U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from...............to...............
Commission file number 0-23626
GAME FINANCIAL CORPORATION
(Exact name of issuer as specified in its charter)
Minnesota 41-1684452
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
10911 West Highway 55, Suite 205, Plymouth, MN 55441-6114
(Address of principal executive offices)
(612) 544-0062
(Issuer's telephone number)
Indicate by 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: As of May 6, 1996, the Corporation
had 3,490,237 shares of its $.01 par value common stock outstanding.
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31,
1996 and December 31, 1995 3
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1996 and
March 31,1995 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and
March 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Exhibit 11 - Computation of Earnings Per Share 11
Exhibit 27 - Financial Data Schedule 12
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
AS OF:
MARCH 31, DECEMBER 31,
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,469,194 $ 868,903
Marketable securities 2,981,863 3,795,164
Receivables 208,561 209,482
Other 257,402 139,283
---------- ----------
TOTAL CURRENT ASSETS 5,917,020 5,012,832
---------- ----------
EQUIPMENT
Furniture, fixtures, and equipment 1,728,501 1,492,028
Less accumulated depreciation 527,856 438,949
---------- ----------
1,200,645 1,053,079
---------- ----------
MARKETABLE SECURITIES 209,348 565,487
---------- ----------
$7,327,013 $6,631,398
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 729,765 $ 425,460
Payable to customers 19,131 19,662
Accrued expenses 115,376 204,380
Income taxes payable 121,826 34,801
Deferred revenue 201,373 91,225
---------- ----------
TOTAL CURRENT LIABILITIES 1,187,471 775,528
---------- ----------
DEFERRED INCOME TAXES 49,400 49,400
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common stock 34,892 34,781
Additional paid-in capital 4,192,796 4,192,796
Retained earnings 1,860,432 1,576,662
Unrealized gain on investments 2,022 2,231
---------- ----------
6,090,142 5,806,470
---------- ----------
$7,327,013 $6,631,398
========== ==========
See notes to condensed consolidated financial statements
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED:
MARCH 31, MARCH 31,
1996 1995
---------- ----------
Revenue $3,188,161 $1,702,203
Cost of Revenue 2,032,221 960,466
---------- ----------
Gross Margin 1,155,940 741,737
Sales, Marketing, General And
Administrative Expenses 728,132 443,613
---------- ----------
Operating Income 427,808 298,124
Other Income 31,073 43,201
---------- ----------
Income Before Taxes 458,881 341,325
Income Tax Expense 175,000 123,600
---------- ----------
Net Income $ 283,881 $ 217,725
========== ==========
Net Income Per Share $ 0.08 $ 0.06
========== ==========
Weighted Average Shares Outstanding 3,699,485 3,516,245
========== ==========
See notes to condensed consolidated financial statements
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS ENDED:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 283,881 $ 217,725
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 88,907 23,402
Amortization of investment premiums
and discounts 21,027 32,406
Changes in operating assets and liabilities:
Receivables 921 45,522
Other current assets (118,119) (27,094)
Accounts payable 304,305 38,381
Payable to customers (531) (21,105)
Accrued expenses (89,004) (343,614)
Due to affiliated company -- (12,813)
Income taxes payable 87,025 53,500
Deferred revenue 110,148 (112,103)
----------- -----------
Net cash provided (used) by
operating activities 688,560 (105,793)
----------- -----------
INVESTING ACTIVITIES
Proceeds from maturities of marketable securities 1,416,825 445,875
Purchases of marketable securities (268,621) (630,000)
Purchases of equipment (236,473) (261,442)
----------- -----------
Net cash provided (used) by investing activities 911,731 (445,567)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,600,291 (551,360)
CASH AND CASH EQUIVALENTS
Beginning of period 868,903 896,243
----------- -----------
End of period $ 2,469,194 $ 344,883
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION - In the opinion of the Company, these unaudited
condensed consolidated financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and December 31, 1995, and the results of operations and
cash flows for the three months ended March 31, 1996 and 1995. The results of
operations and cash flows for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996, or any other period. For further information, refer to the
consolidated financial statements and footnotes included in the registrant
Company's annual report on Form 10-KSB for the year ended December 31, 1995.
NOTE 2. - REVENUE RECOGNITION - The Company has certain financial service
agreements which provide for decreasing rates of fees based on the attainment of
specified dollar amounts of transactions processed. Revenue on these contracts
are recorded using the actual transactions processed during the period at the
overall projected fee rate to be earned under the contract. The estimated fees
to be earned under these contracts are reviewed on a regular basis. The
cumulative impact of changes to these estimates are recorded in the month of the
revision.
NOTE 3. - CASINO LOCATIONS - The Company operates its funds transfer facilities
pursuant to agreements with the operators of the host casinos. Such agreements
typically have initial terms of one to three years with renewal clauses. The
following table summarizes the contract activity since 1992.
<TABLE>
<CAPTION>
-----------LOCATIONS--------
CREDIT CARD
NUMBER CREDIT AND
OF CARD CHECK
STATES ONLY CASHING TOTAL
<S> <C> <C> <C> <C>
December 31, 1992 1 0 5 5
Locations Opened 1 1 2
Locations Discontinued (1) (1)
-------- -------- --------
December 31, 1993 3 1 5 6
Locations Opened 4 2 6
Locations Discontinued (2) (2)
-------- -------- --------
December 31, 1994 5 5 5 10
Locations Opened 18 4 22
Locations Discontinued (4) (4)
-------- -------- --------
December 31, 1995 14 19 9 28
Locations Opened 8 7 15
Locations Discontinued 0
-------- -------- --------
May 6, 1996 15 27 16 43
======== ======== ========
Contracted Locations Opening after May 6, 1996 9 1 10
======== ======== ========
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUE
The Company derives revenue from fees charged for financial services,
principally making cash advances on credit cards, cashing checks and providing
ATM services in gaming establishments.
Revenue for the quarter ended March 31, 1996 was $3,188,000, a 87% increase
over $1,702,000 for the same period in 1995. The Company operated in 38
locations at March 31, 1996, compared with 18 locations at March 31, 1995. The
difference of 20 locations is comprised of 10 locations that opened between
April 1, 1995 and December 31, 1995 and 10 that opened during the quarter ended
March 31, 1996. In addition, growth in revenue from the 18 locations that
existed at March 31, 1995 also contributed to the increase.
As of May 6, 1996, the Company is operating in 43 location and has signed
contracts for 10 additional locations to open during the second quarter of 1996,
including Grand Casino Tunica located in Tunica County, Mississippi. The
Company's credit card cash advance equipment is fully operational in the
Stratosphere Casino in Las Vegas, Nevada which opened as scheduled on April 30,
1996.
COST OF REVENUE
The cost of revenue is primarily comprised of credit card cash advance
processing fees paid to the credit card company, casino commissions, as defined
in the financial services agreements, payroll for employees staffing the service
desks at check cashing locations, bad check expense, depreciation related to the
equipment at the locations and operating supplies of the location.
Cost of revenue for the quarter ended March 31, 1996 was $2,032,000, a 112%
increase over $960,000 for the first quarter of 1995. The variable nature of the
majority of the direct expenses is the primary cause of the increase in cost of
revenue.
The gross margin percentage was 36% for the quarter ended March 31, 1996
compared to 43% for the same period last year. The reduction is due to a
combination of factors including start-up expenses, primarily payroll and
equipment, related to opening check cashing locations during the quarter,
increases in casino commissions and higher depreciation expense.
Management continues to believe that as the Company enters into more
established markets with larger properties, primarily Las Vegas and Atlantic
City, there will be increased pressure on gross margins. The Company is
continuing its efforts to improve operating efficiencies and improve the cost
effectiveness of its equipment.
SALES, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, marketing, general and administrative expenses for the quarter ended
March 31, 1996 were $728,000, a 64% increase over $444,000 for the same period
last year. The fact these expenses grew slower than revenue is confirmation of
management's effort to control expenses. During the quarter support personnel
were added primarily to accommodate the additional locations opened during the
quarter. No additional sales personnel were hired during the quarter. The
Company is aggressively implementing its marketing plan to increase the
recognition of Game Financial Corporation as the premier provider of financial
services in the gaming industry.
The Company will continue to prudently invest in the development of new and
improved applications of technology for the financial services segment of the
gaming industry. In addition, through ongoing contact with current customers,
the Company is continually upgrading and implementing system enhancements.
NET INCOME:
For the quarter ended March 31, 1996, net income increased 30% to $284,000,
or 8 cents per share compared with $217,000, or 6 cents per share for the same
period last year. All earnings per share amounts have been adjusted to reflect
the 5-for-4 stock split effected as a 25% stock dividend paid on September 26,
1995.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1996, the Company had $5,917,000 in current assets compared
with $5,013,000 at December 31, 1995. Cash, cash equivalents and marketable
securities totaled $5,660,000 at March 31, 1996 compared with $5,230,000 at
December 31, 1995. The improvement in liquidity is a direct result of the
Company's profitable operations and positive cash flow in the quarter ended
March 31, 1996.
Operating activities during the quarter ended March 31, 1996 generated
$689,000 of net cash compared with a use of $106,000 of cash for the same period
last year. Though net income was only $66,000 different between quarters,
changes in operating assets and liabilities, primarily accrued expenses and
deferred revenue created the significant difference between the quarters. The
Company's investment in property and equipment of $236,000 during the quarter
ended March 31, 1996 was slightly below the investment during the same period
last year. Investments in property are primarily related to equipment used in
casino locations, but some additional office equipment is also required as
additional corporate staff are added.
The Company believes its liquidity and capital resources together with cash
generated from operations will be sufficient to finance its planned expansion.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No significant legal proceedings
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
(11) Statement re: computation of earnings per share
(27) Financial Data Schedule
Reports on Form 8-K:
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GAME FINANCIAL CORPORATION
(Registrant)
Dated: May 8,1996 By: /s/ Gary A. Dachis
Gary A. Dachis, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gary A. Dachis President, Chief Executive Officer, 5/8/96
Gary A. Dachis Secretary, Treasurer and Director
/s/ Stephen P. Weisbrod Vice President Information Systems 5/8/96
Stephen P. Weisbrod and Director
/s/ Jeffrey Ringer Vice President Finance and Chief 5/8/96
Jeffrey L. Ringer Financial Officer
Director
Thomas J. Brosig
/s/ Paul H. Ravich Director 5/8/96
Paul H. Ravich
</TABLE>
Exhibit 11 - Computation of Earnings Per Share
3 MONTHS ENDED
MARCH 31,
Primary: 1996 1995
-----------------------
Weighted average shares outstanding 3,481,818 3,471,875
Net effect of dilutive stock
options - based on the
treasury stock method using
average market price 217,668 44,370
-----------------------
Totals 3,699,486 3,516,245
Net Income $ 283,881 $ 217,725
=======================
Net Income Per Share $ 0.08 $ 0.06
=======================
Fully Diluted:
Weighted average shares outstanding 3,481,818 3,471,875
Net effect of dilutive stock
options - based on the
treasury stock method using
the higher of the average
or the closing price 224,570 54,900
-----------------------
Totals 3,706,388 3,526,775
Net Income $ 283,881 $ 217,725
=======================
Net Income Per Share $ 0.08 $ 0.06
=======================
All shares outstanding have been restated to give effect to the 5-for-4 stock
split declared during September 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,469,194
<SECURITIES> 2,981,863
<RECEIVABLES> 208,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,917,020
<PP&E> 1,728,501
<DEPRECIATION> 527,856
<TOTAL-ASSETS> 7,327,013
<CURRENT-LIABILITIES> 1,187,471
<BONDS> 0
0
0
<COMMON> 34,892
<OTHER-SE> 6,055,250
<TOTAL-LIABILITY-AND-EQUITY> 7,327,013
<SALES> 3,188,161
<TOTAL-REVENUES> 3,188,161
<CGS> 2,032,221
<TOTAL-COSTS> 2,032,221
<OTHER-EXPENSES> 759,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 458,881
<INCOME-TAX> 175,000
<INCOME-CONTINUING> 283,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,881
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
