<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
----------- -----------
Commission file number: 333-31373
------------------------------------------
CASINOVATIONS INCORPORATED
- -----------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Washington 91-1696010
- --------------------------------- ----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3909 South Maryland Parkway, Suite 311, Las Vegas, Nevada 89119
- -----------------------------------------------------------------
(Address of principal executive offices)
(702) 733-7195
- -----------------------------------------------------------------
(Issuer's telephone number)
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ ] NO [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date:
6,255,942 shares of Common Stock, $.001 par value, as of May 11, 1998
- ---------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one);
YES [ ] NO [X]
<PAGE>
FORM 10-QSB
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security
Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 9
EXHIBIT INDEX 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CASINOVATIONS INCORPORATED
(A Development Stage Company)
Balance Sheet
March 31, 1998
March 31, 1998
(Unaudited)
------------------------
ASSETS
<S> <C>
Current assets:
Cash $ 1,703
Accounts receivable, trade 75
Accounts receivable - employees 43,485
Inventories 229,249
Prepared expenses 36,625
------------------------
Total current assets 311,137
Property and equipment, at cost, net of
accumulated depreciation of $37,505 280,830
Intangible assets, at cost, net of
accumulated amortization of $22,687 156,943
Deposits 48,431
------------------------
$ 797,341
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 197,500
Notes payable - other 425,000
Current portion of leases payable 149,616
Accounts payable 396,068
Accrued wages 23,313
Accrued interest 44,418
Customer deposits 17,309
Shareholder loans 703,772
========================
Total current liabilities 1,956,996
Leases payable - non-current 261,084
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
6,255,942 shares issued and outstanding 6,180
Additional paid-in capital 3,970,070
Unpaid subscriptions to common stock (33,500)
Deficit accumulated during development stage (5,363,489)
------------------------
(1,420,739)
------------------------
$ 797,341
========================
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CASINOVATIONS INCORPORATED
(A Development Stage Company)
Statement of Operations
Three Months Ended March 31, 1998 and 1997
Three Months Ended
-------------------------------------
March 31, March 31,
1998 1997
----------------- ------------------
<S> <C> <C>
Sales $ 345 $ 632
Interest income 3 6,174
Other income - -
----------------- ------------------
348 6,806
Other costs and expenses:
General and administrative 355,787 321,027
General and administrative - related parties - -
Research and development 102,333 46,606
----------------- ------------------
458,120 367,633
----------------- ------------------
(Loss) from operations (457,772) (360,827)
Interest expense 37,528 2,812
Interest expense - related parties 24,880 19,179
----------------- ------------------
62,408 21,991
(Loss) before income taxes (520,180) (382,818)
Provision for income taxes - -
----------------- ------------------
Net income (loss) $ (520,180) $ (382,818)
================= ==================
Earnings (loss) per common share:
Basic and diluted $ (0.08) $ (0.07)
================= ==================
Number of common shares outstanding 6,179,638 5,305,218
================= ==================
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CASINOVATIONS INCORPORATED
(A Development Stage Company)
Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997
Three Months Ended
----------------------------------
March 31, 1998 March 31, 1997
---------------- ----------------
<S> <C> <C>
Net (loss) $ (520,180) $ (382,818)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 16,965 4,396
Stock and options issued for services 33,000 82,122
Compensation value of cash stock sales - -
Stock and options issued for additional interest - -
Equipment exchanged for services - -
Amortization of deferred interest - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (25,400) (31,539)
(Increase) decrease in inventory (46,956) -
(Increase) decrease in prepaid expenses 3,375 (12,441)
(Increase) decrease in other assets (712) 5,338
Increase (decrease) in accounts payable (46,243) (81,963)
Increase (decrease) in accrued expenses 3,854 (38,443)
---------------- ----------------
Total adjustments (62,117) (72,530)
---------------- ----------------
Net cash (used in) operating activities (582,297) (455,348)
---------------- ----------------
Cash flows from investing activities:
Acquisition of plant and equipment (8,376) (5,409)
Increase in patents and trademarks (3,368) (12,230)
---------------- ----------------
Net cash (used in) investing activities (11,744) (17,639)
---------------- ----------------
Cash flows from financing activities:
Common stock sold for cash - 355,001
Capital contributions by partners - -
Proceeds from long-term debt 250,000 -
Proceeds of shareholder loans 290,000 -
Repayment of shareholder loans (27,245) (60,722)
Repayment of leases payable (36,400) -
Proceeds from notes payable - -
---------------- ----------------
Net cash provided by financing activities 476,355 294,279
---------------- ----------------
Increase (decrease) in cash (117,686) (178,708)
Cash and cash equivalents,
beginning of period 119,389 552,878
Cash and cash equivalents, ---------------- ----------------
end of period $ 1,703 $ 374,170
================ ================
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE>
CASINOVATIONS INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
NOTE 1 - BASIS OF PRESENTATION.
The consolidated balance sheet as of March 31, 1998 and the
related consolidated statements of income for the three month
periods ended March 31, 1998 and 1997 and consolidated statements
of cash flows for the three month periods ended March 31, 1998
and 1997 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions incorporated in Regulation 10-QSB of the
Securities and Exchange Commission (the "Commission").
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments and
accruals) considered necessary for a fair presentation have been
included.
The results of operations for an interim period are not
necessarily indicative of the results for the full year. The
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 contained in the Company's
Registration Statement on Form SB-2/A as last filed with the
Commission on April 13, 1998 (Commission File No. 333-31373).
Certain of the shares issued to a consultant during 1997
were for future services to be provided to the Company. The
amounts attributable to unearned services have been accounted for
as unpaid subscriptions to common stock in the accompanying
balance sheet. The Company has amortized $33,000 of the unearned
services to general and administrative expenses during the three
months ended March 31, 1998.
During January 1998, the Company received proceeds from
convertible debentures aggregating $400,000. The debentures bear
interest at 6% per annum and are due on or before January 31,
1999. The principal amount of the debentures is convertible at
the holder's option into shares of the Company's common stock at
a conversion price of $2.98 per share. Of the gross proceeds
received from the convertible debentures, $150,000 was received
from the Company's principal stockholder and has been included in
shareholder loans in the accompanying balance sheet.
Additionally, the principal stockholder made working capital
advances to the Company during the quarter ended March 31, 1998
aggregating $140,000. The advances bear interest at 9.5% per
annum.
NOTE 2 - STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE.
Fully diluted loss per share excludes any dilutive effects
of options, warrants and convertible securities. Basic loss per
share is not presented because the effect would be anti-dilutive.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
STATEMENT ON FORWARD-LOOKING INFORMATION. Certain
information included herein contains statements that may be
considered forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, such as statements relating to
plans for future operations, capital spending and financing
sources. Such forward-looking information involves important
risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results
may differ from those expressed in any forward-looking statements
made herein. These risks and uncertainties include, but are not
limited to, those relating to adequate sources of cash,
manufacturing and supply issues, marketing of and acceptance of
the Company's products, dependence on existing management, gaming
regulations (including actions affecting licensing), leverage and
debt service (including sensitivity to fluctuations in interest
rates), issues related to the Year 2000, domestic or global
economic conditions and changes in federal or state tax laws or
the administration of such laws.
PLAN OF OPERATIONS. The Company has completed its research
and development stage of the Random Ejection Shuffler (the
"Shuffler") and has the first production units finished. Demand
for the Company's products will be dependent on general economic
conditions, economic conditions in the gaming industry and
acceptance of new products in the market place.
The Company is developing business plans, operations and
sales that will permit the Company to be self-supportive within
the first 3 to 4 months from the beginning of sales. Should the
Company be able to complete the successful offering of 1,500,000
shares of Common Stock presently pending pursuant to that certain
Registration Statement on Form SB-2/A (Commission File No. 333-
31373) (the "Offering"), the Shuffler and the Fantasy 21 table
game will be brought to market and the SecureDrop coin box system
development will be completed and brought to market as well. The
ability of the Company to obtain any necessary gaming licenses,
authorizations and approvals in certain key jurisdictions, such
as Nevada and New Jersey, will materially impact the Company's
ability to market the Shuffler. Additional new products are in
conceptual design stages and, with adequate funding, are expected
to be brought to market within the next 12 months.
The Company expects that the net proceeds from the Offering
and the cash flow from operations will be sufficient to allow the
Company to meet the expected growth in demand for its products.
For the three months ended March 31, 1998, the Company did
not make any significant acquisitions of plant and equipment.
Inventory for parts to assemble product increased $46,956. There
are no expectations for the purchase of significant equipment or
plant. Management of the manufacturing process for the Shuffler
has been brought in-house. The Company's Manager of Engineering
is directly supervising the assembling of the first thirty units
and will determine the best combination of subcontract and in-
house production.
For the three months ended March 31, 1998, the Company
received proceeds aggregating $400,000 from convertible
debentures. Of the gross proceeds received from the convertible
debentures, proceeds of $150,000 were received from the Company's
principal stockholder and have been included in shareholders
loans. Loans from shareholder have increased a total of
$290,000.
For the three months ended March 31, 1998, the Company has a
net loss of $520,180. The Company had depreciation and
amortization of $16,965. Accounts receivable increased $25,400
and accounts payable decreased $46,243.
7
<PAGE>
For the three months ended March 31, 1998, the Company had
general and administrative expenses of $355,787. These expenses
consisted of salaries and related costs of $107,273, consulting
services of $87,502, cost of gaming industry shows of $9,363,
travel and entertainment costs of $61,663, printing and office
expense, including rent of $34,110, and legal expenses of
$14,585.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS. The Company
operates in the highly competitive gaming industry that involves
a number of risks, some of which are beyond the Company's
control. For a complete discussion of these risks, see the
section entitled, "Risk Factors," included in the Company's
Registration Statement on Form SB-2, as last filed with the
Commission on April 13, 1998 and as declared effective by the
Commission on April 15, 1998 (Commission File No. 333-31373).
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 24, 1998, a complaint was filed in District Court,
Clark County, Nevada on behalf of the Company against Western
Electronics, Inc. ("Western") and its Chief Executive Officer,
John Wasden. The Complaint alleges causes of action for breach
of contract, declaratory relief, unjust enrichment, interference
with contractual relations, conversion and fraud--intentional
misrepresentation, all stemming from purchase orders between the
Company and Western for the Shuffler. The Complaint was served
upon Western on April 27, 1998, and service upon Mr. Wasden is
pending. Through this litigation, the Company seeks to recover
component parts purchased for the assembly of the Shuffler or in
the alternative to recover the monies expended for their purchase
as well as other money damages. An action against Western for
claim and delivery of component parts for Fantasy 21 is also
pending before the court in Boise, Idaho.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
---------
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.01 Financial Data Schedule
(b) REPORT ON FORM 8-K.
-------------------
None.
8
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASINOVATIONS INCORPORATED
-------------------------------------
(Registrant)
Date: May 19, 1998 By: /s/ Jay L. King
-------------------------------------
Jay L. King
Its: Chief Financial Officer and Secretary
9
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
27.01 Financial Data Schedule 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,703
<SECURITIES> 0
<RECEIVABLES> 43,560
<ALLOWANCES> 0
<INVENTORY> 229,249
<CURRENT-ASSETS> 311,137
<PP&E> 318,335
<DEPRECIATION> 37,505
<TOTAL-ASSETS> 797,341
<CURRENT-LIABILITIES> 1,956,996
<BONDS> 0
0
0
<COMMON> 6,180
<OTHER-SE> 3,970,070
<TOTAL-LIABILITY-AND-EQUITY> 797,341
<SALES> 345
<TOTAL-REVENUES> 348
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 458,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,408
<INCOME-PRETAX> (520,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520,180)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
