UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
[ ] 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 No.)
3300 BIRTCHER DRIVE, LAS VEGAS, NEVADA 89118
(Address of Principal Executive Offices) (Zip Code)
(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: 18,035,897 SHARES OF COMMON
STOCK OUTSTANDING AS OF APRIL 17, 1997
Page 1 of 16
CASINO DATA SYSTEMS
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3-4
Unaudited Consolidated Statements of Operations
For the three months ended March 31, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows
For the three months ended March 31 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II OTHER INFORMATION
Items 1-6 14
Signatures 15
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASINO DATA SYSTEMS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents including restricted amounts of
approximately $13,300,000 and $12,000,000, respectively $ 21,922,966 $ 21,482,173
Investment securities including restricted amounts of
$479,820 and $0, respectively 479,820 844,303
Accounts receivable, net of allowance for doubtful
accounts of $2,366,574 and $2,367,747, respectively 17,547,053 20,369,624
Due from related party, net of allowance for
doubtful accounts of $500,000 2,592,848 2,512,143
Current portion of notes receivable 2,229,250 3,520,542
Income tax receivable 1,288,561 1,288,561
Inventories, net of reserve for obsolescence of
$68,000 and $0, respectively 17,483,461 15,219,571
Deferred tax asset 3,880,793 2,261,877
Prepaid expenses and other current assets 1,165,675 1,265,601
------------ ------------
Total current assets 68,590,427 68,764,395
------------ ------------
Property and equipment, net 35,405,566 35,435,854
Investment securities, including restricted amounts of
approximately $6,326,984 and $4,474,000, respectively 6,326,984 5,957,956
Notes receivable, excluding current portion 587,664 1,280,321
Intangible assets, net 9,445,325 9,539,254
Software development costs, net of accumulated amortization
of $73,036 and $54,736, respectively 4,356,864 2,903,288
Deferred tax asset 1,115,945 1,115,945
Deposits 410,647 425,331
------------ ------------
Total assets $126,239,422 $125,422,344
------------ -----------
------------ -----------
3
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31,
1997 1996
------------ ------------
Current liabilities:
Current portion of long term debt $ 1,968,950 $ 2,032,187
Accounts payable 2,286,068 2,939,888
Accrued expenses and customer deposits 5,768,392 2,691,341
Accrued slot liability 3,357,046 2,874,918
------------ ------------
Total current liabilities 13,380,456 10,538,334
Noncurrent liabilities:
Long term debt, excluding current portion 2,009,496 2,450,159
Accrued slot liability 10,951,291 9,257,308
------------ ------------
Total noncurrent liabilities 12,960,787 11,707,467
Commitments and contingencies
Shareholders' equity:
Common stock; authorized 100,000,000 shares,
no par value; 18,035,897 issued at March 31,
1997 and 18,033,647 issued and outstanding at
December 31, 1996 83,633,313 83,624,448
Retained earnings 16,264,866 19,552,095
------------ ------------
Total shareholders' equity 99,898,179 103,176,543
------------ ------------
Total liabilities and shareholders' equity $126,239,422 $125,422,344
------------ ------------
------------ ------------
See accompanying notes to unaudited consolidated financial statements
4
CASINO DATA SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
Revenues:
Systems and product sales $7,076,162 $10,289,525
Gaming operations 6,134,057 4,583,994
---------- -----------
13,210,219 14,873,519
----------- ------------
Costs and expenses:
Cost of goods sold 9,517,597 6,963,461
Selling, general and administrative 6,679,566 4,148,768
Research and development 822,401 730,000
Depreciation and amortization 1,281,170 569,169
----------- ------------
Total costs and expenses 18,300,734 12,411,398
----------- ------------
Income (loss) from operations (5,090,515) 2,462,121
----------- ------------
Other income (expense):
Interest and other income 284,025 213,467
Interest expense (99,655) (112,212)
----------- ------------
Total other income (expense) 184,370 101,255
----------- ------------
Income (loss) before income taxes (4,906,145) 2,563,376
Income tax (benefit) expense (1,618,916) 889,049
----------- ------------
Net income (loss) ($3,287,229) $ 1,674,327
----------- ------------
----------- ------------
Net income (loss) per common and equivalent
share $ (0.18) $ 0.12
----------- ------------
----------- ------------
Weighted average shares outstanding 18,035,000 14,618,000
----------- ------------
----------- ------------
See accompanying notes to unaudited consolidated financial statements
5
CASINO DATA SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
-------------- -------------
Cash flows from operating activities:
Net income (loss) $ (3,287,229) $ 1,674,327
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,281,170 569,169
Provision for accounts receivable 1,173 -
Net increase in deferred tax asset (1,618,916) -
Changes in assets and liabilities
Decrease (increase) in accounts
receivable, notes receivable and due
from related parties 4,724,642 (5,301,496)
Increase in inventories (2,263,890) (3,773,097)
Decrease in prepaid expenses, other
current assets and deposits 114,610 732,406
Decrease in accounts payable (653,820) (118,141)
Increase in slot liability, accrued
liabilities and customer deposits 5,253,162 2,385,138
----------- ------------
Net cash provided by (used in) operating
activities 3,550,902 (3,831,694)
----------- ------------
Cash flows used in investment activities:
Net increase in investment securities (4,545) (4,667,098)
Acquisitions of property and equipment (1,096,543) (3,274,054)
Investment in software development (1,471,876) (237,330)
Increase in intangible assets (42,110) (2,606,920)
----------- ------------
Net cash used in investment activities (2,615,074) (10,785,402)
----------- ------------
Cash flows (used in) from financing activities:
Repayment of debt (503,900) (318,365)
Proceeds from issuance of notes - 2,078,567
Net proceeds from issuance of common stock 8,865 46,007,029
----------- ------------
Net cash provided by financing activities (495,035) 47,767,231
----------- ------------
Net increase in cash and cash equivalents 440,793 33,150,135
Cash and cash equivalents at beginning of
period 21,482,173 13,156,998
----------- ------------
Cash and cash equivalents at end of period $21,922,966 $46,307,133
----------- ------------
----------- ------------
See accompanying notes to unaudited consolidated financial statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 the
Company: CDS Services Company; CDS Graphics and Imaging Company; CDS Signs,
Inc.; TurboPower Software Company, and CDS Gaming Company. The Company
currently operates in one line of business whose operations consist
principally of: (i) the development, licensing and sale of casino management
information systems; (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 operates solely in the U.S.
The consolidated financial statements include the accounts of Casino Data
Systems, CDS Services Company, CDS Graphics and Imaging Company, Inc., CDS
Signs, Inc., TurboPower Software Company, and CDS Gaming Company
(collectively the "Company"). All significant inter-company balances and
transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
unaudited 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.
The accompanying unaudited consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods presented. The results of
operations for the interim periods are not indicative of the results of
operations for an entire year.
(2) INVENTORIES:
Inventories consist of the following:
March 31, December 31,
1997 1996
----------- -------------
Raw materials $11,048,923 $9,943,220
Work in process 569,212 663,340
Finished goods 5,865,326 4,613,011
----------- -----------
$17,483,461 $15,219,571
----------- -----------
----------- -----------
(3) LONG TERM DEBT:
During May 1996, the Company entered into a $20,000,000 revolving line of
credit ("line of credit") with U.S. Bank of Nevada which expires in May 1997.
The line of credit is secured by the Company's accounts receivable, inventory
and general intangibles. The line of credit bears interest at a variable rate
equal to the bank's base rate, which was 8.25% at March 31, 1997. There was no
amount outstanding under the line of credit at March 31, 1997. Advances under
the line are limited to a multiple of the Company's earnings before interest,
taxes, depreciation, and amortization over the past four quarters and are also
subject to maintenance of certain financial covenants and ratios. The Company
has reserved $5 million of this line of credit to secure an irrevocable letter
of credit pursuant to equipment financing agreements. These equipment
agreements are collateralized by the related equipment and contain certain
restrictive covenants, including the requirement for a three year letter of
credit securing payment in the amount of 50% of the outstanding principal
balance.
7
Future minimum payments under equipment financing agreements are as
follows:
Payments
----------
1997 $1,759,877
1998 2,315,798
1999 267,173
2000 9,245
----------
Total minimum payments 4,352,093
Less interest 373,647
----------
Present value of net minimum
payments 3,978,446
Less current portion 1,968,950
----------
$2,009,496
----------
----------
(4) NET INCOME (LOSS) PER COMMON SHARE:
The following is an analysis of the components of the shares used to
compute net income (loss) per share:
March 31, March 31,
1997 1996
---------- ----------
Weighted average shares outstanding 18,035,000 13,953,341
Weighted average shares outstanding related
to the shares granted under the employee
stock option plan 0 664,659
---------- ----------
18,035,000 14,618,000
---------- ----------
---------- ----------
(5) RELATED PARTY TRANSACTIONS:
A shareholder and former director of the Company is a majority shareholder
in Kiland Distributing Corporation ("KDC"), a distributor of the Company's
products. The Company made sales to KDC of approximately $90,000 during the
three months ended March 31, 1997. The sales, recorded net of distributor
discounts, represent less than 1% of the Company's revenues for the three months
ended March 31, 1997.
The Company entered into an agreement with Best Bet Products (Best Bet), of
which an employee is a major shareholder, for the distribution of certain gaming
devices. In addition, the Company loaned Best Bet $100,000, evidenced by a note
bearing interest at the prime rate plus 1.5%, which approximated 9.75% at March
31, 1997. The note, which originally matured on April 1, 1997, has been
extended to July 1, 1997.
A director of the Company is associated with a law firm that has rendered
various legal services to the Company. The Company paid the firm $20,019 during
the three months ended March 31, 1997, for legal services rendered.
(6) COMMITMENTS & CONTINGENCIES:
In connection with the operation of its MSP Systems, the Company is liable
for progressive jackpots, which are paid as an initial reset amount followed by
an annuity paid out over 20 years when the winning combination is hit. Base
jackpots are charged to revenue ratably over the period of play expected to
precede payout based on a statistical analysis. The progressive component
increases at a
8
progressive rate based on the number of coins played. The accrual of the
liability and the reduction of revenue as the amount of the jackpot increases
results in recognition of liabilities and matching costs and revenues. The
possibility exists that the winning combination may be hit before the Company
has accrued the initial reset amount, at which time the unaccrued portion
would be expensed. The unaccrued slot liability at March 31, 1997 was
approximately $2,000,000. In connection with the accrued slot liability and
in accordance with gaming requirements, the Company has established
segregated cash accounts aggregating approximately $13,300,000 at March 31,
1997, to ensure adequate funds are available to pay this liability. The
Company also has approximately $5,300,000 segregated for the payment of
jackpots already won.
On February 5, 1996, the Company entered into a five-year cross-license
and development agreement with CTI, licensee of certain intellectual property
rights for the Caribbean Stud video poker game, to use certain intellectual
property rights to develop and manufacture certain gaming machines and to
operate MSP systems with such gaming machines in certain jurisdictions. The
agreement provides for the Company to pay royalties, or, at the licensor's
option upon its receipt of certain gaming licenses, a one-half share of the
Company's net income from such operations. The agreement also provides for
the formation of a joint venture to distribute the gaming machines and
operate MSP systems with such gaming machines in certain jurisdictions. The
joint venture, if established, would have the right to acquire certain gaming
machines upon its receipt of certain gaming licenses.
In November 1996, the Company entered into an agreement with a third
party requiring that the Company pay $330,000 in monthly installments through
March 1998, in exchange for the enhancement of certain aesthetic qualities of
existing and future products.
In January 1997, a class action complaint was filed against the Company
and certain Company executives on behalf of any party, unrelated to the
Company, who purchased the Company's common stock during the time period from
August 1,1996 through December 16, 1996 (the Class Period). The complaint
alleges that the market price of the Company's common stock was artificially
inflated during the Class Period due to material misrepresentations and
omissions in press releases and other statements made by the Company's
executives to the investing public. Management believes this claim to be
without merit and intends to vigorously defend this action. While the
outcome of the matter described above is not presently determinable,
management does not expect that the outcome will have a material adverse
effect on the Company's results of operations, financial position or cash
flows.
The Company and its subsidiaries are also involved from time to time in
various claims and legal actions arising in the ordinary course of business
including, but not limited to, claims brought by patrons of the Company's MSP
games wherein the patron may allege the winning of jackpot awards or some
multiple thereof. Management believes that the likelihood of success by
those making such claims are remote and that the ultimate outcome of these
matters will not have a material adverse effect on the Company's consolidated
financial statements taken as a whole.
9
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 Consolidated
Financial Statements and Notes thereto included elsewhere in this document
and Consolidated Financial Statements and Notes thereto included in the
Company's annual report on Form 10-K.
QUARTER ENDED MARCH 31, 1997, COMPARED
TO THE QUARTER ENDED MARCH 31, 1996
OVERVIEW
Income from operations and net income decreased from $2,462,121 and
$1,674,327, respectively for the three months ended March 31, 1996, to losses
of ($5,090,515) and ($3,287,229), respectively, for the same period in 1997.
This represents a decrease of $7,552,636 in income from operations and a
decrease of $4,961,556 in net income. The decrease in income from operations
and net income is primarily related to decreased OASIS-TM- II systems sales
and increased costs associated with the Games Division infrastructure
partially offset by higher revenues from progressive operations.
REVENUES
Revenues decreased from $14,873,519 for the three months ended March 31,
1996, to $13,210,219 for the same period in 1997, a decrease of $1,663,300,
or 11%. The decrease in revenues is primarily attributable to a decrease in
sales of the Company's OASIS II system for the three month period ended March
31, 1997, compared to same period in 1996. Revenues from progressive
operations increased from $4,583,994 for the three months ended March 31,
1996, to $6,134,057 for the same period in 1997, an increase of $1,550,063,
or 34%. The increase in progressive operations is due primarily to the
increased number of linked games in operation for the three months ended
March 31, 1997, as compared to the same period in 1996.
COSTS AND EXPENSES
Costs and expenses increased from $12,411,398 for the three months ended
March 31, 1996, to $18,300,734 for the same period in 1997, an increase of
$5,889,336, or 47%. Operating costs and expenses, excluding cost of goods
sold, increased as a percentage of revenues from 37% for the three months
ended March 31, 1996, to 66% for the same period in 1997. Cost of goods sold
increased from $6,963,461 for the three months ended March 31, 1996, to
$9,517,597 for the same period in 1997, an increase of $2,554,136. Gross
margins as a percentage of revenues decreased from 53% for the three months
ended March 31, 1996 to 28% for the same period in 1997. The decrease in
gross margin is primarily attributable to the increase in the percentage of
total revenue contributed by MSP operations, a lower gross margin associated
with the Company's OASIS II systems and the inefficiencies associated with
the start-up of the Games Division. Gross margin also includes approximately
$325,000 in expense for two multi-site progressive jackpot wins which were
not fully accrued.
Selling, general and administrative expenses increased from $4,148,768 for
the three months ended March 31, 1996, to $6,679,566 for the same period in
1997, an increase of $2,530,798. The increase is primarily attributable to
increased personnel and associated payroll and marketing expenses.
10
Selling, general and administrative expenses as a percentage of revenues
increased from 28% for the three months ended March 31, 1996, to 51% for the
same period in 1997.
Research and development expenses increased from $730,000 for the three
months ended March 31, 1996, to $822,401 for the same period in 1997. Major
expenditures during the three months ended March 31, 1997 primarily included
the development of additional OASIS II system products and video interactive
games. Research and development expenses as a percentage of revenues
increased from 5% for the three months ended March 31, 1996, to 6% for the
same period in 1997.
Depreciation and amortization increased from $569,169 for the three
months ended March 31, 1996, to $1,281,170 for the same period in 1997. The
increase is primarily due to depreciation of an increased number of MSP games
in operation.
Other income is made up of rental income, interest income and other
forms of income that are not the result of normal operations. Other income
increased from $101,255 for the three months ended March 31, 1996, to
$184,370 for the same period in 1997.
NET INCOME (LOSS)
Net income decreased from $1,674,327 for the three months ended March
31, 1996, to a loss of ($3,287,229) for the same period in 1997, a decrease
of $4,961,556. Income from operations decreased from $2,462,121 for the
three month period ended March 31, 1996, to ($5,090,515) for the same period
in 1997, a decrease of $7,552,636. The decrease in net income is due
primarily to the decrease in revenues from the sale of OASIS II systems, the
increase in the sale of products with a lower gross margin, and the increase
in the Company's fixed overhead costs associated with the start-up of the CDS
Games division. Based on the first quarter net loss, the maturation of
OASIS II system sales, and the introduction of CDS Games into the market
place, the Company believes it may have a net loss for the year ended
December 31, 1997. However, the Company could have net income in any given
quarter depending on when systems contracts are signed and when game sales
occur.
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 from
its equity offerings. The Company had cash and cash equivalents of
$21,922,966 at March 31, 1997, as compared to $21,482,173 at December 31,
1996. The Company generated cash from operations of $3,550,902 during the
three months ended March 31. The most significant factor contributing to
the generation of cash from operations was collection activity resulting in a
net decrease of accounts receivable of $4,724,642 for the three months ended
March 31, 1997.
The Company used $2,615,074 in investing activities for the three months
ended March 31, 1997. These investment activities included: $1,471,876
investment in software development; $1,096,543 in equipment to be used in
operations; $42,110 for the purchase of intangible assets and $4,545 invested
in held-to-maturity securities.
The Company used $495,035 in financing activities for the three months
ended March 31, 1997. The Company received proceeds from the sale of common
stock related to the employee stock option plan of $8,865 and made payments
on outstanding debt of $503,900.
11
Certain jurisdictions in which MSP systems are operated require the
Company to maintain allocated funds for the payment of jackpot prizes. The
amount of funds required is dependent on several factors, including the type
and denomination of games and regulatory requirements. At March 31, 1997,
the Company's accrued slot liability for its MSP systems aggregated
approximately $14,300,000 and the unaccrued slot liability was approximately
$2,000,000. The unaccrued slot liability is the amount of the initial
primary jackpots that has not been fully accrued. In connection with this
slot liability and in accordance with gaming requirements, the Company
established segregated cash accounts aggregating approximately $13,300,000 at
March 31, 1997 to ensure availability of adequate funds to pay this
liability. The Company also has investment securities approximating
$5,300,000 segregated as of March 31, 1997 for the payment of jackpots
already won. Although statistically remote, 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 jackpot reset amount.
Such an occurrences could have a material adverse impact on the Company's
results of operations in the reporting period in which the jackpots are hit.
The Company has financed certain equipment under agreements for an
aggregate amount of $3,978,125. These equipment agreements are
collateralized by the related equipment and contain certain restrictive
covenants, including the requirement for a three-year letter of credit
securing payment in the amount of 50% of the current principal balance.
During May 1996, the Company entered into a $20,000,000 revolving line
of credit ("line of credit") with U.S. Bank of Nevada which expires in May
1997. The line of credit is secured by the Company's accounts receivable,
inventory and general intangibles. The line of credit bears interest at a
variable rate equal to the bank's base rate, which was 8.25% at March 31,
1997. There was no amount outstanding under the line of credit at March 31,
1997. Advances under the line are limited to a multiple of the Company's
earnings before interest, taxes, depreciation, and amortization over the past
four quarters and are also subject to maintenance of certain financial
covenants and ratios. The Company has reserved $5 million of this line of
credit to secure an irrevocable letter of credit pursuant to equipment
financing agreements. These equipment agreements are collateralized by the
related equipment and contain certain restrictive covenants, including the
requirement for a three year letter of credit securing payment in the amount
of 50% of the outstanding principal balance.
The Company's ratio of current assets to current liabilities was 5.1 to
1 at March 31, 1997, while the noncurrent liabilities to equity ratio was .13
to 1. Based on this financial position, the Company believes it could obtain
additional long-term financing for anticipated growth that may result in
working capital additions that exceed available cash and cash equivalents,
cash to be provided by operations and funds available under its line of
credit. However, there can be no assurance that the Company will be able to
obtain additional sources of capital during 1997.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements that are forward-looking, such as statements made or to be made by
the Company) contains statements that are forward-looking, such as statements
relating to plans for future expansion and other business development
activities as well other capital spending, financial sources and the effects
of regulation and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results
12
may differ from those expressed in any forward-looking statements made by or
on behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, domestic or global economic conditions and
changes in federal or state laws or the administration of such laws.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January, 1997, a class action complaint was filed in the United
States District Court, District of Nevada, by Gary A. Edwards against
the Company and certain present and former Company executives. The
complaint alleges that the market price of the Company's common stock
was artificially inflated during the class period due to
misrepresentation and omisions in press releases and other statements
made by the Company's executives to the investing public. Management
believes this claim to be without merit and intends to vigorously
defend this action. While the outcome of the matter described above is
not presently determinable, management does not expect that the outcome
will have a material adverse effect on the Company's results of
operations, financial position, or cash flows.
The Company and its subsidiaries are also involved from time to
time in various claims and legal actions arising in the ordinary
course of business including, but not limited to, claims brought by
patrons of the Company's MSP games wherein the patron may allege the
winning of jackpot awards or some multiple thereof. Management believes
that the likelihood of success by those making such claims are remote
and that the ultimate outcome of these matters will not have a material
adverse effect on the Company's consolidated financial statements taken
as a whole. However, the ultimate outcome of a patron dispute against
the Company could have a substantial material adverse effect on the
Company's financial statements taken as a whole.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: Exhibit 27. Financial Data Schedule
There were no reports filed on Form 8-K for the three month period
ended March 31, 1997.
14
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 14, 1997 s/Daniel N. Copp
----------------------- -------------------------------------
Daniel N. Copp
Chief Executive Officer
and Director
(Principal Finance Officer)
Date: May 14, 1997 s/Diana L. Bennett
----------------------- -------------------------------------
Diana L. Bennett
President, Chief Operating
Officer, and Director
Date: May 14, 1997 s/Ronald M. Rowan
----------------------- -------------------------------------
Ronald M. Rowan
Corporate Controller
(Principal Accounting Officer)
15