UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: December 31, 2003
| ¨ | Transition Report Pursuant to Section 13 or 15 (d) of The Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-28318
Multimedia Games, Inc.
(Exact Name of Registrant as Specified in its Charter)
| Texas | 74-2611034 | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification Number) | |
| 206 Wild Basin Road, Building B, Fourth Floor Austin, Texas |
78746 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (512) 334-7500
Registrant’s website: www.multimediagames.com
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 past 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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of February 6, 2004, there were 27,190,074 shares of the Registrant’s common stock, par value $0.01 per share, outstanding, as adjusted for the split described in this Quarterly Report.
INDEX
| PART I. FINANCIAL INFORMATION |
||
| Item 1. Financial Statements (Unaudited) |
||
|
Consolidated Balance Sheets (As of December 31, 2003 and September 30, 2003) |
3 | |
|
Consolidated Statements of Income (For the three months ended December 31, 2003 and 2002) |
4 | |
|
Consolidated Statements of Cash Flows (For the three months ended December 31, 2003 and 2002) |
5 | |
| 7 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
32 | |
| 33 | ||
| 33 | ||
| 33 | ||
| 33 | ||
| 34 | ||
On February 2, 2004, the board declared a two-for-one split of our common stock, to be paid in the form of a stock dividend to our stockholders of record as of February 16, 2004. All references in this Quarterly Report to the number of shares and per-share amounts have been adjusted to reflect the split, except for the stockholder vote numbers in Part II – Item 4. Submission of Matters to a Vote of Security Holders.
-2-
CONSOLIDATED BALANCE SHEETS
As of December 31, 2003 and September 30, 2003
(In thousands, except shares and per-share amounts)
| December 31, 2003 |
September 30, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 6,371 | $ | 26,319 | ||||
| Accounts receivable |
8,789 | 6,387 | ||||||
| Allowance for doubtful accounts receivable |
(526 | ) | (521 | ) | ||||
| Inventory, net |
1,226 | 2,446 | ||||||
| Prepaid expenses and other |
1,494 | 1,811 | ||||||
| Notes receivable, net |
23,487 | 3,659 | ||||||
| Federal and state income tax receivable |
1,101 | 1,539 | ||||||
| Deferred income taxes |
1,607 | 1,584 | ||||||
| Total current assets |
43,549 | 43,224 | ||||||
| Restricted cash and long-term investments |
1,339 | 1,380 | ||||||
| Inventory, net – non-current |
16,927 | 11,742 | ||||||
| Property and equipment, net |
81,630 | 78,524 | ||||||
| Notes receivable – non-current |
1,091 | 500 | ||||||
| Other assets |
12,859 | 8,360 | ||||||
| Total assets |
$ | 157,395 | $ | 143,730 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Current portion of long-term debt and capital leases |
$ | 8,641 | $ | 4,558 | ||||
| Accounts payable and accrued expenses |
10,704 | 20,138 | ||||||
| Deferred revenue |
375 | 24 | ||||||
| Total current liabilities |
19,720 | 24,720 | ||||||
| Long-term debt and capital leases, less current portion |
15,552 | 9,402 | ||||||
| Other long-term liabilities |
3,161 | 3,393 | ||||||
| Deferred income taxes |
4,711 | 4,103 | ||||||
| Total liabilities |
43,144 | 41,618 | ||||||
| Commitments and contingencies (Note 2) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock: |
||||||||
| Series A, $0.01 par value, 1,800,000 shares authorized, no shares issued and outstanding; |
— | — | ||||||
| Series B, $0.01 par value, 200,000 shares authorized, no shares issued and outstanding |
— | — | ||||||
| Common stock, $0.01 par value, 75,000,000 shares authorized 29,237,786 and 28,694,028 shares issued, and 27,004,834 and 26,483,622 shares outstanding, respectively |
292 | 287 | ||||||
| Additional paid-in capital |
50,845 | 45,487 | ||||||
| Stockholders’ notes receivable |
(1,488 | ) | (1,466 | ) | ||||
| Treasury stock, 2,232,952 and 2,210,406 shares at cost, respectively |
(6,963 | ) | (6,491 | ) | ||||
| Retained earnings |
71,565 | 64,295 | ||||||
| Total stockholders’ equity |
114,251 | 102,112 | ||||||
| Total liabilities and stockholders’ equity |
$ | 157,395 | $ | 143,730 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
-3-
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31, 2003 and 2002
(In thousands, except per-share amounts)
(Unaudited)
| 2003 |
2002 |
|||||||
| REVENUES: |
||||||||
| Gaming revenue – Class II |
$ | 99,885 | $ | 81,772 | ||||
| Gaming revenue – All other |
2,172 | 1,017 | ||||||
| Player terminal and license sale and lease revenue |
3,377 | 643 | ||||||
| Other |
422 | 416 | ||||||
| Total revenues |
105,856 | 83,848 | ||||||
| Allotments to facility operators |
71,401 | 57,033 | ||||||
| Bingo prizes and related costs |
— | 720 | ||||||
| Net revenues |
34,455 | 26,095 | ||||||
| OPERATING COSTS AND EXPENSES: |
||||||||
| Cost of player terminals and licenses sold |
1,936 | 559 | ||||||
| Selling, general and administrative expenses |
13,364 | 9,060 | ||||||
| Amortization and depreciation |
7,604 | 4,429 | ||||||
| Total operating costs and expenses |
22,904 | 14,048 | ||||||
| Operating income |
11,551 | 12,047 | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Interest income |
363 | 110 | ||||||
| Interest expense |
(223 | ) | (17 | ) | ||||
| Income before income taxes |
11,691 | 12,140 | ||||||
| Income tax expense |
4,421 | 4,690 | ||||||
| Net income |
$ | 7,270 | $ | 7,450 | ||||
| Basic earnings per share |
$ | 0.27 | $ | 0.29 | ||||
| Diluted earnings per share |
$ | 0.24 | $ | 0.25 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
-4-
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2003 and 2002
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
| 2003 |
2002 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 7,270 | $ | 7,450 | ||||
| Adjustments to reconcile net income to cash and cash equivalents provided by (used in) operating activities: |
||||||||
| Amortization and depreciation |
7,604 | 4,429 | ||||||
| Options issued to consultants |
93 | 85 | ||||||
| Provision for (recovery of) doubtful accounts |
(21 | ) | 200 | |||||
| Provision for obsolete inventory |
248 | 125 | ||||||
| Deferred income taxes |
585 | 515 | ||||||
| Tax benefit of stock options exercised |
3,369 | 575 | ||||||
| Accrued interest on notes receivable |
(279 | ) | — | |||||
| (Increase) decrease in: |
||||||||
| Accounts receivable |
(2,376 | ) | (3,273 | ) | ||||
| Inventory |
(8,415 | ) | (4,118 | ) | ||||
| Prepaid expenses and other |
(1,418 | ) | (777 | ) | ||||
| Federal and state income tax receivable |
(2,931 | ) | 1,223 | |||||
| Other long-term liabilities |
(191 | ) | — | |||||
| Prize fulfillment fees payable |
— | (13 | ) | |||||
| Notes receivable – current |
887 | 2,951 | ||||||
| Accounts payable and accrued expenses |
(9,434 | ) | (2,601 | ) | ||||
| Deferred revenue |
351 | — | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(4,658 | ) | 6,771 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Acquisition of property and equipment and patents |
(2,758 | ) | (4,248 | ) | ||||
| Advances under development agreements |
(3,474 | ) | — | |||||
| Repayments under development agreements |
133 | — | ||||||
| Notes receivable, net |
(20,574 | ) | (500 | ) | ||||
| Stockholders’ notes receivable, net |
(22 | ) | (21 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES |
(26,695 | ) | (4,769 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from exercise of stock options, warrants, and related tax benefit |
4,798 | 801 | ||||||
| Principal payments of long-term debt and capital leases |
(1,101 | ) | (71 | ) | ||||
| Proceeds from long-term debt |
7,708 | 152 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
11,405 | 882 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(19,948 | ) | 2,884 | |||||
| Cash and cash equivalents, beginning of period |
26,319 | 15,247 | ||||||
| Cash and cash equivalents, end of period |
$ | 6,371 | $ | 18,131 | ||||
-5-
MULTIMEDIA GAMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
For the Three Months Ended December 31, 2003 and 2002
(In thousands)
(Unaudited)
| 2003 |
2002 | |||||
| SUPPLEMENTAL CASH FLOW DATA: |
||||||
| Interest paid |
$ | 317 | $ | 17 | ||
| Income tax paid |
$ | 29 | $ | 1,801 | ||
| NON-CASH TRANSACTIONS: |
||||||
| Transfer of inventory to property and equipment |
$ | 4,202 | $ | 6,141 | ||
| Property and equipment and other assets acquired through: |
||||||
| Capital lease |
2,922 | 263 | ||||
| Long-term debt |
704 | — | ||||
| Receipt of Company’s common stock as consideration for employee stock option exercise |
472 | — | ||||
The accompanying notes are an integral part of the consolidated financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes contained within the Company’s Annual Report on Form 10-K for the year ended September 30, 2003.
The financial statements included herein as of December 31, 2003, and for each of the three months ended December 31, 2003 and 2002 have been prepared by the Company without an audit, pursuant to accounting principles generally accepted in the U.S. and the rules and regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The information presented reflects all adjustments consisting solely of normal adjustments which are, in the opinion of management, considered necessary to present fairly the financial position, results of operations, and cash flows for the periods. Operating results for the three months ended December 31, 2003 are not necessarily indicative of the results which will be realized for the year ending September 30, 2004.
Operations. The Company is a technology supplier to the gaming industry. The Company designs and develops interactive, electronic gaming systems that are marketed primarily to Native American and charity and commercial bingo gaming facilities located throughout the U.S. The Company’s gaming systems are typically provided to customers under revenue sharing arrangements except for video lottery terminals in the Class III market in Washington State, which are typically sold for an up-front purchase price. The Company provides Class II gaming to its tribal customers through a nationwide, broadband telecommunications network. Player terminals in the Class II Native American gaming market are typically interconnected within a gaming facility and across multiple facilities, thereby enabling players to simultaneously participate in the same game and to compete against one another to win common pooled prizes. The Company offers content for its gaming systems that have been designed and developed by the Company as well as game themes it has licensed from others.
Consolidation Principles. The Company’s financial statements include the activities of Multimedia Games, Inc. and its wholly-owned subsidiaries: MegaBingo, Inc., MGAM Systems, Inc., MGAM Services, LLC, TV Games, Inc. (dissolved April 10, 2003), Multimedia Creative Services, Inc (dissolved October 4, 2002).
Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and a