HELENA -- The legal battle is on again between the state and a Nevada company hired to develop a computerized system for tracking tax collections from thousands of video gambling machines in Montana.

Gambling control officials announced Friday that they have terminated the 8-month-old settlement agreement with Lodging and Gaming Systems of Reno and its subsidiaries.

Gene Huntington, administrator of the Montana Gambling Control Division, said the company has not met deadlines contained in the agreement and has refused to set new timelines for delivery of a functioning system.

Steve Urie, president of Lodging and Gaming Systems, was out of the office Friday and did not immediately return a phone call seeking comment.

Huntington said he's not sure what failure of the agreement will mean for the state eventually having a monitoring network in place.

"The timeline has been pushed back, but we're not sure how long," Huntington said. "We're disappointed. We still don't have a system that works."

But he emphasized the latest development doesn't mean the state has to start over in its efforts to create the statewide monitoring system.

"Fortunately, this doesn't mean we're back to square one," Huntington said. "After I've had the opportunity to discuss this with our testing consultants, attorneys and other state officials, the division will make a recommendation on how we are going to proceed with developing the automated system."

Since the settlement had tied payment to completion of system components and no components have been successfully tested, no additional funds have been paid to LGS under the agreement, he said.

The company had been paid $930,000 in 2000 when the original agreement to develop the system was signed.

Cancelation of the settlement means the two sides are headed for court again, with a trial scheduled for May 2004 on the state's effort to recover that money and the company's counterclaims against the state.

The initial agreement, announced last June, required the company to deliver portions of the system for which it had been paid by the state. Once that was successfully tested, Montana agreed to pay $350,000 for the training, documentation, and rights to software and hardware that will be needed to operate the system.

The state Justice Department hired LGS in 2000 under a five-year contract worth $1.5 million to develop a system by which state regulators could regularly monitor play on more than 10,000 video poker and keno machines in about 1,000 bars.

But Montana officials claimed that LGS both missed deadlines and insisted on a system that wouldn't communicate with Montana machines. The state terminated the contract in 2001 and sued the company for as much as $900,000 in payments.

The company sued the state, saying Montana officials improperly terminated the contract. That suit, filed in Nevada, was thrown out.

The automated accounting and reporting, or "dialup," system was originally recommended by a legislative audit in 1994 and authorized by the Legislature in 1999.