<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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 registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0206560
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
7115 AMIGO STREET, SUITE 150
LAS VEGAS, NV 89119
(Address of principal executive offices)
702-263-7588
(Registrant's telephone number)
Check 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 [ ]
The number of shares of Common Stock, $.01 par value, outstanding on
April 30, 2000 was 8,913,281.
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ACRES GAMING INCORPORATED
Table of Contents
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Page
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at March 31, 2000 and June 30, 1999 1
Statements of Operations for the Three and Nine Months Ended
March 31, 2000 and 1999 2
Statements of Cash Flows for the Nine Months Ended
March 31, 2000 and 1999 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II -- OTHER INFORMATION 11
SIGNATURES 11
INDEX TO EXHIBITS 12
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACRES GAMING INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
(UNAUDITED)
------------ ------------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 871 $ 5,949
Receivables 2,778 1,576
Inventories 3,556 4,909
Prepaid expenses 102 265
------------ ------------
Total current assets 7,307 12,699
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 863 743
Equipment 5,273 4,778
Leasehold improvements 443 954
Accumulated depreciation (4,741) (4,101)
------------ ------------
Total property and equipment 1,838 2,374
OTHER ASSETS, NET 1,098 1,024
------------ ------------
$ 10,243 $ 16,097
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,626 $ 2,407
Accrued expenses 843 1,491
Customer deposits 54 4,152
------------ ------------
Total current liabilities 2,523 8,050
------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK 4,948 4,948
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50 million shares
authorized, 8.9 million shares issued and outstanding 89 89
Additional paid-in capital 19,904 19,904
Accumulated deficit (17,221) (16,894)
------------ ------------
Total stockholders' equity 2,772 3,099
------------ ------------
$ 10,243 $ 16,097
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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ACRES GAMING INCORPORATED
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
NET REVENUES $ 2,202 $ 6,414 $ 13,793 $ 12,761
COST OF REVENUES 811 3,485 6,381 6,875
------------ ------------ ------------ ------------
GROSS PROFIT 1,391 2,929 7,412 5,886
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 1,335 1,498 3,867 4,702
Selling, general and administrative 1,222 1,364 3,949 4,292
------------ ------------ ------------ ------------
Total operating expenses 2,557 2,862 7,816 8,994
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,166) 67 (404) (3,108)
OTHER INCOME 25 16 77 205
============ ============ ============ ============
NET INCOME (LOSS) $ (1,141) $ 83 $ (327) $ (2,903)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC $ (.13) $ .01 $ (.04) $ (.33)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - DILUTED $ (.13) $ .01 $ (.04) $ (.33)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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ACRES GAMING INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (327) $ (2,903)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization 1,417 1,349
Changes in assets and liabilities:
Receivables (1,202) 1,195
Inventories 1,353 (1,306)
Prepaid expenses 163 (150)
Accounts payable and accrued expenses (1,429) 1,919
Customer deposits (4,098) (1,009)
------------ ------------
Net cash from operating activities (4,123) (905)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (686) (1,554)
Capitalized software costs (257) (627)
Other, net (12) 53
------------ ------------
Net cash from investing activities (955) (2,128)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 350
Preferred stock dividends -- (75)
------------ ------------
Net cash from financing activities -- 275
------------ ------------
NET DECREASE IN CASH AND EQUIVALENTS (5,078) (2,758)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,949 9,887
============ ============
CASH AND EQUIVALENTS AT END OF PERIOD $ 871 $ 7,129
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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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-K for
the year ended June 30, 1999 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, 2000 are not necessarily
indicative of the operating results for the full year or future periods.
2. Recent Accounting Pronouncements
The Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) in June 1998. SFAS 133
requires the Company to recognize all derivatives on the balance sheet at fair
value. The Company only enters into derivative instruments for hedging sales
contracts and receivables denominated in international currencies. Changes in
the fair value of the derivatives will be offset against the change in fair
value of the receivable. The change in the derivative's fair value related to
the ineffective portion of a hedge, if any, will be immediately recognized in
earnings. The Company expects to adopt this Standard as of the beginning of its
fiscal year 2001. The effect of adopting this standard is not expected to have a
material effect on the Company's financial condition or results of operations.
3. Revenue Recognition
The Company sells certain of its products under contracts that generally
provide for a deposit to be paid before commencement of the project and for a
final payment to be made after completion of the project. Revenue is generally
recognized as hardware components are shipped and software components are
installed. Customer deposits received under sales agreements are reflected as
liabilities until the related revenue is recognized.
The Company has entered into certain manufacturing royalty agreements
where revenue is recognized as the licensed manufacturer sells the related
hardware products.
For certain contracts requiring significant product customization,
revenue is recognized on the percentage-of-completion method. Labor costs
incurred for customization and installation are the basis for determining
percentage-of-completion, giving effect to the most recent estimates of such
total labor costs. The effect of changes to total estimated customization and
installation labor costs is recognized in the period in which such changes are
determined. The Company defers revenue subject to forfeiture, refund, or other
concession until such revenue meets the criteria for collectibility. Provisions
for estimated losses are made in the period in which the loss first becomes
apparent.
Included in accounts receivable are unbilled receivables. The Company
had unbilled receivables of $1.8 million at March 31, 2000. At June 30, 1999 the
Company had $1.0 million in unbilled receivables. Unbilled receivables represent
revenues recognized in excess of billings on certain contracts accounted for
under the percentage of completion method. Unbilled receivables were not
billable at the balance sheet date but are recoverable as billings are made in
accordance with the contract terms.
4. Inventories
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Inventories consist of electronic components and other hardware, which
are recorded at the lower of cost (first-in, first-out) or market. Inventories
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Raw Materials $ 1,283 $ 1,114
Work-in-progress 534 1,398
Finished Goods 1,739 2,397
------------ ------------
$ 3,556 $ 4,909
------------ ------------
</TABLE>
5. Capitalized Software
Software development costs for certain projects are capitalized from the
time technological feasibility is established, to the time the resulting
software product is commercially feasible. Capitalized software costs, net of
accumulated amortization, were $734,000 and $647,000 at March 31, 2000 and June
30, 1999, respectively, and are included in other assets. Capitalized costs are
amortized on a straight-line basis over the estimated life of the product
beginning when the products become commercially feasible. All research and
development costs are expensed as incurred.
6. Income Taxes
At March 31, 2000, the Company had cumulative net operating losses of
approximately $15.9 million that are available to offset future taxable income
through 2019. 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. Deferred tax liabilities were insignificant as of
March 31, 2000 and June 30, 1999.
7. Contingencies
A class action lawsuit filed in the U.S. District Court alleges
violation of the federal securities laws by the Company and certain of its
current and former executive officers. The class consists of the purchasers of
the Company's stock during the period from March 26, 1997 to December 11, 1997.
The Company denies the allegations and intends to vigorously defend itself.
Two lawsuits have been filed regarding the Wheel of Gold(TM) technology
that is the subject of two patents (the "WOG Patents") that have been assigned
to Anchor Gaming ("Anchor"). In the first suit, now pending in U.S. District
Court for the District of Nevada, Anchor, Anchor Coin and Spin for Cash Wide
Area Progressive Joint Venture, Anchor's partnership with International Game
Technology ("IGT"), have brought patent infringement, breach of warranty and
breach of contract actions against the Company, based on the WOG Patents and the
Company's supply agreement with Anchor. The Company has denied the allegations
and filed a counterclaim in that proceeding for a declaration that the Company
is the sole or joint owner of the WOG Patents. The defense of this suit was
tendered to and initially accepted by the Company's professional errors and
omissions insurance carrier. In April 2000, the Company's insurance carrier
denied coverage. The Company disagrees with the insurer's position and intends
to pursue legal remedies against the insurer. In the second action, now pending
in U.S. District Court for the District of Oregon, the Company has filed suit
alleging that Anchor wrongfully used the Company's technology to obtain the WOG
Patents, that the filing of the patent applications was fraudulently concealed
from the Company, that Anchor was unjustly enriched by retaining the benefits of
the Company's technology without compensating the Company and that Anchor
breached fiduciary duties owed to the Company.
Four related lawsuits have been filed in the U.S. District Court for the
District of Nevada resulting from the Company's efforts to enforce its patent
rights. Three of those suits have now been consolidated. The Company
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denies all allegations asserted against it and intends to vigorously defend
itself and its intellectual property rights. In separate but related actions,
the Company has filed suits against its former and current general liability
insurance carriers for breach of insurance contract. The Company's suits are
based on the insurers' refusal to defend the Company against certain
counterclaims brought against the Company in certain of the four related patent
lawsuits.
Unfavorable outcomes in one or more of these suits could have a material
adverse effect on the Company.
The Company from time to time is involved in other various legal
proceedings arising in the normal course of business.
8. Per Share Computation
The Company reports basic and diluted earnings per share. Only the
weighted average number of common shares issued and outstanding are used to
compute basic earnings per share. The computation of diluted earnings per share
includes the effect of stock options, warrants and redeemable convertible
preferred stock, if such effect is dilutive.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net income (loss) $ (1,141) $ 83 $ (327) $ (2,903)
Preferred stock dividends -- -- -- (75)
------------ ------------ ------------ ------------
Net income (loss) allocable to common stockholders $ (1,141) $ 83 $ (327) $ (2,978)
============ ============ ============ ============
Weighted average number of shares of common stock
and common stock equivalents outstanding:
Weighted average number of common shares outstanding
for computing basic earnings per share 8,913 8,913 8,913 8,891
Dilutive effect of warrants and employee stock
options after application of the treasury stock
method -- 1 -- --
Dilutive effect of redeemable convertible preferred
stock after application of the if-converted method -- 1,812 -- --
============ ============ ============ ============
Weighted average number of common shares outstanding
for computing diluted earnings per share 8,913 10,726 8,913 8,891
============ ============ ============ ============
Earnings (loss) per share - basic $ (.13) $ .01 $ (.04) $ (.33)
============ ============ ============ ============
Earnings (loss) per share - diluted $ (.13) $ .01 $ (.04) $ (.33)
============ ============ ============ ============
</TABLE>
The following common stock equivalents were excluded from the earnings
per share computations because their effect would have been anti-dilutive:
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<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE MONTHS
MONTHS ENDED MARCH 31, ENDED MARCH 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Warrants and employee stock options 1,192 1,425 1,252 1,323
Redeemable convertible preferred stock, if
converted, assuming conversion at rates in
effect at March 31, 2000 and 1999 2,228 -- 2,228 1,812
</TABLE>
The Stock Purchase Agreement between IGT and the Company pursuant to
which IGT purchased 519,481 shares of Redeemable Convertible Preferred Stock
(the "Preferred Stock") restricts IGT's ownership of the Company's common stock.
Without the consent of the Company, IGT may not own more than 20% of the
outstanding common stock, including, for purposes of the calculation, the shares
of common stock into which the Preferred Stock owned by IGT is convertible. The
Company believes that this provision operates to limit IGT's right to convert
shares of Preferred Stock as well as limiting IGT's rights to purchase
additional shares of common stock. IGT has asserted that the agreement does not
limit the number of shares into which the Preferred Stock may be converted. If
there were no limit on IGT's right to convert shares of Preferred Stock into
common stock, as of March 31, 2000, the Preferred Stock could have been
converted into 2,831,260 shares of common stock, or 24.1% of the then
outstanding common stock. IGT has not indicated it plans to convert any shares
of Preferred Stock into common stock.
9. Subsequent Event
In April 2000, the Company obtained a commitment from its commercial
bank to provide up to $2.0 million in short-term financing. The commitment
expires on the earlier of June 30, 2000 or receipt of final payment from the
Crown Casino for the Coinless Transit project.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, manufactures and markets electronic equipment and
software for the casino gaming industry. The Company's products are based on its
proprietary Acres Bonusing Technology(TM) and are designed to enhance casino
profitability by providing entertainment and incentives to players of gaming
machines. Acres Bonusing Technology improves the efficiency of bonus and
incentive programs currently offered by many casinos, and makes possible some
bonus and incentive programs that have not previously been offered.
Acres Bonusing Technology was conceived to provide the gaming industry
with a system to enable the design and delivery of bonuses and other promotions
directly to players at the point of play and at the time of play. The Company
currently offers bonusing products directly to casinos in the form of standard
and customized bonusing promotions that can be applied casino-wide or to a
limited number of gaming machines. In addition to bonusing products, the Company
also offers slot accounting, player tracking and visual analysis modules that
may be purchased and installed individually or as components of an integrated
system marketed as the Acres Advantage(TM).
RESULTS OF OPERATIONS
The Company's net revenues for the three months ended March 31, 2000
decreased to $2.2 million from net revenues of $6.4 million during the three
months ended March 31, 1999. The Company's revenues can fluctuate
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significantly based on the timing of the delivery of any large order. The
current quarter net revenues were primarily comprised of $1.7 million from
continuing progress on the Crown Casino Coinless Transit(TM) project in
Melbourne, Australia. In the prior year quarter, revenues were primarily
comprised of $5.1 million recorded upon completion of the Acres Advantage slot
system for Mandalay Bay and $709,000 of hardware sales and hardware royalty
payments received from IGT.
For the nine-month period ended March 31, 2000, net revenues increased
to $13.8 million from $12.8 million in the same period in the prior year. Net
revenues in the first nine months of the current fiscal year were primarily
comprised of $5.7 million from progress billings on the Crown Casino Coinless
Transit project, $3.7 million from hardware and software deliveries to MotorCity
and $3.1 million from software sales to Star City Casino in Sydney, Australia.
In the same period of the prior year, net revenues were primarily comprised of
$7.2 million from the Acres Advantage slot system for Mandalay Bay, $3.3 million
of hardware sales, software sales and hardware royalty payments from IGT and
$883,000 of custom bonus games and displays.
Gross profit margin increased to 63 percent in the current quarter from
46 percent in the prior year quarter. For the first nine months of fiscal 2000,
gross profit margin was 54 percent versus 46 percent in the same period in
fiscal 1999. These increases in gross profit margin percentages are related to
changes in the mix of hardware and software products delivered during the
respective periods. Software sales, such as the recent sales to the MotorCity,
Crown and Star City casinos carry a higher gross profit margin than hardware
sales.
Total operating expenses decreased to $2.6 million in the current
quarter from $2.9 million in the prior year quarter and decreased to $7.8
million for the first nine months of fiscal 2000 from $9.0 million in the same
period of the prior year. Reductions in staffing generated $674,000 and $1.7
million in operating expense savings in the three and nine-month periods ended
March 31, 2000, respectively, as compared to the same periods in the prior year.
The current quarter savings from staffing reductions were partially offset by a
$315,000 reduction in the amount of certain software customization costs that
were allocated out of operating expenses and into cost of goods sold. The
savings from staffing reductions for the nine-month period ended March 31, 2000
were partially offset by a $371,000 reduction in amounts capitalized as software
development costs.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and equivalents of $871,000,
compared to $5.9 million as of June 30, 1999. The Company invests its cash in
highly liquid marketable securities with a maturity of three months or less at
the date of purchase.
At March 31, 2000 the Company had collected $54,000 of advance deposits
against its order backlog of approximately $1.0 million. Backlog, however, may
not be a meaningful indication of future sales. Sales are made pursuant to
purchase orders or sales agreements for specific installations. Products are
generally delivered within six months of receipt of an order depending on the
nature of the order and the products being delivered. The Company does not have
any material ongoing long-term sales contracts. The Company's revenues and
results of operations may be materially affected by the receipt or loss of any
one order.
In April 2000, after the close of the current quarter, the Company
received a $1.2 million deposit in connection with a letter of intent between
the Company and Tsogo Sun, Ltd., that provides for negotiation of a definitive
agreement pursuant to which the Company will provide an Acres Advantage
casino-wide slot system for the new MonteCasino in Johannesburg, South Africa.
When finalized, the contract is expected to generate over $4.6 million in
revenue. Shipments of hardware to MonteCasino are expected to begin in the
quarter ended June 30, 2000 with final installation scheduled for the Fall of
2000.
The Company expects to complete the deliveries and installations
comprising its order backlog, including the MonteCasino order, and expects that
payments under those contracts will provide sufficient operating cash flow for
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fiscal 2000. Failure to successfully deliver the products comprising the order
backlog or failure to subsequently collect the resulting revenues could have a
material adverse effect on the Company's liquidity.
The Company does not have any debt outstanding but has obtained a
commitment from its commercial bank to provide up to $2.0 million in short-term
financing. The commitment expires on the earlier of June 30, 2000 or receipt of
final payment from the Crown Casino for the Coinless Transit project. The
Company has the ability to reduce operating expenses by reducing staffing and
other expenses.
The Company's operations have historically used cash. During the nine
months ended March 31, 2000, operating activities used $4.1 million of cash. The
cash provided by reductions in inventories and the Company's results of
operations, after adjusting for non-cash items, was completely offset by
increases in accounts receivable and decreases in customer deposits resulting
from sales activities. Additionally, reductions in accounts payable and accrued
expenses further reduced ending cash balances. During the nine-month period
ended March 31, 2000, the Company made capital expenditures of $686,000 and
capitalized software development cost of $257,000.
The Company's principal sources of liquidity have been net proceeds of
$7.2 million from its initial public offering in November 1993 and $7.6 million
from the exercise of warrants in October 1996. In addition, in January 1997, the
Company issued 519,481 shares of Series A Convertible Preferred Stock for net
proceeds of $4.9 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company only enters into derivative instruments to manage
well-defined foreign currency risks. The Company has entered into forward
exchange contracts to hedge the value of sales contracts and accounts receivable
denominated in Australian dollars. Foreign exchange contracts have gains and
losses that are recognized at the settlement date. The impact of changes in
exchange rates on the forward contracts will be substantially offset by the
impact of such changes on the value of the related sales contracts and accounts
receivable. At March 31, 2000, the Company held a foreign exchange contract
totaling $2.1 million and maturing in June 2000. The counterparty to the foreign
exchange contract is a large, widely recognized bank resulting in minimal risk
of credit loss due to non-performance by the bank. The net effect of an
immediate 10 percent change in exchange rates on the forward exchange contracts
and the underlying hedged positions would not be material to the Company's
financial condition or results of operations.
YEAR 2000
The Year 2000 issue results from computer programs operating incorrectly
due to date-sensitive software incorrectly recognizing dates in the year 2000.
This could result in system failure or miscalculations and could cause
disruptions of operations, including, among other things, a temporary inability
to engage in normal business activities. The Company has not incurred any
material interruptions in its products or business activities related to the
Year 2000.
The Company has evaluated its technology and data, including imbedded
non-information technology, used in the creation and delivery of its previous
generations of products and services (the "Legacy" products) and in its internal
operations and has identified no significant Year 2000 issues. The Company's
core business systems are compliant. Compliant upgrades for the Company's Legacy
slot accounting and player tracking products have been developed and were made
available to customers prior to December 31, 1999. The Company has tested its
most recent generation of products and did not identify any material Year 2000
issues. The Company has not incurred material costs associated with addressing
the Year 2000 issue and believes that future costs will not have a material
effect on the Company's financial results.
Although the Company has inquired of certain of its significant vendors
as to the status of their Year 2000 compliance initiatives, no binding
assurances have been received. The Company believes that it is not overly
reliant on any single vendor because its component parts and services can be
obtained from multiple sources. Failure of
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telephone service providers or other monopolistic utilities could have a
significant detrimental effect on the Company's operations. The Company does not
know the status of its customers' Year 2000 compliance initiatives. Failure of
the Company's customers to adequately address such issues could negatively
affect their ability to purchase bonusing products.
The Company has developed a contingency plan to address the most
reasonably likely "worst-case" scenario. Such contingency plan includes manually
conducting operations in the short-term, which would be less efficient, but
would not be expected to have a material adverse effect on the Company.
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q contain "forward-looking"
information (as defined in Section 27A of the Securities Act of 1933, as
amended) that involve risks and uncertainties that may cause actual results to
differ materially from those predicted in the forward-looking statements.
Forward-looking statements can be identified by their use of such verbs as
expects, anticipates, believes or similar verbs or conjugations of such verbs.
If any of the Company's assumptions on which the forward-looking statements are
based prove incorrect or should unanticipated circumstances arise, the Company's
actual results could differ materially from those anticipated by such
forward-looking statements. The differences could be caused by a number of
factors or combination of factors including, but not limited to, the risks
detailed in the Company's Securities and Exchange Commission filings, including
the Company's Form 10-K for the fiscal year ended June 30, 1999.
Forward-looking statements contained in this Form 10-Q relate to the
Company's plans and expectations as to: the MonteCasino order; sales backlog;
adequacy of cash and equivalents balances to fund the Company's operations;
anticipated future sales; revenue recognition; cash collections; scheduled
product installation dates; new product development and introduction; the
availability of funds under the line of credit on terms acceptable to both the
Company and the lending bank; patent protection; Year 2000 issues and litigation
settlements.
The following factors, among others, could cause actual results to
differ from those indicated in the forward-looking statements: the possibility
that the Company may not successfully negotiate a definitive agreement for the
MonteCasino order, or that the size of the order will be smaller than expected;
the possibility that future sales may not occur or product offerings may not be
developed as planned; the possibility that future product installations may not
be completed; developments in the Company's relationship with IGT; the risk that
patents may not be issued; the expense and unpredictability of patent and other
litigation; the timing of development, regulatory approval and installation of
products; the timing of receipt and shipment of orders; the ability of the
Company to borrow under the line of credit; competition; government regulation;
market acceptance; customer concentration; technological change; the effect of
economic conditions on the gaming industry generally; and the results of pending
litigation.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by
this Form 10-Q.
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)
Date: May 11, 2000 By /s/ Reed M. Alewel
-----------------------------------------
Reed M. Alewel
Vice President, Chief Financial Officer, Secretary
and Treasurer (authorized officer and principal
financial and chief accounting officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of Acres Gaming Incorporated, as
amended(1)
3.2 Bylaws of Acres Gaming Incorporated, as amended(2)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1996,
previously filed with the Commission.
(2) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1996,
previously filed with the Commission.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACRES GAMING
INCORPORATED FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 871,000
<SECURITIES> 0
<RECEIVABLES> 2,793,000
<ALLOWANCES> (15,000)
<INVENTORY> 3,556,000
<CURRENT-ASSETS> 7,307,000
<PP&E> 6,579,000
<DEPRECIATION> 4,741,000
<TOTAL-ASSETS> 10,243,000
<CURRENT-LIABILITIES> 2,523,000
<BONDS> 0
0
4,948,000
<COMMON> 19,993,000
<OTHER-SE> (17,221,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,243,000
<SALES> 13,793,000
<TOTAL-REVENUES> 13,793,000
<CGS> 6,381,000
<TOTAL-COSTS> 7,816,000
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (94,000)
<INCOME-PRETAX> (327,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,000)
<EPS-BASIC> (.04)<F1>
<EPS-DILUTED> (.04)<F1>
<FN>
<F1>This information has been prepared in accordance with SFAS No. 128. Basic and
diluted EPS have been entered in place of primary and fully diluted EPS,
respectively.
</FN>
</TABLE>
