<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: SEPTEMBER 30, 1996
-------------------------------------------
[ ] 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: 0-22752
--------------------------------------
MIKOHN GAMING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0218876
- ------------------------------ --------------------------------
(State of other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
1045 PALMS AIRPORT DRIVE, P.O. BOX 98686, LAS VEGAS, NV 89193-8686
- -------------------------------------------------------------------------------
Address or principal executive office and zip code)
(702) 896-3890
------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by a 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
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as the latest practicable date:
9,893,531 as of NOVEMBER 1, 1996
- --------------------------------- ---------------------------
(Amount Outstanding) (Date)
<PAGE>
MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 2
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 (Unaudited) 2
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996 and
1995 (Unaudited) 3
Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months Ended September 30,
1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995
(Unaudited) 5
Note to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
1
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and short-term investments $ 4,628,499 $ 5,453,136
Trade accounts receivable, net 21,197,952 19,658,708
Other receivables 304,235 2,981,236
Installment sales receivable, current portion 1,266,627 1,332,214
Inventories
Raw materials 11,814,845 9,494,688
Finished goods 5,175,768 4,264,890
Work in process 4,532,921 3,464,884
Prepaid expenses 2,764,969 1,870,482
----------- -----------
Total current assets 51,685,816 48,520,238
Installment sales receivable, net of current portion 187,613 241,174
Property and equipment, net 15,639,517 15,539,211
Intangible assets 15,818,694 16,998,401
Other assets 5,182,306 5,024,737
----------- -----------
Total assets $88,513,946 $86,323,761
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $18,531,227 $ 786,172
Trade accounts payable 5,349,269 6,982,409
Customer deposits 7,147,635 2,875,174
Accrued and other current liabilities 2,694,014 3,197,957
----------- -----------
Total current liabilities 33,722,145 13,841,712
----------- -----------
Long-term debt 4,445,471 22,305,160
----------- -----------
Deferred federal income taxes 839,065 825,065
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, none
issued
Common stock, $.10 par value, 20,000,000 shares authorized,
9,897,864 and 9,827,164 shares issued 989,786 982,717
Additional paid-in capital 48,432,558 48,259,166
Foreign currency translation adjustment 10,649 30,736
Retained earnings 121,161 327,156
----------- -----------
Total 49,554,154 49,599,775
Less treasury stock, 4,333 and 24,333 shares, at cost (46,889) (247,951)
----------- -----------
Total stockholders' equity 49,507,265 49,351,824
----------- -----------
Total liabilities and stockholders' equity $88,513,946 $86,323,761
=========== ===========
</TABLE>
See the accompanying note to consolidated financial statements.
2
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $21,651,274 $ 15,128,762 $65,671,474 $ 55,751,231
Cost of Sales 14,211,272 13,756,508 43,616,552 40,695,036
----------- ------------ ----------- ------------
Gross Profit 7,440,002 1,372,254 22,054,922 15,056,195
Selling, general and administrative
expenses 7,129,701 7,909,477 21,419,331 21,667,300
Write-off of assets and other 3,449,028 3,449,028
----------- ------------ ----------- ------------
Operating income (loss) 310,301 (9,986,251) 635,591 (10,060,133)
Interest expense (475,443) (361,394) (1,412,125) (597.464)
Other income and expense 189,969 164,404 459,618 425,116
----------- ------------ ----------- ------------
Income (loss) before income tax
(provision) benefit 24,827 (10,183,241) (316,916) (10,232,481)
Income tax (provision) benefit (8,689) 3,564,000 110,921 3,581,000
----------- ------------ ----------- ------------
Net income (loss) $ 16,138 $ (6,619,241) $ (205,995) $ (6,651,481)
=========== ============ =========== ============
Weighted average common shares 9,839,357 9,802,716 9,817,189 9,795,174
=========== ============ =========== ============
Earnings (loss) per common share $0.00 $(0.68) $(0.02) $(0.68)
=========== ============ =========== ============
</TABLE>
See the accompanying note to financial statements.
3
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
------------- ADDITIONAL CURRENCY
OUTSTANDING PAID-IN RETAINED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------ ------ ------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996 9,827,164 $982,717 $48,259,166 $ 327,156 $(247,951) $ 30,736 $49,351,824
Net loss (205,995) (205,995)
Proceeds from sale of
stock 90,700 9,069 372,454 381,523
Cancellation of Treasury
Stock (20,000) (2,000) (199,062) 201,062
Translation adjustment (20,087) (20,087)
--------- -------- ----------- ---------- --------- ---------- -----------
Balance, September 30,
1996 9,897,864 $989,786 $48,432,558 $ 121,161 $ (46,889) $ 10,649 $49,507,265
========= ======== =========== ========== ========= ========== ===========
</TABLE>
See the accompanying note to financial statements.
4
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (205,995) $ (6,651,481)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 1,853,934 1,297,180
Amortization 1,502,942 1,330,496
Change in exchange rate variance (20,087) (65,144)
Provision for bad debts 410,000
Write-off of noncurrent assets 1,544,841
Changes in assets and liabilities:
Accounts receivable 1,137,757 (3,696,074)
Contracts receivable 119,148 741,371
Inventories (4,299,072) (2,489,735)
Other assets (480,804) (4,268,260)
Prepaid expenses (894,487) (356,860)
Accounts payable (1,633,140) (1,772,319)
Customer deposits 4,272,461 (2,075,855)
Accrued and other current liabilities (489,943) 1,247,785
----------- ------------
Net cash provided by (used in) operating activities 862,714 (14,804,055)
----------- ------------
Cash flows from investing activities:
Purchase of business operations (3,500,000)
Purchase of property and equipment (1,954,240) (5,209,004)
----------- ------------
Net cash used in investing activities (1,954,240) (8,709,004)
----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable 550,682 17,925,564
Principal payments on notes payable and long-term debt (665,316) (658,896)
----------- ------------
Net cash provided by (used in) financing activities (114,634) 17,266,668
----------- ------------
Net equity proceeds 381,523
----------- ------------
Decrease in cash (824,637) (6,246,391)
Cash, beginning of period 5,453,136 11,512,442
----------- ------------
Cash, end of period $ 4,628,499 $ 5,266,051
=========== ============
</TABLE>
See the accompanying note to financial statements.
5
<PAGE>
MIKOHN GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,281,646 $ 344,312
=========== ==========
Cash paid (received) during the period for state and
federal income taxes $(2,781,890) $ 470,749
=========== ==========
Distribution of common stock held in Treasury $ (227,993) $ 231,991
=========== ==========
Supplemental schedule of non-cash investing and
financing activities:
Debt incurred in purchase of business assets and
slot route operations $4,489,562
=========== ==========
</TABLE>
See the accompanying note to financial statements.
6
<PAGE>
MIKOHN GAMING CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
These condensed unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
These statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal accrual) necessary
to present fairly the financial position of the Company at September 30, 1996,
the results of its operations for the three and nine months ended September 30,
1996 and 1995, the changes in stockholders' equity for the nine months ended
September 30, 1996 and cash flows for the nine months ended September 30, 1996
and 1995. The results of operations for the three and nine months ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the entire year.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which became effective for the Company on January 1, 1996. SFAS
No. 123 requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation costs to be
measured based on the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion 25 to its
stock based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.
7
<PAGE>
MIKOHN GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE
This report contains forward-looking statements in which management shares its
knowledge and judgment about factors that it believes may materially affect
Company performance in the future. Terms expressing future expectations,
enthusiasm about future potential and anticipated growth in sales, revenues and
earnings and like expressions typically identify such statements.
All forward-looking statements, although made in good faith, are subject to
the uncertainties inherent in predicting the future. They are necessarily
speculative, and unforeseen factors such as unusual production problems,
competitive pressures, failure to gain the acceptance of regulatory authorities
and other adverse government action, customer resistance and general
deterioration in economic conditions may cause results to differ materially from
any that may be projected. Forward-looking statements speak only as of the date
they are made, and readers are warned that the Company undertakes no obligation
to update or revise such statements to reflect new circumstances or
unanticipated events as they occur.
Readers are urged to carefully review and consider disclosures made by the
Company in this and other reports that discuss factors germane to the Company's
business. See particularly the Company's reports on Forms 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- ---------------------------------------------
SALES
- -----
Sales for the nine month period ended September 30, 1996 were $65.7 million
compared to $55.8 million in the same period in the prior year, an increase of
$9.9 million or 17.7%. Sales in the 1996 period include approximately $29.6
million by the domestic interior sign division, $4.8 million by the Trans Sierra
division, $11.4 million by the outdoor lighting and sign group, $4.5 million by
the games division, and $8.9 million by the international
8
<PAGE>
subsidiaries. Sales by the electronics division in the first nine months of 1996
were $14.9 million, including $8.5 million in intercompany sales which have been
eliminated in the consolidated statement of operations. Sales for the nine month
period ended September 30, 1995 include approximately $24.6 million by the
domestic interior sign division, $9.4 million by the Trans Sierra division, $8.3
million by the outdoor lighting and sign group, $3.7 million by the games
division, $4.5 million by the international subsidiaries and $11.7 million by
the electronics division, including approximately $6.5 million in intercompany
sales that have been eliminated in the consolidated statement of operations.
Sales made by the international subsidiaries increased $4.4 million or 95.9% and
accounted for 13.5% of total sales for the 1996 period compared to 8.1% in the
1995 period. Sales of the Trans Sierra division decreased $4.6 million or 48.5%
because of the lack of major orders for surveillance equipment from new casino
projects. The outdoor lighting and sign groups had an increase in revenues of
$3.0 million or 36.4% primarily attributable to the MikohnVision(TM) product
line.
As of September 30, 1996, the Company had a backlog of orders believed to be
firm of $24.1 million. Order backlogs as of June 30, 1996, and September 30,
1995, were $21.2 million and $13.2 million, respectively.
GROSS PROFIT
- ------------
Gross profit for the nine months ended September 30, 1996, increased to
$22.0 million from $15.1 million in the comparable 1995 period, an increase of
$6.9 million or 45.7%. The gross profit margin was 33.5% in the 1996 period
compared to 27.0% in the 1995 period. The Trans Sierra division had a negative
gross profit margin of 1.8% for the 1996 nine month period compared to 19.9% in
the comparable 1995 period. The gross profit margin for the 1995 period was
negatively impacted by various factors, including approximately $1.2 million of
unusual adjustments related to the restructuring, primarily inventory reserves,
that increased cost of sales during the third quarter of 1995; a retroactive $.5
million decrease in table game lease revenues which resulted from the
renegotiation of the royalty agreement under which the Company has the rights to
lease table games; the lower gross profit margins realized by acquired business
operations; market penetration discounts offered in certain foreign markets; and
fewer new casinos opening.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses decreased by $0.3 million to
$21.4 million in the nine month period ended September 30, 1996, compared to
$21.7 million in the same period in the prior year. As a percentage of sales,
selling, general and administrative expenses were 32.5% and 38.9% for the 1996
and 1995 periods, respectively. Selling and marketing expenses decreased to
$9.6 million in the nine month period ended September 30, 1996 from $10.4
million in the prior year period.
9
<PAGE>
Research and development expenses, which are expensed when incurred, were
$2.4 million and $2.8 million for the nine month period ended September 30,
1996, and 1995, respectively. Management believes that the development of new
and innovative products, as well as enhancement of the Company's existing
product lines for the domestic and international markets, are vital to the
future growth of the Company. CasinoLink(TM), CaddTrack(TM) and MikohnVision(TM)
are three of the new products recently introduced, each of which is expected by
management to be successful. Safejack(TM), the Company's computerized system
that tracks player action and provides security against cheating and dealer
error at blackjack tables, is currently being field tested, and the Company
expects to successfully conclude these tests and begin installing Safejack(TM)
tables on a commercial basis in the first half of 1997. This system also
generates information on player betting that is highly useful in casino
marketing.
Depreciation and amortization totaled $3.1 million for the nine month period
ending September 30, 1996 compared to $2.4 million in the 1995 nine month
period. General and administrative expenses increased to $6.3 million in the
1996 period from $6.0 million in 1995.
WRITE-OFF OF ASSETS AND OTHER
- -----------------------------
During the quarter ended September 30, 1995, the Company commenced a
restructuring and consolidation program as a means of eliminating redundancies
in facilities and product lines and to reduce operating costs and expenses.
Costs of approximately $3.4 million associated with this program, which were
charged against operations in the 1995 quarter, consisted primarily of (a) the
write-off of leasehold improvements and other costs associated with the closure
of the Reno interior sign manufacturing facility; (b) reserves for materials
inventory in excess of the requirements to produce complete units for product
lines being discontinued; and (c) the write-off of a covenant-not-to-compete
associated with a product line being discontinued.
OTHER INCOME AND EXPENSE
- ------------------------
Interest expense increased to $1.4 million in the 1996 nine month period from
$0.6 million in the comparable 1995 period because of increased bank borrowings
and interest expense on the long-term debt incurred in the acquisition of the
assets of Games of Nevada.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- ----------------------------------------------
SALES
- -----
Sales were $21.7 million for the three months ended September 30, 1996 an
increase of $6.6 million or 43.7% over the compared to $15.1 million in the
prior year period. Sales
10
<PAGE>
in the 1996 period include approximately $10.9 million by the domestic interior
sign division, $1.1 million by the Trans Sierra division, $3.0 million by the
outdoor lighting and sign group, $1.4 million by the games division and $3.7
million by the international subsidiaries. Sales by the electronics division in
the 1996 third quarter were $5.4 million, including $3.8 million in intercompany
sales that have been eliminated in the consolidated statement of operations.
Sales for the 1995 third quarter include $6.7 million by the domestic interior
sign division, $2.6 million by the Trans Sierra division, $1.9 million by the
outdoor lighting and sign group, $.9 million by the games division, $1.7 million
by the international subsidiaries and $3.0 million by the electronics division,
including $1.7 million in intercompany sales which have been eliminated.
GROSS PROFIT
- ------------
For the three months ended September 30, 1996, gross profit was $7.4 million,
$6.0 million greater than the $1.4 million reported for the same period in 1995.
The gross profit margin was 34.4% in the current year period as compared to 9.1%
in the prior year period. See Gross Profit for the Nine Months Ended September
30, 1996 and 1995 for an explanation for the increase in the profit margin.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
In the three month period ended September 30, 1996, selling, general and
administrative expenses decreased by $0.8 million to $7.1 million, compared to
$7.9 million in the same period in 1995. As a percentage of sales, selling,
general and administrative expenses were 32.9% and 52.5% for the 1996 and 1995
three month periods, respectively. Research and development expenses decreased
to $0.8 million in the 1996 three month period from $1.0 million in the
comparable 1995 period. Selling and marketing expenses decreased $0.3 million
to $3.3 million in three month period compared to $3.6 million in the same
period in 1995. Depreciation and amortization increased to $1.1 million for the
1996 quarter compared to $0.9 million for the quarter ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, the Company had a net loss of
$0.2 million. Net cash provided by operating activities was $.9 million,
reflecting among other items a $4.3 million increase in customer deposits and a
$1.1 million reduction in accounts receivable, which were offset by a $4.3
million increase in inventories, a $1.6 million decrease in accounts payable and
a $.9 million increase in prepaid expenses.
The Company's $20.0 million senior secured credit facility with Bank of
America Nevada is due in full on May 31, 1997, and has been reclassified as the
current portion of long-term
11
<PAGE>
debt from long term debt. As of September 30, 1996, the Company had drawn $18.5
million of the $20.0 million credit facility. The Company is in the process of
negotiating a new $30.0 credit facility or term loan to replace the $20.0
million senior secured credit facility with Bank of America Nevada.
At September 30, 1996, the Company had working capital of $18.0 million
compared to $34.7 million at December 31, 1995. The decrease was due to
reclassifying the Bank of America credit facility as a current liability. At
September 30, 1996 the Company had $4.6 million in cash and cash equivalents.
12
<PAGE>
MIKOHN GAMING CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K:
None
13
<PAGE>
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 authorized.
MIKOHN GAMING CORPORATION, REGISTRANT
BY: /s/ Donald W. Stevens
------------------------------------------
Donald Stevens, Executive Vice President
Treasurer (Principal Financial Officer)
Dated: November 4, 1996
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,628,499
<SECURITIES> 0
<RECEIVABLES> 22,103,491
<ALLOWANCES> 905,539
<INVENTORY> 21,523,534
<CURRENT-ASSETS> 51,685,816
<PP&E> 21,052,149
<DEPRECIATION> 5,415,554
<TOTAL-ASSETS> 88,513,946
<CURRENT-LIABILITIES> 33,722,145
<BONDS> 4,445,471
0
0
<COMMON> 989,786
<OTHER-SE> 48,517,479
<TOTAL-LIABILITY-AND-EQUITY> 88,513,946
<SALES> 65,671,474
<TOTAL-REVENUES> 65,671,474
<CGS> 43,616,552
<TOTAL-COSTS> 21,389,815
<OTHER-EXPENSES> (459,618)
<LOSS-PROVISION> 29,516
<INTEREST-EXPENSE> 1,412,125
<INCOME-PRETAX> (316,916)
<INCOME-TAX> (110,921)
<INCOME-CONTINUING> (205,995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (205,995)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
