<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: JUNE 30, 1998
______________________________________________
[ ] 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)
<TABLE>
<CAPTION>
NEVADA 88-0218876
_____________________________________________________________ ______________________________________
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
</TABLE>
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:
10,620,934 as of AUGUST 5, 1998
________________________________ ______________________________
(Amount Outstanding) (Date)
<PAGE>
MIKOHN GAMING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 2
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Part II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
1
<PAGE>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 30, DECEMBER 31,
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,839 $ 4,896
Trade accounts receivable, net 23,120 22,585
Installment sales receivable, current portion 1,525 1,936
Inventories:
Raw materials 14,428 13,736
Work in process 4,841 5,146
Finished goods 7,614 6,462
Prepaid expenses 4,879 3,319
Deferred tax asset -- current 644 644
-------- --------
Total current assets 60,890 58,724
Installment sales receivable, net of current portion 1,492 124
Property and equipment, net 16,105 15,957
Intangible assets 17,192 16,689
Other assets 7,232 6,094
-------- --------
Total assets $102,911 $ 97,588
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt and notes payable $ 75 $ 171
Trade accounts payable 6,828 6,873
Customer deposits 3,181 3,504
Accrued and other current liabilities 4,106 4,083
-------- --------
Total current liabilities 14,190 14,631
-------- --------
Long-term debt, net of current portion 33,738 30,055
-------- --------
Deferred tax liability -- noncurrent 332 332
-------- --------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000 shares authorized, none
issued
Common stock, $.10 par value, 20,000 shares authorized, 10,623 and
10,284 shares issued 1,062 1,028
Additional paid-in capital 51,309 49,283
Foreign currency translation adjustment (943) (826)
Retained earnings 3,451 3,313
-------- --------
Total 54,879 52,798
Less treasury stock, 19 and 19 shares, at cost (228) (228)
-------- --------
Total stockholders' equity 54,651 52,570
-------- --------
Total liabilities and stockholders' equity $102,911 $ 97,588
======== ========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
2
<PAGE>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
(Amounts in thousands except per share
amounts) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $25,621 $25,807 $47,400 $49,963
Cost of sales 14,593 16,091 28,625 31,441
------- ------- ------- -------
Gross profit 11,028 9,716 18,775 18,522
Selling, general and administrative expenses 8,947 7,569 16,913 15,102
------- ------- ------- -------
Operating income 2,081 2,147 1,862 3,420
Interest expense (912) (548) (1,736) (1,066)
Other income and (expense) (49) (239) 132 (230)
------- ------- ------- -------
Income before income tax provision 1,120 1,360 258 2,124
Income tax provision (422) (508) (120) (801)
------- ------- ------- -------
Net income $ 698 $ 852 $ 138 $ 1,323
======= ======= ======= =======
Earnings per share information:
Weighted average common shares:
Basic 10,520 9,884 10,413 9,892
======= ======= ======= =======
Diluted 10,638 9,894 10,532 9,940
======= ======= ======= =======
Earnings per common share
Basic $ 0.07 $ 0.09 $ 0.01 $ 0.13
======= ======= ======= =======
Diluted $ 0.07 $ 0.09 $ 0.01 $ 0.13
======= ======= ======= =======
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MIKOHN GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
(Amounts in thousands) 1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 138 $ 1,323
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation 1,838 1,232
Amortization 1,002 1,004
Provision for bad debts 111 23
Changes in assets and liabilities:
Accounts receivable (646) 2,487
Installment sales receivable (957) 173
Inventories (2,248) 3,478
Prepaid expenses, intangibles and other assets (3,320) (2,630)
Trade accounts payable (45) (1,177)
Accrued and other liabilities 23 (284)
Customer deposits (323) (2,530)
------- -------
Net cash provided by (used in) operating activities (4,427) 3,099
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,287) (1,406)
Proceeds from sale of property and equipment 10 16
------- -------
Net cash used in investing activities (1,277) (1,390)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable 3,719 975
Principal payments on notes payable and long-term debt (132) (652)
Proceeds from issuance of common stock 1,060 49
Purchase of treasury stock (200)
------- -------
Net cash provided by financing activities 4,647 172
------- -------
Increase (decrease) in cash and cash equivalents (1,057) 1,881
Cash and cash equivalents, beginning of period 4,896 1,798
------- -------
Cash and cash equivalents, end of period $ 3,839 $ 3,679
======= =======
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MIKOHN GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - GENERAL
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, 1997.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Company
at June 30, 1998, the results of its operations for the three and six months
ended June 30, 1998 and 1997, and cash flows for the six months ended June 30,
1998 and 1997. The results of operations for the three and six months ended June
30, 1998, are not necessarily indicative of the results to be expected for the
entire year.
NOTE 2 - RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This
Statement requires that all items recognized under accounting standards as
components of comprehensive income be reported in an annual financial statement
that is displayed with the same prominence as other financial statements. This
Statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. For example, other
comprehensive income may include foreign currency translation adjustments. The
Company's total comprehensive income was as follows:
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net income $ 698 $ 852 $ 138 $ 1,323
Other comprehensive loss (165) (217) (117) (55)
----- ----- ----- -------
Total comprehensive income $ 533 $ 635 $ 21 $ 1,268
===== ===== ====== =======
</TABLE>
5
<PAGE>
On June 30, 1997, the FASB issued SFAS No. 131 - Disclosure About Segments
of an Enterprise and Related Information. This statement establishes additional
standards for segment reporting in the financial statements and is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
Management intends to comply with the disclosure requirements of this statement,
which may include expanded disclosure of the Company's business segments and are
effective for the year ending December 31, 1998.
NOTE 3 - RECENT DEVELOPMENTS
In April 1998, the Company entered into a purchase agreement for the
acquisition of all of the outstanding capital stock of Progressive Games, Inc.
("PGI") for approximately $35.1 million, subject to a net downward adjustment
that the Company estimates will be approximately $1.0 million at the closing.
In addition, the Company will repay approximately $3.0 million of PGI debt. In
June, the Company entered an agreement to acquire P&S Leasing Corporation, Inc.
and P&S Leasing LLC (collectively, "P&S Leasing") for a purchase price of $3.3
million. Both of these acquisitions are scheduled to close at the end of August
1998 but may be extended until the end of September 1998.
These acquisitions are subject to the Company's obtaining financing on
satisfactory terms. Management believes that its efforts to obtain financing
will succeed and that these transactions will close before the end of August
1998, or at the latest, before the end of September if we extend the closing
date as permitted in the purchase agreement. The Company believes that a group
of lenders led by its current lead lender will provide the financing and is
proceeding to effect a timely closing of the financing and acquisitions.
PGI's principal product is Caribbean Stud(R), a table game with a
progressive jackpot feature. PGI's games are manufactured and licensed by it for
use in casinos throughout the world. P&S Leasing is the exclusive distributor of
Caribbean Stud(R) in Mississippi and Louisiana. Both of these businesses fit
well with the Company's business. Since 1993, the Company has been a distributor
of Caribbean Stud(R) in eight states and the Netherlands.
In the third quarter, as a result of the acquisitions of PGI and P&S
Leasing and the consequent necessity to refinance the Company's debt, the
Company expects to take a one-time charge that will substantially impact
earnings for the quarter and for the year.
NOTE 4 - RECLASSIFICATIONS
Certain amounts in the June 30, 1997, condensed consolidated financial
statements have been reclassified to be consistent with the presentation used
for June 30, 1998.
6
<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 or caution 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 may cause results to be materially
different. Speculative factors of a general nature include unusual production
problems, competitive pressures, failure to gain the acceptance of regulatory
authorities, other adverse government action, customer resistance and general
deterioration in economic conditions. In addition, the failure of the Company
to obtain new financing on satisfactory terms, in turn, would cause the planned
acquisitions of PGI and P&S Leasing to be delayed or terminated. 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.
7
<PAGE>
RESULTS OF OPERATIONS
As the Company has realigned the reporting of its business units, certain
items of prior year revenue and expense have been reclassified to follow the
Company's current reporting practice. Additionally, all intercompany activity
has been eliminated. Amounts reported in 1997 have been adjusted to be
consistent with the Company's current reporting of intercompany activity. All
amounts reported in this section are rounded to the nearest thousand dollars
unless otherwise stated. All percentages reported are based on those rounded
numbers.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- ---------------------------------------
SALES
<TABLE>
<CAPTION>
CHANGE
--------------------------
BUSINESS SEGMENT 1998 1997 AMOUNT % COMMENT
- ---------------- ---- ---- ------ --- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Signs $22,208 $25,499 $(3,291) -12.9% 1
Games 6,380 6,218 162 2.6%
Electronics and Systems 10,879 10,816 63 0.6%
International 7,933 7,430 503 6.8% 2
------- ------- -------
$47,400 $49,963 $(2,563) -5.1%
======= ======= =======
Percentage of total revenues:
Signs 46.9% 51.0%
Games 13.5% 12.4%
Electronics and Systems 23.0% 21.6%
International 16.7% 14.9%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
1 The decrease in the Signs Division revenue is due primarily to the lower
level of new casino openings and major refurbishments as compared to the
same period in the prior year.
2 The international operations revenues were up primarily as a result of the
Company acquiring a controlling interest in Mikohn South America, SA on
July 1, 1997, which now requires the reporting of the South American
operations on the cost method versus the equity method of accounting, in
turn requiring the consolidation of its operations.
As of June 30, 1998, the Company had a backlog of orders believed to be
firm of $15,450. As of June 30, 1997 and December 31, 1997, the Company's
backlogs were $17,259 and $20,080, respectively. Management expects that the
backlog of orders at June 30, 1998, will be filled within 120 days.
8
<PAGE>
GROSS PROFIT
<TABLE>
<CAPTION>
CHANGE
------------------------
BUSINESS SEGMENT 1998 1997 AMOUNT % COMMENT
- ---------------- ---- ---- ------ --- -------
<S> <C> <C> <C> <C> <C>
Gross Profit:
Signs $ 7,076 $ 8,812 $(1,736) -19.7% 1
Games 3,809 4,174 (365) -8.7% 2
Electronics and Systems 5,255 3,444 1,811 52.6% 3
International 2,635 2,092 543 26.0% 4
------- ------- -------
$18,775 $18,522 $ 253 1.4%
======= ======= =======
Gross profit margin:
Signs 31.9% 34.6%
Games 59.7% 67.1%
Electronics and Systems 48.3% 31.8%
International 33.2% 28.2%
Total gross profit margin 39.6% 37.1%
</TABLE>
1 Gross profit margins in the Signs Division were down primarily due to the
lower sales volume during the latest six month period as compared to the
same period in 1997.
2 Gross profit margins in the Games Division were down slightly as a result
of increased sales of products as compared to lease or revenue
participation based sales, the latter of which produce a higher gross
profit margin.
3 The increase in gross profit margins in the Electronics and Systems
division is due primarily to the introduction on the Company's
MoneyTime(TM) product. The MoneyTime(TM) product produces gross margin
levels that are much higher than other product margins within the
Electronics and Systems Division. The introduction of the MoneyTime(TM)
product did not begin until the fourth quarter of 1997 and, as such, has no
comparable impact during the first six months of 1997. In addition, the
increase in gross profit margins also reflects the Company's decision to
not accept low profit margin sales in the surveillance and security
operation.
4 The gross margin increases in the international operations primarily result
from the Company acquiring a controlling interest in Mikohn South America,
SA on July 1, 1997, which now requires the reporting of the South American
operations on the cost method versus the equity method of accounting, in
turn requiring the consolidation of its operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six month period ended
June 30, 1998, were $16,913 as compared to $15,102 for the six month period
ended June 30, 1997. The increased expenses reflect the following items: (i)
increased depreciation of $606 which is associated with the placement of the
Company's leased or participating revenue based games, (ii) increased research
and development expenses related to the expansion of the Company's product
lines, from $1,752 for the six month period ended June 30, 1997, to $2,718 for
the six month period ended June 30, 1998, and (iii) total selling and marketing
expenses increased from
9
<PAGE>
$6,482 for the six month period ended June 30, 1997, to $6,581 for the six month
period ended June 30, 1998, primarily due to the roll-out of the Company's
MoneyTime(TM) system product.
INTEREST EXPENSE
Interest expense for the six month period ended June 30, 1998, was $1,736
as compared to $1,066 for the six month period ended June 30, 1997. This
increase of 62.9% reflects the increased level of debt between the six month
periods ended June 30, 1997 and June 30, 1998, as well as increased amortization
of capitalized loan costs associated with prior financings.
OTHER INCOME AND EXPENSE
The net of other income and expense activity was an increase of $362 from a
net expense of $230 for the six months ended June 30, 1997 to a net other income
of $132 for the six months ended June 30, 1998. This consisted primarily of
increased installment sales interest income and lower foreign currency exchange
rate variances between the comparable periods.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
- -----------------------------------------
SALES
<TABLE>
<CAPTION>
CHANGE
------------------------
BUSINESS SEGMENT 1998 1997 AMOUNT % COMMENT
- ---------------- ---- ---- ------ --- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Signs $11,021 $13,881 $(2,860) -20.6% 1
Games 3,999 3,426 573 16.7% 2
Electronics and Systems 6,870 5,186 1,684 32.5% 3
International 3,731 3,314 417 12.6% 4
------- ------- -------
$25,621 $25,807 $ (186) -0.7%
======= ======= =======
Percentage of total revenues:
Signs 43.0% 53.8%
Games 15.6% 13.3%
Electronics and Systems 26.8% 20.1%
International 14.6% 12.8%
------- -------
100.0% 100.0%
======= =======
</TABLE>
1 The decrease in the Signs Division revenue is due primarily to the lower
level of new casino openings and major refurbishments as compared to the
same period in the prior year.
2 The increase in revenue in the Games Division is due to increased sales of
the Company's Mini-Bertha(TM) games during the current quarter.
10
<PAGE>
3 The revenue increase in the Electronics and Systems Division is due to the
placement of the Company's MoneyTime(TM) system in casinos which were not
in place during the same period in the prior year.
4 The international operations revenues were up primarily as a result of the
Company acquiring a controlling interest in Mikohn South America, SA on
July 1, 1997, which now requires the reporting of the South American
operations on the cost method versus the equity method of accounting, in
turn requiring the consolidation of its operations.
GROSS PROFIT
<TABLE>
<CAPTION>
CHANGE
------------------------
BUSINESS SEGMENT 1998 1997 AMOUNT % COMMENT
- ---------------- ---- ---- ------ --- -------
<S> <C> <C> <C> <C> <C>
Gross Profit:
Signs $ 4,077 $ 4,583 $ (506) -11.0% 1
Games 2,248 2,392 (144) -6.0% 2
Electronics and Systems 3,395 1,915 1,480 77.3% 3
International 1,308 826 482 58.4% 4
------- ------- -------
$11,028 $ 9,716 $ 1,312 13.5%
======= ======= =======
Gross profit margin:
Signs 37.0% 33.0%
Games 56.2% 69.8%
Electronics and Systems 49.4% 36.9%
International 35.1% 24.9%
Total gross profit margin 43.0% 37.6%
</TABLE>
1 Gross profit in the Signs Division was down as a result of the decreased
sales volume; however, the Signs Division margins were four percentage
points higher than the same period in the prior year. This is the result of
improved efficiencies in the manufacturing operations.
2 Gross profit in the Games Division was down, reflecting the larger
percentage of games revenues resulting from sales as opposed to lease or
participation based sales, the latter of which produce a higher gross
profit margin.
3 The gross margin increase in the Electronics and Systems Division is due
entirely to the increased margins associated with the Company's placement
of its MoneyTime(TM) system in casinos. These systems were not in place
during the same period in the prior year.
4 The gross margin increases in the international operations are due
primarily as a result of the Company acquiring a controlling interest in
Mikohn South America, SA on July 1, 1997, which now requires the reporting
of the South American operations on the cost method versus the equity
method of accounting, in turn requiring the consolidation of its
operations.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three month period
ended June 30, 1998, were $8,947 as compared to $7,569 for the three month
period ended June 30, 1997. The increased expenses reflect the following items:
(i) increased depreciation of $395 which is associated with the placement of the
Company's leased or participating revenue based games, ii) increased research
and development expenses related to the expansion of the Company's product
lines, from $813 for the three month period ended June 30, 1997, to $1,579 for
the three month period ended June 30, 1998, and (iii) total selling and
marketing expenses, which increased from $3,180 for the three month period ended
June 30, 1997 to $3,517 for the three month period ended June 30, 1998,
primarily due to the roll-out of the Company's MoneyTime(TM) system product.
INTEREST EXPENSE
Interest expense for the three month period ended June 30, 1998, was $911
as compared to $548 for the three months period ended June 30, 1997. This
increase of 66.5% reflects the increased level of debt between the three month
periods ended June 30, 1997 and June 30, 1998, as well as increased amortization
of capitalized loan costs associated with prior financings.
OTHER INCOME AND EXPENSE
The net of other income and expense activity was a net expense decrease of
$190. Lower foreign currency exchange rate variances of $233 account for most of
the net decrease in other income and expense between the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In the six months ended June 30, 1998, the Company had net income of $138.
Net cash used in operating activities was $4,427. This reflects an increase in
inventories of $2,248; an increase in prepaid expenses, intangible and other
assets of $3,320; a decrease in customer deposits of $323; and an increase of
$1,603 for accounts receivable and installment sales receivable combined. Net
cash used in investing activities was $1,277 and primarily represents an
increase in purchases of property, plant and equipment of $1,287. Net cash
provided by financing activities of $4,647 was comprised of proceeds from long-
term debt issuance of $3,719 and proceeds from issuance of common stock of
$1,060, offset by principal debt repayments of $132. Cash balances at June 30,
1998, were $3,839 compared to $4,896 at December 31, 1997.
On October 24, 1997, the Company completed the closing of a $40,000 debt
financing package. This package was funded by a consortium of lenders including
Hartford Life Insurance Company, The Travelers Insurance Company, Allstate
Insurance Company, Fidelity Guarantee Life Insurance Company, United States
Fidelity & Guarantee Company and First Source Financial LLP and consisted of a
$15,000, fixed rate term loan; a $15,000, variable rate term loan; and a
$10,000, variable rate revolving line of credit. The proceeds of this financing
were used to terminate and completely repay the line of credit with Bank of
America Nevada, eliminate other debt items on the balance sheet and provide
additional working capital. First Source
12
<PAGE>
Financial LLP is acting as the lenders' agent for this transaction. The term
loans begin maturing in April 2002 with equal 16.7% principal repayments due
every six months until complete maturity on October 24, 2004. The Company has
drawn $3,500 under the revolving line of credit and has $6,500 remaining
available under this line. For a full description of the new credit facility,
see Note 8 of the Notes to Consolidated Financial Statements. The Company
expects to increase this credit facility in order to finance the acquisitions of
PGI and P&S Leasing. If the Company is unable to increase such credit facility
or to obtain other sources of debt financing on terms satisfactory to the
Company, it would cause the planned acquisitions of PGI and P&S Leasing to be
delayed or terminated. The Company expects that the current revolving line of
credit combined with cash provided by operating earnings will be sufficient to
meet the existing other cash requirements for the immediate future.
In the third quarter, as a result of the acquisition of PGI and P&S Leasing
and the consequent necessity to refinance the Company's debt, the Company
expects to take a one-time charge that will substantially impact earnings for
the quarter and for the year.
13
<PAGE>
MIKOHN GAMING CORPORATION
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Equity securities of the registrant sold during the period ended June 30,
1998 that were not registered under the Securities Act:
(1) Securities sold:
Date: April 30, 1998
Title: Common stock $0.10 par value
Amount: 133,334
(2) Underwriters and Other Purchasers:
Harrah's Operating Company, Inc. ("Harrah's") (purchaser)
(3) Consideration:
On April 30, 1998, the Company caused to be issued to Harrah's,
133,334 shares of the Company's $0.10 par value common stock (the
"Shares"). The Shares were issued pursuant to an Agreement between
Harrah's and the Company dated April 27, 1998, as payment for, among
other things, the licensing to the Company by Harrah's of certain
patents, associated technology and other intellectual property
relating to Harrah's proprietary casino information system known as
"Total Track".
(4) Exemption from Registration Claimed:
The Shares were issued in a transaction that was exempt from the
registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof, which exempts from registration
"transactions by an issuer not involving any public offering". The
Shares were offered to only one purchaser, which was sophisticated
and had access to the kind of information a registration statement
would provide. The purchaser made appropriate representations as to
its investment intent. The certificate for the Shares bears a legend
stating that the securities have not been registered under the
Securities Act, and further setting the restrictions on transfer.
(5) Terms of Conversion or Exercise: None
(6) Use of Proceeds: None
14
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Certain matters were submitted to the stockholders for their approval or
other action at the annual meeting of stockholders, all as set forth in the
Company's Proxy Statement dated April 10, 1998, heretofore filed with the
Commission and incorporated by this reference.
(a) The annual meeting of stockholders was on held May 12, 1998. On the record
date, March 13, 1998, there were 10,326,767 shares of common stock
outstanding and entitled to vote.
(b) Each of the seven directors of the Company was reelected. The number of
votes cast "FOR" and "ABSTAIN" with respect to each director (no votes were
cast "AGAINST" any director) were as follows:
VOTES
DIRECTOR VOTES FOR ABSTAIN
-------- --------- -------
Thompson, David J. 8,353,528 24,592
Campbell, John 8,352,103 26,017
Garcia, Dennis 8,353,828 24,292
Irvine, Richard 8,353,828 24,292
Oliver, Terrance 8,353,828 24,292
Peterson, Bruce 8,353,628 24,492
Todoroff, Doug 8,351,878 26,242
(c) The continued retention of Deloitte & Touche LLP as independent auditors was
approved. 8,327,689 shares voted in favor thereof, 44,855 shares voted
against and 5,676 shares abstained.
15
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K:
None
16
<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 W. Stevens, Executive Vice President
Treasurer (Principal Financial Officer)
Dated: August 12, 1998
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIKOHN
GAMING CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 3,820 3,660
<SECURITIES> 19 19
<RECEIVABLES> 23,455 23,097
<ALLOWANCES> 355 440
<INVENTORY> 26,883 19,534
<CURRENT-ASSETS> 60,890 52,246
<PP&E> 26,033 23,035
<DEPRECIATION> 9,928 7,029
<TOTAL-ASSETS> 102,911 87,902
<CURRENT-LIABILITIES> 14,190 33,072
<BONDS> 33,813 23,041
0 0
0 0
<COMMON> 1,062 991
<OTHER-SE> 53,589 50,271
<TOTAL-LIABILITY-AND-EQUITY> 102,911 87,902
<SALES> 47,400 49,963
<TOTAL-REVENUES> 47,400 49,963
<CGS> 28,625 31,441
<TOTAL-COSTS> 45,296 46,749
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 110 23
<INTEREST-EXPENSE> 1,736 1,066
<INCOME-PRETAX> 258 2,125
<INCOME-TAX> 120 801
<INCOME-CONTINUING> 138 1,324
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 138 1,324
<EPS-PRIMARY> .01 .13
<EPS-DILUTED> .01 .13
</TABLE>
