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 September 30, 1997
[ ] 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.)
13705 First Avenue North, Plymouth, MN 55441
--------------------------------------------
(Address of principal executive offices)
(612) 476-8500
--------------
(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 November 1, 1997 the Corporation
had 4,529,240 shares of its $.01 par value common stock outstanding.
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30,
1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 1997 and
September 30, 1996 4
Condensed Consolidated Statements of Income for the
Nine Months Ended September 30, 1997 and
September 30, 1996 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997 and
September 30, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
Exhibit 11 - Computation of Earnings Per Share 12
Exhibit 27 - Financial Data Schedule 13
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
AS OF:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,462,902 $ 5,504,161
Marketable securities 60,071 1,131,736
Receivables 628,093 522,007
Other 793,903 341,981
------------ ------------
TOTAL CURRENT ASSETS 9,944,969 7,499,885
------------ ------------
EQUIPMENT
Furniture, fixtures, and equipment 4,089,853 3,074,020
Less accumulated depreciation 1,597,091 944,317
------------ ------------
2,492,762 2,129,703
------------ ------------
MARKETABLE SECURITIES -- 301,530
------------ ------------
$ 12,437,731 $ 9,931,118
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,883,463 $ 1,382,010
Accrued expenses 393,413 358,194
Income taxes payable 307,017 190,230
------------ ------------
TOTAL CURRENT LIABILITIES 2,583,893 1,930,434
------------ ------------
DEFERRED INCOME TAXES 63,000 63,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common stock 45,225 45,206
Additional paid-in capital 4,731,766 4,719,910
Retained earnings 5,013,847 3,170,441
Unrealized gain on investments -- 2,127
------------ ------------
9,790,838 7,937,684
------------ ------------
$ 12,437,731 $ 9,931,118
============ ============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 % 1996 %
---------------------- ----------------------
<S> <C> <C> <C> <C>
Revenue $ 9,657,658 100% $ 5,448,310 100%
Cost of Revenue 6,935,881 72% 3,594,484 66%
-------------- --------------
Gross Margin 2,721,777 28% 1,853,826 34%
Sales, Marketing, General And
Administrative Expenses 1,301,184 13% 1,021,737 19%
-------------- --------------
Operating Income 1,420,593 15% 832,089 15%
Other Income 4,485 0% 32,657 1%
-------------- --------------
Income Before Taxes 1,425,078 15% 864,746 16%
Income Tax Expense 595,000 6% 345,999 6%
-------------- --------------
Net Income $ 830,078 9% $ 518,747 10%
============== ==============
Net Income Per Share $ 0.17 $ 0.11
============== ==============
Weighted Average Shares Outstanding 4,742,210 4,710,006
============== ==============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE NINE MONTHS ENDED:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 % 1996 %
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenue $ 24,065,338 100% $13,273,370 100%
Cost of Revenue 17,327,275 72% 8,835,485 67%
---------------- --------------
Gross Margin 6,738,063 28% 4,437,885 33%
Sales, Marketing, General And
Administrative Expenses 3,631,424 15% 2,620,221 20%
--------------- --------------
Operating Income 3,106,639 13% 1,817,664 14%
Other Income 33,767 0% 97,771 1%
--------------- --------------
Income Before Taxes 3,140,406 13% 1,915,435 14%
Income Tax Expense 1,297,000 5% 754,000 6%
--------------- --------------
Net Income $ 1,843,406 8% $ 1,161,435 9%
=============== ==============
Net Income Per Share $ 0.39 $ 0.25
=============== ==============
Weighted Average Shares Outstanding 4,707,766 4,683,122
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
GAME FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,843,406 $ 1,161,435
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 652,774 344,153
Amortization of investment premiums
and discounts 6,082 51,133
Deferred income taxes -- (6,000)
Changes in operating assets and liabilities:
Receivables (106,086) (122,719)
Other current assets (451,922) (128,458)
Accounts payable 618,240 755,799
Accrued expenses 35,219 92,723
Deferred revenue -- (43,506)
------------ ------------
Net cash provided by
operating activities 2,597,713 2,104,560
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities of marketable securities 1,364,986 2,930,432
Purchases of marketable securities -- (793,507)
Purchases of equipment (1,015,833) (1,164,119)
------------ ------------
Net cash provided (used) by investing activities 349,153 972,806
------------ ------------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 11,875 26,828
Proceeds from exercise of underwriter warrants -- 510,000
------------ ------------
Net cash provided by financing activities 11,875 536,828
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,958,741 3,614,194
CASH AND CASH EQUIVALENTS
Beginning of period 5,504,161 868,903
------------ ------------
End of period $ 8,462,902 $ 4,483,097
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------ ------------
Cash Paid for Taxes $ 1,291,701 $ 728,879
------------ ------------
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
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 September 30, 1997 and December 31, 1996, and the results of operations
and cash flows for the periods ended September 30, 1997 and 1996. The results of
operations and cash flows for the period ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997, 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, 1996.
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 offers its cash access services
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 number of locations at which the Company
operated at the indicated dates:
NUMBER OF LOCATIONS AT:
-----------------------
SERVICES PROVIDED 12/31/94 12/31/95 12/31/96 9/30/97
- ----------------- -------- -------- -------- -------
Credit card only 5 19 48 50
Credit card and check cashing 5 9 15 16
Credit card and ATM - - 4 5
Credit card, check cashing and ATM - - 6 11
ATM only - - 3 1
-- -- -- --
Total 10 28 76 83
== == == ==
Number of states 6 14 19 20
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
ITEM 2. 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, POS
Debit, 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 83 locations at September 30, 1997, compared to compared to 76 and
28 at the end of 1996 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.
REVENUE
Revenue for the quarter ended September 30, 1997 was $9,658,000, a 77% increase
over $5,448,000 for the same period in 1996. Revenue for the nine months ended
September 30, 1997 was $24,065,000, an 81% increase over $13,273,000 for the
same period last year.
COST OF REVENUE
Cost of revenue for the quarter ended September 30, 1997 was $6,936,000,
compared with $3,594,000 for the same period last year. For the nine months
ended September 30, 1997, cost of revenue was $17,327,000 compared with
$8,835,000 for the same period last year. The increase in the number of
transactions and 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 28% for the quarter ended September 30, 1997
compared with 34% for the same period last year. For the nine months ended
September 30, 1997, gross margin was 28% compared with 33% for the same period
last year. The reduction in gross margin as a percentage of revenue was due
primarily to higher casino commission rates payable to casino operators under
certain new or renewed contracts and increases in fees paid to the credit card
companies for processing credit card transactions.
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.
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
SALES, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, marketing, general and administrative expenses for the quarter ended
September 30, 1997 were $1,301,000, or 13% of revenue, compared with $1,022,000
or 19% of revenue, for the same period last year. For the nine months ended
September 30, 1997, sales, marketing and general and administrative expenses
were $3,631,000 or 15% of revenue compared with $2,620,000 or 20% of revenue.
The 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.
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 September 30, 1997, net income increased 60% to $830,000
or 17 cents per share compared with $519,000, or 11 cents per share for the same
period last year. For the nine months ended September 30, 1997, net income
increased 59% to $1,843,000 or 39 cents per share compared with $1,161,000 or 25
cents per share. All earnings per share amounts have been adjusted to reflect
the 5-for-4 stock splits paid in September 1995 and June 1996.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary capital requirements have been to provide working capital
for operating new and existing locations and fund purchases of equipment for use
at new casino locations. At September 30, 1997, the Company had $9,945,000 in
current assets compared with $7,500,000 at December 31, 1996. Cash, cash
equivalents and marketable securities totaled $8,523,000 at September 30, 1997
compared with $6,937,000 at December 31, 1996. The Company's business requires
it to maintain cash inventories for check cashing and ATM services. Cash
inventory requirements increase as the Company increases the number of locations
at which it provides its GameCash services. During the second quarter of 1997
the Company obtained a $5,000,000 line of credit which should be sufficient to
address the cash requirements of continued growth for the next 12 to 24 months.
At September 30, 1997, no borrowings were outstanding on the line of credit.
Operating activities during the nine months ended September 30, 1997 generated
$2,598,000 of net cash compared with $2,105,000 of cash for the same period last
year. The Company's investment in property and equipment of $1,016,000 during
the nine months ended September 30, 1997 was slightly below the $1,164,000
investment in equipment during the same period last year. Investments in
property are primarily related to equipment used in casino locations.
On September 24, 1997 it was announced that Game Financial Corporation had
signed a merger agreement with Viad Corp (NYSE:VVI). The transaction is
structured as a merger in which shareholders of the Company will receive shares
of Viad Corp common stock in exchange for 100% of the outstanding shares of Game
Financial. The value is $10.75 per share of Game Financial stock for total
consideration of approximately $51 million. The transaction will be submitted to
the shareholders of the Company for approval at a special meeting of
shareholders on December 10, 1997. The transaction is planned to close by the
end of 1997.
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."
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
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
On September 24, 1997 it was announced that Game Financial Corporation
had signed a merger agreement with Viad Corp (NYSE:VVI). The
transaction is structured as a merger in which shareholders of the
Company will receive shares of Viad Corp common stock in exchange for
100% of the outstanding shares of Game Financial. The value is $10.75
per share of Game Financial stock for total consideration of
approximately $51 million. The transaction will be submitted to the
shareholders of the Company for approval at a special meeting of
shareholders on December 10, 1997. The transaction is planned to close
by the end of 1997.
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:
On October 8, 1997, the Company filed a Current Report on Form
8-K relating to the proposed merger between the Company and
Viad Corp.
<PAGE>
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
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: November 7, 1997 By: /s/ Gary A. Dachis
------------------
Gary A. Dachis, President and
Chief Executive Officer
/s/ Jeffrey L. Ringer
Jeffrey L. Ringer, Vice President and
Chief Financial Officer
GAME FINANCIAL CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1997
Exhibit 11 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 4,522,522 4,505,309 4,521,266 4,452,991
Net effect of dilutive stock
options - based on the
treasury stock method using
average market price 219,688 204,697 186,500 230,131
----------------------------- -----------------------------
Totals 4,742,210 4,710,006 4,707,766 4,683,122
Net Income $ 830,078 $ 518,747 $ 1,843,406 $ 1,161,435
----------------------------- -----------------------------
Net Income Per Share $ 0.17 $ 0.11 $ 0.39 $ 0.25
============================= =============================
Fully Diluted:
Weighted average shares outstanding 4,522,522 4,505,309 4,521,266 4,452,991
Net effect of dilutive stock
options - based on the
treasury stock method using
the higher of the average
or the closing price 223,403 204,697 192,307 230,131
----------------------------- -----------------------------
Totals 4,745,925 4,710,006 4,713,573 4,683,122
Net Income $ 830,078 $ 518,747 $ 1,843,406 $ 1,161,435
----------------------------- -----------------------------
Net Income Per Share $ 0.17 $ 0.11 $ 0.39 $ 0.25
============================= =============================
</TABLE>
All shares outstanding have been restated to give effect to the 5-for-4 stock
splits declared during September 1995 and June 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000920106
<NAME> GAME FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,462,902
<SECURITIES> 60,071
<RECEIVABLES> 628,093
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,944,969
<PP&E> 4,089,853
<DEPRECIATION> 1,597,091
<TOTAL-ASSETS> 12,437,731
<CURRENT-LIABILITIES> 2,583,893
<BONDS> 0
0
0
<COMMON> 45,225
<OTHER-SE> 9,745,613
<TOTAL-LIABILITY-AND-EQUITY> 12,437,731
<SALES> 24,065,338
<TOTAL-REVENUES> 24,065,338
<CGS> 17,327,275
<TOTAL-COSTS> 17,327,275
<OTHER-EXPENSES> 3,631,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,140,406
<INCOME-TAX> 1,297,000
<INCOME-CONTINUING> 1,843,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,843,406
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
