U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB40
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from.....................to.....................
Commission file number 0-23626
GAME FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Minnesota 41-1684452
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
13705 First Avenue North, Plymouth, MN 55441-6114
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(Address of principal executive offices)
(612) 476-8500
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of class)
Check whether the issuer (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____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $18,951,000
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$18,660,651 AS OF MARCH 7, 1997
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State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE - 4,520,622 SHARES AS OF MARCH 7, 1997
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 8, 1997 (the "Proxy Statement"), and to be filed
within 120 days after the Registrant's fiscal year ended December 31, 1996, are
incorporated by reference into Part III.
GAME FINANCIAL CORPORATION
ITEM 1. BUSINESS 3
General 3
The Casino Gaming Market 3
The Game Financial Strategy 4
The GameCash Solution 4
GameCash Credit Card Cash Advance Services 5
GameCash Check Cashing Services 7
GameCash ATM Services 7
Marketing and Sales of GameCash Services 8
Customers 8
Competition 9
Trademarks 10
Government Regulations 10
Employees 10
ITEM 2. PROPERTY 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12 - 14
ITEM 7. FINANCIAL STATEMENTS 15 - 31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 32
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT 32
ITEM 10. EXECUTIVE COMPENSATION 32
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 32
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 33 - 34
SIGNATURES 35
PART I
ITEM 1. BUSINESS
GENERAL
Game Financial Corporation offers its proprietary GameCash services as a
comprehensive cash access solution to casinos and other gaming establishments.
The Company's GameCash services allow casino patrons to access cash through
credit card cash advances, check cashing and automated teller machines ("ATMs").
GameCash credit card cash advance and check cashing systems also provide casino
operators with detailed demographic data about patrons who use those services.
The Company believes that its ability to provide cash access services coupled
with patron specific and other transaction data supports the objective of casino
operators to increase the amount wagered and the frequency of return visits by
their patrons.
The number of locations at which the Company operates has grown substantially
since the Company began its operations. The Company provided cash access
services in six locations at the end of 1993. The number of locations served by
the Company had grown to 76 at December 31, 1996. The Company believes that its
growth reflects casino operators' need to provide efficient and innovative on
site cash access services.
By contracting with the Company for cash access services, casino operators are
able to increase gaming activity by providing convenient access to cash, earn a
share of the revenue generated by the Company, minimize their investment in
equipment and system development and reduce their management burden by
simplifying casino cashier operations. In addition, the Company believes that
its technologically advanced systems, value added marketing tools and superior
service are valuable features for casinos. The Company also believes that its
ability to process cash access transactions quickly, offer personalized targeted
coupons and provide its services in a confidential manner are attractive to
casino patrons.
THE CASINO GAMING MARKET
The casino gaming market has experienced annual double digit growth in the
United States for over a decade. Once found only in Nevada and Atlantic City
(the "traditional markets"), casino gaming has been legalized in numerous states
(the "emerging markets") during the past several years. The amount wagered in
casinos has increased from approximately $100 billion in 1982 to more than $400
billion in 1995. The amount wagered in 1995 increased approximately 15% over the
amount wagered in 1994. The growth in gaming has resulted from legalization of
gaming in additional jurisdictions and the opening of new casinos in existing
markets, as well as from an overall increase in gaming activity. Casino style
gaming is now permitted in 18 states, including states which permit casino
gaming on Native American land.
At December 31, 1996, there were approximately 750 to 1,000 casinos in operation
in the United States. The Company's target market consists of approximately 3/4
of these casinos, which it believes have sufficient gaming volume to support
cash access services of the type provided by the Company.
The expansion of casino gaming has generated a corresponding demand for gaming
related services, including cash access services. Increased competition has
prompted casino operators to seek innovative ways to attract patrons and
increase the frequency of return visits. The Company believes that efficient and
confidential access to cash for casino patrons contributes to increased gaming
volume. Credit card cash advances, check cashing and ATMs are the three primary
methods used by casinos to provide their patrons with quick and efficient access
to cash. Virtually all casinos in the United States currently have at least one
of these services on their premises. While some casino operators provide such
services themselves, most casinos' cash access services are provided by third
parties pursuant to contracts with the casino operators.
The geographic expansion of casino gaming is not expected to continue at the
rate experienced in recent years. In particular, the Company believes that the
number of states which permit gaming on Native American land will not increase
significantly in the future. Future growth is expected to result principally
from increased gaming in jurisdictions which currently permit casino gaming.
THE GAME FINANCIAL STRATEGY
The Company's objective is to expand its presence as a leading provider of cash
access services in the gaming industry. The Company intends to pursue this
objective by implementing the following strategy:
SECURE CONTRACTS WITH NEW CUSTOMERS -
The Company has established a strong base in emerging markets and
intends to build on this base to obtain additional contracts in these
markets. The Company will also aggressively pursue additional contracts
for its cash access services with casinos in traditional gaming
markets.
PROVIDE ADDITIONAL SERVICES TO EXISTING CUSTOMERS -
The Company is aggressively pursuing the expansion of its business by
promoting its GameCash check cashing and ATM services to casinos where
it currently provides only credit card cash advance services. The
primary focus of this strategy will be to offer cash access through
ATMs and check cashing. The Company believes that enabling a casino to
consolidate all of the cash access services into the GameCash system
provides the most efficient and effective service solution. The Company
also expects to derive additional growth from increases in transaction
volume under existing contracts as gaming properties mature and expand
their facilities.
PROVIDE SUPERIOR CASH ACCESS SERVICES -
The Company will continue to provide superior comprehensive cash access
services, which include the three primary methods by which casinos can
make cash available to their patrons. These comprehensive services,
coupled with the Company's ability to provide demographic data on
casino patrons who use the Company's credit card cash advance and check
cashing services, make the Company a single source provider of quick
and efficient cash access services and patron specific demographic
data.
CONTINUE DEVELOPMENT OF PROPRIETARY TECHNOLOGY -
In addition to providing a superior level of service, the Company will
provide ongoing enhancements to its proprietary technology.
THE GAMECASH SOLUTION
The Company's GameCash solution enables casinos to offer their patrons
comprehensive cash access services including credit card cash advance, check
cashing and ATMs. For credit card cash advance and check cashing transactions,
the GameCash system gathers patron specific data and provides casinos with
powerful marketing tools which may be used to enhance their marketing programs.
All required equipment, installation, training and ongoing maintenance are
provided to the gaming establishment at the Company's expense.
At contracted gaming establishments, the Company places GameCash ATMs and/or
GameCash credit card cash advance remote terminals on the gaming floor. Casino
patrons initiate credit card cash advance transactions at the remote terminals
and proceed to the cashier cage or Company service desk where cash is disbursed.
In locations where both credit card cash advance and check cashing services are
provided, the casino designates an area located close to the gaming floor and
provides a service desk for the Company. The GameCash service desk is separate
from the casino's cashier cage and is operated by Company employees who process
transactions and disburse cash for credit card cash advance and check cashing
requests. If the Company provides credit card cash advance and/or ATM services
at a casino where it does not also provide check cashing, casino cage employees
complete credit card cash advance transactions and the Company contracts with a
third party service provider or creates its own service network to maintain its
equipment.
The Company's GameCash services are provided based on an agreement negotiated
with the casino operator. The agreement specifies which GameCash services will
be provided, the fees for each type of transaction, whether transaction fees
will be paid by casino patrons or the casino operator and what commission, if
any, will be paid by the Company to the casino. Pursuant to substantially all of
the Company's agreements with gaming establishments, the Company is the
exclusive provider of credit card cash advance or check cashing services, or
both, for the term of the contract, which is generally one to three years.
In locations where the Company maintains a GameCash service desk, sufficient
cash must be available to process both credit card cash advance and check
cashing transactions. The amount of cash required is dependent upon transaction
volume and the Company's source of cash. To meet its cash needs, the Company may
obtain cash from the casino by issuing a check payable to the casino or the
Company may arrange to have cash delivered from a local bank. Obtaining cash
from the casino is the preferred option, and the one used in most of the
Company's locations. The Company must also maintain a cash inventory for each
GameCash ATM deployed. The Company estimates that, depending on a GameCash ATM's
transaction volume, approximately $75,000 to $100,000 of cash is required for
each machine.
GAMECASH CREDIT CARD CASH ADVANCE SERVICES
The GameCash credit card cash advance system allows casino patrons to
use their VISA, MasterCard, Discover and American Express cards to
obtain cash. Unlike ATMs which have daily limits and require a personal
identification number ("PIN"), credit card cash advances are limited
only by the patron's available credit limit and, with the exception of
American Express cash advance transactions, do not require the patron
to enter a PIN. At December 31, 1996, the Company provided GameCash
credit card cash advance services at 73 of its 76 locations.
The casino patron may initiate a GameCash credit card cash advance
transaction at a GameCash remote terminal, at the casino's cashier cage
or, where the Company provides check cashing services, at the Company's
service desk. The Company typically has several customer operated
GameCash remote terminals on the gaming floor at each property.
Approximately 30% of the credit card cash advance requests are
initiated at a GameCash remote terminal, which consists of a credit
card reader with an integrated keypad and a digital display. The casino
patron initiates the transaction by swiping the credit card's magnetic
strip through the card reader and then entering the amount of cash
requested. The terminal contacts the credit card company's
authorization center for approval of the transaction, which takes less
than one minute. Since the GameCash remote terminals do not dispense
cash, after the transaction is approved the patron is directed to go to
the casino's cashier cage or to the Company's service desk to obtain
the cash advance.
The credit card cash advance transaction is completed at the casino's
cashier cage or the Company's service desk. The cashier verifies the
patron's identity and performs certain other security measures. If it
is the first time a patron is using the card in that location, the
cashier will enter certain demographic data into the Company's GameCash
system database. The patron receives the requested cash and a GameCash
Draft, which includes a transaction receipt and typically a targeted,
personalized coupon.
The demographic information entered into the GameCash system database
includes the patron's name, address, phone number, driver's license
number and, if the patron participates in the casino's players' club,
may include the patron's club number. The GameCash system also can be
configured to gather demographic data such as the patron's favorite
casino game, whether the patron traveled to the casino by car, bus or
airplane and other data the casino considers important to its marketing
efforts.
In locations where the Company provides only credit card cash advance
services, the Company trains the casino cashiers to operate the
GameCash system. At these locations, the Company is not required to
have employees on site, but offers 24-hour telephone support services
to casino cashiers and a toll free customer service line for casino
patrons. The Company either contracts with a local service company or
establishes its own regional service network to maintain its equipment.
Revenue Generation: The Company charges a fee for GameCash credit card
cash advances which typically ranges from 3% to 8% of the cash
advance. The Company pays a processing and settlement fee to the
credit card company, which is generally between 1% and 2% of the
gross credit card charges. In substantially all cases, the Company
also pays a commission to the casino, which is typically a
percentage of the Company's service fee.
When a patron completes a GameCash credit card cash advance
transaction, the patron's credit card account is charged for the
amount of the advance and the Company's service fee. A deposit
for the amount of the advance and service fee will be made into
the Company's bank account by the credit card company, generally
within two business days of the transaction.
Technology: The Company's proprietary PC based GameCash credit card
cash advance system has the unique ability to collect demographic
data about the casino's patrons when they execute a transaction.
The system uses the data to automatically print customized
targeted coupons for a casino's patrons. In addition, the system
generates monthly reports for casino management, which include
demographic data about the patrons.
The Company's PC based architecture allows the system to be
easily modified to address the specific needs of each casino.
For example, the system is able to generate customized, on
demand reports of patron demographic data and customer profiles,
as well as provide immediate access to customer name and address
information. The system also employs CashStat(R), a proprietary
system that monitors GameCash remote terminals and GameCash cage
equipment at casino locations and automatically reports
equipment problems to the technical staff at the Company's
headquarters. CashStat assists the Company in minimizing
interruption of its GameCash cash access services.
The GameCash credit card cash advance system also offers several
operational advantages which make the system more efficient and
reliable. During each credit card cash advance transaction the
GameCash system places a local telephone call, and accesses a
national digital network. Sending transaction information over a
distributed digital network rather than through traditional
analog telephone systems improves the reliability of the
transmission. In contrast to the mainframe systems used by most
of its competitors, the Company's PC based system utilizes
distributed processing architecture which reduces exposure to
system failure and increases the processing power of the
equipment at the casinos. In addition, the GameCash system is
designed with other operational advantages such as one touch
voids and printing checks at the time of issuance (as opposed to
pre-printing the check number, etc., on the checks), which
minimize the burden on casino and Company personnel.
Benefits: The GameCash credit card cash advance system offers several
advantages for casino operators and their patrons. First, the
GameCash remote terminals' presence on the casino floor informs
patrons of the availability of the cash access service. In
addition, the GameCash system affords privacy to the casino
patrons by informing them whether the desired cash advance will be
authorized. The GameCash remote terminals also speed the cash
access process by obtaining authorizations prior to approaching
the cashier cage, which enables the cashiers to handle more
transactions.
The GameCash Draft has been designed by the Company specifically
for use in the gaming industry. The Draft includes the
customer's transaction receipt and a special section designated
for a targeted, personalized coupon for the patron. The GameCash
Draft is a colorful and attractive marketing tool, produced by a
laser printer on paper stock bearing the casino's logo. With the
GameCash system, the casino can establish the type of coupon
based on a combination of demographic factors and transaction
amount. For example, the system could generate a coupon for one
free buffet dinner for transactions between $250 and $300, and a
coupon for a free night's stay at the casino's hotel if a patron
from out of town receives a cash advance greater than $750.
The GameCash solution offers casino operators the additional
benefit of monthly demographic and transaction reports. The
reports are in color, graphically display maps which identify
where the casino's GameCash patrons live and contain graphs of
current and historical transaction data. In addition, the
reports contain a list of the names, addresses and telephone
numbers of the individuals receiving the largest credit card
cash advances during the month. The Company's database of patron
demographic information is maintained at each casino and
downloaded to the Company's headquarters on a regular basis.
Casino management therefore has immediate access to this
information. The data can be easily incorporated into a casino's
player tracking system, thereby further increasing the casino's
knowledge of its patrons.
GAMECASH CHECK CASHING SERVICES
The Company's GameCash solution also offers check cashing services to
casino customers. At December 31, 1996, the Company provided GameCash
check cashing services in addition to GameCash credit card cash advance
services at 21 of its 76 locations.
Casino patrons may access cash by writing a check to the Company at the
GameCash service desk, which is staffed by Company employees. A
GameCash employee conducts the authorization and verification process
by utilizing the Company's proprietary software, procedures and
database.
If the patron has no check cashing history with the Company, the
employee enters certain demographic data about the patron into the
GameCash system, and authorization will be determined based on these
factors. The information gathered includes the patron's name, address,
phone number and employer's name. If the patron has previously cashed
checks with the Company, authorization will be based on this history,
as well as the demographic data. Also, the Company cashes checks based
on the Company's experience with the patron rather than the patron's
entire check cashing history. Upon approval, the transaction is entered
into the database, and the patron's check is cashed.
Revenue Generation: The Company collects a fee for cashing patron
checks, which is paid either by the patron or by the casino,
depending upon the Company's arrangement with the casino. Check
cashing involves the risk that some cashed checks will be
uncollectible because of insufficient funds, stop payment orders,
closed accounts or fraud. Pursuant to its agreements with the
casinos, the Company bears the entire risk related to returned
checks. If a check is returned to the Company for any reason, the
Company will assess a service charge, update the information in
the Company's database and initiate collection procedures. The
collection risk is greater in new locations where the Company's
database contains less information and its employees are less
experienced. However, the Company's expansion of its check cashing
operations has not had a material adverse effect on its rate of
losses on returned checks.
Technology: The Company's PC based proprietary systems and software
store and maintain data regarding all patrons' check cashing
activity. In addition, the Company has designed and implemented a
check rating system which utilizes the patron database to
determine whether a patron's check should be cashed. The Company
has also developed procedures that its employees follow in
establishing acceptable check cashing guidelines. The Company
believes that its proprietary technology and procedures are key
factors in its ability to expand its check cashing operations to
new locations without materially altering its rate of losses on
returned checks.
Benefits: The GameCash check cashing system generates detailed monthly
demographic reports on patrons, relieves casinos of any risk and
collection costs with respect to returned checks, and relieves
casino cage employees of check cashing responsibilities. The
GameCash check cashing system allows the Company's employees to
process transactions in an efficient manner, which permits patrons
to return to the gaming floor more quickly. In addition, the
database maintained by the Company allows more patrons to access
cash than other check verification or guarantee systems, because
the Company is able to maintain more detailed data about
particular patrons. In many instances, this additional information
results in authorizations that would not have been obtained
through verification or guarantee companies.
GAMECASH ATM SERVICES
In April 1996, the Company expanded its GameCash solution to include
ATM services. At December 31, 1996, the Company provided GameCash ATM
services in 13 of its 76 locations. ATMs provided by the Company have
access to the major national and most regional networks, allowing the
Company's machines to accept most ATM cards.
Revenue Generation: The Company receives a surcharge fee, which is
generally between $1 and $4, for each GameCash ATM transaction.
The surcharge, which is a charge in addition to the cash advance,
is made against the bank account of the casino patron effecting
the ATM transaction. Surcharging on ATM transactions has become
widespread since April 1, 1996, when the major ATM networks agreed
to allow surcharging. The Company also receives a processing fee
from the ATM network, which is generally between $0.35 and $0.50
per transaction. Pursuant to an agreement with a bank that
provides sponsorship into the ATM networks, the Company pays the
bank a per transaction fee which varies depending on the level of
services provided by the bank. The Company also pays a commission
to the casino, which is typically a percentage of the surcharge.
Operating expenses associated with GameCash ATMs are paid by the
Company and include the costs of maintenance, telephone service,
insurance and supplies.
Benefits: Casino operators utilizing GameCash ATM services are relieved
of all operational and maintenance functions associated with
ownership and operation of ATMs. The Company owns the ATMs and is
responsible for all installation and operational issues related to
the ATMs, including cash loading, transaction reporting and all
accounting functions. In locations where the Company provides
check cashing and ATM services, the Company's employees typically
handle all routine ATM operational functions (loading cash,
removing jammed bills or receipt tape, etc.). The Company believes
that, in these locations, it has a significant advantage over
other ATM providers who do not have personnel on site to service
their machines.
MARKETING AND SALES OF GAMECASH SERVICES
In an effort to capture additional market share, the Company has expanded its
sales force and revised its marketing plan to focus on increasing the Company's
profile in the marketplace. In December 1995, the Company hired a Vice President
of National Sales and three sales representatives. Each of the Company's
representatives has experience in the gaming industry and one has recent
experience selling a competitive credit card cash advance product. The Company's
marketing plan includes increasing direct personal contact with management of
existing and potential customers to take advantage of the extensive networks
that exist among casino management personnel. In addition, the Company has
expanded its advertising in trade journals, increased its exposure at trade
shows, and increased its distribution of sales material through direct mail.
Historically, decisions regarding contracts for cash access services have rested
with a casino's general manager and chief financial officer, with input from the
cage manager. Because of the Company's ability to provide demographic data to
the casino, the casino's director of marketing is often involved as a key
participant in the decision making process. The Company believes this provides
it with a competitive advantage compared to other providers whose systems do not
offer patron specific demographic data.
CUSTOMERS
The Company's customers include casino owners and operators in both the emerging
and traditional gaming markets. At December 31, 1996, the Company provided its
GameCash services at 76 locations in 19 states. During the year ended December
31, 1996, approximately 70% of the Company's revenue was generated by casinos
owned by Native American tribes and approximately 4% of its revenue was
generated in the traditional gaming markets. The following is a partial list of
casinos at which the Company provides GameCash cash access services:
o Eight casinos owned or operated by Grand Casinos, Inc.
(Louisiana, Minnesota, Mississippi and Nevada)
o Three casinos owned by the Ho-Chunk Nation (Wisconsin)
o Soaring Eagle Casino (Michigan)
o Sycuan Casino (California)
o Isleta Gaming Palace (New Mexico)
o Two casinos owned by Casino Magic (Louisiana and Mississippi)
o President Casino (Mississippi)
o Pechanga Entertainment (California)
o Lake of the Torches Casino (Wisconsin)
The following table summarizes the number of locations at which the Company
operated at the indicated dates:
<TABLE>
<CAPTION>
NUMBER OF LOCATIONS AT DECEMBER 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SERVICES PROVIDED 1992 1993 1994 1995 1996
- ----------------- ---- ---- ---- ---- ----
Credit card only -- 1 5 19 48
Credit card and check cashing 5 5 5 9 15
Credit card and ATM -- -- -- -- 4
Credit card, check cashing and ATM -- -- -- -- 6
ATM only -- -- -- -- 3
---- ---- ---- ---- ----
Total 5 6 10 28 76
==== ==== ==== ==== ====
Number of states 1 3 6 14 19
</TABLE>
Contracts with casinos owned or operated by Grand Casinos, Inc. or its
subsidiaries accounted for approximately 81%, 81% and 79% of the Company's
revenues in 1993, 1994 and 1995, respectively, and 46% for the year ended
December 31, 1996. Grand Casinos, Inc. or its subsidiaries currently own three
casinos in Mississippi and one in Las Vegas, and have management contracts with
Native American tribes for the operation of two casinos in Minnesota and two in
Louisiana. The Coushatta Indian Tribe of Louisiana, whose casino is managed by
Grand Casinos, Inc., did not renew its contract with the Company when it expired
in January 1997. While Grand Casinos, Inc. may influence the tribes' vendor
selection, the Company's contracts are negotiated with and signed by tribal
management. Grand Casinos, Inc. does not own any of the Company's Common Stock.
During 1996, the Company substantially reduced its dependence on Grand Casinos,
Inc. by adding 45 contracts and is aggressively pursuing contracts with other
casino locations, which would further reduce the percentage of revenue
contributed by locations owned or managed by Grand Casinos, Inc. In 1996 the
Company obtained contracts with three casinos in Wisconsin owned by the Ho-Chunk
Nation, and a contract with the Soaring Eagle Casino in Michigan owned by the
Saginaw Band of Chippewa.
COMPETITION
Many companies offer cash access services to the gaming industry. Some of the
Company's competitors have significantly greater financial resources than the
Company. The Company's principal competitors are Comdata Holdings Corporation,
which the Company believes has more than 75% of the market, and Premier
Cashlink, whose market share is somewhat greater than the Company's. Comdata,
which is the oldest company in the industry, was acquired by Ceridian
Corporation in 1996. Both Comdata and Premier Cashlink provide cash access
services throughout the country in a variety of locations, including casinos.
Other competitors include Bank of America, Imperial Bank and other regional cash
access service providers.
Competition to provide ATMs has become increasingly intense since the advent of
surcharging in early 1996. In addition to the competitors described above,
local, regional and national banks offer ATM services to casinos. Some casinos
have purchased their own machines and obtained sponsorship from banks, and are
operating ATMs themselves.
There are a number of check verification and guarantee companies servicing
casinos. However, the Company believes that none of these companies offer the
breadth of services which the Company offers, including credit card cash
advance, ATMs and proprietary database technology. In addition, the Company
provides its employees at the GameCash service desk to conduct check cashing
operations, thereby reducing the burden on casino personnel.
Pursuant to substantially all of its agreements with casino operators and other
gaming establishments, the Company has the exclusive right to provide credit
card cash advance and check cashing services, and neither the casino nor any
outside vendors are allowed to provide those services.
TRADEMARKS
The Company has received certificates of registration for the service marks
"GameCash" and "CashStat" and is currently using these marks in its operations.
The Company has previously used the service mark "UnBank(R)," and is in the
process of discontinuing its use of the "UnBank" service mark and replacing it
with the "GameCash" service mark.
GOVERNMENT REGULATION
Many states require companies engaged in the business of providing cash access
services or transmitting funds to obtain licenses from the appropriate state
agencies. Certain states require companies to post bonds or other collateral to
secure their obligations to their customers in those states. State agencies have
extensive discretion to deny or revoke licenses. The Company has obtained the
necessary licenses and bonds to do business in the states where it currently
operates, and will be subject to similar licensing requirements as it expands
its operations into other jurisdictions. While there can be no assurance that it
will be able to do so, the Company anticipates that it will be able to obtain
and maintain the licenses necessary for the conduct of its business.
Many suppliers to Native American casinos are subject to the rules and
regulations of the local tribal gaming commission. These gaming commissions have
authority to regulate all aspects of casino operations, including vendor
selection. Some gaming commissions require vendors to obtain licenses and may
exercise extensive discretion to deny or revoke licenses. The Company has
obtained the necessary licenses or approvals from the appropriate tribal gaming
commissions where it operates. While there can be no assurance that it will be
able to do so, the Company anticipates that it will be able to obtain and
maintain the licenses and approvals necessary for the conduct of its business.
The Company's business may also be affected by state and federal regulations
governing the gaming industry in general. Changes in the approach to regulation
of casino gaming could affect the number of new gaming establishments in which
the Company may provide cash access services.
EMPLOYEES
At December 31, 1996, the Company employed 222 employee associates, 181 at
casino locations, 37 at corporate headquarters and 4 sales representatives
located in their respective sales territories. None of the Company's employees
are represented by a labor union or are covered by a collective bargaining
agreement. The Company has not experienced any work stoppages and believes that
its employee relations are good.
ITEM 2. PROPERTY
The Company is headquartered in a leased facility of approximately 11,970 square
feet at 13705 First Avenue North, Minneapolis, Minnesota 55441. The current
lease expires in September 1998 and provides for monthly rent of $6,235.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings arising
in the normal course of business, none of which is expected to result in any
material loss to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been listed on the Nasdaq Stock Market under the
symbol "GFIN" since April 15, 1994. The Company's common stock was listed on the
Nasdaq SmallCap Market from April 15, 1994 through June 5, 1995, and has been
listed on the Nasdaq National Market since June 6, 1995.
The following table sets forth, for the period April 15, 1994 through June 5,
1995, the range of low and high bid prices, and for the period from June 6, 1995
through December 31, 1996, the range of low and high sale prices as reported by
the Nasdaq Stock Market. The following quotations represent prices between
dealers, do not include retail mark-ups, mark-downs or commissions, and do not
necessarily represent actual transactions. The prices have been adjusted to
reflect five-for-four stock splits effected as 25% stock dividends paid in
September 1995 and June 1996.
Low High
Fiscal Year Ended December 31, 1994:
Second quarter (commencing April 15, 1994) $ 1.44 $ 4.16
Third quarter $ 1.76 $ 2.40
Fourth quarter $ 1.92 $ 2.56
Fiscal Year Ended December 31, 1995:
First quarter $ 2.16 $ 3.68
Second quarter $ 3.20 $ 5.44
Third quarter $ 4.88 $ 11.68
Fourth quarter $ 7.00 $ 11.30
Fiscal Year Ended December 31, 1996:
First quarter $ 7.40 $ 10.80
Second quarter: $ 8.20 $ 15.60
Third quarter $ 8.50 $ 14.00
Fourth quarter $ 7.25 $ 11.25
At March 8, 1997, there were approximately 68 stockholders of record and
approximately 2,000 beneficial holders.
The Company expects to retain its earnings to finance the development and
expansion of its business and does not intend to pay cash dividends on its
common stock in the foreseeable future. The payment by the Company of cash
dividends, if any, on its common stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's GameCash solution enables casinos to offer their patrons
comprehensive cash access services including credit card cash advances, check
cashing and ATMs. Revenue, which is derived from fees charged for cash access
services, has increased significantly as a result of an increase in the number
of locations at which the Company provides cash access services, the
establishment of operations at larger casinos, and an increase in the volume of
transactions at existing locations. The Company provided GameCash cash access
services at 76 locations at December 31, 1996, compared to 6, 10 and 28
locations at the end of 1993, 1994 and 1995, respectively.
Cost of revenue consists principally of credit card cash advance processing fees
paid to credit card companies, commissions paid to casino operators pursuant to
cash access service agreements, payroll for employees staffing GameCash service
desks at check cashing locations, depreciation related to the equipment at the
locations, bad check expense and operating supplies of the locations. Fees paid
to credit card companies for processing cash advances are based on a percentage
of the dollar volume of transactions processed. While the applicable rates
payable by the Company decrease slightly at specified aggregate dollar volumes
of transactions processed, processing fees generally increase in proportion to
increases in revenue. Casino commissions also increase with increases in
revenue. However, as existing casinos in emerging markets mature and as
competition for contracts with casinos in both the traditional and emerging
markets intensifies, the Company's margins on new contracts or renewals of
existing contracts may decrease due to higher commission rates payable by the
Company to casino operators. The Company is seeking to expand into the
traditional gaming markets of Nevada and Atlantic City. While larger casinos in
these markets generate higher volumes of cash access revenue, margins for cash
access services are dramatically lower due to the higher commissions generally
paid to casino operators.
Sales, marketing, general and administrative expenses have increased as a result
of the expansion of the Company's sales staff and increased marketing efforts
designed to promote the recognition of Game Financial Corporation and its
GameCash services and systems. The Company's sales staff currently consists of 5
full-time employees, all of whom have experience in the gaming industry. In
addition, Gary A. Dachis, President and Chief Executive Officer of the Company,
continues to spend a significant amount of time with current and potential
customers. Sales, marketing, general and administrative expenses also reflect
the Company's continuing investment in the development of new and the
enhancement of existing technology for cash access services.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
REVENUE. Revenue increased 76% from $5,005,000 in 1994 to $8,827,000 in 1995 and
increased 115% to $18,951,000 in 1996. The increase in the number of locations
at which the Company operated (10 at the end of 1994 compared with 28 at the end
of 1995 and 76 at the end of 1996) was the principal reason for the increase in
revenue. The revenue growth in the 11 locations that were open for 12 months in
1995 and 1996 (same store sales growth) was 13%.
GROSS MARGIN. Gross margin increased 77% from $2,129,000 in 1994 to $3,769,000
in 1995 and increased 70% to $6,413,000 in 1996. Gross margin as a percentage of
revenue was 43%, 43% and 34% in 1994, 1995 and 1996 respectively. Gross margin
as a percentage of revenue was unchanged from 1994 to 1995 because commission
rates payable to casino operators under new or renewed contracts were
essentially the same as under existing contracts. The reduction in gross margin
as a percentage of revenue during 1996 was due primarily to higher commission
rates payable to casino operators under certain new or renewed contracts, as
well as start-up expenses, primarily payroll and supplies, related to check
cashing locations opened during 1996.
SALES, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, marketing, general
and administrative expenses increased 63% from $1,302,000 in 1994 to $2,126,000
in 1995 and increased 72% to $3,649,000 in 1996. Sales, marketing, general and
administrative expenses were 26%, 24% and 19% of revenue in 1994, 1995 and 1996
respectively. The 1995 and 1996 reduction in these expenses as a percentage of
revenue was due to the fixed nature of many of the items, the rapid growth in
revenue and the Company's cost control measures.
INCOME TAXES. The Company's consolidated effective tax rate was 26%, (reflects
partial year as an S corp.) 37% and 40% in 1994, 1995 and 1996 respectively.
NET INCOME. Net income increased 65% from $694,000, or $0.18 per share, in 1994
to $1,143,000, or $0.25 per share, in 1995, and increased 39% to $1,594,000, or
$0.34 per share, in 1996. In the fourth quarter of 1996, the Company incurred
and recorded $251,725 or $0.03 per share in expenses related to a follow-on
stock offering that was canceled by the Company due to market conditions.
QUARTERLY INFORMATION (UNAUDITED)
The following table presents selected quarterly consolidated financial
information for the periods indicated. This information was derived from
unaudited consolidated financial statements which have been prepared on a basis
consistent with the Company's audited consolidated financial statements and
notes thereto included elsewhere in this Prospectus and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information. The operating
results for any quarter are not necessarily indicative of results to be expected
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
1995 1996
---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share
and locations data) MAR 31 JUN 30 SEPT 30 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31
------- ------ ------- ------ ------ ------ ------- ------
Revenue $1,702 $2,119 $2,611 $2,395 $3,188 $4,637 $5,448 $5,678
Cost of revenue 960 1,305 1,487 1,306 2,032 3,209 3,594 3,704
Sales, marketing, general and 444 443 560 679 728 870 1,022 1,029
administrative expenses
Net income 218 258 371 296 284 359 519 432
====== ====== ====== ====== ====== ====== ====== ======
Earnings per share $ 0.05 $ 0.06 $ 0.08 $ 0.06 $ 0.06 $ 0.08 $ 0.11 $ 0.09
====== ====== ====== ====== ====== ====== ====== ======
Weighted average number of 4,395 4,441 4,610 4,606 4,624 4,715 4,710 4,689
shares outstanding
Number of locations at 18 23 26 28 38 54 67 76
end of period
</TABLE>
The Company's operating results over the eight quarters ended December 31, 1996
reflect increasing revenue, with the exception of the fourth quarter of 1995.
Revenue generally is lower in the first and fourth quarters of each year than in
the second and third quarters due to seasonal variations in gaming activity in
the principal markets currently served by the Company, although such seasonal
variations have been diminished by the Company's expansion into gaming markets
in the southwestern United States, where gaming activity generally is greater in
the first and fourth quarters.
The Company's cost of revenue has increased as a percentage of revenue over the
eight quarters ended December 31, 1996, principally due to higher rates of
commissions paid by the Company to casino operators. Cost of revenue as a
percentage of revenue also varies from quarter to quarter due to employee
training and other start-up costs associated with new locations and is affected
by the timing and number of new locations established and the types of services
provided.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been to fund purchases of
equipment for use at new casino locations and provide working capital for the
opening of new locations. The primary sources of funds for capital expenditures
and working capital have been net proceeds from the Company's initial public
offering in April 1994 and net cash provided by operating activities. The
Company had no debt for borrowed funds at December 31, 1994, 1995 or 1996.
Operating activities provided cash of $1,454,000, $1,234,000 and $2,886,000 in
1994, 1995 and 1996, respectively. In 1994, cash provided by operating
activities was significantly greater than net income, due to increases in
accounts payable, accrued expenses and deferred revenue, offset by increases in
accounts receivable. In 1995, higher levels of net income were offset by changes
in operating assets and liabilities, primarily other current assets, accounts
payable and deferred revenue, that required the use of cash. In 1996, cash
provided by operating activities is again significantly greater than net income
primarily due to depreciation and the growth in accounts payable and accrued
expenses.
The Company's business requires it to maintain cash inventories for check
cashing and ATM services. Cash inventory requirements will increase as the
Company increases the number of locations at which it provides its GameCash
check cashing and ATM services. The primary objective of the follow-on offering
initiated during the fourth quarter of 1996 was to provide for the cash
requirements of the Company's rapid growth. At December 31, 1996, the Company
has approximately $2 million in available cash to fund expansion. The Company is
currently exploring other sources of capital.
Investing activities included purchases of equipment totaling $577,000, $671,000
and $1,582,000 in 1994, 1995 and 1996, respectively. The increase in purchases
of equipment, primarily equipment used in casino locations, was due to the
opening of 18 locations during 1995 and 48 locations in 1996.
During the second quarter of 1996, the Company received aggregate proceeds of
$510,000 upon the exercise of warrants granted to the underwriters of the
Company's April 1994 initial public offering.
The Company had current assets of $3,787,000, $5,013,000 and $7,501,000 at
December 31, 1994, 1995 and 1996, respectively. The improvements in liquidity
resulted from the Company's profitable operations and positive cash flow in each
of these periods.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. This document contains forward-looking statements
relating to such matters as plans for future expansion, business prospects,
anticipated financial performance and similar matters. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially from the anticipated results or other expectations expressed
in the forward-looking statements. These risks and uncertainties include, but
are not limited to, those described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 7. FINANCIAL STATEMENTS
PAGE
Independent Auditor's Reports 16 - 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 19
Consolidated Statements of Changes in Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22 - 31
Report of Independent Auditors
The Board of Directors and Stockholders
Game Financial Corporation
We have audited the accompanying consolidated balance sheet of Game Financial
Corporation as of December 31, 1996, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Game Financial
Corporation at December 31, 1996, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 12, 1997
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Game Financial Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of GAME FINANCIAL
CORPORATION as of December 31, 1995, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GAME FINANCIAL
CORPORATION as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 2, 1996
Game Financial Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,504,161 $ 868,903
Marketable securities 1,131,736 3,795,164
Receivables 522,007 209,482
Deferred income taxes 114,000 63,000
Other 227,981 76,283
----------------------------------------
Total current assets 7,499,885 5,012,832
Equipment:
Furniture, fixtures, and equipment 3,074,020 1,492,028
Less accumulated depreciation 944,317 438,949
----------------------------------------
2,129,703 1,053,079
Marketable securities 301,530 565,487
----------------------------------------
Total assets $9,931,118 $6,631,398
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $1,382,010 $ 445,122
Accrued expenses 358,194 204,380
Income taxes payable 190,230 34,801
Deferred revenue - 91,225
----------------------------------------
Total current liabilities 1,930,434 775,528
Deferred income taxes 63,000 49,400
Stockholders' equity:
Preferred stock $.01 par value;
Authorized shares - 1,000,000; no shares issued - -
Common stock, $.01 par value;
Authorized shares - 10,000,000
Issued shares - 4,520,622 in 1996 and 4,347,635
in 1995 45,206 34,781
Additional paid-in capital 4,719,910 4,192,796
Retained earnings 3,170,441 1,576,662
Unrealized gain on investments 2,127 2,231
----------------------------------------
Total stockholders' equity 7,937,684 5,806,470
----------------------------------------
Total liabilities and stockholders' equity $9,931,118 $6,631,398
========================================
</TABLE>
SEE ACCOMPANYING NOTES.
Game Financial Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
----------------------------------------
<S> <C> <C>
Revenue $18,951,253 $8,827,296
Cost of revenue 12,538,546 5,058,362
----------------------------------------
Gross margin 6,412,707 3,768,934
Sales, marketing, general, and administrative expenses 3,648,944 2,125,537
----------------------------------------
Operating income 2,763,763 1,643,397
Other income 126,741 180,238
Expenses of terminated offering (251,725) -
----------------------------------------
(124,984) 180,238
----------------------------------------
Income before taxes 2,638,779 1,823,635
Provision for income taxes 1,045,000 681,000
----------------------------------------
Net income $ 1,593,779 $1,142,635
========================================
Earnings per share $0.34 $0.25
========================================
Weighted average shares outstanding 4,684,613 4,513,355
========================================
</TABLE>
SEE ACCOMPANYING NOTES.
<TABLE>
<CAPTION>
Game Financial Corporation
Consolidated Statements of Changes in Stockholders' Equity
COMMON STOCK ADDITIONAL
------------------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 2,777,500 $27,775 $4,182,002 $ 434,027
Five-for-four stock split 694,358 6,944 (6,944) -
Incentive stock options exercised 6,250 62 17,738 -
Unrealized gain on investments, net of deferred
tax - - - -
Net income - - - 1,142,635
-------------------------------------------------------------------------
Balance at December 31, 1995 3,478,108 34,781 4,192,796 1,576,662
Five-for-four stock split 900,870 9,009 (9,009) -
Incentive stock options exercised 35,394 354 27,185 -
Stock warrants exercised 106,250 1,062 508,938 -
Unrealized gain on investments, net of deferred
tax - - - -
Net income - - - 1,593,779
=========================================================================
Balance at December 31, 1996 4,520,622 $45,206 $4,719,910 $3,170,441
=========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
[WIDE TABLE CONTINUED]
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
INVESTMENTS TOTAL
-----------------------------------
<S> <C> <C>
Balance at December 31, 1994 $ - $4,643,804
Five-for-four stock split - -
Incentive stock options exercised - 17,800
Unrealized gain on investments, net of deferred
tax 2,231 2,231
Net income - 1,142,635
-----------------------------------
Balance at December 31, 1995 2,231 5,806,470
Five-for-four stock split - -
Incentive stock options exercised - 27,539
Stock warrants exercised - 510,000
Unrealized gain on investments, net of deferred
tax (104) (104)
Net income - 1,593,779
===================================
Balance at December 31, 1996 $2,127 $7,937,684
===================================
</TABLE>
Game Financial Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
----------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,593,779 $1,142,635
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation 505,368 278,509
Amortization of investment premiums and discounts 58,629 105,549
Deferred income taxes (37,000) 64,000
Changes in operating assets and liabilities:
Receivables (312,525) 43,901
Other current assets (151,698) (35,546)
Accounts payable 936,888 (16,773)
Accrued expenses 153,814 (229,530)
Income taxes payable 155,029 8,861
Deferred revenue (91,225) (127,215)
----------------------------------------
Net cash provided by operating activities 2,811,059 1,234,391
INVESTING ACTIVITIES
Proceeds from maturities of marketable securities 4,186,312 2,446,900
Purchases of marketable securities (1,317,660) (3,055,680)
Purchases of equipment (1,581,992) (670,751)
----------------------------------------
Net cash provided by (used in) investing activities 1,286,660 (1,279,531)
FINANCING ACTIVITIES
Proceeds from exercise of incentive stock options and warrants
537,539 17,800
----------------------------------------
Net cash provided by financing activities 537,539 17,800
----------------------------------------
Net increase (decrease) in cash and cash equivalents 4,635,258 (27,340)
Cash and cash equivalents at beginning of year 868,903 896,243
========================================
Cash and cash equivalents at end of year $5,504,161 $ 868,903
========================================
</TABLE>
SEE ACCOMPANYING NOTES.
Game Financial Corporation
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Company offers its proprietary GameCash services as a comprehensive cash
access solution to casinos and other gaming establishments. The GameCash
solution allows casinos to offer patrons access to cash through credit card cash
advances, check cashing and automated teller machines. The Company operated in
76 gaming establishments in 19 states at December 31, 1996 and in 28 gaming
establishments in 14 states at December 31, 1995.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Game Financial
Corporation and its wholly-owned subsidiaries, Game Financial Corporation of
Wisconsin (GFW), Game Financial Corporation of Mississippi (GFM), Game Financial
Corporation of Louisiana, and GameCash, Inc., referred to collectively as Game
Financial Corporation (the Company). All significant intercompany transactions
and balances were eliminated in consolidation.
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect certain reported amounts and disclosures at the date
of and during the financial statement reporting periods. Actual results could
differ from these estimates.
EARNINGS PER SHARE
Earnings per share are determined by dividing net income by the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares from stock options and warrants. Fully diluted earnings per share are not
materially different from primary earnings per share.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with a maturity
of three months or less to be cash equivalents. These investments are carried at
amortized cost, which approximates market, and are classified available for
sale.
EQUIPMENT
Equipment is recorded at cost. Depreciation is provided using straight-line and
accelerated methods over the estimated useful lives of three to seven years.
Costs of repairs and maintenance are expensed when incurred.
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 is 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 and have not been
significant.
NEW PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 permits companies to adopt a new method
of accounting for stock compensation awards based on their estimated fair value
at the date the awards are granted, or for companies to continue their current
method of accounting for stock compensation awards. The Company will continue to
utilize its current method of accounting for stock compensation awards and has
made the pro forma disclosures required under the statement.
RECLASSIFICATIONS
Certain reclassification were made to the 1995 financial statements so as to
present those financial statements on a basis comparable with the current year.
The reclassifications had no effect on previously reported net income or
retained earnings.
2. MARKETABLE SECURITIES
Marketable securities consist primarily of municipal bonds and are classified as
either held-to-maturity or available-for-sale. All securities purchased prior to
September 30, 1995 are classified as held-to-maturity as the Company had both
the intent and ability to hold these securities to maturity. Those securities
purchased after September 30, 1995 are classified as available-for-sale.
Available-for-sale securities are stated at fair market value with unrealized
gains and losses, net of tax, reported in stockholders' equity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and discounts to maturity.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Investments - held-to-maturity:
Due in 1997 $ 50,000 $ 24 $ - $ 50,024
-----------------------------------------------------------------------
$ 50,000 $ 24 $ - $ 50,024
=======================================================================
Investments - available-for-sale:
Due in 1997 $1,079,740 $ 1,996 $ - $1,081,736
Due in 1998 300,000 1,530 - 301,530
-----------------------------------------------------------------------
$1,379,740 $ 3,526 $ - $1,383,266
=======================================================================
1995
Investments - held-to-maturity:
Due in 1996 $2,939,097 $15,699 $(7,086) $2,947,710
Due in 1997 49,931 243 - 50,174
-----------------------------------------------------------------------
$2,989,028 $15,942 $(7,086) $2,997,884
=======================================================================
Investments - available-for-sale:
Due in 1996 $ 854,083 $ 1,993 $ (9) $ 856,067
Due in 1997 513,909 1,647 - 515,556
-----------------------------------------------------------------------
$1,367,992 $ 3,640 $ (9) $1,371,623
=======================================================================
</TABLE>
Investment income was approximately $130,000 and $177,800 in 1996 and 1995,
respectively, and is included in other income.
3. COMMON STOCK
On June 21, 1996 and September 26, 1995, the Company recorded five-for-four
stock splits effected in the form of 25% stock dividends. All share and per
share data in the accompanying financial statements was restated to give effect
to the stock splits.
4. INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
----------------------------------------
Current taxes:
Federal $ 834,000 $479,000
State 248,000 138,000
----------------------------------------
1,082,000 617,000
Deferred taxes (benefit):
Federal (29,000) 55,000
State (8,000) 9,000
----------------------------------------
(37,000) 64,000
----------------------------------------
$1,045,000 $681,000
========================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ - $38,000
Accrued expenses not currently deductible 33,000 17,000
Reserve for bad debt 77,000 5,000
Other 4,000 3,000
----------------------------------------
$114,000 $63,000
========================================
Deferred tax liability:
Depreciation $ 54,000 $44,000
Unrealized gain on investments 1,400 1,400
Other 7,600 4,000
----------------------------------------
$ 63,000 $49,400
========================================
</TABLE>
It is more likely than not that the Company will realize the benefit of the
deferred tax assets. Therefore, no valuation allowance has been recorded for any
of the periods reported.
The differences between income taxes at the federal statutory rate and the
effective tax rate are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------
<S> <C> <C>
Tax computed at the federal statutory rate $ 897,000 $620,000
State taxes, net of federal deduction 159,000 101,450
Federal tax-exempt interest income (44,000) (60,000)
Other 33,000 19,550
----------------------------------------
Provision for income taxes $1,045,000 $681,000
========================================
</TABLE>
Income taxes paid during 1996 and 1995 were approximately $856,400 and $608,200,
respectively.
5. FINANCIAL SERVICE AGREEMENTS
Seventy-six gaming establishments provide space for one or more of the Company's
cash advance services under financial services agreements with the Company. The
agreements expire at various dates between January 1997 and February 2002 with
certain agreements having options to renew. The options to renew are typically
cancelable by the gaming establishment with 90 days notice prior to the renewal
date.
The Company receives fees for processing credit card cash advance and ATM
transactions and cashing checks. Typically, the fees are paid by the casino
guest requesting the transactions, however, in some cases, the gaming
establishment has agreed to pay for the check cashing service.
The agreements provide that the Company pay the gaming establishment rent. Rent
is typically based on a percentage of fees earned from the services provided at
the establishments or in some cases a percentage of the pretax profit (as
defined) for the service.
The expense under these agreements was approximately $3,960,000 and $1,187,000
for 1996 and 1995, respectively.
6. PROFIT SHARING PLAN
The Company has a profit sharing plan that allows for contributions, at the
discretion of the Board of Directors, not to exceed 15% of the annual
compensation of eligible employees, as defined in the Plan. The Plan also allows
for employee 401(k) elective deferrals. Profit sharing expense for 1996 and 1995
was approximately $68,000 and $47,700, respectively.
7. RELATED PARTY TRANSACTIONS
The Company has an office sharing agreement with a company owned by the majority
stockholder. The Company receives amounts for shared employees, rent, equipment,
and other costs. The Company received approximately $23,400 in 1996 and $44,200
in 1995 for shared expenses.
8. STOCK OPTIONS AND WARRANTS
OPTION PLAN
Effective February 24, 1994, the Company adopted the Game Financial Corporation
1994 Stock Option and Incentive Plan (Plan). The Plan permits the granting of
awards to employees and directors of the Company in the form of incentive stock
options, nonqualified stock options, and grants of restricted stock. Awards may
be granted in any one or a combination of these forms. The Company reserved
726,563 shares of common stock for issuance of awards pursuant to the Plan.
At December 31, 1996, 393,375 shares were still available.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
----------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 285,156 $2.43
Granted to employees 63,750 7.00
Exercised (7,813) 2.28
Forfeited (15,156) 2.28
---------------------
Options outstanding at December 31, 1995 325,937 3.34
Exercised (49,032) 2.32
Forfeited (562) 4.38
---------------------
Options outstanding at December 31, 1996 276,343 $3.51
=====================
Options exercisable at December 31, 1996 140,592 $2.71
Options exercisable at December 31, 1995 119,781 $2.43
</TABLE>
Effective January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS
123 provides for companies to recognize compensation expense associated with
stock-based compensation plans over the anticipated service period based on the
fair value of the award on the date of grant. However, SFAS 123 allows companies
to continue to measure compensation costs prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25). Companies electing to
continue accounting for stock-based compensation plans under APB 25 must make
pro forma disclosures of net income and earnings per share, as if SFAS 123 had
been adopted. The Company has continued to account for stock-based compensation
plans under APB 25. The pro forma disclosure of the effect of SFAS 123 on net
income and earnings per share for the years ended December 31, 1996 and 1995, is
presented below. The fair value of the options was estimated at date of grant
using a Black-Scholes option pricing model with the weighted-average risk-free
interest rate assumption for 1996 at 7.44%, volatility factor of the expected
market price of the Company's Common Stock of .59 and an option life of four
years. Fair value calculations assume no dividends will be paid on the Company's
Common Stock.
1996 1995
------------------------------------
Pro forma net income $1,493,775 $1,142,635
Pro forma primary earning per share .32 .25
The weighted average fair value of options granted on December 19, 1995 was
$3.70. The weighted average remaining life of all outstanding options at
December 31, 1996 is 3.23 years.
STOCK WARRANTS
In conjunction with the initial public offering, the Company issued 106,250
warrants, adjusted for the effect of a stock split declared in September 1995,
to the underwriters. Each warrant allows the underwriter to purchase one share
of the Company's common stock at $4.80 per share. The warrants were exercised in
April 1996 for $510,000.
9. COMMITMENTS
EMPLOYMENT AGREEMENT
The Company's president has a three-year employment agreement requiring an
annual base salary of $180,000, adjusted annually after the first year by the
Board of Directors. The Board may also provide an incentive bonus up to 50% of
the base salary. The agreement further provides that upon termination of
employment, the president is entitled to one year's base salary, payable over
twelve months.
OPERATING LEASES
The Company leases office space under non-cancelable leases expiring through
March 1999. The leases require annual lease payments of approximately $127,400.
Rent expense for 1996 and 1995, net of amount reimbursed by related party, was
approximately $68,500 and $47,600, respectively.
10. CONCENTRATION OF RISK
Eight gaming establishments with a common management company comprised 46% of
the Company's revenue in 1996 and six gaming establishments with a common
management company comprised 79% of the Company's revenue in 1995. The majority
of the contracts with this management company have terms of two years with
renewal provisions.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 7, 1996, the Company engaged Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
year ending December 31, 1996. The audit opinion of Lurie, Besikof, Lapidus &
Co., LLP, the Company's prior accountants, for the year ended December 31, 1995
did not contain an adverse opinion or disclaimer of opinion, nor were
they modified as to uncertainty, audit scope or accounting principles. There
have been no disagreements between Lurie, Besikof, Lapidus & Co., LLP and the
Company on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of Lurie, Besikof, Lapidus & Co., LLP, would have caused it to make
reference to the subject matter of the dispute in connection with its report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding directors and officers of the Company is set forth under
the captions "Election of Directors" and "Information Regarding Directors,
Nominees and Executive Officers - Directors and Nominees" and "Executive
Officers" in the Proxy Statement, and is incorporated by reference herein.
ITEM 10. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers of the
Company is set forth under the captions "Information Regarding Directors,
Nominees and Executive Officers - Executive Compensation", "Retirement Savings
Plan", and "Stock Options" in the Proxy Statement, and is incorporated by
reference herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management contained is set forth under the caption "Beneficial Ownership of
Common Stock" in the Proxy Statement, and is incorporated by reference herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the caption "Information Regarding Directors, Nominees and Executive
Officers - Certain Transactions" in the Proxy Statement, and is incorporated by
reference herein.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit
No. Description
------- -----------
3.1 Articles of Incorporation of Game Financial Corporation,
as amended
3.2 Bylaws of Game Financial Corporation, as amended
10.1 Game Financial Corporation 1994 Stock Option and Incentive Plan,
as amended
10.2 Employment Agreement dated February 24, 1994, between the Company
and Gary A. Dachis as amended November 5, 1996
10.3 Form of Non-Competition Agreement
10.4 Form of Financial Services Agreement
10.5 Form of Cash Advance Agreement
10.6 Sublease Agreement dated October 28, 1996, between the Company
and Grand Casinos, Inc.
10.7 Financial Services Agreement dated August 30, 1994 between
Game Financial Corp. of Louisiana and the Coushata Indian Tribe
of Louisiana (1)
10.8 Cash Advance Agreement dated March 4, 1994 between Game Financial
Corp. of Mississippi and Grand Casinos of Mississippi, Inc. -
Gulfport (1)
10.9 Cash Advance Agreement dated March 4, 1994 between Game Financial
Corp. of Mississippi and Grand Casinos of Mississippi, Inc. -
Biloxi (1)
10.10 Financial Services Agreement dated May 17, 1994 between Game
Financial Corp. of Louisiana and The Tunica-Biloxi Indian Tribe
of Louisiana (1)
10.11 Financial Services Agreement dated May 13, 1994 between Game
Financial Corporation and The Corporate Commission of the Mille
Lacs Band of Ojibwe (Hinkley) (1)
10.12 Financial Services Agreement dated May 13, 1994 between Game
Financial Corporation and The Corporate Commission of the Mille
Lacs Band of Ojibwe (Mille Lacs) (1)
10.13 Cash Advance Agreement dated July 11, 1995, between Game Financial
Corporation and Stratosphere Corporation (1)
10.14 Cash Advance Agreement dated February 2, 1996, between Game
Financial Corporation of Mississippi and B.L. Development
Corporation (1)
10.15 Financial Services Agreement dated January 8, 1996 between
GameCash, Inc. and the Soaring Eagle Gaming (1)
10.16 Automatic Teller Machine Supply and Servicing Agreement dated
July 22, 1996 between GameCash, Inc. and Soaring Eagle Gaming (1)
10.17 Financial Services Agreement dated February 22, 1996 between
Game Financial Corporation of Wisconsin and Ho-Chunk Nation (1)
(1) - Confidential treatment has been requested for portions of this exhibit.
11 Statement re: Computation of Per Share Earnings
21.1 Subsidiaries of the Company
23 Consent of Independent Auditors
(b) Reports on Form 8-K.
On November 15, 1996, the Company filed a current report on Form 8-K
with respect to the change in accountants which is discussed at Item 8
of this report.
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: March 26,1997 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.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Gary A. Dachis President, Chief Executive Officer, 3/26/97
- ------------------------ Secretary, Treasurer and Director
Gary A. Dachis
/s/ Stephen P. Weisbrod Vice President Information Systems 3/26/97
- ------------------------ and Director
Stephen P. Weisbrod
/s/ Jeffrey Ringer Vice President Finance and Chief 3/26/97
- ------------------------ Financial Officer
Jeffrey L. Ringer
/s/ Paul H. Ravich Director 3/26/97
- ------------------------
Paul H. Ravich
Director 3/26/97
- ------------------------
Tom Grossman
INDEX TO EXHIBITS
(1) Confidential treatment has been requested on portions of this exhibit.
EXHIBIT
NO.
- -------
3.1 Articles of Incorporation Incorporated by reference
of Game Financial Corporation, to Exhibit 3.1 to the Company's
as amended Registration Statementon Form SB-2
(File No. 33-75730C)
3.2 Bylaws of Game Financial Incorporated by reference
Corporation, as amended to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2
(File No. 33-75730C)
10.1 Game Financial Corporation Incorporated by reference
1994 Stock Option and to Exhibit 10.1 and 10.9
Incentive Plan, as amended to the Company's Registration
Statement on Form SB-2
(File No. 33-75730C)
10.2 Employment Agreement dated Employment agreement incorporated
February 24, 1994, between by reference to Exhibit 10.3 to
the Company and Gary A. Dachis, the Company's Registration
amended November 6, 1996 Statement on Form SB-2
(File No. 33-75730C).
Amendment incorporated by reference
to Exhibit 10.2 to the Company's
registration statement on Form S-1
(File No 333-15769)
10.3 Form of Non-Competition Incorporated by reference to
Agreement Exhibit 10.4 to the Company's
Registration Statement on Form SB-2
(File No. 33-75730C).
10.4 Form of Financial Services Incorporated by reference to
Agreement Exhibit 10.5 to the Company's
Registration Statement on Form SB-2
(File No. 33-75730C)
10.5 Form of Cash Advance Incorporated by reference to
Agreement Exhibit 10.6 to the Company's
Registration Statement on Form SB-2
(File No. 33-75730C)
10.6 Sublease Agreement dated Incorporated by reference to
October 28, 1996 between Exhibit 10.6 to the Company's
the Company and Grand Registration Statement on Form S-1
Casinos, Inc. (File No. 333-15769)
10.7 Financial Services Agreement Incorporated by reference to
dated August 30, 1994 between Exhibit 10.4 to the Company's
Game Financial Corporation of Registration Statement on Form S-3
Louisiana and The Coushata (File No. 33-98486)
Tribe of Louisiana (1)
10.8 Cash Advance Agreement dated Incorporated by reference to
March 4, 1994 between Game Exhibit 10.5 to the Company's
Financial Corporation of Registration Statement on Form S-3
Mississippi and Grand Casinos (File No. 33-98486)
of Mississippi, Inc. -
Gulfport (1)
10.9 Cash Advance Agreement dated Incorporated by reference to
March 4, 1994 between Game Exhibit 10.6 to the Company's
Financial Corporation of Registration Statement on Form S-3
Mississippi and Grand Casinos (File No. 33-98486)
of Mississippi, Inc. -
Biloxi (1)
10.10 Financial Services Agreement Incorporated by reference to
dated May 17, 1994 between Exhibit 10.7 to the Company's
Game Financial Corporation Registration Statement on Form S-3
of Louisiana and (File No. 33-98486)
The Tunica-Biloxi Indian
Tribe of Louisiana (1)
10.11 Financial Services Agreement Incorporated by reference to
dated May 13, 1994 between Exhibit 10.8 to the Company's
Game Financial Corporation Registration Statement on Form S-3
and the Corporate Commission (File No. 33-98486)
of the Mille Lacs Band of
Ojibwe (Hinkley) (1)
10.12 Financial Services Agreement Incorporated by reference to
dated May 13, 1994 between Exhibit 10.9 to the Company's
Game Financial Corporation Registration Statement on Form S-3
and The Corporate Commission (File No. 33-98486)
of the Mille Lacs Band of
Ojibwe (Mille Lacs) (1)
10.13 Cash Advance Agreement dated Incorporated by reference to
July 11, 1995 between Game Exhibit 10.10 to the Company's
Financial Corporation and Registration Statement on Form S-3
Stratosphere Corporation (1) (File No. 33-98486)
10.14 Cash Advance Agreement dated Incorporated by reference to
February 2, 1996 between Game Exhibit 10.11 to the Company's
Financial Corporation of Registration Statement on Form S-3
Mississippi and B.L. (File No. 33-98486)
Development Corporation (1)
10.15 Financial Services Agreement Incorporated by reference to
dated January 8, 1996, between Exhibit 10.15 to amendment No. 1
GameCash, Inc. and to the Company's Registration
Soaring Eagle Gaming (1) Statement on Form S-1
(file No. 333-15769)
10.16 Automatic Teller Machine Supply Incorporated by reference to
and Servicing Agreement dated Exhibit 10.16 to amendment No. 1
August 2, 1996 between to the Company's Registration
GameCash, Inc. and Statement on Form S-1
Soaring Eagle Gaming (1) (file No. 333-15769)
10.17 Financial Services Agreement Incorporated by reference to
dated February 22, 1996 between Exhibit 10.17 to amendment No. 1
Game Financial Corporation of to the Company's Registration
Wisconsin and the Statement on Form S-1
Ho-Chunk Nation (1) (file No. 333-15769)
11 Statement re: Filed herewith
Computation of Earnings
Per Share
21.1 Subsidiaries of the Company Filed herewith
23 Consent of Ernst & Young LLP Filed herewith
23.1 Consent of Lurie, Besikof, Filed herewith
Lapidus & Co., LLP
Exhibit 11 - Computation of Earnings Per Share
Years Ended
December 31,
Primary: 1996 1995
-----------------------------
Weighted average shares outstanding 4,467,350 4,342,883
Net effect of dilutive stock
options - based on the
treasury stock method using
average market price 217,263 170,473
-----------------------------
Totals 4,684,613 4,513,355
Pro Forma Net Income $1,593,779 $1,142,635
-----------------------------
Per share Amount $ 0.34 $ 0.25
=============================
Fully Diluted:
Weighted average shares outstanding 4,467,350 4,342,883
Net effect of dilutive stock
options - based on the
treasury stock method using
the higher of the average
or the closing price 217,263 195,651
-----------------------------
Totals 4,684,613 4,538,534
Pro Forma Net Income $1,593,779 $1,142,635
-----------------------------
Per share Amount $ 0.34 $ 0.25
=============================
All shares outstanding have been restated to give effect to the 5-for-4 stock
splits declared during September 1995 and June 1996.
Exhibit 21.1 - Subsidiaries as of March 15, 1997
JURISDICTION
OF PERCENT
NAME OF SUBSIDIARY INCORPORATION OWNED
- ------------------ ------------- -------
Game Financial Corporation of Louisiana Louisiana 100%
Game Financial Corporation of Mississippi Mississippi 100%
Game Financial Corporation of Wisconsin Wisconsin 100%
GameCash, Inc. Minnesota 100%
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-95810) pertaining to the Game Financial Corporation 1994 Stock
Option and Incentive Plan of our report dated February 12, 1997, with respect to
the consolidated financial statements of Game Financial Corporation included in
the Annual Report (Form 10-KSB) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 25, 1997
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement (No.
33-95810) of Game Financial Corporation on Form S-8 of our report dated February
2, 1996, appearing in the Annual Report on Form 10-KSB of Game Financial
Corporation for the year ended December 31, 1996.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000920106
<NAME> GAME FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,504,161
<SECURITIES> 1,131,736
<RECEIVABLES> 522,007
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,499,885
<PP&E> 3,074,020
<DEPRECIATION> 944,317
<TOTAL-ASSETS> 9,931,118
<CURRENT-LIABILITIES> 1,930,434
<BONDS> 0
0
0
<COMMON> 45,206
<OTHER-SE> 7,892,478
<TOTAL-LIABILITY-AND-EQUITY> 9,931,118
<SALES> 18,951,253
<TOTAL-REVENUES> 18,951,253
<CGS> 12,538,546
<TOTAL-COSTS> 12,538,546
<OTHER-EXPENSES> 3,773,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,638,779
<INCOME-TAX> 1,045,000
<INCOME-CONTINUING> 1,593,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,593,779
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
