U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-22498
Acres Gaming Incorporated
(Exact name of small business issuer as specified in its charter)
Nevada 88-0206560
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
815 NW Ninth Street
Corvallis, Oregon 97330
(Address of principal executive offices)
541-753-7648
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes___x____ No_______
The number of shares of Common Stock, $.01 par value,
outstanding on April 15, 1996 was 7,556,525.
ACRES GAMING INCORPORATED
Table of Contents
Page
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at March 31, 1996 and
June 30, 1995 3
Statements of Operations for the Three
and Nine Months Ended March 31, 1996 and 1995 4
Statements of Cash Flows for the Nine Months
Ended March 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II -- OTHER INFORMATION 9
SIGNATURES 11
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ACRES GAMING INCORPORATED
BALANCE SHEETS
ASSETS
March 31, 1996
(unaudited) June 30, 1995
CURRENT ASSETS:
Cash and cash equivalents $ 487,000 $1,325,000
Receivables 854,000 967,000
Inventories 2,267,000 2,395,000
Prepaid expenses 60,000 73,000
--------- ---------
Total current assets 3,668,000 4,760,000
--------- ---------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 515,000 508,000
Equipment 1,230,000 1,014,000
Leasehold improvements 506,000 498,000
Accumulated depreciation (1,184,000) (789,000)
--------- ---------
Total property and equipment 1,067,000 1,231,000
OTHER ASSETS 399,000 273,000
--------- ---------
$5,134,000 $6,264,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $350,000 $427,000
Accrued expenses 399,000 482,000
Customer deposits 1,089,000 393,000
--------- ---------
Total current liabilities 1,838,000 1,302,000
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50,000,000
shares authorized, 7,556,525 and 7,494,500
shares issued and outstanding at
March 31, 1996 and June 30, 1995 76,000 75,000
Additional paid-in capital 10,972,000 10,615,000
Accumulated deficit (7,752,000) (5,672,000)
Less - Deferred charge - warrants -- (56,000)
--------- ---------
Total stockholders' equity 3,296,000 4,962,000
--------- ---------
$5,134,000 $6,264,000
========= =========
The accompanying notes are an integral part of these balance sheets.
ACRES GAMING INCORPORATED
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 1996 and 1995
(unaudited)
Three months ended Nine months ended
March 31 March 31
1996 1995 1996 1995
NET REVENUES $1,451,000 $355,000 $3,311,000 $3,193,000
COST OF REVENUES 764,000 338,000 1,781,000 2,029,000
------- ------- --------- ---------
GROSS PROFIT 687,000 17,000 1,530,000 1,164,000
OPERATING EXPENSES:
Research and development 535,000 478,000 1,613,000 1,457,000
Selling, general and
administrative 643,000 585,000 1,998,000 1,520,000
--------- --------- --------- ---------
Total operating expenses 1,178,000 1,063,000 3,611,000 2,977,000
--------- --------- --------- ---------
LOSS FROM OPERATIONS (491,000)(1,046,000) (2,081,000) (1,813,000)
OTHER INCOME (EXPENSE) (11,000) (6,000) 1,000 6,000
------- --------- --------- ---------
NET LOSS (502,000)(1,052,000) (2,080,000) (1,807,000)
======= ========= ========= =========
NET LOSS PER SHARE $(0.07) $(0.15) $ (0.27) $ (0.25)
==== ==== ==== ====
SHARES USED IN PER
SHARE COMPUTATION 7,557,000 7,146,000 7,644,000 7,139,000
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
ACRES GAMING INCORPORATED
STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1996 and 1995
(unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,080,000) (1,807,000)
Adjustments to reconcile net loss to net
cash from operations
Depreciation and amortization 474,000 328,000
Amortization of warrants 56,000 --
Changes in assets and liabilities
Receivables 113,000 (629,000)
Inventories 128,000 (462,000)
Prepaid expenses and other assets 13,000 (104,000)
Accounts payable and accrued expenses (160,000) (423,000)
Customer deposits 696,000 239,000
------- ---------
Net cash used for operating activities (760,000) (2,858,000)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (231,000) (175,000)
Capitalized software costs (70,000) --
Other, net (135,000) --
------- ---------
Net cash used for investing activities (436,000) (175,000)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 358,000 --
Borrowings under line of credit -- 592,000
------- ---------
Net cash from financing activities 358,000 592,000
------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (838,000) (2,441,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,325,000 2,545,000
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 487,000 $ 104,000
========= =========
The accompanying notes are an integral part of these statements.
ACRES GAMING INCORPORATED
Notes to Unaudited Financial Statements
1. Unaudited Financial Statements
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted from these
unaudited financial statements. These statements should be read
in conjunction with the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1995 filed with the Securities and
Exchange Commission.
In the opinion of management, the interim financial statements
include all adjustments, consisting only of normal recurring
adjustments, necessary in order to make the financial statements
not misleading. The results of operations for the three and nine
month periods ended March 31, 1996 are not necessarily indicative
of the operating results for the full year or future periods.
2. Line of Credit
At June 30, 1995, the Company had a $1,000,000 line of credit with
a bank which accrued interest at the bank's prime rate plus 1.0
percent. The line expired in October, 1995 and was renewed for
$750,000 with interest at the bank's prime rate plus 2.0 percent.
The renewed bank line expired at March 31, 1996. Borrowings under
the line were secured by substantially all assets of the Company.
There were no borrowings under the line at March 31, 1996.
3. Income Taxes
At March 31, 1996, the Company had cumulative net operating losses
of approximately $7,700,000 which are available to offset future
taxable income through 2010. The Company has provided a valuation
allowance for the entire amount of the benefit related to these
net operating loss carryforwards as realizability is uncertain at
this time.
4. Per Share Computation
Net loss per share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding
during the periods.
5. Stockholders' Equity
In June 1995, the Company issued 400,000 shares of common stock to
a group of private investors for net proceeds of $2,255,000. In
connection with this offering, the Company granted warrants to
purchase 40,000 shares of the Company's common stock at $7.20 per
share which approximated market value at that date.
In exchange for services, in February 1995, the Company granted
warrants to another company to purchase up to 120,000 shares of
the Company's common stock at $5.50 per share. The warrants
expire in February 2000. The value of the warrants of $96,000 was
recorded as paid in capital and the related expense was deferred
and amortized over the term of the related service agreement. For
the three and nine month periods ended March 31, 1996, expense
associated with these warrants was $8,000 and $56,000,
respectively.
ACRES GAMING INCORPORATED
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company's Concept III products are designed to enhance casino
profitability by making gaming machines more fun to play while
providing the control, accounting and security functions necessary to
ensure more efficient, profitable casino operation. In November, 1993,
the Company issued 1,667,500 units (consisting of 1,667,500 shares of
common stock and 833,750 warrants) in an initial public offering
resulting in net proceeds of $7,153,000. In June 1995, the Company
issued 400,000 shares of common stock to a group of private investors
for net proceeds of $2,255,000. Such proceeds are being used to hire
additional engineering personnel and for other research and development
costs to enhance the Company's product line, for capital expenditures
for computer and other equipment, and to lease office space. At its
current stage of operations, the Company's financial position and
operating results may be materially affected by a number of factors,
including the timing of receipt, installation and regulatory approval
of any one order, availability of additional capital, competition and
technological change.
Results of Operations
The Company's net revenues for the three months ended March 31,
1996 were $1,451,000, an increase of 309% over net revenues of $355,000
during the three months ended March 31, 1995. The increase in revenue
was primarily the result of sales of custom products based on the
Company's Concept III technology to other manufacturers for inclusion
in gaming machines developed by them. For the nine months ended March
31, 1996, net revenues were $3,311,000, a increase of 4% from the
$3,193,000 during the same period in the prior year.
Gross profit as a percentage of net revenue was 47% in the three-
month period ended March 31, 1996, compared to 5% for the same period
in the prior year. For the nine-month periods ended March 31, 1996 and
1995, gross profit as a percentage of net revenue was 46% and 36%,
respectively. The increase in gross margin is a result of changes in
the mix of products sold and reductions in certain costs of production
and service.
In order to support growth in revenue and continue to develop its
products, since completion of its initial public offering in November,
1993, the Company has hired additional personnel, made capital
expenditures for computer and other equipment, leased additional space
to serve as its headquarters and opened and expanded a sales and
service office in Las Vegas, Nevada. As a result, operating expenses
increased from $1,063,000 in the three-month period ended March 31,
1995 to $1,178,000 in the same period in 1996. For the nine-month
periods ended March 31, operating expenses increased from $2,977,000 in
1995 to $3,611,000 in 1996.
Financial Condition
As of March 31, 1996, the Company had working capital of
$1,830,000, compared to $3,458,000 as of June 30, 1995. During the
nine months ended March 31, 1996, net cash used by operating activities
was $760,000, of which the major components were the net loss, offset
by depreciation and amortization of $474,000 and by an increase of
$696,000 in customer deposits. Net cash used by investing activities
was $436,000, while net cash provided by financing activities was
$358,000, resulting from exercise of employee stock options.
The Company's net cash position (balance of cash and cash
equivalents less borrowings under the line of credit) improved
significantly during the three months ended March 31, 1996. At the end
of the previous quarter, as of December 31, 1995, the net cash position
was $(332,000). At March 31, 1996, the net cash position was $487,000,
an increase of $819,000. This improvement resulted from receipt of
customer deposits, increased revenue, and a decrease in receivables.
The Company's sources of liquidity include its $487,000 balance of
cash and cash equivalents, and payment terms which generally include
deposits with the receipt of customer orders. Although its operations
generated negative cash flow prior to the three month period ending
March 31, 1996, the sources of liquidity referred to above, along with
the flexibility that the Company has in adjusting operating levels, are
expected to be sufficient to fund the Company's operations for at least
the next 12 months.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on
January 4, 1996. The following matters were submitted to a
vote of the shareholders at the Annual Meeting:
Election of Director. The following person was elected to
serve as a director for a term of one year:
John F. Acres
Approval of Amendment to 1993 Stock Option and Incentive
Plan. (3,881,232 votes FOR, 274,036 votes AGAINST, and
101,500 votes ABSTAINED)
Ratification of Appointment of Arthur Andersen LLP as
Independent Auditors. (4,298,813 votes FOR, 2,900 votes
AGAINST, and 2,130 votes ABSTAINED)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter covered by this
Form 10-QSB.
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.
ACRES GAMING INCORPORATED
(Registrant)
May 10, 1996 Robert W. Brown
Date (Signature)
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
