<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: September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 000-25855
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VendingData Corporation
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(Exact name of small business issuer as
specified in its charter)
Nevada 91-1696010
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6830 Spencer Street, Las Vegas, Nevada 89119
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(Address of principal executive offices)
(702) 733-7195
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(Issuer's telephone number)
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(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 X NO
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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
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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:
10,854,801 shares of common stock, $.001 par value, as of October 31, 2000
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Transitional Small Business Disclosure Format (check one);
YES NO X
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<PAGE>
FORM 10-QSB
TABLE OF CONTENTS
PAGE
NUMBER
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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 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
EXHIBIT INDEX 19
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
VENDINGDATA CORPORATION
BALANCE SHEET
<CAPTION>
September 30, December 31,
2000 1999
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ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 388,463 $ 1,169,924
Accounts receivable, trade 1,145,379 150,074
Other receivables 81,986 192,794
Inventories 2,217,552 1,642,195
Prepaid expenses 94,793 290,921
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Total current assets 3,928,173 3,445,908
Property and equipment, including revenue producing equipment,
at cost, net of accumulated depreciation of $1,150,144 and $532,797 2,468,602 2,851,637
Intangible assets, at cost, net of
accumulated amortization of $84,032 and $75,065 241,823 212,438
Deferred interest 665,022 611,119
Deposits 597,418 507,823
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$ 7,901,037 $ 7,628,925
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes and credit line payable $ 1,416,000 $ -
Current portion of leases payable 1,704,134 1,266,631
Accounts payable 942,275 853,062
Accrued expenses 366,098 354,865
Accrued interest 207,060 95,209
Current portion of stockholder loans 113,756 105,130
Convertible debt 1,650,000 -
Customer deposits 244,966 171,068
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Total current liabilities 6,644,289 2,845,964
Leases payable 3,157,913 2,480,394
Convertible debt 1,500,000 1,500,000
Stockholder loans 103,126 190,277
Deferred charges 163,680 -
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Total liabilities 11,569,009 7,016,635
Stockholders' equity:
Common stock, $.001 par value,
40,000,000 shares authorized, 10,854,801 shares and
10,746,144 shares issued and outstanding, respectively 10,855 10,746
Additional paid-in capital 17,238,756 16,956,363
Deficit accumulated during development stage (20,917,583) (16,354,821)
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Total stockholders' equity (3,667,972) 612,289
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$ 7,901,037 $ 7,628,925
============= =============
See accompanying notes to unaudited financial statements.
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</TABLE>
<PAGE>
<TABLE>
VENDINGDATA CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 111,211 $ (30,675) $ 2,572,184 $ 51,325
Rental income 242,141 201,851 843,012 352,216
Other income 205 19,091 56,820 35,741
------------- ------------- ------------- -------------
353,557 190,267 3,472,016 439,282
Cost of sales 1,002,533 396,176 3,493,517 1,511,816
------------- ------------- ------------- -------------
Gross margin (648,976) (205,910) (21,501) (1,072,534)
General and administrative 784,014 1,244,609 2,674,827 2,604,704
Research and development 324,735 770,560 1,029,273 1,220,079
------------- ------------- ------------- -------------
(Loss) from operations (1,757,725) (2,221,078) (3,725,601) (4,897,315)
Interest expense, net 266,006 111,173 667,474 263,860
Interest expense - related parties 76,854 39,596 168,723 150,274
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342,859 150,769 836,197 414,133
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(Loss) before income taxes (2,100,584) (2,371,848) (4,561,798) (5,311,448)
Provision for income taxes 456 - 964 -
Net income (loss) $ (2,101,040) $ (2,371,848) $ (4,562,762) $ (5,311,448)
============= ============= ============= =============
Basic earnings (loss) per share $ (0.19) $ (0.24) $ (0.42) $ (0.61)
============= ============= ============= =============
Weighted average shares outstanding 10,854,801 10,039,273 10,811,974 8,687,229
============= ============= ============= =============
See accompanying notes to unaudited financial statements.
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</TABLE>
<PAGE>
<TABLE>
VENDINGDATA CORPORATION
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
2000 1999
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<S> <C> <C>
Net (loss) $ (4,562,762) $ (5,311,448)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 641,111 256,545
Amortization of deferred interest 227,217 103,133
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable (995,305) (178,097)
(Increase) decrease in other receivables 110,808 (2,655,712)
(Increase) decrease in inventory (575,357) (998,784)
(Increase) decrease in prepaid expenses 196,128 (35,362)
Increase (decrease) in accounts payable 89,214 197,369
Increase (decrease) in accrued expenses 123,085 (33,970)
Increase (decrease) in customer deposits 73,898 85,755
Increase (decrease) in deferred charges 163,680 -
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Total adjustments 54,480 3,259,123
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Net cash (used in) operating activities (4,508,282) (8,570,571)
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Cash flows from investing activities:
Acquisition of plant and equipment (258,076) (631,602)
Equipment produced and held for rental - (1,817,200)
Increase in patents and trademarks (29,384) (41,996)
Deposits (89,596) (380,494)
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Net cash (used in) investing activities (377,056) (2,871,292)
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Cash flows from financing activities:
Common stock sold for cash 282,502 10,753,916
Payment for rescinded stock subscription agreement - (450,000)
Repayment of long-term debt - (17,180)
Repayment of shareholder loans (78,525) (1,064,632)
Proceeds from leases payable 1,850,675 1,979,183
Repayment of leases payable (1,016,774) (227,438)
Proceeds from convertible debentures 1,650,000 1,500,000
Proceeds from notes payable 1,416,000 -
Repayment of notes payable - (197,383)
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Net cash provided by financing activities 4,103,878 12,276,467
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Increase (decrease) in cash (781,460) 834,603
Cash and cash equivalents, beginning of period 1,169,924 200,749
------------- -------------
Cash and cash equivalents, end of period $ 388,464 $ 1,035,352
============= =============
See accompanying notes to unaudited financial statements.
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</TABLE>
<PAGE>
VendingData Corporation
Notes to Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION.
The accompanying unaudited financial statements of VendingData Corporation (the
"Company") and its wholly-owned subsidiaries (collectively with the Company, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
incorporated in Regulation 10-SB of the Securities and Exchange 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 the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1999, as included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission on March 30, 2000.
Certain reclassifications have been made to amounts presented in prior periods
for comparability to the current period presentation.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
NOTE 2 - STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE.
Fully diluted loss per share excludes any dilutive effects of options, warrants
and convertible securities. Fully diluted loss per share is not presented
because the effect would be anti-dilutive.
NOTE 3 - CONVERTIBLE DEBT.
The Company received $100,000 from the placement of a convertible note (the
"Jaslow Note Dated 8/18/2000") in the third quarter of 2000. The Jaslow Note
Dated 8/18/2000 was issued to Richard S. Jaslow, a director of the Company. The
Jaslow Note Dated 8/18/2000 accrues interest at 9.5% per annum until its
maturity on August 18, 2001 and is convertible into restricted shares of the
Company's $.001 par value common stock ("Common Stock") after August 18, 2001 at
a rate of $2.60 per share.
The Company received $100,000 from the placement of a convertible note (the
"Jaslow Note Dated 7/20/00") in the third quarter of 2000. The Jaslow Note Dated
7/20/00 was issued to Richard S. Jaslow, a director of the Company. The Jaslow
Note Dated 7/20/00 accrues interest at 9.5% per annum until its maturity on July
20, 2001 and is convertible into restricted shares of Common Stock after July
20, 2001 at a rate of $2.60 per share.
The Company received $100,000 from the placement of a convertible note (the
"Ronald Keil Note") in the second quarter of 2000. The Ronald Keil Note was
issued to Ronald S. Keil, a director of the Company. The Ronald Keil Note
accrues interest at 9.5% per annum until its maturity on September 28, 2001 and
is convertible into restricted shares of Common Stock after September 28, 2001
at a rate of $2.60 per share.
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<PAGE>
For all of the above convertible debt placements, the holder may elect to extend
the maturity date for up to four one-year periods. For each $50,000 of
convertible debt purchased by the respective holder, the holder also received
warrants to purchase 12,500 shares of Common Stock for $2.60 per share. On May
25, 2000, the Company's Board of Directors, with each director abstaining as to
consideration of such director's convertible note purchase, authorized a $2.2
million convertible debt program representing debt convertible into a maximum of
846,153 shares of Common Stock at $2.60 per share. The convertible debt was
authorized to be issued in $50,000 units, each consisting of 12,500 warrants and
the right to convert the debt into 19,230 shares of Common Stock. The proceeds
from the convertible debt were used for general working capital purposes. The
exemptions from registration relied upon by the Company for these private
placements were Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D.
NOTE 4 - EQUIPMENT FINANCING.
For the three months ending September 30, 2000, the Company received proceeds of
$357,000 from a third-party leasing company through which the Company has
financed most of its furniture, equipment, and tooling. The leases have a
mandatory buyout and a term of 36 to 39 months.
NOTE 5 - LINE OF CREDIT.
The Company has obtained a $1,200,000 line of credit based on a percentage of
the Company's accounts receivable and inventory. At September 30, 2000 the
Company had drawn $450,000 of the line. The line is collateralized by the
accounts receivable, inventory and most other non-collateralized assets.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as
statements relating to plans for future expansion, capital spending, future
operations, sources of liquidity and financing sources. Such statements refer to
events that could occur in the future and may be identified by the use of words
such as "intend," "plan," "believe," correlative words, and other expressions
indicating that future events are contemplated. 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 liquidity
requirements for the Company, the continued growth of the gaming industry, the
success of the Company's product-development, marketing and sales activities,
vigorous competition in the gaming industry, dependence on existing management,
gaming regulations (including actions affecting licensing and product
approvals), leverage and debt service (including sensitivity to fluctuations in
interest rates), domestic or global economic conditions, and changes in federal
or state tax laws or the administration of such laws. For a description of
additional risk factors and information related to forward-looking statements,
see "Risk Factors and Forward-Looking Information" below.
OVERVIEW
The Company's primary business is the development, manufacturing and
marketing of various gaming concepts and products that increase the security,
productivity, accounting and profitability for the global gaming industry.
From inception, the Company has been a "Development Stage Company"
performing research and development, product prototyping, and field testing of
products, developing of manufacturing capabilities, acquiring inventory,
developing distribution channels, staffing and obtaining a building with
sufficient capacity to house future growth. Beginning in the first quarter of
2000, the Company had sufficient sales development and revenue growth to be
considered an operating company.
As of September 30, 2000, the Company had placed 511 Random Ejection
Shufflers(TM) (the "Shufflers") under rental contracts. The Company maintains
parts inventories required to build additional Shufflers. On July 25, 2000, the
Nevada Gaming Control Board approved the Company's Continous Random Ejection
Shuffler, and on October 6, 2000, approved the Company's SecureDrop(TM) Mobile
Scale System. On October 12, 2000 the Mississippi Gaming Commission approved the
SecureDrop(TM) 2000 system, and on October 23, 2000 the Gaming Board for the
Commonwealth of the Bahamas approved the Shuffler. The Company believes that
customer interest in both the Shuffler and SecureDrop(TM) products continues to
be strong.
The following discussion summarizes the Company's results of operations
for the three months ended September 30, 2000 and 1999, the nine months ended
September 30, 2000 and 1999 and the Company's liquidity and capital resources.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. For the three months ended September 30, 2000, the Company
generated total revenues of $353,557 compared to $190,267 for the three months
ended September 30, 1999. The revenues for the three months ended September 30,
2000, consisted of Shuffler rentals of $242,141, SecureDrop(TM) sales of
$111,211, and other sales of $205. The Company believes revenue will continue to
increase through additional SecureDrop(TM) sales, sales of Shufflers through
international distributors and continued Shuffler rental.
COST OF SALES. For the three months ended September 30, 2000, the cost
of sales was $1,002,533 compared to $396,176 for the three months ended
September 30, 1999. The cost of sales for the three months ended September 30,
2000, consisted of approximately $221,372 for SecureDrop(TM), $98,560 for
depreciation expense associated with the Shufflers held for rental, $191,992 for
costs related to servicing the Shufflers held for rental, $525 for costs related
to sales of the Shuffler, and $490,084 for labor and other manufacturing costs.
The increase in cost of sales was due to the increase in Shuffler sales and
rentals and SecureDrop(TM) sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended September 30, 2000, selling, general and administrative expenses decreased
approximately $460,595, or approximately 37%, to $784,014, compared to
$1,244,609 for the three months ended September 30, 1999. For the three months
ended September 30, 2000, selling, general and administrative expenses included:
salaries and related costs of $282,335; advertising and marketing services of
$7,004; gaming industry show costs of $12,503; travel and entertainment costs of
$77,189; printing and office expenses of $39,827; depreciation and amortization
of $85,431; office rent and utilities of $105,554; professional fees of $50,663;
bad debt accrual of $43,580 and $79,958 in other miscellaneous expenses. The
decrease for the quarter is primarily due to decreases in advertising and
marketing services, gaming industry show costs and travel and entertainment.
RESEARCH AND DEVELOPMENT. For the three months ended September 30,
2000, research and development expenses decreased $445,825, or approximately
58%, to $324,735, compared to $770,560 for the three months ended September 30,
1999. The decrease is due to completion of the development of the SecureDrop(TM)
2000 and 3000 series and Mobile Scale System.
INTEREST EXPENSE. For the three months ended September 30, 2000, the
Company incurred interest expenses, net of interest income, of $342,859 compared
to $150,769 for the three months ended September 30, 1999. This increase was
primarily attributable to the increased borrowings by the Company.
NET INCOME (LOSS). For the three months ended September 30, 2000, the
Company had a net loss of $2,101,040, compared to a net loss of $2,371,848 for
the three months ended September 30, 1999. The decrease in net loss was
primarily due to decreases in selling, general and administrative expenses of
$460,595 and decreases in research & development of $445,825, which was offset
by an increase in negative gross margin of $443,066. Basic loss per share was
$0.19, based on 10,854,801 weighted average shares outstanding, for the three
months ended September 30, 2000, compared to $0.24, based on 10,039,273 weighted
shares outstanding, for the three months ended September 30, 1999.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. For the nine months ended September 30, 2000, the Company
generated total revenues of $3,472,016 compared to $439,282 for the nine months
ended September 30, 1999. The revenues for the nine months ended September 30,
2000, consisted of Shuffler rentals of $785,970, Shuffler sales of $651,910,
SecureDrop(TM) sales of $1,920,274, casino game rentals and sales of $57,042 and
other sales of $56,820. The Company believes revenue will continue to increase
through additional SecureDrop(TM) sales, Shuffler sales through international
distributors and continued Shuffler rentals. The Company eliminated its casino
game rental business in early 2000.
COST OF SALES. For the nine months ended September 30, 2000, the cost
of sales was $3,493,517, compared to $1,511,816 for the nine months ended
September 30, 1999. The cost of sales for the nine months ended September 30,
2000, consisted of approximately $1,385,207 for SecureDrop(TM), $295,680 for
depreciation expense associated with the Shufflers held for rental, $641,348 for
costs related to servicing the Shufflers held for rental, $217,416 for costs
related to sales of the Shuffler, and $953,866 for labor and other manufacturing
costs in excess of the Company's estimated total manufacturing costs. The
increase in cost of sales was due to the increase in Shuffler sales and rentals
and SecureDrop(TM) sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended
September 30, 2000, selling, general and administrative expenses increased
approximately $70,123, or approximately 3%, to $2,674,827, compared to
$2,604,704 for the nine months ended September 30, 1999. For the nine months
ended September 30, 2000, selling, general and administrative expenses included:
salaries and related costs of $1,073,631; advertising and marketing services of
$44,038; gaming industry show costs of $199,312; travel and entertainment costs
of $262,170; printing and office expenses of $118,996; depreciation and
amortization of $207,258; office rent and utilities of $257,345; professional
fees of $136,099; bad debt accrual of $236,109 and $139,869 in other
miscellaneous expenses.
RESEARCH AND DEVELOPMENT. For the nine months ended September 30, 2000,
research and development expenses decreased $190,806, or approximately 105%, to
$1,029,273 compared to $1,220,079 for the nine months ended September 30, 1999.
The decrease is due to completion of the development of the SecureDrop(TM) 3000
series and Mobile Scale System.
INTEREST EXPENSE. For the nine months ended September 30, 2000, the
Company incurred interest expenses, net of interest income, of $836,197 compared
to $414,133 for the nine months ended September 30, 1999. This increase was
primarily attributable to the increased borrowings by the Company.
NET INCOME (LOSS). For the nine months ended September 30, 2000, the
Company had a net loss of $4,562,762 compared to a net loss of $5,311,448 for
the nine months ended September 30, 1999. The $748,686 decrease in net loss was
primarily due a decrease in negative gross margin of $1,051,033 offset by an
increase of interest expense of $422,064. Basic loss per share was $0.42, based
on 10,811,974 weighted average shares outstanding, for the nine months ended
September 30, 2000, compared to $0.61, based on 8,687,229 weighted shares
outstanding, for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. The Company has generated cash flow deficits from operations,
including cash used in operating activities of $4,508,282 and $8,570,571 in the
nine months ended September 30, 2000 and 1999, respectively, as it has
transitioned from a development stage company to an operating company. To fund
development activities, the Company used cash in investing activities of
$377,056 and $2,871,292 in the nine months ended September 30, 2000 and 1999,
respectively. Consequently, the Company has been substantially dependent on cash
from financing activities to fund development and operating activities,
receiving cash from financing activities of $4,103,878 and $12,276,467 in the
nine months ended September 30, 2000 and 1999, respectively. The Company will
continue to require cash from financing activities for both its current
operating needs and to fund its anticipated expansion into non-gaming sales
markets until operations begin to generate sufficient cash flow to support such
cash requirements.
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<PAGE>
CASH AND WORKING CAPITAL. At September 30, 2000, the Company had cash,
cash equivalents and investments of $388,463, compared to $1,169,924 at December
31, 1999. At September 30, 2000, the Company's working capital was $(2,716,116),
compared to $599,944 at December 31, 1999. At September 30, 2000, the Company's
current ratio, I.E. the ratio of current assets to current liabilities, was 0.60
compared to 1.21 at December 31, 1999. The decrease in the Company's working
capital position is due primarily to the $1,650,000 in convertible notes and the
$1,416,000 in notes discussed below having a term of one year or less. Until the
Company's normalized cash flows from operations are achieved, the Company will
be relying upon existing cash balances, accounts receivable collections,
placements of debt or equity and institutional sources of debt and equity
capital for working capital purposes.
CASH FLOW. For the nine months ended September 30, 2000, net cash used
in operating activities was $4,508,282, compared to $8,570,571 for the nine
months ended September 30, 1999. Cash used in operating activities during the
nine months ended September 30, 2000, is net of depreciation and amortization of
$641,111, compared to $256,545 for the nine months ended September 30, 1999 and
amortization of deferred interest of $227,217 for the nine months ended
September 30, 2000, compared to $103,133 for the nine months ended September 30,
1999 and reflects increases in accounts receivable of $995,305, compared to
$178,097 for the nine months ended September 30, 1999; increases in inventory of
$575,357, compared to $998,784 for the nine months ended September 30, 1999; a
decrease in prepaid expenses of $196,128, compared to an increase of $35,362 for
the nine months ended September 30, 1999; decreases in other receivables of
$110,808, compared to an increase of $2,655,712 for the nine months ended
September 30, 1999; increases in accounts payable of $89,214, compared to a
decrease of $197,369 for the nine months ended September 30, 1999; increases in
accrued expenses of $123,085, compared to a decrease of $33,970 for the nine
months ended September 30, 1999; increases in customer deposits of $73,898,
compared to $85,755 for the nine months ended September 30, 1999; and an
increase in deferred charges of $163,680, compared to $0 for the nine months
ended September 30, 1999.
For the nine months ended September 30, 2000, the Company used net cash
from investing activities of $377,056 compared to $2,871,292 for the nine months
ended September 30, 1999. Cash used in investing activities for the nine months
ended September 30, 2000 was used primarily for the acquisition of equipment and
tooling in the amount of $258,076, the acquisition of patents and trademarks in
the amount of $29,384 and deposits of $89,596.
For the nine months ended September 30, 2000, net cash provided by
financing activities was $4,103,878 compared to $12,276,467 for the nine months
ended September 30, 1999. The decrease is attributable to the Company beginning
to generate cash from sales of SecureDrop(TM) and Shufflers and its decreased
reliance on cash from financing. Cash from financing activities consisted of
$282,502 from the private placement of common stock, $1,650,000 from the
placement of convertible notes and proceeds of $1,850,675 from leases payable,
reduced by the repayment of leases payable of $1,016,774, the repayment of
shareholder loans of $78,525 and $1,416,000 from the private placement of notes.
CONVERTIBLE DEBT. The Company received $100,000 from the placement of a
convertible note (the "Jaslow Note Dated 8/18/2000") in the third quarter of
2000. The Jaslow Note Dated 8/18/2000 was issued to Richard S. Jaslow, a
director of the Company. The Jaslow Note Dated 8/18/2000 accrues interest at
9.5% per annum until its maturity on August 18, 2001 and is convertible into
restricted shares of the Company's $.001 par value common stock ("Common Stock")
after August 18, 2001 at a rate of $2.60 per share.
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<PAGE>
The Company received $100,000 from the placement of a convertible note (the
"Jaslow Note Dated 7/20/00") in the third quarter of 2000. The Jaslow Note Dated
7/20/00 was issued to Richard S. Jaslow, a director of the Company. The Jaslow
Note Dated 7/20/00 accrues interest at 9.5% per annum until its maturity on July
20, 2001 and is convertible into restricted shares of Common Stock after July
20, 2001 at a rate of $2.60 per share.
The Company received $100,000 from the placement of a convertible note (the
"Ronald Keil Note") in the second quarter of 2000. The Ronald Keil Note was
issued to Ronald S. Keil, a director of the Company. The Ronald Keil Note
accrues interest at 9.5% per annum until its maturity on September 28, 2001 and
is convertible into restricted shares of Common Stock after September 28, 2001
at a rate of $2.60 per share.
For all of the above convertible debt placements, the holder may elect to extend
the maturity date for up to four one-year periods. For each $50,000 of
convertible debt purchased by the respective holder, the holder also received
warrants to purchase 12,500 shares of Common Stock for $2.60 per share. On May
25, 2000, the Company's Board of Directors, with each director abstaining as to
consideration of such director's convertible note purchase, authorized a $2.2
million convertible debt program representing debt convertible into a maximum of
846,153 shares of Common Stock at $2.60 per share. The convertible debt was
authorized to be issued in $50,000 units, each consisting of 12,500 warrants and
the right to convert the debt into 19,230 shares of Common Stock. The proceeds
from the convertible debt were used for general working capital purposes. The
exemptions from registration relied upon by the Company for these private
placements were Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D.
EQUIPMENT FINANCING. For the three months ending September 30, 2000, the Company
received proceeds of $357,000 from a third-party leasing company through which
the Company has financed most of its furniture, equipment, and tooling. The
leases have a mandatory buyout and a term of 36 to 39 months.
LINE OF CREDIT. The Company has obtained a $1,200,000 line of credit based on a
percentage of the Company's accounts receivable and inventory. At September 30,
2000 the Company had drawn $450,000 of the line. The line is collateralized by
the accounts receivable, inventory and most other non-collateralized assets.
OUTLOOK
Based on presently known commitments and plans, the Company believes
that it will be able to fund its operations and required expenditures for the
remainder of 2000 through cash on hand, cash flow from operations, cash from
private placements of debt or equity or from lease financing sources. In the
event that such sources are insufficient or unavailable, the Company will need
to seek cash from public placements of debt or equity, institutional or other
lending sources, sell certain assets or change operating plans to accommodate
such liquidity issues. No assurances can be given that the Company will
successfully obtain necessary liquidity sources necessary to fund the Company's
operations in the upcoming year.
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RISK FACTORS AND FORWARD-LOOKING INFORMATION
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. SUCH STATEMENTS REFER TO EVENTS THAT COULD OCCUR IN THE FUTURE AND MAY BE
IDENTIFIED BY THE USE OF WORDS SUCH AS "INTEND," "PLAN," "BELIEVE," CORRELATIVE
WORDS, AND OTHER EXPRESSIONS INDICATING THAT FUTURE EVENTS ARE CONTEMPLATED.
SUCH STATEMENTS ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS REPORT. IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN
AND THE RISK FACTORS DISCLOSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 1999, INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS.
LIMITED OPERATING RESULTS; NO INDEPENDENT MARKET RESEARCH OF POTENTIAL
DEMAND FOR CURRENT OPERATIONS. Until January 2000, the Company was in the
development stage and has begun to achieve limited sales of its products. The
Company's activities have been limited to analyzing the gaming industry,
consulting with persons in the gaming industry, negotiating interim financing
arrangements, developing products, establishing a distribution network for its
products, marketing its products to the gaming industry, manufacturing its
products, applying for gaming approvals and commencing product sales. Although
the Company anticipates significant sales development and revenue growth through
the end of 2000, there is no guarantee that the Company will generate sufficient
revenue to sustain its operations. No independent organization has conducted
market research providing management with independent assurance from which to
estimate potential demand for the Company's business operations.
ADDITIONAL FINANCING WILL BE REQUIRED. Based on presently known
commitments and plans, the Company believes that it will be able to fund its
operations and required expenditures for the remainder of 2000 through cash on
hand, cash flow from operations, cash from private placements of debt or equity
or from lease financing sources. In the event that such sources are insufficient
or unavailable, the Company will need to seek cash from public placements of
debt or equity, institutional or other lending sources, sell certain assets or
change operating plans to accommodate such liquidity issues. No assurances can
be given that the Company will successfully obtain necessary liquidity sources
necessary to fund the Company's operations in the upcoming year.
FOCUS ON NON-GAMING MARKETS. To date, the Company has developed,
manufactured, marketed and sold its products solely to the gaming industry. The
Company has recently begun to explore the expansion of its focus to the
non-gaming application of certain of its products and technology. The expanded
focus to non-gaming markets will have significant risks for the Company,
including, but not limited to, management's lack of experience in non-gaming
markets, the need to hire sales and technical persons with expertise in
non-gaming markets, additional research, development, distribution and marketing
expenses necessary to proceed into non-gaming application of the Company's
products and technology, significant competitive factors and forces applicable
to non-gaming markets and a variety of other factors. There is no assurance that
the Company will be able to successfully execute the strategy to expand a
significant portion of its marketing and product technology strategies to
non-gaming markets.
REGULATION. The gaming industry is a highly regulated industry and is
subject to numerous statutes, rules and regulations administered by the gaming
regulatory authorities of each jurisdiction. Generally, the Company and other
entities which seek to introduce gaming products or concepts into such
jurisdictions may be required to submit applications relating to their
activities or products (including detailed background information concerning
controlling persons within their organization) which are then reviewed for
approval. The Company may incur significant expenses in seeking to obtain
approvals for its gaming products and concepts, and no assurance can be given
that its products will be approved in any particular jurisdiction. The failure
to obtain such approval in any jurisdiction in which the Company may seek to
introduce its products or concepts could have a material adverse effect on the
Company's business.
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<PAGE>
INFLUENCE ON ELECTION OF DIRECTORS AND ALL OTHER MATTERS BY A
CONTROLLING STOCKHOLDER. A certain stockholder of the Company has voting power
over approximately 55% of the outstanding shares of common stock. As a result,
this stockholder will be able to influence the election of directors and all
other matters submitted to a vote of the Company's stockholders.
UNCERTAINTY OF MARKET FOR COMPANY'S PRODUCTS. Although the market
appears to be receptive to the Company's products, there is no guarantee that
the market will remain receptive or that the market will receive the Company's
future products in the same manner.
BENEFIT TO MANAGEMENT. The Company may, in the future, compensate the
Company's management with substantial salaries and other benefits. The payment
of future larger salaries, commissions and the costs of these benefits may be a
burden on the Company and may be a factor in limiting or preventing the Company
from achieving profitable operations in the future. However, the Company would
not continue to compensate management with such substantial salaries and other
benefits under circumstances where to do so would have a material negative
effect on the Company's financial condition.
STOCKHOLDERS MAY BEAR RISK OF LOSS. The capital stock of the Company is
at risk of complete loss if the Company's operations are unsuccessful.
COMPETITION. There is significant competition in the gaming industry.
The Company competes with established companies and other entities (many of
which possess substantially greater resources than the Company). Almost all of
the companies with which the Company competes are substantially larger, have
more substantial histories, backgrounds, experience and records of successful
operations, greater financial, technical, marketing and other resources, more
employees and more extensive facilities than the Company now has, or will have
in the foreseeable future. It is also likely that other competitors will emerge
in the near future. There is no assurance that the Company will continue to
compete successfully with other established gaming product manufacturers. The
Company shall compete on the basis of quality and price. Inability to compete
successfully might result in increased costs, reduced yields and additional
risks to the Company's stockholders.
RISKS OF PROPRIETARY PRODUCTS. The Company places its proprietary
products, except SecureDrop(TM), in casinos under short-term lease arrangements,
making these products susceptible to replacement due to pressure from
competitors, changes in economic conditions, obsolescence, and declining
popularity. The Company intends to maintain and expand the number of installed
proprietary products through enhancement of existing products, introduction of
new products, and customer service, but there can be no assurance that these
efforts will be successful. Introduction of new proprietary products involves
significant risks, including whether the Company will be able to place its
products with casinos and in non-gaming industries, the economic terms on which
these industries will accept the products, and the popularity of the products.
The Company has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary products, respectively. At this time, however, the
United States Patent and Trademark Office has not acted upon all of these
applications. There can be no assurance that the pending patent or trademark
applications will actually issue as patents or trademark registrations or that
any of these rights will not be infringed by others. Certain of the Company's
products do or may have independent protection of the products themselves, and
it is possible that competitors could produce a similar product without
violating any legal rights of the Company. The Company intends to aggressively
promote its trademarks to build goodwill and customer loyalty. There can be no
assurance, however, that the Company will be successful in these efforts, that
innovations will be subject to legal protection, or that the innovations will
give a competitive advantage to the Company.
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LACK OF DIVIDENDS. There can be no assurance that the operations of the
Company will become profitable. At the present time, the Company intends to use
any earnings that may be generated to finance the growth of the Company's
business.
DEPENDENCE ON KEY INDIVIDUALS. The future success of the Company is
highly dependent upon the management skills of its key employees and the
Company's ability to attract and retain qualified key employees. The inability
to obtain and employ these individuals would have a serious effect upon the
business of the Company. The Company has entered into an employment agreement
with Steven J. Blad, its President and Chief Executive Officer. There can be no
assurance that the Company will be successful in retaining its key employees or
that it can attract or retain the additional skilled personnel required.
VULNERABILITY TO FLUCTUATIONS IN THE ECONOMY. Demand for the Company's
products is dependent on, among other things, general economic conditions and
international currency fluctuations that are cyclical in nature. Prolonged
recessionary periods may be damaging to the Company.
"PENNY" STOCK REGULATION OF BROKER-DEALER SALES OF COMPANY SECURITIES.
The Company does not presently meet the requirements for a NASDAQ Small Cap
Market listing. The OTC Bulletin Board has no quantitative written standards and
is not connected with the NASD. Until the Company obtains a listing on the
NASDAQ Small Cap Market, if ever, the Company's securities may be covered by
Rule 15g-9 under the Exchange Act which imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with his or
her spouse). For transactions covered by the rule, the broker-dealer must
furnish, to all investors in penny stocks, a risk disclosure document required
by Rule 15g-9 of the Exchange Act, make a special suitability determination of
the purchaser and have received the purchaser's written agreement to the
transaction prior to the sale. In order to approve a person's account for
transactions in penny stock, the broker or dealer must (i) obtain information
concerning the person's financial situation, investment experience and
investment objectives; (ii) reasonably determine, based on the information
required by paragraph (i), that transactions in penny stock are suitable for the
person and that the person has sufficient knowledge and experience in financial
matters so that the person may reasonably be expected to be capable of
evaluating the risks of transactions in penny stock; and (iii) deliver to the
person a written statement setting forth the basis on which the broker or dealer
made the determination required by paragraph (ii) of this section, stating in a
highlighted format that it is unlawful for the broker or dealer to effect a
transaction in a designated security subject to the provisions of paragraph (ii)
of this section unless the broker or dealer has received, prior to the
transaction, a written agreement for the transaction from the person, which
states in a highlighted format immediately preceding the customer signature line
that the broker or dealer is required to provide the person with the written
statement and the person should not sign and return the written statement to the
broker or dealer if it does not accurately reflect the person's financial
situation, investment experience and investment objectives and obtain from the
person a manually signed and dated copy of the written statement. A penny stock
means any equity security other than a security (i) registered, or approved for
registration upon notice of issuance on a national securities exchange that
makes transaction reports available pursuant to 17 CFR 11Aa3-1; (ii) authorized
or approved for authorization upon notice of issuance, for quotation in the
NASDAQ system; (iii) that has a price of five dollars or more; or (iv) whose
issuer has net tangible assets in excess of $2,000,000 demonstrated by financial
statements dated less than fifteen months previously that the broker or dealer
has reviewed and has a reasonable basis to believe are true and complete in
relation to the date of the transaction with the person. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's securities.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 8, 1998, Pinnacle Performance, Inc. ("Pinnacle") filed a
complaint (Case No. CV OC 9705098D) in the District Court of the Fourth Judicial
District of the State of Idaho, Ada County, against the Company and a former
employee of Pinnacle (who is now an employee of the Company). The complaint
alleged claims for breach of contract and tortious interference with contract.
The Court granted summary judgment in favor of the Company and vacated the
trial. Plaintiff has appealed the granting of summary judgment in favor of the
Company. The parties presented oral arguments before the Idaho Court of Appeals
on August 16, 2000, and are awaiting the ruling of the Court.
On November 22, 1999, Moll Industries, Inc. ("Moll") filed a complaint
(Case No. 817296) against the Company in the Superior Court of the State of
California, Orange County. The Company filed a cross-complaint against Moll, and
the parties have agreed to resolve this matter without the further intervention
of the court. A settlement agreement, the fulfillment of which will lead to the
dismissal of this litigation, is being prepared for the parties' signatures.
On May 18, 2000, Heath Electronics Manufacturing Corporation ("Heath")
filed a complaint (Case No. CV OC 00-02422D) against the Company in the District
Court of the Fourth Judicial District of the State of Idaho, Ada County. The
Company has answered the complaint, which requests payment for goods in the
amount of $89,569 plus interest and costs, and has filed a counterclaim alleging
claims for breach of contract, breach of express warranty, breach of the implied
warranty of merchantability, and breach of the implied warranty of fitness for a
particular purpose. Trial has been set for June 18, 2001.
On August 16, 2000, Bon Temps Roule, Inc. and other plaintiffs
(collectively "Bon Temps") filed a complaint (Case No. 00CC09840) against the
Company, Joe Stapley, and Travis Morgan Securities, Inc. in the Superior Court
of the State of California, Orange County. The complaint alleges claims for the
sale and purchase of securities based upon misrepresentations and requests
rescission of certain stock purchase transactions. On October 25, 2000, the
Company filed a demurrer to the complaint and a motion to strike.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The proceeds from the placement of convertible debt described in Note 3
to the financial statements contained in the Quarterly Report on 10-QSB were
used for working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default on interest payments for two 9.5%
convertible notes due 2/15/2004. The total amount of the notes is $1,150,000,
and the total arrearage of the interest is $109,250. The Company is currently
negotiating a permanent resolution.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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) Reports on Form 8-K.
-------------------
During the three month period ended September 30, 2000, the Company filed with
the Securities and Exchange Commission a Form 8-K on July 28, 2000, reporting
(i) the corporate name change from CVI Technology, Inc. to VendingData
Corporation and (ii) the results of its Annual Meeting of Stockholders held on
July 14, 2000.
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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.
VendingData Corporation
--------------------------------------
(Registrant)
Date: November 13, 2000 By: /s/ Michael C. McDonald
--------------------------------------
Michael C. McDonald
Its: Chief Financial Officer and Treasurer
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EXHIBIT INDEX
Exhibit Number Description Page Number
-------------- ----------- -----------
27.01 Financial Data Schedule 20
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