net                     $   707    $ 1,389
                                                                     =======    =======
</TABLE>



                                      -38-
<PAGE>   39

INVENTORIES

Inventories are recorded at the lower of cost or market value. Cost is
determined according to the first-in, first-out accounting method. Inventories
consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                  1999            1998
                                               -------         -------
         <S>                                   <C>             <C>
         Game components and parts             $ 5,320         $ 5,021
         Work in process                           418             231
         Finished goods                          3,926           4,939
         Inventory reserves                     (5,088)           (947)
                                               -------         -------
            Total inventories, net             $ 4,576         $ 9,244
                                               =======         =======
</TABLE>


INTANGIBLES

The Company amortizes intangibles on a straight-line basis over their estimated
economic lives while the technology is being utilized (See Note 5).

PRODUCT SALES/REVENUE RECOGNITION

The Company makes product sales for cash, on normal terms of 90 days or less,
over longer term installments, and, in Nevada, through participation in the net
win of the games until the purchase price is paid. Revenue from the sale of
products is 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 1999, the Company made sales to one customer, a distributor, Black Hills
Novelty Co., which accounted for 18.9% of sales for the year. During 1998, a
majority of the Company's sales were to one customer, a distributor, Aristocrat
Leisure Industries ("Aristocrat"), which accounted for 54.1% of sales. During
1997, a majority of the Company's sales were to two customers. Sales to one
distributor, Aristocrat, accounted for 48.4% of sales and direct sales to one
customer, Harrah's Smoky Mountain Casino, accounted for 19.4% of sales. In March
2000, the Company and Aristocrat terminated the distribution agreement. For the
years ended December 31, 1999, 1998, and 1997, 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.



                                      -39-
<PAGE>   40

At December 31, 1999, the following concentrations of credit risk existed:

<TABLE>
                  <S>                                <C>
                  Nevada                              34%
                  Arizona                             24%
                  Canada                              14%
                  Colorado                            13%
                  Australia                            7%
                  Palestine                            6%
                  Other                                2%
                                                     ----
                      Total                          100%
                                                     ====
</TABLE>


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 $3,309, $2,353 and $1,884 for the years ended December 31, 1999,
1998 and 1997, 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 statement
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). SFAS No. 128 is effective for periods
ending after December 15, 1997, and replaces previously reported earnings per
share with "basic" and "diluted" earnings per share. 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 which 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

During 1995, the Company adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of'" - (SFAS No.121). SFAS No.121 establishes 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.



                                      -40-
<PAGE>   41

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 an 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 is 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 $2,503 was allocated to inventories, property and equipment
and intangible assets based on the proportionate carrying values prior to the
impairment adjustment. No impairment existed at December 31, 1998.


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 which 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.

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. The Company entered into a Stock Redemption Agreement with LGI
pursuant to which the Company redeemed 700,000 shares of Company Common Stock in
exchange for a four-year convertible note and a warrant to purchase 87,500
shares of the Company's Common Stock. The note is unsecured, pays interest of 5%
per annum and is convertible at $1.25 per share (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 until April 22, 2000. The exercise price of the warrants is
$1.25 per share. The Company also granted "piggyback" registration rights for
shares of Common Stock issuable upon conversion of both the note and the
warrant.


3. AVAILABLE-FOR-SALE SECURITIES:

The Company had no available-for-sale securities at December 31, 1999 and 1998.
Proceeds from the sale of available-for-sale securities were $4,013 for the year
ended December 31, 1997.


4. 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



                                      -41-
<PAGE>   42

2%. At December 31, 1999, the face amount of notes receivable was $517. The
carrying value of notes receivable approximates their fair value. Certain of the
Company's notes receivable are pledged as security for a note payable to Finova
Capital Corporation. The following table represents the estimated future
collections of notes receivable, net of amounts to be recognized as interest
income, at December 31, 1999:

<TABLE>
<CAPTION>
                                                           Estimated
                    Years Ending December 31,               Receipts
                    -------------------------              ---------
                    <S>                                    <C>
                    2000                                        $188
                    2001                                         111
                    2002                                         110
                    2003                                          47
                                                                ----
                       Total                                    $456
                                                                ====
</TABLE>


5. INTANGIBLE ASSETS:

Intangible assets consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                    Useful Life        1999       1998
                                                    -------------   -------    -------
         <S>                                        <C>             <C>        <C>
         Product patent and technology rights       5 to 10 years   $ 3,082    $ 2,832
         Nevada distribution rights                 10 years            250        250
                                                                    -------    -------
            Total intangible assets                                   3,332      3,082
            Less: accumulated amortization                           (2,182)    (1,205)
                     write down to market value                        (385)       - -
                                                                    -------    -------
                  Total intangible assets, net                      $   765    $  1,877
                                                                    -------    -------
</TABLE>

Amortization recorded for intangibles was $977, $352 and $352 in the years ended
December 31, 1999, 1998, and 1997, 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.

Under an agreement with Quick Silver Development Co. Inc ("Quick Silver"), a
California corporation, the Company purchased the Patent and Technology for a
game concept entitled "Revolving Rings Gaming Apparatus", for a purchase price
of $50. The Company will also pay a per day game fee to Quick Silver for gaming
devices embodying the Patent technology and placed in locations under
participation agreements between the location and the Company. The per day game
fees will vary based upon the number of games placed and are subject to
regulatory approval. The $50 cost of this patent and technology was fully
amortized in 1999 based on management's estimation that no economic benefit
would be realized in the future.

The Company purchased rights to a game concept developed by Vista Gaming
("Vista"), a Colorado corporation, for a purchase price of $100. The Company
will also pay game fees to Vista for gaming devices embodying the game concept
sold or placed in locations under participation agreements between the location
and the Company. The game fees will vary based upon the number of games placed
and are subject to regulatory approval. The cost of these game rights will be
amortized over the period they are used in the Company's products. No such
amortization was recorded in 1999.



                                      -42-
<PAGE>   43

The Company purchased rights to intellectual property related to two game
concepts developed by Gametronics for a purchase price of $500. A note
receivable from Gametronics in the amount of $400 was converted and applied
toward payment of the purchase price. The Company will also pay game fees to
Gametronics for gaming devices embodying the game concept sold or placed in
locations under participation agreements between the location and the Company.
The game fees for sold games will be at a fixed fee and per day games fees for
games placed under participation agreements will vary based upon the number of
games placed and are subject to regulatory approval. The rights acquired allow
the Company to develop, manufacture, market and distribute the games in Nevada
and Mississippi. The $500 cost of this intellectual property was fully amortized
in 1999 based on management's estimation that no economic benefit would be
realized in the future.

Under a purchase agreement with Metropolitan Gaming LLC ("Metropolitan"), the
Company purchased a sublicense for rights to use three dimensional projection
technology in one if its gaming machine products, for a purchase price of $100.
The Company will also pay a per day signage technology fee to Metropolitan for
gaming devices embodying the technology and placed in locations under
participation agreements between the location and the Company. The per game
signage technology fees will vary based upon the total number of games placed
utilizing the three dimensional projection technology and are subject to
regulatory approval. The $100 cost of this sublicense was fully amortized in
1999 based on management's estimation that no economic benefit would be realized
in the future.


6. FINANCING ARRANGEMENTS:

LETTER OF CREDIT

At December 31, 1998 , the Company had a standby letter of credit with a bank in
the amount of $500. At December 31, 1998, the Company had a certificate of
deposit of $700, which was included in the accompanying balance sheet as
restricted investments, of which $500 was pledged as security for the standby
letter of credit. This standby letter of credit was primarily to facilitate the
acquisition of component parts and supplies. In July 1999, upon expiration of
the standby letter of credit and the maturity of the certificate of deposit, the
Company elected not to renew the credit arrangement and the proceeds from the
certificate of deposit were transferred to the Company's checking account. At
December 31, 1998, no amount was outstanding on the standby letter of credit.


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, an operating capital
loan from Finova Capital Corporation and financed insurance premiums.

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. Additional funding under this arrangement was
available through December 1, 1998. 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.



                                      -43-
<PAGE>   44

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 in the amount of $438
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. in exchange for a four year convertible note in the amount of $875 and a
warrant to purchase 87,500 shares of the Company's Common Stock. This redemption
was also 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 of the Company at $1.09375 and $1.25 per share,
respectively. Interest is paid quarterly on the 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 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 of the Company 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.

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.

The financed insurance premiums are paid in monthly installments over a period
of less than twelve months.

The following table represents the estimated future payments of notes payable at
December 31, 1999:

<TABLE>
<CAPTION>
                                                           Estimated
                    Years Ending December 31,               Payments
                    -------------------------              ---------
                    <S>                                    <C>
                    2000                                      $  592
                    2001                                         213
                    2002                                       1,599
                    2003                                           5
                    2004                                       1,314
                                                              ------
                       Total                                  $3,723
                                                              ======
</TABLE>



                                      -44-
<PAGE>   45


7. STOCKHOLDERS' EQUITY:

PREFERRED STOCK

On April 11, 1997, the Company issued 4,000 shares of Series A Convertible
Preferred Stock at a price of $1,000 per share in a private placement for total
proceeds of $4,000 prior to any offering expenses. An annual dividend of 4% was
paid quarterly in arrears in cash. Each share of Preferred Stock was convertible
into shares of the Company's Common Stock at a conversion price of 82% of the
average closing bid price of the Company's Common Stock over the ten-day trading
period ending the day prior to conversion (the "Conversion Price"). The
Conversion Price was not to exceed $8.1725 per share. A holder of Preferred
Stock was not permitted to convert such stock into Common Stock if, following
such conversion, the holder beneficially would own in excess of 4.9% of the
Company's Common Stock. A Registration Statement related to the Common Stock was
filed by, and at the expense of, the Company pursuant to obligations contained
in a Registration Rights Agreement dated April 10, 1997. The Effective Date of
the Registration Statement was July 28, 1997, and all necessary gaming
regulatory approvals were received. As of October 22, 1997, all shares of
Preferred Stock were converted into an aggregate of 1,058,696 shares of Common
Stock.

On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Preferred Stock") at a price 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 Preferred
Stock of the Company 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 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 par
in cash. On June 1 1999, the Company redeemed $1,100 of the Series B Preferred
Stock at 100% of par 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. All
outstanding shares of Series B Preferred Stock will automatically be converted
into Common Stock on June 1, 2001. 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.



                                      -45-
<PAGE>   46

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 of $1,000 per share in a private placement for total proceeds of
$1,400 prior to any offering expenses. The stated par value per share is $.01,
resulting in a total par value of fourteen dollars being recorded as 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 Preferred Stock of the Company 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 par 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. All outstanding shares of Series
C Preferred Stock will automatically be converted into Common Stock on June 1,
2001. A holder of 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.


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 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 stated par value per share
is $.01, resulting in a total par value of twenty-five dollars being recorded as
Series D Convertible 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 par 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 has not been declared effective by the Securities and
Exchange Commission.

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



                                      -46-
<PAGE>   47

therefore reduces earnings per share on a pro rata basis over the period from
issuance of the Series D Preferred Stock to the earliest 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 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. $49,000) if such Common Stock is not
registered by April 13, 2000 and 3.5% per month (i.e. $85,750) for each month
thereafter that such Common Stock is not registered. As of March 30, 2000, the
Company has not registered such shares of Common Stock with the Securities and
Exchange Commission. Unless the Company can register such shares by April 13,
2000 or obtain a waiver of such provisions from the holders of the Company's
Series D 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.


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 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
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



                                      -47-
<PAGE>   48

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, if fully adopted, 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:

<TABLE>
<CAPTION>
                                                                    1999          1998
                                                                --------       -------
         <S>                                 <C>                <C>            <C>
         Net loss:                           As reported        $(14,096)      $(4,710)
                                             Pro forma          $(14,890)      $(5,420)

         Primary and fully-diluted EPS:      As reported        $ (1.87)       $(0.63)
                                             Pro forma          $ (1.98)       $(0.72)
</TABLE>


A summary of the status of the 1992 Employee Stock Option and Compensation Plan
at December 31, 1999, 1998 and 1997, and changes during the periods then ended
is presented in the tables and narrative below:

<TABLE>
<CAPTION>
                                    December 31, 1999     December 31, 1998     December 31, 1997
                                   -------    --------   -------    --------   -------    --------
                                              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                         610,000     $ 1.56    825,400     $ 4.69    606,500     $ 4.67
  Granted                          250,000       2.06    550,400       1.14    271,550       4.75
  Exercised                             --        --          --        --          --        --
  Forfeited                       (115,000)      2.87   (765,800)      4.63    (52,650)      4.91
  Expired                               --        --          --        --          --        --
                                   -------               -------               -------
Outstanding at end of period       745,000     $ 1.53    610,000     $ 1.56    825,400     $ 4.69
                                   =======               =======               =======

Exercisable at end of period       383,000     $ 1.30    361,800     $ 1.74    290,933     $ 4.61
Weighted average fair value of
options granted on grant date      $  1.76               $  0.83               $  2.91
</TABLE>




                                      -48-
<PAGE>   49

<TABLE>
<CAPTION>
                    Detail composition of options outstanding December 31, 1999:
             ------------------------------------------------------------------------
                                                  Avg. contractual
                Options           Exercise          life remaining         Options
              outstanding          price              (Years)           exercisable
             ------------------  --------------  ------------------    --------------
             <S>                 <C>             <C>                   <C>
                        35,000           $4.00                4.29            35,000
                       300,000            1.00                9.00           258,000
                       160,000            1.13                8.96            90,000
                       250,000            2.06                9.71                 -
                       -------                                               -------
                       745,000                                                383,000
                       =======                                                =======
</TABLE>

The fair value of each option grant 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 1999, 1998 and
1997 grants: risk-free interest rate of 6.5, 4.9 and 6.5 percent; expected
dividend yield of 0.0 percent; expected lives of 5 years; expected volatility of
121.5, 91.5 and 90.3 percent, respectively.

A summary of the status of the 1998 Non-Executive Stock Option Plan at December
31, 1999 and 1998 and changes during the periods then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>
                                       December 31, 1999       December 31, 1998
                                     ----------------------   ---------------------
                                                   Wtd Avg                 Wtd Avg
                                     Number        Ex Price   Number       Ex Price
                                     -------       --------   -------      --------
<S>                                  <C>           <C>        <C>          <C>
Outstanding at beginning of
period                               313,050       $ 1.11          --      $  --
  Granted                            194,250         1.64     313,050       1.11
  Exercised                          (37,600)        1.07          --         --
  Forfeited                          (55,075)        1.14          --         --
  Expired                                 --           --          --         --
                                     -------                  -------
Outstanding at end of period         414,625       $ 1.36     313,050      $1.11
                                     =======                  =======

Exercisable at end of period         130,000       $ 1.23     102,750      $1.11

Weighted average fair value of
options granted on grant date        $  1.27                  $  0.81
</TABLE>

<TABLE>
<CAPTION>
                          Detail composition of options outstanding December 31, 1999:
             -------------------------------------------------------------------------------------
                                                         Avg. contractual
                   Options             Exercise           life remaining            Options
                 outstanding            price                (Years)              exercisable
             ---------------------    ---------------   ---------------------    -----------------
             <S>                      <C>               <C>                      <C>
                           83,350              $1.13                    8.96               32,875
                           70,525               1.18                    8.96               33,125
                           69,150               1.06                    8.96               21,350
                           25,700               1.00                    9.00               12,300
                            8,750               1.13                    9.00                6,350
                           20,000               1.25                    9.38                4,000
                           94,650               1.82                    9.50               15,000
                           25,000               1.88                    9.58                5,000
                           17,500               1.88                    9.83                  - -
                          -------                                                         --------
                          414,625                                                         130,000
                          =======                                                         =======
</TABLE>



                                      -49-
<PAGE>   50

The fair value of each option grant under the 1998 Non-Executive Stock Option
Plan is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for the 1999 and 1998 grants:
risk-free interest rate of 6.5 and 4.9 percent; expected dividend yield of 0.0
percent; expected life of 5 years; expected volatility of 99.5% and 92.4%,
respectively.

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
100,000 shares of the Company's common stock may be granted.

A summary of the status of the Directors Option Plan at December 31, 1999, 1998
and 1997, and changes during the periods then ended is presented in the table
and narrative below:

<TABLE>
<CAPTION>
                                       December 31, 1999       December 31, 1998       December 31, 1997
                                     ----------------------   ---------------------   ---------------------
                                                   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          10,000         $ 5.13     40,000         $ 5.06       --      $     --
period
  Granted                            99,000           1.42         --             --   40,000          5.06
  Exercised                              --             --         --             --       --            --
  Forfeited                         (10,000)          5.13    (30,000)          5.04       --            --
  Expired                                --            --          --             --       --            --
                                     ------                    ------                  ------
Outstanding at end of period         99,000         $ 1.42     10,000         $ 5.13   40,000      $   5.06
                                     ======                    ======                  ======
Exercisable at end of period         15,000         $ 1.00     10,000         $ 5.13   10,000      $   5.06
Weighted average fair value of
options granted on grant date        $ 1.09                    $   --                  $3.80
</TABLE>


<TABLE>
<CAPTION>
                               Detail composition of options outstanding December 31, 1999
             -----------------------------------------------------------------------------------------
                                                             Avg. contractual
                Options                 Exercise              life remaining            Options
              outstanding                price                   (Years)              exercisable
             ------------------        ---------------      ---------------------    -----------------
             <S>                       <C>                  <C>                      <C>
                        60,000                  $1.00                       9.29               15,000
                        39,000                   2.06                       9.71                  - -
             ------------------                                                      -----------------
                        99,000                                                                 15,000
             ==================                                                      =================
</TABLE>

The fair value of each option grant 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 1999 and 1997 grants: risk-free interest
rate of 6.5 percent; expected dividend yield of 0.0 percent; expected life of 5
years; expected volatility of 92.2% and 95.1%, respectively.




                                      -50-
<PAGE>   51

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:

<TABLE>
<CAPTION>
                                                Number           Exercise Prices
                                              ----------         --------------
         <S>                                  <C>                <C>
           Outstanding December 31, 1996         602,500            6.90 - 13.00
           Granted                                    --                     --
           Exercised                                  --                     --
           Canceled/Expired                           --                     --
                                              ----------         --------------
         Outstanding December 31, 1997           602,500           6.90 - 13.00
           Granted                                 5,000                   3.19
           Exercised                                  --                     --
           Canceled/Expired                     (325,000)          6.90 - 13.00
                                              ----------         --------------
         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
                                              ==========         ==============
</TABLE>
At December 31, 1999, 930,000 warrants were exercisable. The warrants expire at
various dates through October, 2004.


8.         INCOME TAXES:

The provision for income taxes consists of the following components:

<TABLE>
<CAPTION>
                              For the Year          For the Year          For the Year
                                 Ended                 Ended                  Ended
                             Dec. 31, 1999         Dec. 31, 1998          Dec. 31, 1997
                             -------------         -------------          -------------
<S>                           <C>                   <C>                    <C>
Current:
   Federal                        $ --                  $ --                   $ --
   State                            --                    --                     --
                          --------------------- --------------------- ----------------------
      Subtotal                      --                    --                     --
Deferred                            --                    --                     --
                          --------------------- --------------------- ----------------------
      Total                       $ --                  $ --                   $ --
                          ===================== ============================================
</TABLE>


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

<TABLE>
<CAPTION>
                                                                1999            1998
                                                            --------         -------
         <S>                                                <C>              <C>
         Deferred tax assets:
         Net operating loss carry forwards                  $  8,087         $ 4,783
            Inventory reserves                                 2,045           1,255
            Other                                                597             252
                                                            --------         -------
               Total deferred tax assets                      10,729           6,290
            Valuation allowance                              (10,729)         (6,290)
                                                            --------         -------
               Deferred tax assets, net of allowance        $     --         $    --
                                                            ========         =======
</TABLE>



                                      -51-
<PAGE>   52

In accordance with SFAS No. 109, the gross deferred tax asset at December 31,
1999 and 1998, of $10,792 and $6,290, respectively, has been reduced to zero by
a full valuation allowance.


At December 31, 1999, the Company has approximately $23,105 of net operating
loss carry forwards for federal income tax purposes. These losses expire
beginning 2009 through 2014.

9.         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 $317, $281 and $272 for the years ended December 31, 1999,
1998 and 1997, respectively. The minimum annual rental commitments under
operating leases are as follows for the years ending December 31:

<TABLE>
                    <S>                           <C>
                    2000                           310
                    2001                           241
                    2002                             3
                                                  ----
                       Total                      $554
                                                  ====
</TABLE>


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 one to two years at amounts approximating their current levels of
compensation. The Company's remaining aggregate commitment at December 31, 1999,
under such contracts is approximately $1,208. 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
has made an accrual for a portion of this obligation in the provision for
operating losses during the phase-out period (See Note 12 - Discontinued
Operations/Gaming Asset Divestiture Agreement).


10.        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 has granted Aristocrat an initial
five-year exclusive license expiring February 2001 to distribute its blackjack,
craps and roulette games to all legalized Australasia 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



                                      -52-
<PAGE>   53

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.

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. This agreement provides for
automatic renewal annually after the original term, up to a total of eight
years, and may be terminated by either party under certain circumstances.

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
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 exclusive distributorship agreements with Vista Gaming
Corporation, Ludi S.F.M. and with S.A.M. Eurusa.


11.        AGREEMENT FOR MERGER:

On October 8, 1999, the Company entered into a non-binding letter of intent with
Equitex, Inc., 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 31, 1999, the Company, Equitex and
nMortgage executed a definitive merger agreement governing the Merger. Pursuant
to the merger agreement, nMortgage will be merged with and into IGCA Merger
Subsidiary, a Minnesota corporation and wholly-owned subsidiary of the Company.
Upon closing of the Merger, IGCA Merger Subsidiary will be the surviving
corporation in the Merger. At the effective time of the Merger, each outstanding
share of nMortgage capital stock will be automatically



                                      -53-
<PAGE>   54

converted into the right to receive a pro rata share of the greater of (i) an
aggregate of Forty Six Million (46,000,000) shares of common stock of IGCA, or
(ii) 75% of the then outstanding common stock of IGCA on a fully-diluted basis.
The IGCA shareholders will retain 25% of the surviving corporation to the Merger
calculated on a fully-diluted basis. Upon closing of the Merger, IGCA would be
renamed "nMortgage.com, Inc." nMortgage is a direct lender headquartered in Fort
Lauderdale, Florida, and offers both retail and wholesale mortgage financing
through its subsidiary, First Bankers Mortgage Services, Inc. nMortgage recently
announced the debut of its online mortgage system known as "nMortgage.com".

As an additional condition to the Merger, concurrent with the merger, the
Company must divest substantially all of its gaming assets (See Note 12 -
Subsequent Event - Discontinued Operations/Gaming Asset Divestiture Agreement).
The closing of the Merger is subject to, among other things, obtaining approval
of the Company's shareholders and of certain governmental authorities, as well
as other customary pre-closing conditions.


12. SUBSEQUENT EVENT - DISCONTINUED OPERATIONS/GAMING ASSET
    DIVESTITURE AGREEMENT:

On February 1, 2000, the Company entered into a definitive asset purchase
agreement with Xertain, Inc. ("Xertain"), pursuant to which Xertain will
purchase substantially all of the Company's gaming assets. Xertain is a
privately owned Delaware corporation located in Las Vegas, Nevada, with its
primary business predicated on gaming related technologies and international
manufacturing.

In exchange for the gaming assets of the Company, Xertain will pay an aggregate
purchase price of $4,000 plus a promissory note payable to IGCA in an amount
equal to the accounts receivable of IGCA as of the closing date, adjusted for
certain payments to be made by Xertain and IGCA as provided for in the note, and
Xertain will assume certain liabilities of IGCA (" the "Gaming Asset
Divestiture"). The accounts receivable promissory note will be secured by the
accounts receivable of IGCA which are being acquired by Xertain.

Of the $4,000 referenced above as part of the purchase price, $1,000 will be
paid in cash at the closing of the Gaming Asset Divestiture, provided that prior
to such time Xertain has obtained interim approval from Nevada gaming regulatory
authorities to manufacture gaming machines. If Xertain has not obtained such
interim approval prior to the closing, Xertain will deliver either (i) a $1,000
unsecured promissory note due upon Xertain's obtaining approval from Nevada
gaming regulatory authorities (but in no event later than September 1, 2000), or
(ii) an irrevocable letter of credit in the amount of $750. The remaining $3,000
will be paid in the form of an unsecured convertible promissory note, which will
have a 36-month term, bear interest at 8.5% per annum, and have interest and
principal payable at the maturity date. At the holder's option, such promissory
note will be convertible into Xertain common stock at $4.50 per share upon the
earlier of (a) twelve months from the closing date of the Gaming Asset
Divestiture, or (b) upon initial public offering of Xertain common stock.
Following consummation of the Gaming Asset Divestiture, IGCA will not own or
have any interest in its gaming related assets.

In addition to various standard conditions of closing, the Gaming Asset
Divestiture is subject to the simultaneous closing of the Merger, shareholder
approval and the termination of various employment agreements of certain key
employees of IGCA. The Company anticipates the disposal of the gaming equipment
manufacturing segment to be completed approximately June 1, 2000.




                                      -54-
<PAGE>   55

             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY

                 Schedule II - Valuation and Qualifying Accounts
                                 (In Thousands)


<TABLE>
<CAPTION>
                                         Balance       Charged to      Amount
                                       Beginning of    Costs and       Written     Balance End
Description                               Period       Expenses          Off        of Period
-----------                            ------------    ----------      -------     -----------
<S>                                    <C>             <C>             <C>         <C>
Reserve for inventory obsolescence
   and write down to market value:
 For the year ended 12/31/97              $1,893        $   112         $1,124        $  881

 For the year ended 12/31/98                 881            571            505           947

 For the year ended 12/31/99                 947          4,488            347         5,088
</TABLE>


<TABLE>
<CAPTION>
                                                         Charged/
                                         Balance        (Credited)     Amount        Balance
                                       Beginning of      to Costs      Written       End of
Description                               Period       and Expenses      Off         Period
-----------                            ------------    ------------    -------     -----------
<S>                                    <C>             <C>             <C>         <C>
Allowance for doubtful notes and
   accounts receivable:

 For the year ended 12/31/97              $  148        $   (48)        $   --        $  100

 For the year ended 12/31/98                 100             --             15            85

 For the year ended 12/31/99                  85            198              3           280
</TABLE>



                                      -55-
<PAGE>   56

                                     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.....................................   32

Consolidated Balance Sheets as of December 31, 1999 and 1998............................................   33

Consolidated Statements of Operations for the years ended December 31, 1999, 1998  and 1997.............   34

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997....   35

Consolidated Statements of  Cash Flows for the years ended December 31, 1999, 1998 and 1997.............   36

Notes to the Consolidated Financial Statements..........................................................   37
</TABLE>



                                      -56-
<PAGE>   57

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information beginning immediately following the caption "Election of
Directors" to, but not including, the caption "Executive Compensation" 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, 1999 and forwarded to stockholders prior to the Company's 2000 Annual
Meeting of Shareholders (the "2000 Proxy Statement"), is incorporated herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION

The information in the 2000 Proxy Statement beginning immediately following the
caption "Executive Compensation" to, but not including, the caption
"Compensation Committee Interlocks and Insider Participation," is incorporated
herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The information in the 2000 Proxy Statement beginning immediately following the
caption "Voting Securities and Principal Holders Thereof " to, but not
including, the caption "Election of Directors," is incorporated herein by
reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in the 2000 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.



                                      -57-
<PAGE>   58


(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)

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

10.1       1992 Stock Option and Compensation Plan, as amended (Incorporated
           herein by reference to Annex B to the Company's Schedule 14A filed
           April 24, 1997)+

10.2       Exclusive Distributorship Agreement between the Company and
           Aristocrat Leisure Industries PTY LTD dated February 7, 1996
           (Incorporated herein by reference to Exhibit 10.18 to the Company's
           Report on Form 10-K for the fiscal year ended December 31, 1995)(the
           "December 31,1995 10-K")

10.3       Assignment between the Company, NANAO and IREM dated February 2, 1996
           (Incorporated herein by reference to Exhibit 10.19 to the Company's
           December 31, 1995 10-K)

10.4       Exclusive Distributorship Agreement between the Company and Ludi
           S.F.M. dated March 5, 1996 (Incorporated herein by reference to
           Exhibit 10.24 to the Company's December 31, 1995 10-K)

10.5       Exclusive Distributorship Agreement between the Company and S.A.M.
           EURUSA dated March 5, 1996 (Incorporated herein by reference to
           Exhibit 10.25 to the Company's December 31, 1995 10-K)

10.6       Product Development and Revenue Sharing Agreement between the Company
           and IGT, dated November 18, 1996 (Incorporated herein by reference to
           Exhibit 10.18 to the Company's report on Form 10-K for the fiscal
           year ended December 31, 1996) (the "December 31, 1996 10-K")

10.7       Lease agreement between the Company and Dermody Properties, dated
           July 9, 1996 (Incorporated herein by reference to Exhibit 10.20 to
           the Company's December 31, 1996 10-K)

10.8       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)

10.9       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)

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

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      1997 Director Stock Option Plan (Incorporated herein by reference to
           Annex A to the Company's Schedule 14A filed April 24, 1997)

10.14      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")

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

10.16      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)

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.

27         Financial Data Schedule - which is only submitted electronically to
           the Securities and Exchange Commission for EDGAR information
           purposes.

------------
+ Agreement relates to Executive Compensation

(b) Reports on Form 8-K

On October 25, 1999, the Company filed a Form 8-K to report signing of a letter
of intent to acquire an internet mortgage company.



                                      -58-
<PAGE>   59

                                   SIGNATURES

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



                                  INNOVATIVE GAMING CORPORATION OF
                                  AMERICA
                                  Registrant



Date: March 30, 2000              By:  /s/ Edward G. Stevenson
                                      ------------------------------------

                                  Name:   Edward G. Stevenson
                                  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
March 30, 2000.


<TABLE>
<CAPTION>
              Name                      Title
              ----                      -----
<S>                                     <C>
   /s/ Edward G. Stevenson              Chief Executive Officer , Chief Financial Officer and Chairman
-----------------------------------     (principal executive officer, principal accounting officer)
       Edward G. Stevenson



  /s/ Ronald A. Johnson
-----------------------------------     Director
      Ronald A. Johnson



  /s/ Ronald R. Zideck                  Director
----------------------------------
      Ronald R. Zideck



  /s/ Leo V. Seevers                    Director
--------------------------------
           Leo V. Seevers
</TABLE>



                                      -59-
<PAGE>   60


                                 EXHIBIT INDEX



(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)

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

10.1       1992 Stock Option and Compensation Plan, as amended (Incorporated
           herein by reference to Annex B to the Company's Schedule 14A filed
           April 24, 1997)+

10.2       Exclusive Distributorship Agreement between the Company and
           Aristocrat Leisure Industries PTY LTD dated February 7, 1996
           (Incorporated herein by reference to Exhibit 10.18 to the Company's
           Report on Form 10-K for the fiscal year ended December 31, 1995)(the
           "December 31,1995 10-K")

10.3       Assignment between the Company, NANAO and IREM dated February 2, 1996
           (Incorporated herein by reference to Exhibit 10.19 to the Company's
           December 31, 1995 10-K)

10.4       Exclusive Distributorship Agreement between the Company and Ludi
           S.F.M. dated March 5, 1996 (Incorporated herein by reference to
           Exhibit 10.24 to the Company's December 31, 1995 10-K)

10.5       Exclusive Distributorship Agreement between the Company and S.A.M.
           EURUSA dated March 5, 1996 (Incorporated herein by reference to
           Exhibit 10.25 to the Company's December 31, 1995 10-K)

10.6       Product Development and Revenue Sharing Agreement between the Company
           and IGT, dated November 18, 1996 (Incorporated herein by reference to
           Exhibit 10.18 to the Company's report on Form 10-K for the fiscal
           year ended December 31, 1996) (the "December 31, 1996 10-K")

10.7       Lease agreement between the Company and Dermody Properties, dated
           July 9, 1996 (Incorporated herein by reference to Exhibit 10.20 to
           the Company's December 31, 1996 10-K)

10.8       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)

10.9       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)

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

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      1997 Director Stock Option Plan (Incorporated herein by reference to
           Annex A to the Company's Schedule 14A filed April 24, 1997)

10.14      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")

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

10.16      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)

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.

27         Financial Data Schedule - which is only submitted electronically to
           the Securities and Exchange Commission for EDGAR information
           purposes.

------------
+ Agreement relates to Executive Compensation

(b) Reports on Form 8-K

On October 25, 1999, the Company filed a Form 8-K to report signing of a letter
of intent to acquire an internet mortgage company.