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: December 31, 2004
| ¨ | 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: 001-14551
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 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 ¨
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 3, 2005, there were 28,025,628 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.
INDEX
-2-
FINANCIAL INFORMATION
MULTIMEDIA GAMES, INC.
As of December 31, 2004 and September 30, 2004
(In thousands, except shares and per-share amounts)
| December 31, 2004 |
September 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 5,962 | $ | 4,768 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $679 and $533, respectively |
14,403 | 10,397 | ||||||
| Inventory |
731 | 930 | ||||||
| Prepaid expenses and other |
1,942 | 2,242 | ||||||
| Notes receivable, net |
8,602 | 12,299 | ||||||
| Federal and state income tax receivable |
3,310 | 5,044 | ||||||
| Deferred income taxes |
1,962 | 1,909 | ||||||
| Total current assets |
36,912 | 37,589 | ||||||
| Restricted cash and long-term investments |
1,182 | 1,216 | ||||||
| Leased gaming equipment, net |
48,401 | 40,652 | ||||||
| Property and equipment, net |
94,624 | 93,090 | ||||||
| Notes receivable – non-current |
22,911 | 20,588 | ||||||
| Intangible assets, net |
27,388 | 21,941 | ||||||
| Other assets |
4,620 | 2,331 | ||||||
| Total assets |
$ | 236,038 | $ | 217,407 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Current portion of long-term debt and capital leases |
$ | 14,441 | $ | 9,713 | ||||
| Accounts payable and accrued expenses |
19,351 | 25,780 | ||||||
| Deferred revenue |
2,205 | 1,847 | ||||||
| Total current liabilities |
35,997 | 37,340 | ||||||
| Revolving line of credit |
10,436 | — | ||||||
| Long-term debt and capital leases, less current portion |
14,050 | 10,753 | ||||||
| Other long-term liabilities |
3,619 | 3,932 | ||||||
| Deferred revenue – non-current |
1,481 | 2,050 | ||||||
| Deferred income taxes |
14,318 | 13,185 | ||||||
| Total liabilities |
79,901 | 67,260 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock: |
||||||||
| Series A, $0.01 par value, 1,800,000 shares authorized, |
— | — | ||||||
| Series B, $0.01 par value, 200,000 shares authorized, |
— | — | ||||||
| Common stock, $0.01 par value, 75,000,000 shares authorized, |
306 | 305 | ||||||
| Additional paid-in capital |
66,123 | 65,157 | ||||||
| Treasury stock, 2,535,648 shares at cost |
(12,382 | ) | (12,382 | ) | ||||
| Retained earnings |
102,090 | 97,067 | ||||||
| Total stockholders’ equity |
156,137 | 150,147 | ||||||
| Total liabilities and stockholders’ equity |
$ | 236,038 | $ | 217,407 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
-3-
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31, 2004 and 2003
(In thousands, except per-share amounts)
(Unaudited)
| 2004 |
2003 |
|||||||
| REVENUES: |
||||||||
| Gaming revenue – Class II |
$ | 27,669 | $ | 29,247 | ||||
| Gaming revenue – All other |
9,900 | 1,409 | ||||||
| Player terminal and license sale and lease revenue |
994 | 3,377 | ||||||
| Other |
603 | 422 | ||||||
| Total revenues |
39,166 | 34,455 | ||||||
| OPERATING COSTS AND EXPENSES: |
||||||||
| Cost of player terminals and licenses sold |
841 | 1,688 | ||||||
| Selling, general and administrative expenses |
16,825 | 13,364 | ||||||
| Amortization and depreciation |
13,281 | 7,852 | ||||||
| Total operating costs and expenses |
30,947 | 22,904 | ||||||
| Operating income |
8,219 | 11,551 | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Interest income |
432 | 363 | ||||||
| Interest expense |
(554 | ) | (223 | ) | ||||
| Income before income taxes |
8,097 | 11,691 | ||||||
| Income tax expense |
3,074 | 4,421 | ||||||
| Net income |
$ | 5,023 | $ | 7,270 | ||||
| Basic earnings per share |
$ | 0.18 | $ | 0.27 | ||||
| Diluted earnings per share |
$ | 0.17 | $ | 0.24 | ||||
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, 2004 and 2003
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 5,023 | $ | 7,270 | ||||
| Adjustments to reconcile net income to cash and cash equivalents provided by operating activities: |
||||||||
| Amortization |
811 | 459 | ||||||
| Depreciation |
12,470 | 7,393 | ||||||
| Accretion of contract rights |
326 | — | ||||||
| Provision for inventory and long-lived assets |
35 | — | ||||||
| Deferred income taxes |
1,080 | 585 | ||||||
| Options issued to consultants |
67 | 93 | ||||||
| Provision for (Recovery of) doubtful accounts |
96 | (21 | ) | |||||
| (Increase) decrease in: |
||||||||
| Accounts receivable |
(4,102 | ) | (2,376 | ) | ||||
| Inventory |
199 | 1,015 | ||||||
| Prepaid expenses and other |
(336 | ) | (420 | ) | ||||
| Federal and state income tax receivable |
1,734 | 438 | ||||||
| Other long-term liabilities |
(279 | ) | (191 | ) | ||||
| Notes receivable |
1,871 | 608 | ||||||
| Increase (decrease) in: |
||||||||
| Accounts payable and accrued expenses |
(6,429 | ) | (9,434 | ) | ||||
| Deferred revenue |
(211 | ) | 351 | |||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
12,355 | 5,770 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Acquisition of property and equipment and leased gaming equipment |
(23,370 | ) | (11,376 | ) | ||||
| Acquisition of intangible assets |
(837 | ) | (1,810 | ) | ||||
| Advances under development agreements |
(10,493 | ) | (3,474 | ) | ||||
| Repayments under development agreements |
4,588 | 133 | ||||||
| Advances on notes receivable |
— | (20,574 | ) | |||||
| Stockholders’ notes receivable, net |
— | (22 | ) | |||||
| NET CASH USED IN INVESTING ACTIVITIES |
(30,112 | ) | (37,123 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from exercise of stock options, warrants, and related tax benefit |
900 | 4,798 | ||||||
| Principal payments of long-term debt and capital leases |
(2,385 | ) | (1,101 | ) | ||||
| Proceeds from revolving line of credit |
10,436 | — | ||||||
| Proceeds from long-term debt |
10,000 | 7,708 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
18,951 | 11,405 | ||||||
| Net increase (decrease) in cash and cash equivalents |
1,194 | (19,948 | ) | |||||
| Cash and cash equivalents, beginning of period |
4,768 | 26,319 | ||||||
| Cash and cash equivalents, end of period |
$ | 5,962 | $ | 6,371 | ||||
-5-
MULTIMEDIA GAMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
For the Three months Ended December 31, 2004 and 2003
(In thousands)
(Unaudited)
| 2004 |
2003 | |||||
| SUPPLEMENTAL CASH FLOW DATA: |
||||||
| Interest paid |
$ | 462 | $ | 317 | ||
| Income tax paid |
$ | 5 | $ | 29 | ||
| NON-CASH TRANSACTIONS: |
||||||
| Property and equipment and other assets acquired through: |
||||||
| Capital lease |
— | 2,922 | ||||
| Long-term debt |
410 | 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/A for the year ended September 30, 2004.
The financial statements included herein as of December 31, 2004, and for each of the three months ended December 31, 2004 and 2003 have been prepared by the Company without an audit, pursuant to accounting principles generally accepted in the United States of America, or 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, 2004 are not necessarily indicative of the results which will be realized for the year ending September 30, 2005.
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, charity and commercial bingo gaming facilities, and to state lottery commissions 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 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. In the charity bingo market, player terminals are typically only interconnected within the gaming facility where the player terminals are located. The Company provides a central determinant system for use by state lottery commissions. The Company places Point-of-Sale Terminals, or POSTs, in conjunction with its Tribal Instant Lottery Game, or TILG, in the Class III market; these are supported by central determinant system technology similar to that used in the state lottery market. The Company offers content for its gaming systems that has 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. and MGAM Services. Intercompany balances and transactions have been eliminated.
Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Examples include provisions for bad debts and inventory obsolescence, asset lives of equipment, deferred taxes, and the provision for and disclosure of litigation and loss contingencies. Actual results may differ significantly from these estimates in the future.
Reclassifications. Certain reclassifications were made to the prior period’s financial statements to conform to the current period financial statement pre