UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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 number: 0-20820
SHUFFLE MASTER, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1448495
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
10901 Valley View Road, Eden Prairie MN 55344
(Address of Principal Executive Offices) (State) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 943-1951
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 _____
As of August 30, 1996, there were 11,145,822 shares of the Company's $.01 par
value common stock outstanding.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SHUFFLE MASTER, INC.
CONSOLIDATED BALANCE SHEETS
JULY 31, OCTOBER 31,
(IN THOUSANDS) ----------- -----------
ASSETS 1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,278 $ 1,896
Investments 26,585 18,932
Accounts receivable, net 3,148 2,420
Inventories 2,449 2,303
Other 1,380 398
-------- --------
Total current assets 34,840 25,949
SYSTEMS LEASED PURSUANT TO OPERATING LEASES, NET, AND
SYSTEMS HELD FOR LEASE 7,450 6,571
PROPERTY AND EQUIPMENT, NET 2,048 1,033
OTHER ASSETS:
Notes receivable, net of current portion 305 3,428
Other 945 770
-------- --------
Total other assets 1,250 4,198
-------- --------
$ 45,588 $ 37,751
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 968 $ 674
Accrued liabilities:
Compensation 542 414
Expenses 226 71
Customer deposits 1,137 634
Tournament jackpot liability 4,287 644
Income taxes payable 635 215
-------- --------
Total current liabilities 7,795 2,652
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000 shares
authorized, 11,140 and 11,048 shares issued and
outstanding 111 110
Additional paid-in capital 36,633 35,740
Retained earnings (accumulated deficit) 1,098 (784)
Unrealized investment (loss) gain (49) 33
-------- --------
Total shareholders' equity 37,793 35,099
-------- --------
$ 45,588 $ 37,751
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
SHUFFLE MASTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(IN THOUSANDS, EXCEPT PER THREE MONTHS ENDED NINE MONTHS ENDED
SHARE AMOUNTS) JULY 31, JULY 31,
--------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUE:
<S> <C> <C> <C> <C>
Let It Ride(R) The Tournament(TM) $ 5,041 $ 1,169 $ 17,540 $ 1,169
Lease 2,514 1,691 7,009 4,089
Sales 1,226 111 2,866 634
Other 326 164 716 412
-------- -------- -------- --------
9,107 3,135 28,131 6,304
COSTS AND EXPENSES:
Let It Ride(R) The Tournament(TM) 3,714 830 13,295 830
Cost of leases, sales and other 1,821 854 4,379 2,053
Selling, general and administrative 1,760 1,040 4,820 2,595
Research and development 305 140 848 392
-------- -------- -------- --------
7,600 2,864 23,342 5,870
-------- -------- -------- --------
INCOME FROM OPERATIONS 1,507 271 4,789 434
OTHER INCOME (EXPENSE):
Loss on notes receivable -- -- (3,370) --
Interest and other income 378 147 1,088 356
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,885 418 2,507 790
Provision for income taxes 450 3 625 6
-------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS 1,435 415 1,882 784
Discontinued operations, net -- -- -- 66
-------- -------- -------- --------
NET INCOME $ 1,435 $ 415 $ 1,882 $ 850
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 11,344 9,759 11,294 9,371
======== ======== ======== ========
NET INCOME PER SHARE $ .13 $ .04 $ .17 $ .09
======== ======== ======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
SHUFFLE MASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
JULY 31,
----------------------
(IN THOUSANDS) 1996 1995
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,882 $ 850
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 1,803 885
Amortization of investment discount (445) --
Loss on notes receivable 3,300 --
Changes in operating assets and liabilities:
Receivables (728) (551)
Inventories (146) (689)
Other (1,159) (536)
Tournament jackpot liability 3,643 830
Income taxes payable 420 --
Accounts payable 294 213
Accrued liabilities 283 81
Customer deposits 503 390
-------- --------
Net cash provided by operating activities 9,650 1,473
-------- --------
INVESTING ACTIVITIES:
Purchases of investments (43,639) (14,246)
Proceeds from the sale of investments 36,431 20,273
Additions to systems leased to customers, and systems held
for lease (2,304) (3,630)
Additions to property and equipment (1,302) (283)
Other (348) (608)
-------- --------
Net cash (used) provided by investing activities (11,162) 1,506
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 894 11,109
-------- --------
Net cash provided by financing activities 894 11,109
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (618) 14,088
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,896 8
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,278 $ 14,096
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 277 $ 6
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
SHUFFLE MASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements:
The financial statements as of July 31, 1996, and for the three and nine
month periods ended July 31, 1996 and 1995, are unaudited, but in the
opinion of management include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the financial
results for the interim periods. The results of operations for the three
and nine months ended July 31, 1996, are not necessarily indicative of
the results to be expected for the year ended October 31, 1996. These
interim statements should be read in conjunction with the Company's
October 31, 1995, financial statements and notes thereto included in its
Form 10-K.
2. Inventories:
DESCRIPTION JULY 31, 1996 OCTOBER 31, 1995
--------------------------- -------------- ----------------
Raw materials $1,709,000 $1,357,000
Work-in-progress 391,000 638,000
Finished goods 349,000 308,000
---------- ----------
Total $2,449,000 $2,303,000
========== ==========
3. Systems Leased and Held for Lease:
Systems leased and held for lease includes the various models of
shufflers and Let It Ride(R) table equipment and video machines.
DESCRIPTION JULY 31, 1996 OCTOBER 31, 1995
------------------------------ ------------- ----------------
Systems leased, net $4,830,000 $4,665,000
Systems held for lease:
Shufflers 1,698,000 1,489,000
Let It Ride(R) 922,000 417,000
---------- ----------
Total $7,450,000 $6,571,000
========== ==========
4. Common Stock:
In the current year second quarter, the Board of Directors authorized the
repurchase of up to $5,000,000 of the Company's shares in the open market
or privately negotiated transactions. No shares have been repurchased
under this authorization. The authorization for the share repurchase
expired August 2, 1996.
5. Loss on Notes Receivable:
In the first quarter of fiscal 1996, the Company recognized a total loss
of $3,370,000 on two loans advanced to an unrelated company ("receiving
company"). The loans were collateralized by 68% of the stock of a company
related to the receiving company. The Company's management evaluated
alternatives for recovery of the loans, including exercising its right
against the collateral. The Company did not believe that recovery of the
original loans was likely after a detailed review of the receiving
company's financial position, operations and prospects for future growth.
6. Contingencies:
D&D Gaming Patents, Inc. (Progressive Games, Inc.):
On January 22, 1995, the Company filed a declaratory judgment action
against D&D Gaming Patents, Inc. ("D&D Gaming"). The Company filed such
action due to allegations by D&D Gaming that the Company's Let It Ride(R)
The Tournament(TM) game infringed on patents held by D&D Gaming. Such
action seeks a declaratory judgment that: (1) three of D&D Gaming's
patents (the 041, the 077 and the 105) are invalid and unenforceable; and
(2) to the extent that such patents are determined to be valid and
enforceable, such patents are not infringed by Let It Ride(R) The
Tournament(TM).
On March 2, 1995, D&D Gaming filed suit against the Company, the
Company's Chairman, John Breeding, and the eight Nevada casinos that
participated in the field test of Let It Ride(R) The Tournament(TM),
alleging willful patent infringement of its 041 and 077 patents and
demanding that each defendant be preliminarily and permanently enjoined
from infringing the two patents which are the subject of the litigation,
and that each defendant be required to account to D&D Gaming for damages
suffered resulting from the infringement and that such damages be trebled
because of the claimed willful nature of the alleged infringement. On
March 9, 1995, the Company served its declaratory judgment action on D&D
Gaming and subsequently served its answer to the infringement action. The
two actions have been consolidated.
On April 16, 1996, the Court entered an order, which among other things
denied D&D Gaming's motion for partial summary judgment on Shuffle
Master's counter claims that D&D's patents are invalid and unenforceable.
D&D Gaming assigned all of its patents at issue in the litigation to
Progressive Games, Inc., and the Court has allowed Progressive Games,
Inc. to be substituted as a party for D&D Gaming.
Progressive Games, Inc. has begun a separate lawsuit in federal court in
Nevada naming 62 additional Nevada casinos as defendants alleging that
those defendants, by playing Let It Ride(R) The Tournament(TM), infringe
Progressive Games, Inc.'s 041 and 077 patents. The Company is not named
in this action but is indemnifying and defending the 62 casino defendants
pursuant to its license agreement with them.
On June 25, 1996, the United States Patent & Trademark Office rejected
all of the claims of the 105 patent, claims 1-4, 6, 8, 10, and 14 of the
041 patent and claims 6-21 of the 077 patent. D&D Gaming may appeal the
patent examiner's decision to the Board of Patent Appeals within the
United States Patent & Trademark Office.
Progressive Games, Inc. began a separate lawsuit in Mississippi against
the casinos which are participating in the Let It Ride(R) The
Tournament(TM) field test. Progressive Games, Inc. alleges the casinos'
participation infringes the 041 and 077 patents as well as the recently
issued progressive apparatus patent, No. 5,544,893. The Company has not
been named as a party to this action but has agreed to indemnify the
defendant casinos.
The Company believes that Progressive Games, Inc.'s patents (formerly D&D
Gaming's patents) are invalid and if they are held to be valid, that Let
It Ride(R) The Tournament(TM) does not infringe Progressive Games, Inc.'s
patents. The Company has agreed to defend and indemnify all licensees of
The Tournament against liability resulting from any such claim or suit
brought against the Licensee for infringement of proprietary rights or
patent rights arising out of or relating to Let It Ride(R) The
Tournament(TM). Further, if Progressive Games, Inc. should prevail in its
suit, management does not expect the action will materially affect the
Company's financial condition.
DD Stud, Inc. and Anchor Coin:
On September 9, 1996, DD Stud, Inc. and Anchor Coin (wholly owned
subsidiaries of Anchor Gaming) filed suit against the Company alleging
the Company's Let It Ride(R) basic game violates certain patents held by
DD Stud, Inc. and related products distributed by Anchor Coin. The
Company filed a counter claim against Anchor Coin, DD Stud, Inc., Anchor
Gaming and Stanley E. Fulton, Chief Executive Officer of Anchor Gaming,
seeking a declaratory judgment that DD Stud, Inc.'s patents are invalid
and unenforceable and not infringed by the Company. The counter claim
requests additional relief based on claims of unfair competition, abuse
of process, abuse of patent, and violation of anti-trust, and also
requests punitive damages. The Company may seek to invalidate DD Stud,
Inc.'s patents by filing reexamination proceedings with the United States
Patent and Trademark Office. The Company strongly believes that its game
does not infringe DD Stud, Inc.'s patents and will vigorously defend any
charges of infringement.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected financial information derived from the
Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------------------- --------------------------------
PERIOD ENDED JULY 31, 1996 1995 1996 1995
- ------------------------------------ ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of products 60.8 53.7 62.8 45.7
------------- ------------- --------------- -------------
Gross margin 39.2 46.3 37.2 54.3
------------- ------------- --------------- -------------
Selling, general and administrative 19.3 33.2 17.2 41.2
Research and development 3.4 4.5 3.0 6.3
------------- ------------- --------------- -------------
Income from operations 16.5 8.6 17.0 6.8
Other income (expense), net 4.2 4.6 (8.1) 5.6
------------- ------------- --------------- -------------
Income before income taxes 20.7 13.2 8.9 12.4
Provision for income taxes 4.9 -- 2.2 --
------------- ------------- --------------- -------------
Income from continuing
operations
15.8% 13.2% 6.7% 12.4%
============= ============= =============== =============
</TABLE>
REVENUE
Revenue for the three months ended July 31, 1996, was $9,107,000, an increase of
$5,972,000 or 190% over the same period last year.
Revenue from Let It Ride(R) The Tournament(TM) totaled $5,041,000 in the current
quarter compared to $1,169,000 in the third quarter of fiscal 1995. Let It
Ride(R)The Tournament(TM) first generated revenues for the Company in the third
quarter of fiscal 1995. There were approximately 173 Tournament tables in use at
Nevada casinos as of July 31, 1996. Revenues are derived from allocations of the
optional side bet available to players of Let It Ride(R) The Tournament(TM). The
Company records both its commission and The Tournament guaranteed playoff prize
fund allocation as revenue. The playoff prize fund amounts are fully recorded as
cost of sales and corresponding liabilities resulting in no gross profit to the
Company from the playoff prize fund revenues. During fiscal 1996, the Company
made two separate changes to The Tournament guaranteed playoff prize fund
allocation, which reduced revenues but did not affect the Company's commission.
Effective April 8, 1996, the amount of the dollar used to fund the guaranteed
prizes was reduced to $.22 from $.30 while The Tournament qualifying period was
extended to 120 days from 90 days. Consequently, the Company's revenues were
decreased by $.08 per dollar side bet for all revenue generated during the
current quarter. Effective August 8, 1996, the amount of the dollar used to fund
the guaranteed prizes in Nevada was reduced to $.12 from $.22, primarily as a
result of changing the top award for The Tournament in December 1996 from
$3,000,000 to $1,000,000. Neither of these changes affect the Company's gross
profit dollars generated by Let It Ride(R) The Tournament(TM).
The Company began a field trial for Let It Ride(R) The Tournament(TM) in
Mississippi in June 1996. The revenue contribution from the Mississippi
Tournament was not significant in the current year third quarter since most
tables were installed in the second half of the quarter.
Shuffler lease and sales revenue increased due to increased penetration into
markets outside of Nevada. Revenue from leased shuffling systems increased to
$2,514,000 in the current quarter compared to $1,691,000 in the prior year third
quarter, as the lease base increased by 37% between the comparable periods.
Shuffler system sales increased to $1,226,000 from $111,000 in the third quarter
of fiscal 1995. Current quarter sales included 117 shufflers converted to sales
from lease agreements. The Company implemented a sales plan for the domestic
market in the fourth quarter of fiscal 1995, which resulted in the increase of
shuffler sales. Prior to that time, all shuffler sales were to international
customers.
Revenue for the nine months ended July 31, 1996 was $28,131,000, an increase of
$21,827,000 over the nine month period ended July 31, 1995. Revenues from Let It
Ride(R) The Tournament(TM) were $17,540,000 in the current nine month period.
Lease revenue increased to $7,009,000 in the current year compared to $4,089,000
in the prior year period, while shuffler sales increased by $2,232,000 to
$2,866,000 in the current nine month period. The increase in shuffler lease and
sales revenue was due to the reasons noted above.
COSTS AND EXPENSES
Gross margin was 39.2% and 37.2% for the current quarter and nine months,
compared to 46.3% and 54.3% in the prior year. The decrease generally resulted
from the inclusion in 1996 of revenues generated from Let It Ride(R) The
Tournament(TM) which, due to the inclusion of the playoff prize fund in an equal
amount in both revenue and costs and expenses, are reported at lower margins
than shuffler revenue.
For the quarter ended July 31, 1996, Let It Ride(R) The Tournament(TM)
contributed a gross margin of 26.3%. Total Tournament related costs were
$3,714,000, and included $3,223,000 for the guaranteed prize pool and $491,000
of other expenses, including equipment installation, depreciation, direct costs
for the playoffs held in Las Vegas, Nevada in August 1996, and expenses
associated with the rollout and field test of The Tournament in Mississippi. The
gross margin for Let It Ride(R)The Tournament(TM) was 24.2% for the current nine
month period. The margin improvement in the current third quarter compared to
the nine month results was due to the reallocation of the $1 side bet as
discussed under the revenue section. The reallocation of the $1 side bet reduced
both revenue and cost of sales by $.08 per $1 side bet.
The gross profit margin on combined lease, sales and other revenue decreased to
55.2% in the current year third quarter from 56.6% in the same period in the
prior year. The Company provided approximately $110,000 for inventory valuation
reserves in the current quarter for anticipated valuation adjustments. In
addition, the Company greatly expanded its service force to support sales and
lease activity in jurisdictions outside of Nevada. Service expenses are included
in cost of sales. Finally, significant shuffler sales in the third quarter were
made to an overseas distributor at lower distributor prices. For the current
nine month period, the gross margin on these same revenues decreased to 58.7%
compared to 60.0% last year. The inventory valuation provision was $210,000 for
the current nine month period.
Selling, general and administrative expenses increased by $720,000, to
$1,760,000 in the current year third quarter, and by $2,225,000 to $4,820,000 in
the nine month period ended July 31, 1996. Overall, expenses increased due to
additional staffing and related costs incurred to support the revenue growth
generated by the shuffler systems, Let It Ride(R) The Tournament(TM) in Nevada,
and the third quarter fiscal 1996 introduction of Let It Ride(R) The
Tournament(TM) in Mississippi. To increase penetration in markets outside of
Nevada, the Company increased its outside sales force to eight people from four
people during the current third quarter. Additional staffing was added in the
marketing function as well in support of Let It Ride(R) The Tournament(TM)
expansion. Research and development expenses increased to $305,000 from $140,000
in the prior year third quarter, and $848,000 compared to $392,000 for the nine
month period. Additional expenses were incurred for the continued development of
the video version of Let It Ride(R) and other new gaming products.
OTHER INCOME (EXPENSE)
Interest and other income was $378,000 in the current third quarter and
$1,088,000 for the current nine month period, compared to $147,000 and $356,000,
respectively, in the prior year. The increase in interest income resulted from
the increase in investments due to receipt of the net proceeds of $17,596,000
from the exercise of warrants in the third and fourth quarters of fiscal 1995
and the cash generated by operations.
Other expense includes a loss on notes receivable of $3,370,000 recognized by
the Company in the first quarter of the current year. See additional discussion
regarding this loss under Note 5 to the Consolidated Financial Statements.
INCOME TAXES
The Company recorded income tax expense at an effective annual rate of 23.9% for
the quarter and 24.9% year-to-date. The effective rate differs from the federal
statutory rate of 34% due to the expected current year decrease in the deferred
tax asset valuation allowance resulting from the realization of net operating
loss carryforwards, research and experimentation tax credit carryforwards for
both state and federal income tax reporting, and alternative minimum tax credit
carryforwards.
NET INCOME PER SHARE
The net income per share was $.13 for the current year third quarter, and $.17
for the current nine month period. The non-recurring loss recognized on the loan
write-off in the current first quarter had a negative impact on earnings per
share of $.22. Weighted average common and common equivalent shares outstanding
increased to 11,344,000 from 9,759,000 in the third quarter of fiscal 1995, and
to 11,294,000 for the current nine month period from 9,371,000 for the nine
months ended July 31, 1995, principally due to the third and fourth quarter of
fiscal 1995 exercise of 1,897,500 warrants.
NEW PRODUCTS, JURISDICTIONS AND ALLIANCES
In April 1996, the Company received final regulatory approval from the State of
Nevada for its bonus version of video Let It Ride(R). The Company began test
marketing the video Let It Ride(R) machines in May 1996 in Nevada casinos. The
test marketing of the video machines has continued through the end of the third
quarter.
The Company received approval from the Mississippi Gaming Commission in May 1996
to operate a field trial of Let It Ride(R)The Tournament(TM) in Mississippi
casinos. The Company began the field trial in its current quarter ended July 31,
1996. The Company is currently seeking approvals for Let It Ride(R)The
Tournament(TM) in a number of other jurisdictions.
In August 1996, the Company announced the formation of a joint marketing
alliance with IGT. The purpose of the alliance is to market the Company's Let It
Ride(R) game in a video wide area progressive system format. IGT has significant
expertise and resources in adapting slot machine games to a progressive system
format. IGT slot machines represent greater than 70% of the installed slot
machines in North America. The Company expects the alliance with IGT to permit
the retro-fitting and conversion of some portion of the existing IGT machines to
Let It Ride(R) wide area progressive system. The Company's alliance with IGT is
expected to have a financial impact in the latter half of fiscal 1997.
The discussion and anticipation of new product launches, jurisdictional
expansion for Let It Ride(R) The Tournament(TM), and a marketing alliance is a
forward-looking statement which involves risks and uncertainties, including the
acceptance of new products and existing products in new gaming jurisdictions.
This is in addition to other competitive and business risks described in the
Company's report on Form 10-K for the year ended October 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1996, the Company had cash and cash equivalents, and investments
totaling $27,863,000, compared to $20,828,000 at October 31, 1995. The current
ratio decreased to 4.5 to 1 from 9.8 to 1 at October 31, 1995, while working
capital increased to $27,045,000 at July 31, 1996, from $23,297,000 at October
31, 1995. The decreased current ratio resulted from the increased current
liability for the guaranteed prizes for the August Nevada Let It Ride(R)
Tournament(TM). Over 110 days of Tournament jackpot liability totaling
$4,287,000 was recorded at July 31, 1996, compared to 22 days totaling $644,000
recorded at October 31, 1995.
Cash provided from operations totaled $9,650,000 in the current nine months
compared to cash provided by operations of $1,473,000 in the same period last
year. Non-cash charges, including the provision for the loss on notes
receivable, and depreciation and amortization were $5,103,000 in the current
period. Cash used by investing activities included additions to the shuffling
systems available for lease of $2,304,000, and fixed asset additions of
$1,302,000, principally for leasehold improvements and office furniture and
fixtures made necessary by the expansion of the corporate office and the current
construction of a new facility in Las Vegas. Cash provided by financing
activities was $894,000 in the current year due primarily to option and warrant
excercises.
The Company believes its current cash and cash equivalents, investments, and
cash generated from operations will be adequate to meet its operational, capital
expenditure, and research and development needs for the foreseeable future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been a party to legal proceedings with D&D Gaming. In 1995, the
Company filed a declaratory judgment action against D&D Gaming, and D&D Gaming
filed suit against the Company for willful patent infringement. Both actions
involve the Company's Let It Ride(R) The Tournament(TM) game. D&D Gaming
assigned all of its rights, title and interest in the patents that were the
subject matter of this proceeding to Progressive Games, Inc., and in April 1996,
the Court allowed Progressive Games, Inc. to be substituted as a party for D&D
Gaming.
The Company was served with a lawsuit by DD Stud, Inc. and Anchor Coin on
September 9, 1996. The lawsuit alleges the Company's Let It Ride(R) basic game
infringes on certain patents held by DD Stud, Inc. and related products
distributed by Anchor Coin. See additional discussion regarding these legal
proceedings under Note 6 to the Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 27, Financial Data Schedules
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHUFFLE MASTER, INC.
(Registrant)
Date: September 12, 1996
/s/ Joseph J. Lahti
- -------------------------------------
Joseph J. Lahti
Chief Financial Officer
/s/ John A. Rahja
- -------------------------------------
John A. Rahja
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 1,278
<SECURITIES> 26,585
<RECEIVABLES> 3,248
<ALLOWANCES> 100
<INVENTORY> 2,449
<CURRENT-ASSETS> 34,840
<PP&E> 2,662
<DEPRECIATION> 614
<TOTAL-ASSETS> 45,588
<CURRENT-LIABILITIES> 7,795
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 37,682
<TOTAL-LIABILITY-AND-EQUITY> 45,588
<SALES> 2,866
<TOTAL-REVENUES> 28,131
<CGS> 1,268
<TOTAL-COSTS> 17,674
<OTHER-EXPENSES> 848
<LOSS-PROVISION> 3,370
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,507
<INCOME-TAX> 625
<INCOME-CONTINUING> 1,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,882
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
