<PAGE>
U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the calendar year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to __________________
Commission File No. 0-10519
BINGO & GAMING INTERNATIONAL, INC.
OKLAHOMA 73-1092118
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
11006 Metric BLVD.
Austin, Texas 78758
(Address of Principal Executive Offices)
Issuer's Telephone Number: (512) 490-0065
8310 Capital of Texas Highway North, Suite 350
Austin, Texas 78731
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None.
Securities Registered under Section 12(g) of the Exchange Act: Common voting
stock.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
(1) Yes X No (2) Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent calendar year: December 31, 1996
- - $1,151,158
State the aggregate market value of the common voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days.
February 28, 1997 - $5,095,761. There are approximately 4,291,167
shares of common voting stock of the Registrant held by non-affiliates.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not Applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
February 28, 1997
8,417,600 shares of common stock
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in
Item 13 of this Report.
Transitional Small Business Issuer Format Yes X No ___
PART I
Item 1. Description of Business.
Business Development.
Bingo & Gaming International, Inc. (the "Company") was organized
under the laws of the State of Oklahoma on April 1, 1980, under the name "MRW
Investment Management, Inc." During 1981, the Company changed its name to
"O-Petro Energy Corporation", and during 1990 changed its name to "Primary
Development Corporation".
From 1981 to 1984, the Company was engaged in the oil and gas
exploration and production business, but such operations were unsuccessful.
The Company ceased such operations in 1984. From 1984 to December 15, 1994,
the Company had no business operations and no material tangible property or
assets, with its only activities consisting of paying and resolving
liabilities, and maintaining its good standing with the State of Oklahoma.
Pursuant to an Agreement and Plan of Reorganization (the "Plan"),
adopted, ratified, and approved by the Company's Board of Directors, dated as
of December 15, 1994, between the Company and Monitored Investments, Inc.
("Monitored"), a Texas corporation; Meridian Enterprises, Inc. ("Meridian"), a
Mississippi corporation; Red River Bingo, Inc. ("Red River"), a Louisiana
corporation; and Tupelo Industries, Inc. ("Tupelo"), a Mississippi corporation
(collectively "Monitored and its affiliated companies" or the "subsidiaries");
the Company issued 6,000,000 shares of its common stock to the stockholders of
Monitored and its affiliated companies; the stockholders of Monitored and its
affiliated companies thereby became the controlling stockholders of the
Company; and Monitored and its affiliated companies thereby became
wholly-owned subsidiaries of the Company. The accomplishment of the Plan was
treated as an "equity restructuring," which, for accounting purposes, is
similar to "pooling-of-interests" treatment.
In connection with the accomplishment of the Plan, the Company (1)
issued 196,667 shares of its common stock to an attorney who prepared the
Company's Annual and Quarterly Reports for filing with the Securities and
Exchange Commission for the prior twelve months (such shares being issued
pursuant to a "Consultant Compensation Plan,") (2) canceled 1,203,125
previously issued shares of its common stock, (3) issued 1,058,244 shares of
its common stock which were offered and sold pursuant to Regulation S of the
Securities and Exchange Commission for the total consideration of $91,016,
being cash of $44,790 and contractual rights (the rights to acquire Monitored
and its affiliated companies) valued at $46,226, and (4) filed an
authorization with the State of Oklahoma to do business under the name "Bingo
& Gaming International, Inc."
Upon the completion of the Plan, the Company had 8,050,000 shares
of its common stock issued and outstanding.
Business
Upon the completion of the Plan, the Company proceeded with the
business of Monitored and its affiliated companies. Monitored and its
affiliated companies are in the business of owning and operating, as
commercial lessors, charity bingo locations of their own and, in some
instances, operating similar locations for other owners. All of the Company's
operations at the present time are in Texas and Mississippi. The following is
a description of the Company's business operations.
The Company first obtains, from the applicable state or locality,
all necessary permits and licenses to operate a charity bingo location, then
buys or leases the subject premises and equipment. The Company then leases or
subleases such premises and equipment to one or more charitable organizations
for the operation of bingo games as fundraising activities for the charities.
Charity bingo provides a significant and generally stable source
of funds for charitable organizations who wish to engage in charity bingo
operations. Compared with many other fund raising activities, bingo offers
the opportunity to raise larger amounts of money with limited risk to the
charitable organization. The business risk to a charity is mitigated by
leasing the use of bingo facilities from commercial lessors such as the
Company, particularly since most charitable organizations have neither the
capital nor the risk tolerance to invest in the establishment of a charity
bingo facility.
The total revenue to the charity operator is the result of the
bingo players "buying" the cards with which they "play" the games, and in some
states, such revenue will also include revenue from other games of chance.
Many players buy multiple cards for each game, thereby increasing their odds
of winning. In a typical situation, approximately 75% of total revenue is
paid out as prize money, and approximately 25% is retained by the charity as
its gross revenue. The charity operator pays the commercial lessor a
previously agreed upon amount per playing session as lease expense and then
pays its other operating expenses out of its remaining net revenue, which
should generally result in an operating profit. The commercial lessor pays
its operating expenses out of its gross revenue, which includes its lease
revenue and, in some cases, concession income and/or vending income, which
should also result in an operating profit. The commercial lessor then pays
its general and administrative expenses, interest expense, if any, and
applicable income taxes.
In well-managed and well-promoted operations, both the charity
operator and the commercial lessor should have substantial operating profits,
the charity operator's operating profit being approximately 20% to 40% of its
net revenue and the commercial lessor's operating profit being approximately
20% to 40% of its gross revenue.
The charity bingo business is regulated by the states. Charity
operators and commercial lessors must be licensed, and the amount that can be
paid by charity operators to commercial lessors as lease expense is
established by the states. Specifically, such lease expense is the result of
a certain amount session times a certain number of sessions per day times a
certain number of days per week.
In Mississippi where the Company operates, commercial lessor
licenses are one-year renewable licenses. There are no assurances that the
Company's licenses will be continually renewed; however, the applicable
regulatory authorities seem to prefer commercial lessor continuity,
particularly where such operations are well-managed and operated within the
applicable rules and regulations.
Additionally, commercial lessors, including the Company, are
subject to the same laws, rules and regulations, and ordinances to which other
businesses are subject. The Company believes that it is in substantial
compliance with all of such laws, rules and regulations, and ordinances.
There is, however, no assurance that such laws, rules and regulations, and
ordinances will not be changed, and there is no assurance that additional
competitive forms of gaming will not be authorized and/or permitted by the
states in which the Company operates. Such changes, if any, could have a
material adverse effect on the Company's business.
The Company presently owns and operates as a commercial lessor,
three locations for its own account - one in Meridian, Mississippi, one in
Iuka, Mississippi, and one in Tupelo, Mississippi.
The gaming industry is highly competitive because all of the
businesses in the industry compete for the amounts that can or will be
wagered, and many of the businesses in the industry have far greater financial
and other resources than does the Company. The charity bingo niche of the
industry, in which the Company operates, can, however, be characterized as
fragmented and unconsolidated. No competitor, known to the Company, has yet
to establish a dominant position in the industry. While there are competitive
pressures in certain markets from time to time, the Company does not believe
that competition is a significant factor in its current business locations.
In May 1996, the Company began distributing the Lucky Shamrock
Emergency Phone Card Dispenser ("The Dispenser), a video enhanced pre-paid
phone card dispenser, under an exclusive distribution agreement with Diamond
Game Enterprises. The Dispenser is an exciting method of marketing pre-paid
phone cards. The Dispenser itself resembles a Las Vegas style machine with a
video screen and chrome housing; however, the equipment is simply a vending
machine of pre-printed phone cards. To further enhance the sales of the phone
cards, the Company utilizes a Promotional Sweepstakes offering cash prizes
from $1 to $500, which are paid at the retail location of the dispenser.
The Promotional Sweepstakes portion of the phone card contains
nine symbols or numbers, which are covered by a peel-apart covering. A
winning portion contains three like symbols or numbers in a row or nine like
symbols or numbers. When the phone card is dispensed, the Dispenser, through
barcode technology, displays this same arrangement of icons on the video
screen and indicates visually and with a musical jingle, whether the game
piece contains a winning combination.
As with all promotional sweepstakes (e.g., McDonald's Monopoly
Game), no purchase is necessary to enter the sweepstakes. The Company offers
three methods of obtaining free entries: from the retail location, from the
Company by sending a self-addressed envelope and from the Company utilizing a
Business Return Mail post card. The Lucky Shamrock machines currently vend
two-minute emergency phone cards for the price of $1.00.
The Company leases the machines, which it provides at no cost to
the retail location, and purchases the phone cards from Diamond Game
Enterprises. The long distance time, accessed through a 1-800 number and PIN
number, is supplied by a third party reseller. The Company sells the Lucky
Shamrock Emergency Phone Cards to the retail location on terms of net 30 or
whenever a new supply is needed, whichever comes first.
Currently, 110 dispensers are in use throughout the state of
Texas. Most are located in bingo halls or in game rooms associated with bingo
halls, but some are located in bars, restaurants and truck stops.
At February 28, 1997, the Company had six full-time employees.
The Company's relationship with all of its employees is believed to be
satisfactory. No employee of the Company is represented by a labor union or
is subject to a collective bargaining agreement.
The Company intends to expand and further develop its business.
It will, however, need to obtain additional financial wherewithal in order to
be able to do so.
Item 2. Description of Property.
The Company leases and does not own any of its locations.
Meridian occupies a 13,000 square foot bingo facility located at 2306 North
Frontage Road, Meridian, Mississippi. Tupelo occupies an 11,800 square foot
bingo facility located at 1800 North Gloster, Tupelo, Mississippi. Tupelo
also leases a 16,000 square foot bingo facility located at 2243 Highway 25
South, Iuka, Mississippi and opened such location for business during the
second calendar quarter of 1995. And the Company occupies a 5,400 square
foot warehouse and general office suite located at 11006 Metric Blvd., Austin,
Texas. The Company leases and in turn, subleases a 1,740 square foot general
office located at 8310 Capital of Texas Highway North, Suite 350, Austin,
Texas. All of such locations are well-maintained, well-equipped, and suitable
for their intended purposes.
Item 3. Legal Proceedings.
Except as set forth in the following paragraphs, the Company is
not the subject of any pending legal proceedings, and to the knowledge of
management, no proceedings are presently contemplated against the Company by
any federal, state or local governmental agency. Further, to the knowledge of
management, no director or executive officer is party to any action which any
has an interest adverse to the Company.
Red River has been assessed civil penalties totaling $25,000 by
the State of Louisiana for alleged gaming law violations. Management is
vigorously contesting this claim and believes the outcome will not have a
material adverse affect on the Company, particularly since the Company no
longer has operations in Louisiana.
The Texas Lottery Commission requested an Opinion from the Office
of the Attorney General, State of Texas, "Re: Whether the offer for sale of a
sweepstakes ticket combined with a long distance telephone card constitutes an
illegal lottery". On February 20, 1997, the Office of the Attorney General
issued Letter Opinion No 97-008, which sets forth the facts which must be
determined before the Promotional Sweepstakes can be determined to be an
illegal lottery. The Company believes that the Promotional sweepstakes meets
all of the requirements to be considered a legal sweepstakes.
Three Dispensers were confiscated from a San Antonio, Texas bingo
hall by the San Antonio Police Department. Although the Company was not
charged with any violation of the law, the operator of the bingo hall was
cited with a misdemeanor gambling offense. The Company has retained counsel
for this individual and will defend her on April 18, 1997 in court. A Motion
for Forfeiture of confiscated material has been filed, and the Company has
answered this Motion. The Company believes that it will prevail and that a
favorable ruling will be very beneficial. A similar case involving another
company and another type of phone card dispenser with a promotional
sweepstakes was recently dismissed in Harris County, Texas.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 7, 1995, the Company mailed to shareholders a Definitive
Information Statement discussing a proposed amendment to the Company's
Certificate of Incorporation, whereby the name of the Company would be changed
to Bingo & Gaming International, Inc. This name change was effective August
28, 1995. Because members of management held a sufficient number of shares to
effect the name change without the votes of any other stockholders, the votes
of other stockholders were not solicited. See item 13.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Company's Common Stock, $.001 par value, is traded on the NASD
OTC Electronic Bulletin Board under the symbol "BING". The following table
shows the range of reported high and low closing bid quotations for the
Company's Common Stock, for the fiscal periods indicated, as reported on the
NASDAQ Regular Market System through the National Quotation and NASDAQ Monthly
Reports.
Common Stock
High Low
Fiscal 1996:
First Quarter 1.25 0.50
Second Quarter 1.50 0.50
Third Quarter 1.375 0.625
Fourth Quarter 1.625 0.8125
Fiscal 1997:
First Quarter 1.375 0.75
Holders
The number of record holders of the Company's common stock as of
December 31, 1996 was approximately 337; such number does not include an
indeterminate number of stockholders whose shares were held by brokers in
street name. As of February 28, 1997, there were approximately 334
stockholders.
Dividends
There are no present material restrictions that limit the ability
of the Company to pay dividends on its common stock or that are likely to do
so in the future. The Company has not paid any dividends with respect to its
common stock and does not intend to pay dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis and Plan of Operations.
Selected Financial Information
The following selected financial information has been derived from the
financial statements of Bingo & Gaming International, Inc. and its affiliated
companies and the consolidated financial statements of the Bingo & Gaming
International, Inc. and its affiliated companies. The following information
should be read in conjunction with such financial statements and the notes
thereto.
Year ended Year ended
December 31, December 31,
1996 1995
Statement of Income:
Total revenues $1,151,158 $623,760
Cost of revenues (597,441) (249,134)
Other expenses (576,406) (582,959)
Operating loss (22,689) (208,333)
Net loss (48,155) (217,837)
Net loss per common share (.01) (.03)
December 31, December 31,
1996 1995
Balance Sheet:
Current assets $324,671 $146,118
Current liabilities 233,229 237,235
Total Assets 541,249 471,808
Long-term debt 176,002 82,801
Stockholders' equity 132,018 151,772
Plan of Operation
During the year ended December 31, 1995, Bingo & Gaming
International, Inc. and its affiliated companies operated up to four charity
bingo facilities for themselves and managed two other such facilities for
other corporations (McAllen, Texas and Columbus, Mississippi), which share
some common stockholders with the Company. The Red River facility in
Shreveport, Louisiana commenced business in November 1991. However, in
October 1995, the Company closed it due to competitive pressures. The
Meridian facility in Meridian, Mississippi, commenced business in June 1992.
The Tupelo facility in Tupelo, Mississippi, commenced business in June 1992.
During the year ended December 31, 1995, the Company opened two additional
charity bingo centers: one in Kosciusko, Mississippi in April 1995 and one in
Iuka, Mississippi in June 1995. In July 1995, the Company closed its Kosciusko
location, because of less than expected attendance.
In April 1996, the Company transferred two management agreements
(McAllen, Texas and Columbus, Mississippi) to a former director as more fully
described in the "Termination of Employment and Change of Control Arrangement"
discussion. Also in April 1996, the Company executed an exclusive Distribution
Agreement for the state of Texas for the Lucky Shamrock Emergency Phone Card
Dispenser, a video enhanced pre-paid phone card dispenser. Utilizing the Lucky
Shamrock Promotional Sweepstakes as a marketing tool, the Company sold over
two million phone cards in the first six months of this new business venture.
The Company will soon sell 10, 20 and 30 minute pre-paid calling cards, as
well as an international calling card to service neighboring Mexico, at very
competitive rates.
The Company intends to further develop and substantially expand
its business, principally by continuing its operation and expansion of the
distribution of the video enhance phone card dispensers, and to a lessor
extent by acquiring existing bingo facilities (for cash or for notes or for
its own stock or in combination thereof) or by establishing new bingo
facilities. Its ability to do so will be limited by its available liquidity
and other capital resources, as to which no assurance can be given.
Results of Operations
The Company temporarily discontinued operations in 1984 and had no
further operations until December 15, 1994, at which time the Plan (see "Item
1. Description of Business - Business Development") was completed, and the
Company succeeded to the business (charity bingo operations, see "Item 1.
Business Development - Business") of Monitored and its affiliates. The
Company's succession to the business of Monitored and its affiliates was
treated as an "equity restructuring."
Year ended December 31, 1996
Compared with Year ended December 31, 1995
Revenues include rental income from charitable organizations which
lease the Company's bingo facilities, related concession and vending income,
management fees from managing similar facilities for others, and beginning in
1996, phone card sales related to the video enhanced dispensers. Phone card
sales were $566,764 for the year ended December 31, 1996 due to the
distribution of approximately 110 phone card dispensers from June 1996 through
December 1996. Management advisory fees and related concession income
decreased to $18,000 and $63,006 in fiscal 1996 from $72,000 and $99,795 in
fiscal 1995, respectively. Such decreases were due to the transfer of the
management agreements to a former director and officer, as previously
mentioned. Rental income increased by $51,423 or 11.4%. This increase was due
to an increase in rental income earned in 1996 from the Company's newest
location in Iuka, Mississippi (opened June 1, 1995).
Cost of revenues represent expenses directly attributable to the
operations of the phone card dispensers and operations of the bingo
facilities. In total, such cost was $597,441 and $249,134 for the years ended
December 31, 1996 and 1995, respectively. Cost of revenue specifically
related to the phone card dispensers includes phone card and royalties cost,
machine and location rental and prizes paid. Such cost was $149,404, $108,375
and $162,281, respectively, for the years ended December 31, 1996 and was due
to the distribution of such dispensers beginning in June 1996, as previously
mentioned. Cost of revenue specifically related to the operations of the bingo
facilities represents the rental cost of such facilities. Such cost decrease
by $71,753 or 28.8% as a result of the Shreveport, Louisiana facility being
closed in October 1995, as previously mentioned.
Other expenses include salaries and wages, indirect operating
costs, and other general and administrative expenses. In total, such expenses
were $576,405 and $582,959 for the year ended December 31, 1996 and 1995,
respectively. Salaries and wages decreased by $52,768 or 20.6% as a result of
a decrease in salaries related to the former director relinquishing his
management position with the Company as previously mentioned. Indirect
operating costs increased by $39,621 or 21.1% and this increase was due to the
increase in operations with regards to the distribution of the phone card
dispensers. General and administrative expenses increased by $6,594 or 4.8%.
This increase was mostly attributed to the Company writing off approximately
$25,000 in bad debts related to a charity which ceased conducting bingo in the
current year. Such increase was partially offset by an overall decrease in
overhead due to management's concerted efforts to reduce such cost in the
current year.
Principally for the reasons set forth in the three preceding
paragraphs, the Company had a net loss of $48,155 for the year ended December
31, 1996 compared with a net loss of $217,837 for the year ended December 31,
1995. Included in the net loss for 1996 and 1995 is interest expense of
$25,750 and $18,402, respectively.
Financial Position
The Company's financial position changed significantly during the
year ended December 31, 1996. The most significant changes were:
(1) During 1996, the Company increased borrowings by $193,400 to
fund the initial distribution of the phone card dispensers. However, the
Company reduced the amount of its accounts payable, paid off a $20,000 note
and made scheduled payments of other-long term debt of an additional $74,890.
Related to the service of this debt, the Company renegotiated its $89,000 line
of credit with a local financial institution by making a $15,000 payment and
placing the balance of $74,000 on a ten-year note at prime plus 2% with a
balloon payment due December 30, 2000. A second note of $60,000, which had
also been an interest only instrument, was converted on January 10, 1996, to
payments of $1,000 principal per month plus interest at 10.5%. Overall, the
Company increased its long term-debt by approximately $99,000.
(2) In October of 1996, the Company issued 55,400 shares of
common stock. These shares were issued in consideration of deposits for phone
card dispensers and in consideration of various advertising services rendered.
Furthermore, in October and November of 1996, a former director exercised
options to purchase 10,000 shares of common stock. These options were
originally issued in return for services rendered and release of the
director's employment contract as more fully described in "Termination of
Employment and Change of Control Arrangement".
(3) Approximately $45,000 was spent and capitalized as property
and equipment and deferred charges and intangible assets during 1996 in
connection with the expansion of the distribution of the phone card
dispensers.
(4) Adopting FAS 109 resulted in a net deferred tax asset at
December 31, 1996 and 1995 of approximately $86,000 and $74,000, respectively,
which was offset by recognition of a 100% valuation allowance since management
could not determine that it was more likely than not that it would realize
that asset.
(5) For information on the impact of future changes in accounting
principles, see Summary of Significant Accounting Policies in the Notes to the
Consolidated Financial Statements, appearing elsewhere herein.
Liquidity
The Company's cash position at December 31, 1996 decreased
approximately $21,000 from what it was at December 31, 1995. The Company used
cash flows from operations of $173,890 in fiscal 1996 as a result of the
further expansion of the distribution of the phone card dispensers. The
Company provided cash flow from financing activity of $136,911 in fiscal 1996,
primarily from the Company's additional borrowings from individuals.
The Company has plans to further develop its business by
continuing to expand the distribution of Lucky Shamrock Emergency Phone Card
Dispensers in Texas which has generated additional cash flows for the Company.
The Company will, however, need to obtain additional financing to
achieve substantial expansion and there is no assurance that the Company will
be able to obtain such additional financing.
Item 7. Financial Statements.
The following financial statements are included hereinafter:
Independent Certified Public Accountants' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Loss
for the years ended December 31, 1996 and 1995
Consolidated Statement of Changes in Stockholders Equity
for the years ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows
for the years ended December 31, 1996 and 1995
Summary of Significant Accounting Polices
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers
The following table sets forth the names and the nature of all
positions and offices held by all directors and executive officers of the
Company for the year ended December 31, 1996, and to the date hereof, and the
period or periods during which each such director or executive officer has
served in his respective position.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
Reid Funderburk Chairman and CEO 12/94 *
Director 12/94 *
Henry A. Anawaty, III President and COO 12/94 04/96
Director 12/94 04/96
George Majewski President 04/96 *
Secretary 12/94
Director 12/94 *
Robert H. Hughes Director 12/94 *
R. E. Wilkin Director 12/94 *
* These persons presently serve in the capacities indicated
opposite their respective names.
Term of Office
The term of office of the current directors shall continue until
the next annual meeting of stockholders, which has been scheduled by the Board
of Directors to be held in April of each year. The annual meeting of the
Board of Directors, at which officers for the coming year are elected,
immediately follows the annual meeting of stockholders.
Business Experience of Current Directors and Executive Officers
Mr. Funderburk, age 44, began engaging in the bingo commercial
lessor business in 1987. Since then, he and/or companies with which he was
associated have owned and/or operated and/or managed thirteen bingo commercial
lessor operations. He has been a director and executive officer of Monitored
and its affiliated companies since their inception. He served as President of
the Texas Bingo Commercial Lessors Association from 1989 through 1993. Mr.
Funderburk has prior experience as the owner of a bank equipment and supply
company and as a real estate developer.
Mr. Majewski, age 53, has been associated with Bingo & Gaming
International, Inc. and its affiliated companies and/or predecessor companies
since 1989. He has prior experience as an owner of businesses in the
entertainment, catering, concessions, and vending industries.
Mr. Hughes, age 69, is a retired lawyer and a legislative
consultant in Austin, Texas, spending much of his time representing various
clients in the charity bingo industry.
Mr. Wilkin, age 64, is a retired CPA and a general business
consultant. He was a practicing CPA with Ernst & Whinney (now Ernst & Young),
an international accounting firm, from 1957 through 1984 and a partner in such
firm from 1969 through 1984. Since then, he has been involved with several
start-up companies, including AmeriCredit Corporation (NYSE).
Family Relationships
No family relationship exists between any current director or
executive officer.
Compliance with Section 16(a) of the Exchange Act
Reid Funderburk, an officer and director, disposed of 125,000
shares as gifts to various persons on February 6, 1996, as previously reported
on Form 4 of April 30, 1996; 115,000 shares as gifts to various persons on
April 8, 1996, as previously reported on Form 4 of April 30, 1996; 50,000
shares as gifts to various persons on May 8, 1996, as previously reported on
Form 4 of November 27, 1996; and 30,000 shares as gifts to various persons on
September 17, 1996 and 25,000 shares as a gift on September 27, 1996, as
previously reported on Form 4 of November 27, 1996. Of these gifted shares,
Mr. Funderburk has a beneficial interest in 90,000 of these shares which were
given to his minor children.
Henry Anawaty III, a former officer and director, disposed of
1,444,500 shares through the sale of stock to various persons and gifts of an
additional 6500 shares to various individuals on April 16, 1996, as reported
on Form 4 of April 30, 1996.
George Majewski, an officer and director, purchased 1000 shares
from Mr. Anawaty on April 16, 1996, as reported on Form 4 of November 27,
1996.
Robert H. Hughes, a director, purchased 1,000,000 shares from Mr.
Anawaty on April 16, 1996 and disposed of 500,000 shares as
gifts to various individuals on April 16, 1996, as reported on Form 4 of
November 27, 1996. Mr. Hughes disposed of 60,000 shares as a gift to an
individual on June 6, 1996, as reported on Form 4 of November 27, 1996, and
disposed of 100,000 shares through the sale of stock to an individual on
December 30, 1996, as reported on Form 4 of January 17, 1997.
Involvement in Certain Legal Proceedings
Except as indicated below and to the knowledge of management,
during the past five years, no present or former director, person nominated to
become a director, executive officer, promoter or control person of the
Company:
(1) Was a general partner or executive officer of any business
by or against which any bankruptcy petition was filed, whether
at the time of such filing or two years prior thereto;
(2) Was convicted in a criminal proceeding or named the subject
of a pending criminal proceeding (excluding traffic violations
and other minor offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
him from or otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant,
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging
in or continuing any conduct or practice in connection
with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state
securities laws or federal commodities laws;
(4) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for
more than 60 days the right of such person to engage in any
activity described above under this Item, or to be associated
with persons engaged in any such activity;
(5) Was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment
in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or
vacated.
(6) Was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
Item 10. Executive Compensation.
The following table shows the cash compensation paid by the
Company, as well as other compensation, for the Company's Chief Executive
Officer for the fiscal years 1995 and 1996. No other executive officers were
paid compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Name and Other Annual
Principal Position Year Salary Bonus Compensation(1) Options/SARS (#)
Reid Funderburk 1996 $66,000 -0- -0- -0-
Chairman, CEO,Director 1995 $67,917 -0- -0- -0-
Bonuses and Deferred Compensation
None other than as may be set forth in the above table.
Compensation Pursuant to Plans
None other than as may be set forth in the above table.
Pension Table
None; not applicable.
Other Compensation
None other than as may be set forth in the above table.
Compensation of Directors
No compensation was paid to non-officer directors during the year
ended December 31, 1996
Termination of Employment and Change of Control Arrangement
During 1996, there were no compensatory plans or arrangements,
including payments to be received from the Company, with respect to any person
named in the Summary Compensation Table set out above which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of such person's employment with the Company
or its subsidiaries, or any change in control of the Company, or a change in
the person's responsibilities following a change in control of the Company.
In April 1996, an officer and director of the Company indicated an
intent to divest himself of over 1,000,000 shares of stock, thereby reducing
his holdings in the Company to less than 10% and relinquish his officer and
director's position with the Company. In return for services rendered and
release of his employment contract, the Company issued options to purchase
225,000 shares of its common stock and transferred two management agreements
to him.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the share holdings of the Company's
directors and executive officers and those persons who owned more than 5% of
the Company's common stock as of February 28, 1997.
Number and Percentage
of Shares Beneficially Owned
Name and Address
Reid Funderburk 2,687,374(1) 31.9%
11006 Metric Blvd.
Austin, Texas 78758
Henry A. Anawaty, III 827,722 9.8%
5910 Courtyard Drive Suite 150
Austin, Texas 78731
Robert H. Hughes 640,000 7.6%
1506 West 13th, #12
Austin, Texas 78704
George Majewski 539,461 6.4%
11006 Metric Blvd.
Austin, Texas 78758
R. E. Wilkin 257,600 3.1%
4304 Kirkland Drive
Fort Worth, Texas 76109
________ ______
TOTALS 4,952,157 58.8%
(1)This figure includes the following transfers to certain family
members which took place on October 17, 1995, February 1, 1996 and April 8,
1996: Ashlie Funderburk 10,000 shares, 10,000 shares and 10,000 shares;
Jacklyn Funderburk 10,000 shares, 10,000 shares and 10,000 shares; and Lyndsey
Funderburk 10,000 shares, 10,000 shares and 10,000 shares. This figure does
not include transfers to certain adult children, relatives and friends, as to
which Mr. Funderburk disclaims any beneficial interest.
Changes in Control
None during the year ended December 31, 1996.
Item 12. Certain Relationships and Related Transactions.
Transactions with Management and Others.
During the year ended December 31, 1996, there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director, executive officer or any security
holder who is known to the Company to own of record or beneficially more than
5% of any class of the Company's common stock, or any member of the immediate
family of any of the foregoing persons, had an interest.
Certain Business Relationships.
During the year ended December 31, 1996, there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director, executive officer or any security
holder who is known to the Company to own of record or beneficially more than
5% of any class of its common stock, or any member of the immediate family of
any of the foregoing persons, had an interest.
Indebtedness of Management.
During the year ended December 31, 1996, there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director, executive officer or any security
holder who is known to the Company to own of record or beneficially more than
5% of any class of its common stock, or any member of the immediate family of
any of the foregoing persons, had an interest.
Transactions with Promoters.
During the year ended December 31, 1996, there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any promoter or founder or any member of the
immediate family of any of the foregoing persons, had an interest.
Item 13. Exhibits and Reports on Form 8-K.
None.
Exhibits*
Where Incorporated Page
In This Report Number
Registration Statement on Form S-1 **
of the Securities and Exchange Commission
Annual Report on Form 10-KSB for the year ended
December 31, 1993 **
Certificate of Incorporation **
Articles of Incorporation **
Amended Certificate of Incorporation, **
filed May 8, 1981
Amended Articles of Incorporation, filed May 8, 1981 **
Amended Certificate of Incorporation, filed March 5, 1990 **
Proxy Statement dated February 25, 1985 **
Proxy Statement dated October 10, 1989 **
Current Report on Form 8-K-A1 **
dated December 1, 1994
Current Report on Form 8-K **
dated December 15, 1994
Annual Report on Form 10-KSB for the
Year Ended December 31, 1994 **
Definitive Information Statement August 7, 1995 **
Amended Certificate of Incorporation, July 31, 1995 **
Letter to Shareholders, May 10, 1995 **
Letter to Shareholders, August 3, 1995 **
Letter to NASD re CUSIP Number **
Annual Report on Form 10-KSB for the **
Year Ended December 31, 1995
Registration Statement on Form S-8 **
of the Securities and Exchange Commission
* A summary of any Exhibit is modified in its entirety by reference
to the actual Exhibit.
** These documents and related exhibits have been previously filed
with the Securities and Exchange Commission and by this reference are
incorporated herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BINGO & GAMING INTERNATIONAL, INC.
Date: 4/14/97 By:/s/Reid Funderburk
CEO
Date: 4/14/97 By:/s/George Majewski
President
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
BINGO & GAMING INTERNATIONAL, INC.
Date: 4/14/97 By:/s/Reid Funderburk
Chairman, C.E.O. & Director
Date: 4/14/97 By:/s/George Majewski
Director, Treasurer
Date: 4/14/97 By:/s/R. E. Wilkin
Director
Bingo & Gaming International, Inc.
Consolidated Financial Statements
Years Ended December 31, 1996 and 1995
Independent Certified Public Accountants' Report
Bingo & Gaming International, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheets of Bingo & Gaming
International, Inc. (the "Company") as of December 31, 1996 and 1995 and the
related consolidated statements of loss, changes in stockholders' equity and
cash flows for each of the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Bingo & Gaming International, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
years then ended in conformity with generally accepted accounting principles.
March 26, 1997
<TABLE>
Bingo & Gaming International, Inc.
Consolidated Balance Sheets
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Assets
Current
Cash and cash equivalents (Note 11) $ 53,307 $ 74,062
Accounts receivable - net of
allowance of $-0- for
possible losses 175,804 43,606
Inventory 54,327 -
Note receivable (Notes 2 and 11) 40,813 -
Deferred offering costs (Note 7) - 25,510
Prepaid expenses 420 2,940
Total current assets 324,671 146,118
Property and equipment, at cost - net
of accumulated depreciation and
amortization (Note 4) 115,524 167,737
Other assets
Note receivable (Notes 2 and 11) - 83,000
Organizational costs and intangible
asset - net of accumulated
amortization (Note 3) 37,505 56,187
Deposits 63,549 18,766
Total other assets 101,054 157,953
$ 541,249 $ 471,808
Liabilities and Stockholders' Equity
Current
Accounts payable and accrued expenses $ 110,866 $ 120,181
Current maturities of long-term debt
(Notes 1, 5 and 11) 122,363 117,054
Total current liabilities 233,229 237,235
Long-term debt (Notes 1, 5 and 11) 176,002 82,801
Total liabilities 409,231 320,036
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity (Note 7)
Common stock, $.001 par; 70,000,000
shares authorized; 8,414,600 and
8,349,200 shares outstanding 8,415 8,349
Additional paid-in capital 391,539 363,204
Deficit (267,936) (219,781)
Total stockholders' equity 132,018 151,772
$ 541,249 $ 471,808
</TABLE>
<TABLE>
Bingo & Gaming International, Inc.
Consolidated Statements of Loss
<CAPTION>
Year ended December 31, 1996 1995
<S> <C> <C>
Revenue
Phone card sales $ 566,764 $ -
Management advisory fees (Note 1) 18,000 72,000
Rental income (Note 6) 503,388 451,965
Concession income (Note 1) 63,006 99,795
Total revenue 1,151,158 623,760
Cost of revenue
Phone cards and royalties 149,404 -
Machine and location rental 108,375 -
Prizes paid 162,281 -
Hall rental 177,381 249,134
Total cost of revenue 597,441 249,134
Gross margin 553,717 374,626
Operating expenses 227,384 187,763
Salaries 203,614 256,382
General and administrative expenses 145,408 138,814
Total expenses 576,406 582,959
Operating loss (22,689) (208,333)
Other income 284 8,898
Interest expense (Note 2) (25,750) (18,402)
Net loss $ (48,155) $ (217,837)
Net loss per common share $ (.01) $ (.03)
Weighted average shares outstanding 8,360,433 8,153,633
</TABLE>
<TABLE>
Bingo & Gaming International, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Additional Total
Common Paid-In Stockholders'
Stock Capital Deficit Equity
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 8,050 $148,871 $ (1,944) $154,977
Net loss for the year ended
December 31, 1995 - - (217,837) (217,837)
Issuance of stock (Note 7) 299 214,134 - 214,433
Sale of warrants (Note 7) - 199 - 199
Balance at December 31, 1995 8,349 363,204 (219,781) 151,772
Net loss for the year ended
December 31, 1996 - - (48,155) (48,155)
Issuance of stock (Note 7) 66 28,335 - 28,401
Balance at December 31, 1996 $ 8,415 $391,539 $(267,936) $132,018
</TABLE>
<TABLE>
Bingo & Gaming International, Inc.
Consolidated Statements of Cash Flow
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Year ended December 31, 1996 1995
<S> <C> <C>
Operating Activities:
Net loss $ (48,155) $ (217,837)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and amortization 62,526 61,545
Loss on disposal of assets 5,059 -
Provisions for bad debt 22,000 10,000
Changes in current assets and
liabilities:
Accounts receivable (154,198) (9,189)
Inventories (54,327) -
Prepaid expenses 2,520 1,150
Accounts payable and accrued
expenses (9,315) 40,551
Net cash used for operating
activities (173,890) (113,780)
Investing Activities:
Purchase of property and equipment (25,690) (59,608)
Proceeds from sale of equipment 19,000 -
Increase in deferred charges and other
assets (19,273) (20,378)
Additions to notes receivable - (83,000)
Payments received on notes receivable 42,187 -
Cash provided by (used for) investing
activities 16,224 (162,986)
Financing Activities:
Payments on long-term debt (84,890) (35,891)
Proceeds from long-term debt 193,400 149,000
Issuance of common stock 28,401 214,433
Sale of option/warrants - 199
Cash provided by financing activities 136,911 327,741
Net increase (decrease) in cash and
cash equivalents (20,755) 50,975
Cash and cash equivalents at beginning
of year 74,062 23,087
Cash and cash equivalents at end of
year $ 53,307 $ 74,062
Supplemental disclosures of cash flow information:
Taxes paid $ 8,776 $ 1,982
Interest paid $ 9,499 $ 18,402
Supplemental disclosure of non-cash investing
and financing activities:
Reduction of long-term debt from
sale of asset $ 10,000 $ -
Deferred offering costs included in
accounts payable $ - $ (25,510)
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Bingo & Gaming International, Inc.
Summary of Significant Accounting Policies
Nature of Business and Basis of Presentation
Bingo & Gaming International, Inc. (the "Company") was formed in
1981 and was dormant from 1984 to November 1994.
In December 1994, the Company merged with Monitored Investment, Inc. and
Affiliates (Monitored Investment, Inc., Red River Bingo, Inc., Tupelo
Industries, Inc. and Meridian Enterprises, Inc., hereinafter referred to
collectively as "Monitored"). Monitored's principal operations consist of
developing, acquiring, managing and operating charity bingo entertainment
centers. Monitored is a commercial lessor of bingo facilities to the charity
lessee which utilize bingo events as a means of fund raising. The
stockholders of Monitored became the controlling stockholders of the
consolidated company in a transaction viewed as a "reverse acquisition",
whereby each of the corporations comprising Monitored became wholly-owned
subsidiaries of the Company. As a result, the merger was accounted for as an
"equity restructuring" of Monitored and a purchase by Monitored of the
Company.
In May 1996, the Company began distributing the Lucky Shamrock Emergency Phone
Card Dispenser, a video enhanced pre-paid phone card dispenser, under an
exclusive distribution agreement with Diamond Game Enterprises (Note 12).
Utilizing the Lucky Shamrock Promotional Sweepstakes as a marketing tool, the
Company sold over two million phone cards in its first six months of this new
business venture. The Company will soon sell 10, 20 and 30 minute pre-paid
calling cards, as well as an international calling card to service neighboring
Mexico, at very competitive rates.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in
consolidation.
Inventories
Inventories, which consist solely of phone cards, are valued at the
lower of cost or market using the first-in, first-out method.
Cash Equivalents
Cash equivalents consist primarily of funds invested in short-term
interest-bearing accounts. The Company considers all highly liquid
investments purchased with initial maturities of three months or less to be
cash equivalents.
Organizational Costs and Intangible Asset
Significant expenses of bringing new locations into operation are
recorded as organizational costs and amortized over periods of not
more than five years. The costs include the cost of a noncompete
agreement which is being amortized over five years.
Property, Equipment and Depreciation and Amortization
Property and equipment is stated at cost, net of accumulated
depreciation and amortization. For financial statement purposes,
depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the term of the related lease or the useful life of the leasehold
improvements. Accelerated depreciation methods are used for tax purposes.
Maintenance and repairs are charged to expense as incurred. The cost
of betterments and renewals are capitalized. Gains or losses upon
disposal of assets are recognized in the period during which the
transaction occurs.
New Accounting Pronouncements
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128"). This pronouncement provides a different
method of calculating earnings per share than is currently used in
accordance with APB No. 15, "Earnings Per Share". SFAS No. 128
provides for calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity similar to fully diluted earnings per
share. The Company will adopt SFAS No. 128 in 1997 and its implementation is
not expected to have a material effect on the
consolidated financial statements.
The Company accounts for stock options and warrants issued to employees in
accordance with APB 25, "Accounting for Stock Issued
to Employees". The Company follows FASB Statement 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") for financial statement disclosure
purposes and issuance of options and warrants to non-employees for services
rendered.
In accordance with FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
management reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be fully recoverable. As part of
this assessment, management prepares an analysis of the undiscounted
cash flows for each product that has significant long-lived or intangible
asset values associated with it. This analysis for the asset values as of
December 31, 1996 indicated there was no impairment to these assets' carrying
values.
Taxes on Income
The Company uses the liability method of accounting for income taxes
as prescribed by the Financial Accounting Standard Board Statement
No. 109.
Revenue Recognition
Phone card sales and rental income are recognized when earned.
Management advisory fees are recognized when services are
performed.
Loss Per Share
Net loss per share is based upon the weighted average number of
common shares outstanding during the period. All options and
warrants are considered to be antidilutive.
Reclassification
Certain amounts previously reported have been reclassified to conform
to the current year presentation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and 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. Actual results could differ from those
estimates.
Bingo & Gaming International, Inc.
Notes to Consolidated Financial Statements
1. Related Party Transactions
The Company had $52,158 and $30,855 in notes payable to a present
officer and stockholder at December 31, 1996 and 1995, respectively
(Note 6). Interest paid to the present officer and stockholder was
$5,689 and $3,959 in 1996 and 1995, respectively.
The Company also had transactions with Columbus Investments, Inc.
and Sharm, Inc., affiliated companies with common stockholders.
Management advisory fees and concession income earned from these
companies totaled $24,198 and $89,717 in 1996 and 1995, respectively.
2. Note Receivable
The note receivable at December 31, 1996 represents advances to a
company. The unsecured note is non-interest bearing. Although due
on demand, the Company does not intend to make such demand and the note will
be reduced by consulting services performed and royalties due to the company.
During the year ended December 31, 1996, reductions in the note balance
resulted from consulting services performed by the company.
Additional reductions in the note balance resulted from royalties due tothe
company under an agreement whereby the Company pays a 10% royalty on the gross
profit from phone card sales (as defined in the
agreement).
3. Organizational Costs and Intangible Asset
Organizational costs and an intangible asset at December 31 consist of
the following:
<TABLE>
<S> <C> <C>
1996 1995
Organization costs $ 24,415 $ 30,415
Noncompete agreement 63,678 63,678
Total 88,093 94,093
Less accumulated amortization 50,588 37,906
Net organizational costs and
intangible asset $ 37,505 $ 56,187
</TABLE>
Amortization expense was $18,483 and $16,171 for the years ended
December 31, 1996 and 1995, respectively.
4. Property and Equipment
Property and equipment at December 31 consist of the following:
<TABLE>
Lives
(Years) 1996 1995
<S> <C> <C> <C>
Furniture and equipment 10 $ 109,141 $ 158,054
Leasehold improvements 5 109,817 126,106
Total 218,958 284,160
Less accumulated depreciation
and amortization 103,434 116,423
Net property and equipment $ 115,524 $ 167,737
</TABLE>
Depreciation and amortization expense was $44,043 and $45,374 for
the years ended December 31, 1996 and 1995, respectively.
In October 1995, the Company closed a bingo facility due to competitive
pressures. The net book value of the assets of the facility totaling
approximately $29,000 were sold during 1996 at a loss of approximately $5,000.
5. Long-Term Debt
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable to officer and stockholder;
due in monthly installments of $1,654
including interest at 10%; matures
August 19, 1997; unsecured $ 13,301 $ 30,855
Note payable to a bank, due on demand or
in monthly installments of $1,000 including
interest at 10.5%; collateralized by the
outstanding stock held by the stockholders;
matures July 5, 1997 48,000 60,000
Non-interest bearing note payable to an
individual; matured January 24, 1996 - 20,000
Note payable to a bank, due in monthly
installments of $1,005 including interest
at 10.5%; collateralized by the outstanding
stock held by the stockholders; maturing
with an additional lump sum payment of
$46,531 in the year 2000 68,918 89,000
Note payable to officer and stockholder,
due on demand or in full at December 31,
1997; interest at 15%; unsecured 21,987 -
Note payable to individuals; principal is
due in full in various dates in the year
2000; interest at 18% due in monthly
installments; unsecured 135,000 -
Other notes payable to banks 11,159 -
Total 298,365 199,855
Less current maturities 122,363 117,054
Long-term debt $ 176,002 $ 82,801
Future maturities of long-term debt
are as follows:
Year ending December 31, Amount
1997 $ 122,363
1998 10,668
1999 6,792
2000 158,542
Total $ 298,365
</TABLE>
6. Commitments and Contingencies
The Company leases its principal facilities and certain equipment under
operating leases which expire at various dates through 1999. Future minimum
lease payments under these operating leases are as follows:
Year ending December 31, Amount
1997 $ 560,786
1998 501,197
1999 343,300
2000 330,000
2001 82,500
Total minimum payments required* $ 1,817,783
The following schedule shows the composition of total rental expense:
Year ending December 31, 1996 1995
Minimum rentals $ 297,633 $ 249,134
Less: sublease rentals 15,795 -
$ 281,838 $ 249,134
* Minimum payments have not been reduced by minimum sublease rentals
of $31,320 due in the future under noncancellable subleases.
The Company subleases bingo facilities under operating subleases which expire
at various dates in 1997. These subleases are cancelable by either party at
any time.
The Company has guaranteed the lease payments of facilities operated
by an associated company expiring in February 1998. At December 31, 1996, the
aggregate amount of guaranteed lease payments was $102,000.
The Company has been assessed civil penalties totaling $25,000 for
alleged gaming law violations. Management is vigorously contesting
this claim and believes the outcome will not have a material adverse
effect on the Company's financial position, income, or cash flows.
The Texas Lottery Commission requested an Opinion from the Office
of the Attorney General, State of Texas, "Re: Whether the offer for
sale of a sweepstakes ticket combined with a long distance telephone
card constitutes an illegal lottery". On February 20, 1997, the Office of the
Attorney General issued Letter Opinion No. 97-008, which sets forth facts
which must be determined before the Lucky Shamrock sweepstakes can be
determined to be an illegal lottery. The Company and its legal counsel
believe that the Lucky Shamrock sweepstakes meets all of the requirements to
be considered a legal sweepstakes.
7. Stockholders' Equity
In October 1995, the Company completed limited offerings of 199,200
shares of common stock pursuant to Regulation D and Regulation S of
the Securities Act of 1933. Net proceeds of approximately $207,000
were primarily used for general corporate needs and to develop and
expand the Company's business.
The Company agreed to sell to the sales agent of the limited offering,
a warrant to purchase one share of the Company's common stock for
each ten (10) shares sold during the offering. These agent warrants
may be exercised for a period of five years from issuance at an
exercise price of 110% of the sales price of the shares. The warrants
contain provisions providing for adjustment of the exercise price and
the type of securities issuable upon exercise thereof upon the occurrence of
certain events, and grant to the holder piggy-back
registration rights for a five year period. In 1995, 19,920 of these
warrants were sold at $.01 a warrant.
During 1994, Monitored executed a Share Purchase Option for $2,000
with an individual to purchase 177.18 shares of its common stock.
The Share Purchase Option was subsequently amended to an option to
purchase 100,000 shares of the Company's common stock for $7,000
on or before August 31, 2004. In October 1995, this option was
exercised for $7,000.
The Company, as part of certain employment contracts, will grant
options to purchase common stock of the Company to key employees.
The employment contracts were adopted in January 1995. The options, when
granted, will vest at least 20% per year on the five anniversaries
consecutively following the date of the employment
agreements. The options are exercisable for a period of 10 years from
the date of vesting, at a price equal to the offering price of the Company's
common stock pursuant to the Disclosure Statement, plus
10% per share. As of December 31, 1996, no options have been granted.
During 1996, the Company issued options to purchase 110,000 shares
of the Company's common stock to individuals as part of certain note
agreements. These options are exercisable at $1.00 per share, which
was the approximate fair market value at the dates of issuance. These
options expire on various dates in the year 2000.
In October 1996, the Company issued 50,000 shares of common stock at $.35 per
share to a corporation in consideration of deposits for the phone card
dispensers. Also in October 1996, the Company issued 5,400 shares of common
stock at $1.00 per share to a corporation in consideration of various
advertising services rendered.
In April 1996, a director of the Company divested himself of over
1,000,000 shares of common stock thereby reducing his holdings in
the Company to less than 10% and relinquished his management and
director's position in the Company. In return for services rendered
and release of the director's employment contract, the Company issued
225,000 stock options and transferred two management agreements to
the director. These options are exercisable at $.55 per share and
expire in April 2000. In October and November 1996, 10,000 of
these options were exercised for $5,500.
Deferred offering costs recorded at December 31, 1995 were written-
off in the year ended December 31, 1996 due to the Company not
proceeding with a proposed public offering.
8. Stock Options and Warrants
A summary of the status of the Company's stock options as of December 31, 1996
is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
<S> <C> <C>
1996 Price
Options outstanding at January 1 - $ -
Options granted 335,000 0.70
Options exercised (10,000) 0.55
Options canceled - -
Options outstanding and exercisable at
December 31 325,000 0.70
</TABLE>
The following table summaries the information about the stock options
as of December 31, 1996.
<TABLE>
<CAPTION>
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstand- Contractual Average Exercisable Average
Exercise ing at Life Exercise at Exercise
Price Dec 31 (Years) Price Dec 31 Price
<C> <C> <C> <C> <C> <C>
$ 0.55 215,000 4 $ 0.55 215,000 $ 0.55
$ 1.00 110,000 4 $ 1.00 110,000 $ 1.00
$0.55-
1.00 325,000 4 $ 0.70 325,000 $ 0.70
</TABLE>
SFAS No. 123 requires the Company to provide pro forma information
regarding net loss applicable to common stockholders and loss per
share as if compensation cost for the Company's stock options granted
had been determined in accordance with the fair value based method
prescribed in that Statement.
The Company estimates the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996 as
follows: dividends yield of 0%; expected volatility of 0%; risk-free interest
rates ranging from 5.14% to 6.62%; and expected lives ranging from 0.0833 to 4
years. The weighted average fair value of options granted in 1996 was $0.07.
Under the accounting provisions of SFAS No. 123, the Company's net
loss applicable to common stockholders and loss per share would have
been increased to the pro forma amounts indicated below:
1996
Net loss applicable to common stockholders:
As reported $ (48,155)
Pro forma (72,905)
Loss per share:
As reported $ (.01)
Pro forma (.01)
At December 31, 1996 the Company has 19,920 warrants outstanding
which were issued in connection with the Company's limited offering
in 1995 (see Note 7). These warrants are unregistered and are
exercisable at any time at $1.37 prior to expiration on October 1,
2000. No value has been attributed to these outstanding warrants at
December 31, 1996.
9. Income Taxes
Temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities that give rise to significant portions of
the net deferred tax asset (liability) relate to the following:
December 31, 1996 1995
Net operating loss carryforward $ 74,096 $ 68,217
Depreciation 11,886 5,911
Valuation allowance (85,982) (74,128)
Net deferred tax asset $ - $ -
Since management can not determine that it is more likely than not that the
Company will realize the deferred tax asset, a 100% valuation
allowance has been recorded.
The income tax benefit differs from the amount of income tax determined by
applying the applicable statutory federal tax rate to
pretax loss from operations as a result of the following:
1996 1995
Tax benefit at statutory rates $ (16,000) $ (74,000)
Effect of net operating losses
not currently utilizable 16,000 74,000
Tax benefit at effective tax rates $ - $ -
At December 31, 1996 and 1995, the Company had, for tax reporting
purposes, net operating loss carryforwards of approximately $218,000
and $201,000, respectively, available to offset future taxable income.
These net tax operating loss carryforward benefits expire beginning in
the year ending December 31, 2009.
10. Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105, consist primarily of trade accounts
receivable.
The majority of the Company's customer base are charitable
organizations located in Mississippi and retail outlets for its phone
cards located in Texas. Although the Company is directly affected by
the well being of the organizations, management does not believe
significant credit risks existed at December 31, 1996 and 1995.
11. Fair Value of Financial Instruments
Cash and cash equivalents. The carrying amounts at December 31, 1996
and 1995 approximate fair value because of the short maturity of those
instruments.
Note receivable. Based on discounted cash flows, the fair value of the note
receivable approximates its carrying value at December 31, 1996.
Long-term debt. Based on borrowing rates currently available to the
Company for bank loans with similar terms and average maturities, the
fair value of long-term debt, including the current portion thereof,
approximates its carrying value at December 31, 1996 and 1995.
12. Phone Card Agreements
The Company has an exclusive distribution agreement with Diamond Game
Enterprises ("DGE") within the State of Texas. The Company, as the
distributor, has the exclusive right to lease and sublease the Lucky Tab II
dispensers from DGE. The Lucky Tab II phone cards are purchased by the
Company from DGE and sold in the dispensers. The agreement dated April 1, 1996
shall be for a term of five years, subject to early termination by either
party as provided in the agreement. The agreement may be extended for an
additional five year term, provided there are at least 2,000 units in
operation at the end of the initial five year term.
The Company has entered into an agreement with a company to compensate the
company for the assistance in obtaining the distribution agreement with DGE,
via royalty payments. Royalties are calculated at 10% of the Company's net
revenue from the sale of ticket based products sold through the Lucky Tab II
dispenser, outside of Texas charitable bingo. The royalty is calculated
monthly and payable no later than the 25th day of the immediately following
month. The term of the agreement is five years from the effective date of
April, 1996.
The Company has contracted with a phone company for the purchase
of phone time associated with the Lucky Tabs. The term of the
contract expires on December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000355590
<NAME> BINGO & GAMING INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 53307
<SECURITIES> 0
<RECEIVABLES> 216617
<ALLOWANCES> 0
<INVENTORY> 54327
<CURRENT-ASSETS> 324671
<PP&E> 218958
<DEPRECIATION> 103434
<TOTAL-ASSETS> 541249
<CURRENT-LIABILITIES> 233229
<BONDS> 0
0
0
<COMMON> 8415
<OTHER-SE> 123603
<TOTAL-LIABILITY-AND-EQUITY> 541249
<SALES> 566764
<TOTAL-REVENUES> 1151158
<CGS> 149404
<TOTAL-COSTS> 597441
<OTHER-EXPENSES> 576406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25750)
<INCOME-PRETAX> (48155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48155)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
