Post of the Day
February 13, 1998

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Subject: CSDS
Author: Iveystone

I hate CSDS.

Management has been arrogant and uncommunicative. There's been more people turnover there than at my local McDonalds. Virtually every opportunity has been frittered away. Every single division is contracting. This company is dying.

But damn if I'm not continually drawn to them because they do just enough things right to provide a spark of hope for the future. So, with yesterday's announcement, like a moth to a flame I'm forced to re-look at CSDS.

The end from the beginning is that I think that if CSDS has a really big write off, it's probably an excellent value play and not dead meat.

First, the bad stuff. Never mind, there's just too much of it to detail. Ugly is the only word to describe the recent eps results and company performance in general.

Now, the good stuff. Only two or three that I can see, but all of them significant, IMO. 1) New CEO and CFO. 2) Surprising amount of cash; 3) Three or more new machines actually doing well.

1) New CEO & CFO. Yesterday's press release suggested to me that the presumed book value computations were wrong. The assets aren't worth as much as they are shown on the books. $97 million in net assets and 18 million shares, $5.00++ book value?? I think not. My guess is that A/R, N/R, Inventories, PP&E and Intangibles are all overstated - by a lot!. With 18 million shares outstanding, my guess is a $1.00 per share write off or $25 to $30 million pre-tax or 1/3rd of the balance sheet. Really? yep, and here's my guess by account, if anyone is interested:

A/R $ 2.0 million
N/R $ 2.0
Inventory $ 7.0
PP&E $ 6.0
Intangibles $ 8.0
Total $25.0 million

It looks to me like the new CEO and CFO are going to let nothing be sacred and they have this one shot to clean things up and write them off. Lots of Cool Millions machines are back in the warehouse - write 'em off. Old systems technology - write it off. The company is smaller so less furniture, etc is needed - write it off. Uncollectibele accounts and notes receivable - if it may even be slightly suspect - write 'em off. In addition, there may be some accounts payable that are "under recorded" and some "risky investments" that may have to be visited which could result in additional amounts being reserved. Finally, CSDS is so disreputable in so many ways, who knows if the Cool Millions Jackpots for systems still running have been properly accrued? Bottom line is that $25 million or more (the more, the better, IMO. $50 million would be great!), would suggest to me that the new managers are not interested in ego's or monuments or territories, but only in making this company profitable. Less than $25 million and I'm lukewarm.

2) Cash. How this company keeps all that cash around is a miracle. Talk about dumb luck! But man alive, that has to be the primary reason these two new guys came to CSDS. It's one thing to have a disaster company, and quite another to have a disaster company with no cash. Plus there is no debt. So, with about $10 million in cash and some saleable products in the pipeline and no creditors pounding at the door and all of the write-off's being of the non-cash variety, there is a future after all, Toto! Questions number 1 through 10 are all the same though. Can these guys manage the cash, the balance sheet and Steve Weiss's legendary ego? HA, now there's a challenge

3). New products. By all accounts, SafeBuster is doing well inthe NA casinos. They sell the product to SLOT and then come back in after the first year for an increasing percentage of the revenue. Pretty good deal for both, especially CSDS, 'cause they get cash for the product plus some upside if it's successful. The Telnaes patent appears to be essentially worthless now that Bally's is on the scene, but you know, a new broom sweeps clean. Perhaps the new guys can find a way to revive Cool Millions with some of the new machines they've got in the pipeline. As WOF showed, it only takes one. And speaking of new machines, the Reel Deal machines were popping up all over in MS when I was there, plus they have a bunch of new Australian types that are getting really popular, plus, plus, plus. No lack of creativity here, just a lack of quality management.

So, I think the announcement yesterday is potentially very good news. The company could have a buck in cash by year end (next), eps of $.10 to $.20 at a price of $3 per share, a p/e (net) of 15 to 20 and might be a nice little value play. I like these new guys already, if for no other reason than they at least told us what they are doing. And, if the write off is a really, really big one, I'm buying the stock. Especially if the market sees this huge write off as a death knell and sells it down to the $2 level. Interesting that for this stock to be worthwhile, IMO, we need the market to act predictably and management to act boldly. A first in our lifetimes, maybe (LOL).


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