UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
0-21426
-----------------------------------
(Commission File Number)
CASINO DATA SYSTEMS
--------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA
------------------------------------------------------
(State or Other Jurisdiction of Incorporation or
Organization)
88-0261839
------------------------------------
(I.R.S. Employer Identification Number)
3300 BIRTCHER DRIVE, LAS VEGAS, NEVADA 89118
--------------------------------------------------------------
(Address of Principal Executive Offices)
(702) 269-5000
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 18,437,364 shares of common
stock outstanding as of May 8, 2000.
-1-
CASINO DATA SYSTEMS
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999............................................ 3
Unaudited Condensed Consolidated Statements of Income
For the three months ended March 31, 2000 and 1999.............................. 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999.............................. 6
Notes to Unaudited Condensed Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations....................................................... 9
Item 7a. Quantitative and Qualitative Disclosures about Market Risk...................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 13
Item 6. Exhibits and Reports on Form 8-K................................................ 13
Signatures ................................................................................ 14
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASINO DATA SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
March 31, December 31,
2000 1999
----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 13,596 $ 6,866
Restricted cash and cash equivalents 2,488 2,389
Investment securities 2,785 1,272
Restricted investment securities 1,462 1,309
Accounts receivable, net of allowance for doubtful
accounts of $1,773 and $1,886, respectively 18,542 21,121
Current portion of notes receivable 4,115 4,324
Inventories, net 24,048 25,600
Prepaid expenses and other current assets 1,586 2,143
----------- ----------
Total current assets 68,622 65,024
----------- ----------
Property and equipment, net of accumulated
depreciation of $8,259 and $7,517, respectively 16,839 17,762
Restricted investment securities 14,424 14,517
Deferred tax assets 10,172 10,172
Notes receivable, excluding current portion 488 539
Intangible assets, net of accumulated amortization of
$1,043 and $1,001, respectively 79 122
Software development costs, net of accumulated
amortization of $2,088 and $1,746, respectively 2,020 2,362
Other assets 394 389
----------- ----------
Total non-current assets 44,416 45,863
----------- ----------
Total assets $ 113,038 $ 110,887
=========== ==========
(Continued)
See accompanying Notes to Condensed Consolidated Financial Statements
-3-
CASINO DATA SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
(Dollars and share data in thousands)
March 31, December 31,
2000 1999
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ -- $ 214
Accounts payable 1,646 1,427
Accrued expenses and customer deposits 8,719 8,567
Accrued slot liability 249 252
----------- ----------
Total current liabilities 10,614 10,460
----------- ----------
Non-current Liabilities
Accrued slot liability 18,244 17,901
----------- ----------
Total non-current liabilities 18,244 17,901
----------- ----------
Shareholders' Equity
Common stock, no par value. Authorized 100,000
shares; issued and outstanding 18,438
and 18,401 at March 31, 2000 and December 31, 1999,
respectively 85,022 84,964
Accumulated deficit (842) (2,438)
----------- ----------
Total shareholders' equity 84,180 82,526
----------- ----------
Total liabilities and shareholders' equity $ 113,038 $ 110,887
=========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
-4-
CASINO DATA SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended March 31,
------------------------------
2000 1999
------------ ------------
Revenue
OASIS-TM- systems $ 8,035 $ 6,896
Gaming devices 5,608 4,694
Recurring revenue 1,377 2,200
Signs 998 1,207
TurboPower 778 740
----------- ----------
Total revenue 16,796 15,737
Cost of goods sold 7,021 8,686
----------- ----------
Gross margin 9,775 7,051
----------- ----------
Operating expenses
Selling, general and administrative 4,826 4,177
Research and development 1,757 1,640
Depreciation and amortization 958 1,051
----------- ----------
Total operating expenses 7,541 6,868
----------- ----------
Income from operations 2,234 183
----------- ----------
Other income (expense)
Interest and other income, net 225 152
Interest expense (3) (40)
------------ -----------
Total other income, net 222 112
----------- ----------
Income before income taxes 2,456 295
Income tax expense 860 103
----------- ----------
Net income $ 1,596 $ 192
=========== ==========
Basic net income per share $ .09 $ .01
=========== ==========
Diluted net income per share $ .09 $ .01
=========== ==========
Basic weighted average shares outstanding 18,416 18,066
=========== =========
Diluted weighted average shares outstanding 18,738 18,386
=========== =========
See accompanying Notes to Condensed Consolidated Financial Statements
-5-
CASINO DATA SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(Dollars in thousands)
Three Months Ended March 31,
-------------------------------
2000 1999
---- ----
Cash Flows From Operating Activities:
Net income $ 1,596 $ 192
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 958 1,051
Depreciation and amortization included in COGS 185 507
Gain on disposal of assets (6) --
Write-off of net book value of assets -- 100
Provision for accounts receivable (113) (594)
Provision for inventory obsolescence 360 50
Changes in assets and liabilities:
Restricted cash and cash equivalents (99) 357
Accounts and notes receivable 2,953 (1,172)
Income tax receivable 581 --
Inventories 1,192 (1,817)
Other assets and deposits (28) 14
Accounts payable 218 (188)
Accrued expenses, customer deposits and slot liability 491 1,667
----------- ----------
Net cash provided by operating activities 8,288 167
----------- ----------
Cash Flows From Investing Activities:
Purchases of unrestricted investment securities (1,514) (25)
Purchases of investment securities to fund liabilities to jackpot (207) (100)
winners Proceeds from sale of investment securities to fund
liabilities to jackpot winners 146 60
Purchase of intangible assets -- (33)
Purchase of property, plant and equipment 152 (580)
Proceeds from sale of property, plant and equipment 20 --
----------- ----------
Net cash used in investing activities (1,403) (678)
----------- ----------
Cash Flows From Financing Activities:
Repayment of notes payable (213) (133)
Proceeds from the issuance of stock 58 --
----------- ----------
Net cash used in financing activities (155) (133)
------------ ----------
Net increase (decrease) in cash and cash equivalents 6,730 (644)
Cash and cash equivalents at beginning of period 6,866 5,141
----------- ----------
Cash and cash equivalents at end of period $ 13,596 $ 4,497
=========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
-6-
CASINO DATA SYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Description of Business and Summary of Significant Accounting Policies
Casino Data Systems, a Nevada corporation, was incorporated in June 1990. Each
of the following corporations are wholly owned subsidiaries of Casino Data
Systems: CDS Services Company; CDS Graphics and Imaging Company; CDS Signs,
Inc.; TurboPower Software Company, and CDS Gaming Company (collectively the
"Company"). The Company's operations consist principally of: (i) the
development, licensing and sale of casino management information systems (the
OASIS-TM- System); (ii) the operation of multi-site link progressive (MSP)
systems; (iii) the design and manufacture of video interactive gaming machines,
and (iv) the design and manufacture of casino meters, signs and graphics. The
Company also creates software development tools for sale to outside software
professionals and for use by the Company's own software engineers. The Company
provides these products through operation of five segments: OASIS systems,
games, recurring revenue products, signs and software development tools
(TurboPower).
The consolidated financial statements include the accounts of Casino Data
Systems and all of the subsidiaries mentioned above. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain prior year balances have been reclassified to conform to the current
year presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These unaudited
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report as filed on Form 10-K for the year ended December 31,
1999.
The accompanying unaudited condensed consolidated financial statements contain
all adjustments which, in the opinion of management, are necessary for a fair
statement of the results of the interim periods presented. The results of
operations for any interim period are not necessarily indicative of the results
of operations that will be achieved for an entire year.
(2) Business Segments
Following is the disclosure of the items that management utilizes in measuring
the profit or loss of each of the Company's segments.
Revenues
----------------------------
Three Months Ended March 31,
----------------------------
2000 1999
------ ------
(In thousands)
OASIS systems $ 8,035 $ 6,896
Gaming Devices 5,608 4,694
Recurring Revenue 1,377 2,200
Signs 998 1,207
TurboPower 778 740
----------- ----------
Total $ 16,796 $ 15,737
============ ==========
-7-
Income (Loss) from Operations
-------------------------------------
Three Months Ended March 31,
-------------------------------------
2000 1999
--------------- --------------
(In thousands)
OASIS systems $ 3,231 $ 2,814
Gaming Devices (962) (2,056)
Recurring Revenue 95 (582)
Signs (325) (364)
TurboPower 195 371
----------- ----------
Total $ 2,234 $ 183
============ ==========
Corporate expenses have been allocated to each segment based on an estimate of
each segment's utilization of corporate resources.
(3) Inventories
Inventories consist of the following:
March 31, December 31,
2000 1999
----------- ----------
(Unaudited)
Raw materials $ 14,241 $ 15,710
Work in process 827 292
Finished goods 11,110 11,368
----------- ----------
26,178 27,370
Less reserve for obsolescence (2,130) (1,770)
---------- ----------
$ 24,048 $ 25,600
============ ==========
(4) Net Income Per Share
The following is an analysis of the components of the shares used to compute net
income per common share.
Revenues
-------------------------------------
Three Months Ended March 31,
-------------------------------------
2000 1999
----------- ----------
(In thousands, except per share information)
Numerator for earnings per share
Net income $ 1,596 $ 192
============ ==========
Denominator for earnings per share
Weighted average shares outstanding - basic 18,416 18,066
Effect of dilutive securities
Stock options 322 320
----------- ----------
Weighted average shares outstanding - diluted 18,738 18,386
=========== ==========
Basic earnings per share $ .09 $ .01
============ ==========
Diluted earnings per share $ .09 $ .01
============ ==========
-8-
(5) COMMITMENTS AND CONTINGENCIES
On May 19, 1998, Acres Gaming Corporation filed an action against the Company,
Mikohn Gaming Corporation, New York New York Hotel & Casino, LLC, and Sunset
Station Hotel & Casino, in the Federal Court for the State of Nevada, alleging
that the Company's ProTurbo Software module violated certain patent rights of
Acres Gaming. Acres Gaming also filed a Motion for Preliminary Injunction, which
was later withdrawn by Acres. The Company has answered the lawsuit asserting
defenses and counterclaims seeking a declaration of invalidity, noninfringement
and unenforceability of the patent asserted. The Company believes this action is
without merit and will continue to vigorously defend itself. While the outcome
of this lawsuit is not presently determinable, management does not expect the
outcome will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
On November 17, 1998, Acres filed a second lawsuit against the Company alleging
that the Company's ProTurbo Software module violates certain patent rights of a
second Acres patent. The Company has filed an answer and a counterclaim seeking
a declaration of invalidity, noninfringement and unenforceability of the patent
asserted. The Company has filed additional counterclaims for alleged patent
misuse, spoliation of evidence, antitrust violations and unfair competition. The
Company believes that this action is without merit and will continue to
vigorously defend itself. While the outcome of this lawsuit is not presently
determinable, management does not expect the outcome will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
The Company and its subsidiaries are also involved from time to time in other
various claims and legal actions arising in the ordinary course of business
including, but not limited to, administrative claims and legal actions brought
in state and federal courts by patrons of the Company's MSP games, wherein the
patron may allege the winning of jackpot awards or some multiple thereof.
Because of the size of the jackpots that a patron may play for, related patron
disputes often involve sizable claims. The loss of a sizable patron dispute
claim could have a material adverse effect on the Company. For example, the
Company is currently litigating two patron disputes that it has won on every
level of review, however the patrons have continued to appeal the decisions. One
dispute has been appealed by the patron to the Supreme Court of the State of
Mississippi, and the patron alleges a claim for two identical jackpots of over
$2.7 million each. A second dispute has been appealed by a patron to the Supreme
Court of the State of Nevada, who alleges a claim for over $8 million. In either
case, if the patron were to win, the Company would be liable to pay $1 million
immediately (plus interest) with the remainder to be paid in installments over
twenty years in an annuity. However, management believes that the likelihood of
success by those making such claims is remote and that the ultimate outcome of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
document and the Consolidated Financial Statements and Notes thereto included in
the Company's annual report on Form 10-K.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1999
OVERVIEW
Income from operations was $2,234,000 for the three months ended March 31, 2000
compared with $183,000 for the three months ended March 31, 1999, an increase of
$2,051,000. Net income increased from $192,000 for the three months ended March
31, 1999 to $1,596,000 for the same period in 2000, an improvement of
$1,404,000.
Total revenue for the three months ended March 31, 2000 was $16,796,000 compared
with $15,737,000 for the same period in 1999, an increase of $1,059,000 or 7%.
This increase is primarily due to greater sales of gaming devices and OASIS
systems, partially offset by a decrease in recurring revenue.
-9-
OASIS systems revenue was $8,035,000 and $6,896,000 for the three months ended
March 31, 2000 and 1999, respectively, an increase of $1,139,000 or 17%. This
increase is primarily attributable to continued strong sales of the Company's
Windows (Windows is a registered trademark of Microsoft Corporation) based OASIS
product, which was introduced into the market late in the fourth quarter of
1998. Operating income from this segment increased $417,000 from $2,814,000 to
$3,231,000 for the three months ended March 31, 1999 and 2000, respectively.
This increase is primarily the result of increased revenue, offset in part by a
higher allocation of corporate expenses.
Revenue from the sale of gaming devices increased $914,000 from $4,694,000 for
the three month period ended March 31, 1999 to $5,608,000 for the same fiscal
2000 period. This increase in revenue is primarily attributable to increased
sales of games on the Bandit-TM- platform and other video games. This segment's
operating loss of $962,000 for the three months ended March 31, 2000 was
$1,094,000 lower than the same prior year period, primarily due to an improved
gross margin and higher revenue offset in part by increased allocation of
corporate expenses.
Revenue from the recurring revenue segment was $1,377,000 and $2,200,000 for
the three months ended March 31, 2000 and 1999, respectively, a decrease of
37% or $823,000. This revenue decline is primarily the result of a reduction
in the number of Cool Millions-TM- and Xtreme-TM- operating units in service
(441 linked units at March 31, 1999 to 151 linked units at March 31, 2000)
due to the maturation of these products. Operating income for the three
months ended March 31, 2000 was $95,000, an improvement of $677,000 from the
loss of $582,000 in the prior year. This improvement is primarily
attributable to a higher gross margin percentage combined with lower
operating costs, partially offset by lower revenues.
Signs revenue decreased from $1,207,000 for the three months ended March 31,
1999 to $998,000 for the same period in 2000, a decrease of $209,000 or 17%.
This decrease is primarily due to lower sales of games related signage. The
operating loss from signs decreased from $364,000 to $325,000 for the three
months ended March 31, 1999 and 2000, respectively, primarily due to a lower
allocation of corporate expenses, partly offset by lower revenue.
Revenue of $778,000 from TurboPower Software was $38,000, or 5%, higher for the
three months ended March 31, 2000 compared with the same prior year period.
Operating income from this segment decreased $176,000 for the three months ended
March 31, 2000 compared with the same prior year period, primarily attributable
to increased operating expenses.
GROSS MARGIN
The gross margin percentage was 58% for the three months ended March 31, 2000
compared with 45% for the same period in 1999. This increase is primarily due
to manufacturing efficiencies.
OPERATING EXPENSES
Operating expenses were $7,541,000 and $6,868,000 for the three months ended
March 31, 2000 and 1999, respectively, an increase of $673,000 or 10%. Operating
expenses increased slightly as a percentage of revenue from 44% for the three
months ended March 31, 1999, to 45% for the same period in 2000.
Selling, general and administrative expenses increased from $4,177,000 for the
three months ended March 31, 1999, to $4,826,000 for the same period in 2000, an
increase of $649,000 or 16%. Selling, general and administrative expenses as a
percentage of revenues increased from 27% for the three months ended March 31,
1999, to 29% for the same period in 2000. The increase in selling, general and
administrative expenses is primarily attributable to increased legal costs and
higher payroll costs related to the higher revenue.
Research and development expenses increased from $1,640,000 for the three
months ended March 31, 1999, to $1,757,000 for the same period in 2000, an
increase of $117,000 or 7%. Research and development expenses as a percentage
of revenues were 10% for the three months ended March 31, 2000 and 1999.
-10-
Depreciation and amortization expense decreased from $1,051,000 for the three
months ended March 31, 1999, to $958,000 for the same period in 2000, a
decrease of $93,000 or 9%. The decrease in depreciation and amortization is
primarily due to decreased amortization of royalties and software development
costs.
OTHER INCOME, NET
Other income, net, is primarily comprised of interest income, interest expense
and gains and losses on disposal of assets. Other income, net, increased from
$112,000 for the three months ended March 31, 1999, to $222,000 for the same
period in 2000, an increase of $110,000 or 98%. This increase is primarily due
to the write-off of assets in the first quarter of 1999 which did not occur in
2000.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operating and capital expenditures
primarily through cash flows from its operations and cash from proceeds of
its equity offerings. The Company had cash and cash equivalents of
$16,084,000 at March 31, 2000, compared with $9,255,000 at December 31, 1999,
of which $2,488,000 and $2,389,000, respectively, were restricted for payment
of slot liabilities.
Certain jurisdictions in which MSP systems operate require that the Company
maintain restricted funds for the payment of jackpot prizes. At March 31,
2000, the Company's accrued slot liability for its MSP systems aggregated
$18,493,000. In connection with these slot liabilities and in accordance with
gaming requirements, the Company established restricted cash accounts
aggregating approximately $2,488,000 at March 31, 2000 to ensure availability
of adequate funds to pay for future jackpot liabilities. The Company also has
restricted investment securities approximating $15,886,000 as of March 31,
2000 for the payment of jackpots already won. Although statistically
unlikely, a possibility exists that multiple jackpots may be awarded prior to
the time period over which game play has generated sufficient revenue to
accrue each base jackpot amount. Such occurrences could have a material
adverse impact on the Company's results of operations in the reporting period
in which the jackpots hit.
The Company's ratio of current assets to current liabilities is 6.5 to 1 at
March 31, 2000, while the noncurrent liabilities to equity ratio is .22 to 1.
Based on this financial position, the Company believes it could obtain
additional long-term financing for growth. However, there can be no assurance
that the Company will be able to obtain additional sources of capital.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and the changes in
the market values of its investments.
The Company's interest rate exposure relates primarily to the Company's
investment portfolio. The Company has not used derivative financial instruments
in its investment portfolio. The Company invests its excess cash primarily in
debt instruments of the U.S. Government and its agencies and state and other
municipal government agencies. By policy, the Company limits the amount of
credit exposure to any one issuer. The Company protects and preserves its
invested funds by limiting default, market and reinvestment risk.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. The Company may suffer
losses in principal if forced to sell securities which have declined in market
value due to changes in interest rates.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement to take advantage of
the "safe harbor" provisions of the PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 for any forward-looking statement made by, or on behalf of, the Company.
The factors identified in this cautionary statement are important factors (but
not necessarily all the important factors) that could cause actual results to
differ materially from those expressed in any
-11-
forward-looking statement made by, or on behalf of, the Company. Where any such
forward-looking statement includes a statement of the assumptions or bases
underlying such forward-looking statement, the Company cautions that, while it
believes such assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending on the circumstances. Where, in any forward-looking statement, the
Company, or its management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished. Taking into
account the foregoing, the following are identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
- - A decline in demand for, or appeal of, the Company's products, or a decline
in the rate of growth of new and existing markets for the Company's
products.
- - An increase in popularity of competitor's products.
- - The entry into the market by new competitors and competition with more well
established manufacturers and distributors.
- - The loss or retirement of our key executives.
- - Approval of competitor's patent applications resulting in an inability to
use intellectual property upon which the Company relies to manufacture and
sell its products or denial of approval of the Company's patent
applications.
- - Unfavorable public referendums or anti-gaming legislation.
- - Unfavorable legislation affecting or directed at manufacturers or operators
of gaming products and systems.
- - The effect of regulatory and governmental actions including, without
limitations, delays in regulatory approval for the Company's products, or
the limitation, conditioning, suspension or revocation of any of the
Company's licenses.
- - Unfavorable determination of suitability by gaming regulatory authorities
with respect to our officers, directors, key employees or business
partners.
- - With respect to legal actions pending against the Company, the discovery of
facts not presently known to the Company or determination by judges, juries
or other finders of fact which do not accord with the Company's evaluation
of the possible liability or outcome of existing litigation.
We do not undertake to update our forward looking statement to reflect future
events or circumstances.
-12-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 19, 1998, Acres Gaming Corporation filed an action against the Company,
Mikohn Gaming Corporation, New York New York Hotel & Casino, LLC, and Sunset
Station Hotel & Casino, in the Federal Court for the State of Nevada, alleging
that the Company's ProTurbo Software module violated certain patent rights of
Acres Gaming. Acres Gaming also filed a Motion for Preliminary Injunction, which
was later withdrawn by Acres. The Company has answered the lawsuit asserting
defenses and counterclaims seeking a declaration of invalidity, noninfringement
and unenforceability of the patent asserted. The Company believes this action is
without merit and will continue to vigorously defend itself. While the outcome
of this lawsuit is not presently determinable, management does not expect the
outcome will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
On November 17, 1998, Acres filed a second lawsuit against the Company alleging
that the Company's ProTurbo Software module violates certain patent rights of a
second Acres patent. CDS has filed an answer and a counterclaim seeking a
declaration of invalidity, noninfringement and unenforceability of the patent
asserted. The Company has filed additional counterclaims for alleged patent
misuse, spoliation of evidence, antitrust violations and unfair competition. The
Company believes that this action is without merit and will continue to
vigorously defend itself. While the outcome of this lawsuit is not presently
determinable, management does not expect the outcome will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
The Company and its subsidiaries are also involved from time to time in other
various claims and legal actions arising in the ordinary course of business
including, but not limited to, administrative claims and legal actions brought
in state and federal courts by patrons of the Company's MSP games, wherein the
patron may allege the winning of jackpot awards or some multiple thereof.
Because of the size of the jackpots that a patron may play for, related patron
disputes often involve sizable claims. The loss of a sizable patron dispute
claim could have a material adverse effect on the Company. For example, the
Company is currently litigating two patron disputes that it has won on every
level of review, however the patrons have continued to appeal the decisions. One
dispute has been appealed by the patron to the Supreme Court of the State of
Mississippi, and the patron alleges a claim for two identical jackpots of over
$2.7 million dollars each. A second dispute has been appealed by a patron to the
Supreme Court of the State of Nevada, who alleges a claim for over $8 million
dollars. In either case, if the patron were to win, the Company would be liable
to pay $1 million dollars immediately (plus interest) with the remainder to be
paid in installments over twenty years in an annuity. However, management
believes that the likelihood of success by those making such claims is remote
and that the ultimate outcome of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit 27.1 Financial Data Schedule
There were no reports filed on Form 8-K for the three month period ended March
31, 2000.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASINO DATA SYSTEMS
--------------------
Registrant
Date: May 12, 2000 /s/ Steven A. Weiss
--------------------- ---------------------------------
Steven A. Weiss
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: May 12, 2000 /s/ Ron Rowan
--------------------- ---------------------------------
Ron Rowan
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-14-