<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
0-21426
------------------------
(Commission file number)
CASINO DATA SYSTEMS
--------------------------
(Exact Name of Registrant as
Specified in its Charter)
NEVADA
--------------------------------------------------------------
(State or other Jurisdiction of Incorporation or Organization)
88-0261839
----------
(I.R.S. Employer Identification No.)
3300 BIRTCHER DRIVE, LAS VEGAS, NEVADA 89118
-------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(702) 269-5000
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports require to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
[X] Yes [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 17,714,648 shares of common
stock outstanding as of May 10, 1996
<PAGE> 2
CASINO DATA SYSTEMS
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets -
December 31, 1995 and March 31, 1996 3
Unaudited Consolidated Statements of Operations
For the three months ended March 31, 1995 and 1996 4
Unaudited Consolidated Statements of Shareholders' Equity
For the year ended December 31, 1995 and the three months
ended March 31, 1996 5
Unaudited Consolidated Statements of Cash Flows
For the three months ended March 31, 1995 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II OTHER INFORMATION
Items 1-6 15
Signatures 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASINO DATA SYSTEMS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,091,174 $ 46,252,679
Accounts receivable (note 8) 7,665,796 13,858,132
Notes receivable (note 8) 1,827,878 1,876,482
Inventories (note 5) 5,314,410 9,087,507
Deferred tax asset 581,549 581,549
Other current assets 1,378,790 1,279,622
------------ -------------
Total current assets 29,859,597 72,935,971
------------ -------------
Property and equipment, net (note 4) 21,297,277 24,162,227
Investment securities (note 2) - 4,667,098
Notes receivable (note 8) 2,114,343 1,127,397
Intangible assets, net (note 3) 4,666,090 8,203,146
Software development costs (note 6) 641,629 878,959
Deposits 1,023,824 430,131
------------- --------------
Total assets $ 59,602,760 $ 112,404,929
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Customer deposits $ 680,627 $ 21,754
Accounts payable 2,398,976 2,284,798
Current portion of long term debt (note 7) 1,097,376 1,790,403
Sales tax payable 390,359 201, 518
Income tax payable 529,855 1,417,052
Accrued expenses 186,725 490,507
Accrued slot liability 1,383,052 2,122,128
------------- --------------
Total current liabilities 6,666,970 8,328,160
Noncurrent liabilities:
Long term debt (note 7) 2,518,936 3,639,437
Accrued slot liability 2,161,178 3,434,882
Deferred tax liability 75,468 75,468
------------- --------------
Total noncurrent liabilities 4,755,582 7,149,787
------------- --------------
Shareholders' equity (note 9):
Common stock, no par value.
Authorized 100,000,000 shares;
issued and outstanding 13,710,490 and
17,683,664 at December 31, 1995 and
March 31, 1996, respectively 33,305,060 80,347,783
Retained earnings 14,875,148 16,579,199
------------ --------------
Total shareholders' equity 48,180,208 96,926,982
------------ --------------
Total liabilities and shareholders' equity $ 59,602,760 $ 112,404,929
============ ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
CASINO DATA SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Systems and product sales $ 4,534,919 $ 9,977,250
Progressive operations 958,682 4,583,994
------------- -----------
Total revenues 5,493,601 14,561,244
------------- ------------
Costs and expenses:
Cost of goods sold 2,138,107 6,876,083
Selling, general and administrative 1,429,144 3,957,474
Research and development 490,000 730,000
Depreciation and amortization 159,969 528,474
------------ ------------
Total costs and expenses 4,217,220 12,092,031
------------ ------------
Income from operations 1,276,381 2,469,213
------------ ------------
Other income (expense):
Rental income 47,431 62,885
Interest income 215,619 147,233
Interest expense - (86,232)
------------ -------------
Total other income 263,050 123,886
------------ ------------
Income before income tax expense 1,539,431 2,593,099
Income taxes 488,221 889,048
------------ ------------
Net income $ 1,051,210 $ 1,704,051
============ ============
Net income per common and equivalent share $ 0.08 $ 0.12
============ ============
Shares used in per share calculations 13,491,000 14,591,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
CASINO DATA SYSTEMS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Retained
Common Stock Deferred Treasury Earnings
Shares Amount Discount Stock (Deficit) Total
---------------------- -------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 13,878,900 $36,056,288 $(25,333) $(4,920,574) $10,147,064 $41,257,445
Issuance of common stock,
pursuant to employee
stock option plan 236,590 1,162,106 - - - 1,162,106
Income tax benefits derived
from exercise of stock
options by grantees - 657,240 - - - 657,240
Issuance of common stock,
pursuant to purchase of
TurboPower 112,500 350,000 - - - 350,000
Retirement of shares held in
treasury (517,500) (4,920,574) - 4,920,574 - -
Net income - - - - 4,728,084 4,728,084
Deferred discount, earned and
charged to operations - - 25,333 - - 25,333
---------- ----------- --------- ----------- ----------- -----------
Balance at December 31, 1995 13,710,490 $33,305,060 $ 0 $ 0 $14,875,148 $48,180,208
Issuance of common stock
pursuant to employee
stock option plan 60,122 424,895 - - - 424,895
Issuance of common stock
pursuant to purchase of
Telnaes 121,847 1,035,695 - - - 1,035,695
Issuance of common stock 3,791,205 45,582,133 - - - 45,582,133
Net income - - - - 1,704,051 1,704,051
Balance at March 31, 1996 17,683,664 $80,347,783 $ 0 $ 0 $16,579,19 $96,926,982
========== =========== ======== =========== ========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE> 6
CASINO DATA SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,051,210 $ 1,704,051
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 159,969 528,474
Installment sale discount, additional capital 25,333 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 346,609 (5,302,003)
Increase in inventories (1,309,808) (3,773,097)
Decrease (increase) in other assets (328,445) 503,536
Increase (decrease) in customer deposits (111,094) (658,873)
Increase in accounts payable 417,284 (114,178)
Increase in accrued liabilities 1,178,528 3,014,918
------------ -------------
Net cash provided by operating activities 1,429,586 (4,097,172)
------------ -------------
Cash flows used in investing activities:
Net increase in held to maturity securities (3,280,514) (4,667,098)
Payment for purchase of TurboPower Software
Company, net of cash acquired (600,000) -
Acquisitions of property and equipment (642,198) (3,287,862)
Increase in intangible assets (1,331,000) (2,606,920)
------------
Net cash used in investing activities (5,853,712) (10,561,880)
------------ -------------
Cash flows from financing activities:
Repayment of purchased debt - (265,039)
Proceeds from issuance of note payable - 2,078,567
Net proceeds from sale of common stock - 46,007,029
------------ -------------
Net cash provided by financing activities - 47,820,557
------------ -------------
Net increase (decrease) in cash and cash equivalents (4,424,126) 33,161,505
Cash and cash equivalents at beginning of period 14,027,842 13,091,174
------------ -------------
Cash and cash equivalents at end of period $ 9,603,716 $ 46,252,679
============ =============
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $ 0 $ 86,232
Income taxes 29,000 0
Non-cash Financing and Investing Activities:
Common stock issued in purchase of business 350,000 -
Common stock issued in purchase of Telnaes patent - 1,035,695
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Casino Data Systems, Nevada Corporation, was incorporated in June
1990. Each of the following corporations are wholly-owned subsidiaries of the
Company: CDS Services Company, Paradise Graphics, Inc., Fifty-Seven
Corporation, which does business as Southwestern Sign Service, Inc., TurboPower
Software Company and CDS Gaming Company. The primary businesses of the Company
are: (i) the development, licensing and sales of casino management information
systems; (ii) the operation of multi-site link progressive ("MSP") systems;
(iii) the design and manufacture of video interactive gaming machines, and (iv)
the design and manufacture of casino meters, signs and graphics. The Company
also develops software development tools for sale to outside software
professionals and for use by the Company's own software engineers.
CDS Services Company was incorporated in June 1993 to provide direct
sales and support to customers in certain gaming jurisdictions where
publicly-traded corporations must do business through a subsidiary.
Paradise Graphics, Inc. was incorporated in Nevada in August 1991 to
produce flat-glass graphics and slot reel graphics for gaming machine
manufacturers and manufacturers of coin operated equipment. On January 1, 1994
the Company acquired 100% of the outstanding common stock of Paradise Graphics
Inc. for a purchase price of $427,500 in cash ($283,770 net of cash acquired)
and a $772,500 note payable. The note was paid in full in June of 1994. The
acquisition was accounted for by the purchase method of accounting. The excess
of the purchase price over the net assets acquired (goodwill) totaled $909,391
and is being amortized using the straight-line method over a period of 15
years.
CDS Gaming Company was incorporated in March 1994 to develop and
operate MSP systems. The Company derives revenues from the operation of these
systems.
TurboPower Software Company was incorporated in Nevada in January 1995
to design, develop, and market programming tools to professionals. On January
18, 1995, the Company, through TurboPower Software Company, purchased
substantially all of the assets of TurboPower Software, a Colorado sole
proprietorship, for a cash purchase price of $600,000 and 112,500 restricted
shares of the Company's Common Stock valued at $3.11 per share. The
acquisition was accounted for under the purchase method.
Fifty Seven Corporation doing business as Southwestern Sign Service
was incorporated in Nevada in July 1998, to design and manufacture both indoor
and outdoor signage, primarily for casinos. On September 21, 1995, the Company
purchased 100% of the outstanding common stock of Fifty-Seven Corporation, for
a cash purchase price of $1,350,000. The acquisition was accounted for under
the purchase method.
7
<PAGE> 8
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in Casino
Data Systems' annual report as filed on Form 10-K.
The accompanying unaudited consolidated financial statements contain
all adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods presented. The results of
operations for the interim periods are not indicative of the results of
operations for an entire year.
Certain prior period balances have been reclassified to conform to the
current period presentation.
(2) MARKETABLE INVESTMENT SECURITIES:
Effective December 31, 1993 the Company adopted Statement of Financial
Accounting Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Statement 115 requires that, except for debt securities
classified as "held to maturity" securities, investments in debt and equity
securities should be reported at fair market value. The Company has designated
its debt securities as being held to maturity, as it has the positive intent
and ability to hold until maturity. Those debt securities which have
maturities greater than one year are classified in the noncurrent assets
section of the balance sheet. These securities are carried at amortized cost.
Securities are designated as being held to maturity at the time of their
purchase. Gains or losses on sales of securities are determined using the
specific identification method and charged to operations when incurred.
(3) INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
<S> <C> <C>
Trademarks $ 31,200 $ 31,200
Licensing Costs 458,543 553,350
Goodwill resulting from the acquisition
of Paradise Graphics 909,391 909,391
Goodwill resulting from the acquisition
of TurboPower Software 815,000 815,000
Goodwill resulting from the acquisition of
Southwestern Sign Service 1,340,998 1,340,998
Technology distribution rights 1,437,500 1,437,500
Telnaes patent - 3,547,808
----------- ---------
4,992,632 8,635,247
Less: Accumulated Amortization (326,542) (432,101)
----------- ------------
Net intangible assets $ 4,666,090 $ 8,203,146
=========== ============
</TABLE>
8
<PAGE> 9
On February 2, 1996, the Company entered into a series of agreements
(the "Telnaes Agreements") to obtain certain non- exclusive rights
to use certain patented "virtual reel" technology. Pursuant to the
Telnaes Agreements, the Company has paid $2,512,113 in cash, and has
issued 121,847 shares of Common Stock to certain third parties. The
Company may also pay up to an additional approximately $770,000 and
issue up to an additional 39,000 shares of Common Stock in connection
with the extension and exercise of certain options acquired by the
Company.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C> <C>
Furniture, fixtures and equipment 5,384,271 6,632,205
Gaming devices 7,693,119 8,698,556
Service vehicles 199,536 262,285
Leasehold improvements 316,446 490,691
Building 7,496,553 8,294,050
Land 1,478,348 1,478,348
------------ -----------
22,568,273 25,856,135
Less accumulated depreciation and amortization (1,270,996) (1,693,908)
------------ -----------
$21,297,277 $24,162,227
============ ===========
</TABLE>
(5) INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ -----------
<S> <C> <C>
Raw materials 4,246,502 8,111,744
Work in process 110,000 93,099
Finished goods 957,908 882,664
------------ -----------
$5,314,410 $9,087,507
============ ===========
</TABLE>
(6) SOFTWARE DEVELOPMENT COSTS:
The Company capitalized $237,330 during the three months ended March
31, 1996. Research and development costs incurred to establish technological
feasibility have been expensed when incurred. Amortization of software
development costs will begin when the product is ready for general release.
9
<PAGE> 10
(7) LONG TERM OBLIGATIONS:
The Company has financed certain equipment under financing agreements.
Equipment financings are collateralized by the related equipment and contain
certain restrictive covenants, including a three year letter of credit
guaranteeing payment, in the amount of 50% of the principal balance, which
reduces in proportion to the amortization schedule.
Future minimum payments under equipment financing agreements are as
follows:
<TABLE>
<CAPTION>
Payments
--------
<S> <C>
1996 $1,674,150
1997 2,175,147
1998 2,175,147
1999 155,690
----------
Total minimum payments 6,180,134
Less interest 750,294
----------
Present value of net minimum payments 5,429,840
Less current portion 1,790,403
----------
$3,639,437
==========
</TABLE>
(8) RELATED PARTY TRANSACTIONS:
A director/executive officer/principal shareholder of the Company is a
majority shareholder in Kiland Distributing Corporation (KDC) a distributor of
the Company's products, primarily to Native American casinos. The Company made
sales to KDC of approximately $667,868 during the three months ended March 31,
1996. The sales, recorded net of distributor discounts, represent
approximately 5% of the Company's total revenues for the three months ended
March 31, 1996. Accounts receivable at March 31, 1996, includes $649,573 due
from KDC, and a note receivable of $315,565 at March 31, 1996, related to such
sales. In addition, during September 1995, the Company loaned KDC $120,000,
evidenced by a note bearing interest at a commercial bank's base rate plus 25
basis points, which approximated 8.75% at March 31, 1996, annually.
A director of the Company is associated with a law firm that has
rendered various legal services to the Company. The Company paid the firm
$159,468 during the three months ended March 31, 1996, for legal services.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Unaudited
Consolidated Financial Statements and Notes thereto included elsewhere in this
document and Consolidated Financial Statements and Notes thereto included in
the Company's annual report on Form 10-K.
GENERAL
Casino Data Systems is a leading designer and manufacturer of
technology-driven products for the gaming industry. The Company was founded in
1990 to develop and manufacture casino slot accounting systems. Since 1990,
the Company has expanded its original slot accounting system into a casino-wide
management information system. In 1992, the Company developed its first
generation of MSP systems technology. In 1993 and 1994, the Company developed
the next generation of MSP systems technology capable of supporting a large
capacity state-wide MSP system, and designed the Cool Millions MSP system,
which it launched in Mississippi in November 1994. The Company also expanded
and diversified its business and augmented its ability to design, manufacture
and customize gaming machines and MSP systems by acquiring graphics, signs and
software businesses in 1994 and 1995. In 1995, the Company introduced its Cool
Millions MSP system in Nevada on a test basis in May and commenced state-wide
rollout in August. The Company also established its Video Interactive Gaming
Division in 1995, which, in conjunction with Casino Technology Inc. ("CTI"),
developed the Caribbean Stud video poker machine, and is developing additional
innovative video gaming devices. In January 1996, the Company entered into the
Telnaes Agreements to obtain certain non-exclusive rights to use the Telnaes
Technology. The Telnaes Technology can be used in reel spinning slot machines
to create the high odds necessary to allow large progressive jackpots and is
intended to be used by the Company in its MSP systems.
The Company sells OASIS II systems, meters, signs and graphics on a
cash basis, on normal credit terms (90 days or less), and over longer term
installment contracts (generally, less than one year). Revenue from OASIS II
system sales is recorded in proportion to work completed using a method that
approximates the percentage-of-completion method, or, if the contract does not
provide for the Company's installation of the system, the sale is recorded upon
shipment. Contracts for OASIS II system sales generally specify that the price
is to be paid in three or four installments as progress is made toward
completion and that final payment under the contract is not made until the
expiration of an acceptance period during which time the customer and
applicable regulatory authorities may test and approve the Company's OASIS II
system.
The Company's revenue and income may vary substantially from quarter
to quarter because the Company's results in any quarter are substantially
dependent on receipt of orders and installation of systems in that quarter. A
primary determinant of the receipt of new systems orders is growth in the
gaming industry. Although the Company believes that gaming markets will
continue to expand, the rate of growth is dependent upon political, legal, and
other factors which are beyond the influence of the Company. The Company
intends to expand its operations and resulting revenues from MSP Systems,
graphics, and meters which will create a more continuous revenue stream. The
possibility exists that while the Company still depends on systems sales as its
primary source of revenue, notable variations in revenue and income may occur.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
condensed consolidated statements of operations as a percentage of net revenues
for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Net Revenues 100% 100%
Costs and expenses:
Cost of goods sold 39 47
Selling, general and administrative 26 27
Research and development 9 5
Depreciation and amortization 3 4
----- -----
Total costs and expenses 77 83
----- -----
Income from operations 23 17
----- -----
Other income 5 1
----- -----
Income before income tax expense 28 18
Income taxes 9 6
----- -----
Net income 19% 12%
===== =====
</TABLE>
QUARTER ENDED MARCH 31, 1995, COMPARED
TO THE QUARTER ENDED MARCH 31, 1996
Overview
Income from operations and net income increased from $1,276,428 and
$1,051,210 for the three months ended March 31, 1995, respectively, to
$2,469,213 and $1,704,051, respectively, for the same period in 1996. This
represents an increase of $1,192,785 in income from operations and an increase
of $652,841 in net income. The increases in income from operations and net
income are primarily attributable to the increase in total revenues from
$5,493,601 for the three months ended March 31, 1995, to $14,561,244 for the
same period in 1996. The increase in total operating costs and expenses as a
percentage of net revenues resulted in an overall decrease in the income from
operations margin from 23% for the three months ended March 31, 1995, to 17%
for the same period in 1996 and a decrease in the net income margin from 19%
for the three months ended March 31, 1995, to 12% for the same period in 1996.
Net Revenues
Net revenues increased from $5,493,601 for the three months ended
March 31, 1995, to $14,561,244 for the same period in 1996, an increase of
$9,067,643 or 165%. The increase in net revenues is primarily attributable to
the expansion of the Company's MSP operations in Mississippi and Nevada,
increased sales of the Company's OASIS II system and additional revenues
generated by the sale of signs and meters during the three months ended March
31, 1996.
Costs and Expenses
Costs and expenses increased from $4,217,220 for the three months
ended March 31, 1995, to $12,092,031 for the same period in 1996, an increase
of $7,874,811 or 187%. Total operating costs and expenses, excluding cost of
goods sold, decreased as a percentage of net revenues from 38% for the three
months ended March 31, 1995, to 36% for the same period in 1996. Cost of goods
sold increased from
12
<PAGE> 13
$2,138,107 for the three months ended March 31, 1995, to $6,876,083 for the
same period in 1996, an increase of $4,737,976. Gross margins as a percentage
of total revenues decreased from 61% for the three months ended March 31, 1995
to 53% for the same period in 1996. The decrease in gross margin is primarily
attributable to the increase in revenue contributed by the Company's MSP system
operations in relation to total revenues. Gross margin from the Company's MSP
systems operations is generally lower than the gross margins contributed by its
other products. Gross margin from MSP systems' operations were also negatively
affected by interest rate fluctuations. The Company anticipates a continued
decrease in its gross margin as revenues from its MSP systems operations and
meters, signs and graphics subsidiary account for a greater proportion of the
Company's total revenue.
Selling, general and administrative expenses increased from $1,429,144
for the three months ended March 31, 1995, to $3,957,474 for the same period in
1996, an increase of $2,528,330. The increase is primarily attributable to
increased personnel and associated payroll and occupancy expenses necessary to
expand the Company's MSP operations, the Video Interactive Gaming Division, and
regional sales and support offices, and the additional selling, general and
administrative expenses of the sign business that was not in operation during
the three months ended March 31, 1995. Selling, general and administrative
expenses as a percentage of net revenues increased from 26% for the three
months ended March 31, 1995, to 27% for the same period in 1996.
Research and development expenses increased from $490,000 for the
three months ended March 31, 1995, to $730,000 for the same period in 1996, an
increase of $240,000. Major expenditures during the three months ended March
31, 1996 included the development of (i) additional OASIS II system products;
(ii) the PitBOSS pit, cage, and credit system; (iii) the VIG Signature Series
and development of other video interactive games; (iv) the multi-game MSP
system software and (v) further refinements and enhancements to its progressive
meter systems. Research and development expenses as a percentage of total
revenues decreased from 9% for the three months ended March 31, 1995, to 5% for
the same period in 1996.
Depreciation and amortization increased from $159,969 for the three
months ended March 31, 1995, to $528,474 for the same period in 1996, and
increase of $368,505. The increase is primarily due to the depreciation of the
increased number of gaming devices in operation and the new Las Vegas building.
Depreciation as a percentage of total revenues increased from 3% for the three
months ended March 31, 1995, to 4% for the same period in 1996.
Net Income
Net income increased from $1,051,210 for the three months ended March
31, 1995, to $1,704,051 for the same period in 1996, an increase of $652,841.
The increase in net income is primarily attributable to the increase in
revenues from its MSP operations in both Mississippi and Nevada, and increased
sales of the Company's OASIS II systems for the three months ended March 31,
1996, compared to the same period in 1995. Net income as a percentage of net
revenues decreased from 19% for the three months ended March 31, 1995, to 12%
for the same period in 1996. The decrease in net income as a percentage of net
revenues is primarily attributable to increased revenues from lower gross
margin MSP system operations.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $1,429,586 during the
three months ended March 31, 1995 as compared to $(4,097,172) during the same
period of 1996. The Company had cash and cash equivalents of $9,603,716 at
March 31, 1995, compared to $46,252,679 at March 31, 1996. The net increase of
$33,161,505, the major components of which are as follows: net proceeds from
the sale of common stock of $ 46,007,029; cash invested in marketable
investment securities of $4,667,098; cash used for the acquisition of equipment
and leasehold improvements of $3,287,862; cash used in the purchase of
intangible assets of $2,606,920; net proceeds from the issuance of notes
payable of $2,078,567; cash used for the repayment of debt of $265,039; cash
used in operations for the three months ended March 31, 1996, of $4,097,172
which includes cash used to increase inventory stock and accounts receivable,
net of increases in accrued expenses and accrued slot liability.
The Company has developed and operates the Company's MSP System. In
general, an MSP System links a number of slot machines in multiple casinos to
generate a collective jackpot. A percentage of each coin wagered is added to
one or more increasing collective jackpots. In some jurisdictions the Company
may be required by regulators to maintain a minimum bankroll requirement in the
future. The amount of funds required in the future is dependent on several
factors, such as the type and denomination of games the Company wishes to
operate and the local regulatory environment.
Certain jurisdictions in which MSP systems are operated require the
Company to maintain allocated funds or instruments to guarantee payment of
jackpot prizes. The amount of funds required is dependent on several factors,
such as the type and denomination of games the Company operates and the local
regulatory requirements. In accordance with gaming requirements, the Company
established segregated cash accounts aggregating approximately $7,600,000 at
March 31, 1996 to ensure availability of adequate funds to pay this liability.
Although statistically remote, a possibility exists that multiple jackpots may
be hit prior to the time period in which game play has generated sufficient
revenue to accrue each jackpot reset amount, which may have a material adverse
impact on the Company's results of operations in the reporting period in which
the jackpots are hit.
The Company has financed certain equipment under financing agreements
for an aggregate of $5,429,841. Equipment financings are collateralized by the
related equipment and contain certain restrictive covenants, including a three
year letter of credit securing payment in the amount of 50% of the principal
balance which decreases in proportion to the amortization schedule.
The Company believes that existing cash and cash equivalents and cash
to be provided by operations, and funds available under the line of credit will
be sufficient to cover anticipated, normal operating cash requirements in the
foreseeable future, as well as ongoing research and development expenditures.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
15
<PAGE> 16
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.
CASINO DATA SYSTEMS
Registrant
Date: May 13, 1996 s/ Patrick W. Cavanaugh
------------------------- -----------------------------------------
Patrick W. Cavanaugh
Chief Financial Officer
(Principal Finance and Accounting Officer)
16
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 46,252,679
<SECURITIES> 0
<RECEIVABLES> 15,734,614
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<INVENTORY> 9,087,507
<CURRENT-ASSETS> 72,935,971
<PP&E> 25,856,135
<DEPRECIATION> 1,693,908
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<CURRENT-LIABILITIES> 8,328,160
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0
0
<COMMON> 80,347,783
<OTHER-SE> 16,579,199
<TOTAL-LIABILITY-AND-EQUITY> 112,404,929
<SALES> 14,561,244
<TOTAL-REVENUES> 14,561,244
<CGS> 6,876,083
<TOTAL-COSTS> 12,092,031
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<INTEREST-EXPENSE> 86,232
<INCOME-PRETAX> 2,593,099
<INCOME-TAX> 889,048
<INCOME-CONTINUING> 1,704,051
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