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, 1997
[ ] 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)
13581 Pond Springs Rd. Suite 105
Austin, Texas 78729
(Address of Principal Executive Offices)
Issuer's Telephone Number: (512) 335-0065
11006 Metric Blvd.
Austin, Texas 78758
(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, 1997 -
$ 2,212,164
The Exhibit Index commences on page **.
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.
March 31, 1998-$3,805,343. There are approximately 4,686,384 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:
March 31, 1998
8,516,809 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 ___
TABLE OF CONTENTS
Page
Number
Item 1. Description of Business *
Item 2. Description of Property *
Item 3. Legal Proceedings *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Market for Common Equity and Related Stockholder
Matters *
Item 6. Management's Discussion and Analysis *
Item 7. Financial Statements *
Item 7a, Qualitative and Quantitative Disclosures About
Market Risk *
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure *
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act *
Item 10. Executive Compensation *
Item 11. Security Ownership of Certain Beneficial Owners and
Management *
Item 12. Certain Relationships and Related Transactions *
Item 13. Exhibits and Reports on Form 8-K *
PART I
Item 1. Description of Business.
Business Development.
For a description of the business development of Bingo & Gaming
International, Inc., an Oklahoma corporation, (the "Company") from inception
to the end of its calendar year ended December 31, 1996, see its Annual Report
on Form 10-KSB for the calendar year ended December 31, 1996, filed with the
Securities and Exchange Commission on April 17, 1997, which is incorporated
herein by this reference. See the Exhibit Index, Part III, Item 13 of this
report.
Business
Since approximately December 1994, the Company has been engaged in
the business of owning and operating, as commercial lessors, charity bingo
locations of their own and in the past operated similar locations for other
owners. In May 1996, the Company began distributing prepaid phone card
vending machines in the State of Texas. Currently, the Company conducts its
prepaid phone card sales in Texas, Oklahoma and Washington.
The Company's revenues are generated primarily from the rental of
bingo facilities in the charitable bingo industry and the sale of prepaid
phone cards through the industry's most unique dispenser.
Through its wholly-owned subsidiaries, Tupelo Industries, Inc.
("Tupelo"), Meridian Enterprises, Inc. ("Meridian"), and Red River Bingo, Inc.
("Red River"), the Company has operated as a sub-lessor of real property to
charitable bingo operations in Texas, Mississippi, and Louisiana. The current
operations consist of three bingo halls located in Meridian, Iuka, and Tupelo,
Mississippi. Additionally, the Company through Monitored Investments, Inc.
("Monitored") has managed similar bingo operations for others in Texas,
Louisiana and Mississippi.
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 charity bingo business is regulated by the states in which
such businesses are operated. 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 Company's operations are
well managed and operated within the applicable rules and regulations. The
Company has never been denied a commercial lessor's license.
The Company is subject to Regulation 14A of the Securities and
Exchange Commission, which regulates proxy solicitations. Section 14(a) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), requires all
companies with securities registered pursuant to Section 12(g) thereof to
comply with the rules and regulations of the Commission regarding proxy
solicitations, as outlined in Regulation 14A. Matters submitted to
stockholders of the Company at a special or annual meeting thereof or
pursuant to a written consent will require the Company to provide its
stockholders with the information outlined in Schedules 14A or 14C of
Regulation 14; preliminary copies of this information must be submitted to the
Commission at least 10 days prior to the date that definitive copies of this
information are forwarded to stockholders.
The Company is also required to file annual reports on Form 10-KSB
and quarterly reports on Form 10-QSB with the Commission on a regular basis,
and will be required to timely disclose certain material events (e.g., changes
in corporate control; acquisitions or dispositions of a significant amount of
assets other than in the ordinary course of business; and bankruptcy) in a
Current Report on Form 8-K.
Management believes that these obligations will increase the
Company's annual legal and accounting costs, but it is expected that current
assets will be sufficient to meet these costs.
The charitable bingo 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. In Mississippi, riverboat dockside
gambling is legal and has proliferated on the Mississippi Gulf Coast and
Mississippi River. The three bingo facilities operated by the Company are not
located in close proximity to any casinos. 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 1996, the Company was introduced to an innovation in the
prepaid telephone card industry; the sale of prepaid phone cards through
dispensers that allow the consumer to enter a free promotional sweepstakes
offering cash prizes of $1 to $1,000. At the present time, this constitutes
only a fraction of the estimated $1 billion and ever growing telecard
industry. It is estimated that the prepaid phone card industry will reach
sales of $2 billion by the year 2000; however, this estimate is based on
numerous factors, such as the current regulatory and competitive environments,
which are subject to change and are beyond the Company's control.
In May 1996, the Company began distributing the Lucky Shamrock
Emergency Phone Card Dispenser, a video enhanced prepaid phone card dispenser,
under an exclusive distribution agreement with Diamond Game Enterprises, Inc..
In August, 1997, the Company by mutual agreement with Diamond Game
Enterprises, Inc. terminated its exclusive distribution agreement. In
October, 1997, the Company executed an exclusive distribution agreement with
Cyberdyne Systems, Inc. for a prepaid phone card dispenser utilizing their
patented cartridge-based technology. The Lucky Strike Prepaid Phone Card
Dispenser ("Dispenser") is an exciting method of marketing prepaid phone
cards. The Dispenser itself resembles a Las Vegas style machine with a video
screen and chrome housing; however, the equipment is simply a machine for the
vending 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 $1,000 which are paid at the retail location of the dispenser.
The promotional sweepstakes portion of the phone card contains
nine symbols or numbers. A winning portion contains three like symbols or
numbers in a row or nine like symbols or numbers. When the phone card is
purchased, the Dispenser, through data contained on a cartridge, thermally
prints, dispenses and then displays this same arrangement of icons on the
video screen and indicates whether the game piece contains a sweepstakes
winning combination.
As with all promotional sweepstakes (e.g., McDonald's Monopoly
Game), no purchase is necessary to enter the sweepstakes. The Company offers
up to 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 Strike machines
currently vend two-minute or three-minute emergency phone cards for the price
of $1.00.
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 Strike Prepaid Phone Cards to the retail location on terms of net 30 or
whenever a new supply is needed, whichever comes first. In Texas, the Company
places the dispensers directly at the location. However, in Oklahoma, the
dispensers are placed through a distribution agreement with Prestige
Distributing Inc. of Guthrie, Oklahoma.
Currently, 276 dispensers are in use throughout the states of
Texas, Oklahoma and Washington. Most of the machines are located in
charitable bingo halls and Indian bingo facilities, but some are located in
bars and bowling alleys.
PrePaid Plus, Inc. ("PPI"), a Texas corporation, is a new
subsidiary of the Company. The corporation was formed in 1997 to focus on the
booming prepaid telephone card industry. The Company, through PPI, will now
concentrate its resources in the growing prepaid phone card industry and
de-emphasize the bingo hall aspect of its operations. To this end, the
Company executed a stock purchase agreement in February 1998, which is
subsequent to the period covered by this report, to sell its three bingo halls
in Mississippi to American Bingo & Gaming Corporation. Proceeds from the sale
of Tupelo and Meridian will be used to purchase additional Dispensers, reduce
certain debts and provide additional working capital. See the caption:
"Management's Discussion and Analysis and Plan of Operation", Part 1, Item 6
of this report.
Although there is little competition in this segment of the
prepaid phone card industry, the Company feels its personnel and customer
service will propel it ahead of any competition. The proprietary methods,
procedures and processes developed by the Company, since its entry into the
market, will form the basis of the expansion plan in new territories.
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.
Additionally, the Company is 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. Such
changes, if any, could have a material adverse effect on the Company's
business.
At March 31, 1998, the Company had one part-time and nine
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's Dispensers are manufactured solely by Cyberdyne
Systems, Inc. of Phoenix, Arizona. Cyberdyne has been manufacturing related
equipment since 1987, and it has diversified into such other areas as gaming
and finite pull tab dispensers. Although the Company depends on this one
source for its product, the manufacturer is financially sound and has been in
operation for over ten years. Two sources supply the thermal paper used in
the Dispensers, and the Company currently relies on two resellers of long
distance service for the phone time. Over 70% of the Company's phone card
revenue comes from Prestige Distributing, Inc., in Oklahoma. The Company is
currently seeking opportunities in other states besides Texas and Oklahoma in
order to diversify its operating area. Ten dispensers are currently in
operation in Washington, and the Company expects to expand rapidly there.
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.
Subsequent Events
In February 1998, the Company executed a Stock Purchase Agreement
with American Bingo & Gaming Corporation ("ABG") to sell Tupelo and Meridian
to ABG for cash and restricted stock. The due diligence period for the
contemplated sale expires on April 30, 1998. The proceeds from the sale of
the Company's subsidiaries will provide it with additional liquidity, allow it
to purchase additional phone card dispensers and to decrease the outstanding
debt. If the sale is completed, the final terms and documents relating to the
sale will be incorporated as an exhibit in the SEC Form 10-QSB for the quarter
ending March 31, 1998.
On March 6, 1998, the Company executed a Master Lease Agreement
with Southworth Capital Management, LLC, ("Southworth") of Memphis, Tennessee,
whereby Southworth provided 125 Dispensers to the Company. The monthly lease
amount on the Dispensers is $23,125 ($185 monthly per Dispenser), and the term
of the lease is 36 months. The Master Lease Agreement is accompanied by a
Warrant Agreement between Southworth and the Company, whereby Southworth may
exercise warrants for 125,000 shares of unregistered, restricted stock at the
exercise price of $1.25; 125,000 shares of unregistered, restricted stock at
the exercise price of $1.50 and 125,000 shares of unregistered, restricted
shares at the exercise price of $3.00. These warrants expire on March 6,
2003.
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. Additionally, the Company leases a 4,000 square
foot space at College Park Shopping Center, Meridian, Mississippi. And the
Company occupies a 3,000 square foot warehouse and general office suite
located at 13581 Pond Springs Road, Suite 105, Austin, Texas. All of such
locations are well-maintained, well-equipped, and suitable for their intended
purposes. Management believes that all of the leased properties are
adequately covered by insurance. No material renovations are currently
contemplated for these leased properties. The properties are superior to
those of competing bingo halls in the area, according to appraisals conducted
for the Company for submission to the Mississippi Gaming Commission. The
office/warehouse properties are well situated and easily accessible by major
thoroughfares.
<TABLE>
Lease Description Expiration Option To Monthly Option
Date Renew Rent Rent
<S> <C> <C> <C> <C>
Casino Bingo 02/28/99 None $6650
Meridian, MS
Magnolia Bingo 12/31/98 5 Years $3750 10% Increase
Tupelo, MS plus
incrementals
Tishomingo Bingo 05/30/98 3 Years $3000 No increase
Iuka, MS
College Park 08/31/98 5 Years $2455 $6.50-$8.50
Meridian, MS sq. foot
General Office, #104 09/30/01 None $1125-$1200
General Office, #105 05/31/01 None $1110-$1185
Austin, Texas
</TABLE>
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.
One of the Monitored companies was assessed civil penalties
totaling $25,000 in 1995 by the State of Louisiana for alleged charitable
gaming law violations. Management vigorously contested this claim, and
Louisiana's Charitable Gaming Division canceled a hearing scheduled on this
matter in 1996. No further correspondence has been received from the State of
Louisiana and management believes that no future action will be forthcoming
that could have a material adverse affect on the Company, particularly since
there have been no operations in Louisiana since 1995.
In December 1996, four 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
retained counsel for this individual, and charges against her were dropped.
A Motion for Forfeiture was filed by the San Antonio Police in 1997. In a
Final Judgment of County Court #5, Bexar County, Texas, a settlement was
reached on September 11, 1997, wherein the dispensers were returned to the
Company without a finding of law or fact.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 24, 1997, the Company held its Annual Meeting of
Stockholders in Austin, Texas. A Definitive Proxy Statement, which is
included by reference, was filed with the Securities and Exchange Commission
on September 5, 1997. At that meeting, the election of the Board of Directors
was submitted to the Stockholders, and the Directors listed in Part III, Item
9 were elected unanimously. No other matters were submitted to the
Stockholders.
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 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 NASD OTC
Electronic Bulletin Board.
<TABLE>
Common Stock
High Low
<S> <C> <C>
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
Common Stock
High Low
Fiscal 1997:
First Quarter 1.375 0.75
Second Quarter 1.125 0.25
Third Quarter 0.625 0.188
Fourth Quarter 0.688 0.375
Fiscal 1998:
First Quarter 1.75 0.344
</TABLE>
Prices are inter-dealer quotations as reported by the NASD and do
not necessarily reflect transactions, retail mark-ups, markdowns or
commissions.
Shareholders
The number of record holders of the Company's common stock as of
December 31, 1997, was approximately 337; such number does not include an
indeterminate number of stockholders whose shares were held by brokers in
street name, and of which the Company is not aware. As of March 31, 1998,
there were approximately 342 unrestricted 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.
Recent Sales of Unregistered Securities
On June 1, 1995, the Company issued 199,200 shares of common stock
at a price of $1.25 per share to certain foreign investors pursuant to a claim
of exemption under Regulation "D" and Regulation "S" of the Securities and
Exchange Commission under the Securities Act of 1933. The net proceeds to the
Company were $207,000. The proceeds were used for working capital to support
the Company's expansion of operations. In connection with this offering, the
Company sold 19,920 warrants at $0.01 per warrant to the issuing agent.
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 the Company. It should be read in conjunction
with such financial statements and the notes thereto.
<TABLE>
Year ended Year ended
December 31, December 31,
1997 1996
<S> <C> <C>
Statement of Income:
Total revenues $2,212,164 $1,151,158
Cost of revenues (1,397,056) (597,441)
Total expenses (730,677) (576,406)
Operating income (loss) 84,431 (22,689)
Net income (loss) 43,432 (48,155)
Net income (loss) per common share .01 (.01)
December 31, December 31,
1997 1996
Balance Sheet:
Current assets $434,713 $324,671
Current liabilities 556,950 233,229
Total assets 961,223 541,249
Long-term debt 227,162 176,002
Stockholders' equity 177,111 132,018
</TABLE>
Plan of Operation
During the year ended December 31, 1996, the Company operated
three charity bingo centers. Casino Bingo in Meridian, Mississippi, commenced
business in June 1992. Magnolia Bingo in Tupelo, Mississippi, commenced
business in June 1992. Tishomingo Bingo in Iuka, Mississippi, began operating
in June 1995.
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 prepaid phone card dispenser. As
previously discussed, this Distribution Agreement was mutually terminated in
August 1997. Between August and December 1997, all of the 134 Lucky Shamrock
Emergency Phone Card Dispensers were returned to Diamond Game Enterprises,
Inc.
In October 1997, the Company executed an Exclusive Distribution
Agreement with Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid
Phone Card Dispenser, which is based on Cyberdyne's patented cartridge based
technology. This agreement provides for the Company to have the exclusive
distribution rights for the United States and Canada for five years with two
five year options. Distribution of the Lucky Strike Prepaid Phone Cards began
in October 1997, and by March 31, 1998, over 275 dispensers were in operation
in Texas, Oklahoma and Washington.
The Company intends to further develop and substantially expand
its business, principally by continuing the operation and expanding the
distribution of the video enhanced phone card Dispensers. The Company will
locate distributors, operators and chain retailers to market our products. In
addition, the Company will market the product directly to the retail location,
where this is preferable. The Company will utilize various avenues to locate
and communicate with these entities including: trade shows, trade magazines,
trade organizations, direct mail, internet site, E-mail and industry contacts.
Each territory has its own unique set of marketing characteristics; however,
the Company will target among others the following retailers: bingo halls,
bars and taverns, pool halls, bowling alleys, truck stops, major public
transportation centers, adult game arcades, prepaid phone card routes,
amusement/vending routes, convenience stores, and fraternal organizations.
The prepaid phone card industry has grown to over a $1 billion a
year business in the few years since its inception, and it has been estimated
that by the year 2000 the sale of telecards will exceed $2 billion; however,
this estimate is based on numerous factors, such as the current regulatory and
competitive environments, which are subject to change and are beyond the
Company's control. Approximately nine million (9,000,000) phone cards were
sold by the Company between October 1997, when the first Cyberdyne Lucky
Strike Phone Card Dispensers were received, and March 31, 1998. Of this
amount, two-thirds, or just under six million (6,000,000), were sold in the
first quarter of 1998, which is subsequent to the period covered by this
report.
The Company anticipates placing additional dispensers each month
for the remainder of the 1998 fiscal year. Based on estimated sales of $250
per day (current sales average are above this amount) per dispenser and the
current rate of profitability, the Company believes each dispenser will
generate a minimum of $375 monthly net income after all expenses and
contribution for corporate overhead; however, no assurance can be made that
the Company will be able to meet these estimates.
A Stock Purchase Agreement, which could result in the sale of the
three bingo facilities operated by two of the Company's subsidiaries, has been
executed. The proceeds from this sale, if completed, would provide the
Company with additional liquidity. The terms of the sale provide for payment
of cash and shares of restricted stock of the purchasing company. This cash
infusion would be utilized to purchase additional prepaid phone card
dispensers, to reduce certain debts, and to provide working capital to develop
additional markets for the Dispensers.
Additional dispensers will also be distributed by selling them
directly to vending and amusement route operators. Results from recent trade
show appearances indicate that more dispensers can be sold directly to the
customer with the Company continuing to sell the replacement cartridges. In
the first quarter of 1998, which is subsequent to the period covered by this
report, the Company executed a leasing agreement for 125 of the dispensers,
and it will continue to use this avenue to increase the number of dispensers
on location in the remainder of the fiscal year.
If the Stock Purchase Agreement is not consummated or additional
leasing or financing arrangements are not executed, then the Company's ability
to increase the number of income producing Dispensers will be limited by its
available liquidity and other capital resources, as to which no assurance can
be given.
Results of Operations
Year ended December 31, 1997
Compared with Year ended December 31, 1996
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 $1,621,748 for the year ended December 31, 1997, compared to
$566,764 for the year ended December 31, 1996. This increase of $1,054,984
(186%) was the result of twelve month's of revenue from the phone card
dispensers for 1997 compared to seven months in the previous year. In 1996,
the number of dispensers in operation increased throughout the year beginning
in June, while in 1997, the number of machines in operation was relatively
stable throughout the year. Sales of phone cards in Oklahoma, which began in
November 1997, were also greater on a per dispenser basis than those in Texas,
which resulted in increased overall sales. Rental income remained consistent
at $498,776 for fiscal year 1997 compared with $503,388 for fiscal year 1996.
Concession income decreased to $54,013 in 1997 from $63,006 for the prior
year. Three new sources of income were realized in fiscal year 1997 including
$19,330 in phone card dispenser sales, $9,242 in phone card dispenser rentals,
and $9,055 in phone card commissions.
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 $1,397,056 and $597,441 for 1997 and
1996, respectively.
Cost of revenue specifically related to the phone card dispensers
includes phone card and royalties costs, machine and location rental, prizes
paid and machine sales cost. Phone card and royalty costs were $581,393 for
the year ending December 31, 1997, compared to $149,404 for the previous year.
This 289% increase was due to the sale of phone cards for the twelve months in
1997 compared to seven months for the prior year, as discussed above.
Additionally, phone costs increased in 1997, when the prepaid phone cards were
changed from a one-minute card to a two-minute card beginning in June 1996,
as previously mentioned. This increase also included a write-off of $46,042
of obsolete inventory associated with the former phone card dispensers.
Machine and location rental costs were $323,798 in fiscal year 1997 compared
with $108,375 in fiscal year 1996. This 199% increase was the result of the
rental of machines for twelve months in 1997 compared to seven months in
1996, as discussed above. In 1997, prizes paid increased to $273,497 from
$162,281 in 1996. Prizes paid reflects the amount paid to winners from
dispensers operated directly by the Company, rather than those operated by the
retail location. This 89% increase is the result of operating the dispensers
for twelve months in 1997 as compared to seven months in 1996. In 1997, some
dispensers were sold to retail operators at a cost of $16,660. As discussed
previously , this is a new source of revenue in 1997.
Cost of revenue specifically related to the operations of the
bingo facilities represents the rental cost of such facilities, which rose to
$201,708 in fiscal year 1997 compared to $177,381 in 1996. Such cost
increased by $24,327, or 14%, as a result of a new lease at the Meridian bingo
facility with increased monthly rental amounts and an annual increase in rents
at the Tupelo bingo facility.
Other expenses include salaries and wages, indirect operating
costs, and other general and administrative expenses. In total, such expenses
were $730,677 and $576,406 for the year ended December 31, 1997 and 1996,
respectively. Salaries and wages increased by $49,405 or 24.3% as a result of
hiring additional staff. Accounting costs increased by $29,624, or 119%,
which was the result of higher audit costs, costs associated with the
installation of new accounting software and outsourcing accounting services
for a portion of 1997. From 1996 to 1997, legal costs increased $39,370, or
193%, which was the result of seeking legal counsel concerning promotional
sweepstakes in new territories, preparation of the distribution agreement, and
costs associated with the preparation of documents for the Annual Meeting of
Shareholders. Bad debts of $36,287 were expensed in 1997 compared to
approximately $25,000 in 1996. This increase can be attributed to the
increased sales volume and the determination to discontinue relationships with
some retail locations. Consulting fees increased in 1997 by $25,185 (81%), as
a result of some of these costs being for a partial year in 1996 versus a full
year in 1997. Travel related expenses increased by 130% to $43,112, which
resulted from the cost of distributing the dispensers, costs associated with
changing to a new dispenser, twelve months versus seven months of prepaid
phone card activity, and expanding the Company's operating territory. Cost
savings were experienced in office rental costs of $8,804 (36%) and in other
areas.
Principally, for the reasons set forth in the three preceding
paragraphs, the Company had a net income of $43,432 for 1997 compared with a
net loss of $48,155 for 1996. Included in the net income (loss) for 1997 and
1996 is interest expense of $40,999 and $25,750, respectively.
Financial Position
The Company's financial position improved slightly during the year
as it had a net income of $43,432 for 1997 compared with a net loss of $48,155
for 1996. Additionally, during 1997, operating activities, certain investment
activities, and financing activities provided cash inflows of $389,672;
however, cash and cash equivalents were virtually the same at December 31,
1997, as they were at December 31, 1996, inasmuch as $389,045 was used to
purchase additional equipment. Such equipment purchases included $341,530 for
82 Lucky Strike prepaid phone card dispensers as the Company continued to
develop and expand its sweepstakes-enhanced prepaid telephone card business.
The Company's working capital (current assets less current
liabilities) position also improved slightly during the year; $131,835 at
December 31, 1997, (after adjustment to give effect to the expectation that
$254,072 of accounts payable - other, representing vendor short term financing
for the purchase of certain equipment, will be refinanced with long-term debt
or leasing arrangements during 1998) compared with $91,442 at December 31,
1996.
SFAS No. 130, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company has addressed the requirements of SFAS No.
130 and no material impact on the financial statements is expected.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that it is used internally for evaluating performance of
an allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.
Liquidity
The Company intends to substantially expand its sweepstakes-enhanced
prepaid phone card business during 1998. It had 276 Dispensers placed and
operating at March 31, 1998, and it would like to place and have operating an
additional 375 Dispensers by December 31, 1998. The actual rate of expansion
will be dependent on (1) the number of Dispensers that the Company's supplier
can manufacture and make available and (2) the number of Dispenser
purchases/leases that the Company can internally fund and/or otherwise finance
with either borrowing or leasing arrangements or through the sale of
Dispensers directly to the retail operator.
It is expected that the proposed sale, if consummated, of the
three bingo halls will provide sufficient funding to purchase approximately
125 Dispensers. A leasing arrangement or financing will be sought for an
additional 125 Dispensers, and net cash flow will support the purchase of the
remaining 125 machines.
At the present level of Dispensers currently in operation, the
Company anticipates substantially increased earnings in the 1998 Fiscal Year.
As stated earlier, its rate of growth will depend on the availability of
either borrowing or leasing opportunities, the sale of the bingo halls, and
the number of Dispensers it can sell directly to retail operators. No
assurance can be given that the Company can arrange such additional financing
or that the sale of the bingo halls will be consummated.
Item 7. Financial Statements.
The following financial statements are included hereinafter:
Page No.
Independent Certified Public Accountants' Report **
Independent Certified Public Accountants' Report **
Consolidated Balance Sheets as of December 31, 1997 and 1996 **
Consolidated Statements of Income (Loss)
for the years ended December 31, 1997 and 1996 **
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1996 **
Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1996 **
Notes to Consolidated Financial Statements **
Item 7(a). Qualitative and Quantitative Disclosures About Market Risk.
The Company's market capitalization on March 31, 1998, was less than
$2.5 billion, and therefore, information responsive to the items should be
included in the report on from 10-KSB for the fiscal year December 31, 1998.
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
Bingo & Gaming International, Inc.
Austin, Texas
Independent Auditors' Report
We have audited the consolidated balance sheet of Bingo & Gaming
International, Inc. (the "Company") as of December 31, 1997, and the related
consolidated statements of income (loss), changes in stockholders' equity, and
cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bingo &
Gaming International, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/Brown, Graham & Company, P.C.
Georgetown, Texas
March 31, 1998
<PAGE>
Bingo & Gaming International, Inc.
Austin, Texas
Independent Certified Public Accountant's Report
We have audited the accompanying consolidated balance sheet of Bingo & Gaming
International, Inc. (the "Company") as of December 31, 1996, and the related
consolidated statements of loss, changes in stockholders' equity, and cash
flows for the year 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. as of December 31, 1996, and the
consolidated results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/BDO Seidman, LLP
March 26, 1998
Houston, Texas
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<CAPTION>
Assets
1997 1996
<S> <C> <C>
Current assets
Cash and cash equivalents $ 53,934 $ 53,307
Accounts receivable - trade 347,029 175,804
Inventories 19,811 54,327
Note receivable 7,494 40,813
Prepaid expenses 6,445 420
Total current assets 434,713 324,671
Property and equipment, at cost - net of
accumulated depreciation and amortization 456,945 115,524
Other assets
Organizational costs and intangible
assets - net of accumulated amortization 19,705 37,505
Deposits 49,860 63,549
Total other assets 69,565 101,054
Total assets $ 961,223 $ 541,249
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade and accrued
expenses $ 180,862 $ 110,866
Accounts payable - other 253,190 -
Current maturities of long-term debt 122,898 122,363
Total current liabilities 556,950 233,229
Long-term debt, net of current maturities 227,162 176,002
Total liabilities 784,112 409,231
Stockholders' equity
Common stock, $.001 par; 70,000,000
shares authorized; 8,418,602 and
8,414,600 issued and outstanding 8,418 8,415
Additional paid-in capital 393,197 391,539
Retained earnings (deficit) (224,504) (267,936)
Total stockholders' equity 177,111 132,018
Total liabilities and
stockholders' equity $ 961,223 $ 541,249
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME ( LOSS)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Revenue
Phone card sales $ 1,621,748 $ 566,764
Management advisory fees - 18,000
Rental income 498,776 503,388
Concession income 54,013 63,006
Machine sales 19,330 -
Other 18,297 -
Total revenue 2,212,164 1,151,158
Cost of revenue
Phone cards and royalties 581,393 149,404
Machine and location rental 323,798 108,375
Prizes paid 273,497 162,281
Hall rental 201,708 177,381
Machines sold 16,660 -
Total cost of revenue 1,397,056 597,441
Gross margin 815,108 553,717
Expenses:
Operating expenses 136,055 227,384
Salaries 232,444 203,614
General and administrative expenses 362,178 145,408
Total expenses 730,677 576,406
Operating income (loss) 84,431 (22,689)
Other income - 284
Interest expense (40,999) (25,750)
Net income (loss) $ 43,432 $ (48,155)
Basic and diluted income (loss) per
common share $ 0.01 $ (0.01)
Weighted average shares outstanding 8,421,086 8,360,433
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
</TABLE>
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $8,349 $363,204 $(219,781)$151,772
Net loss - - (48,155) (48,155)
Issuance of stock 66 28,335 - 28,401
Balance at December 31, 1996 8,415 319,539 (267,936) 132,018
Net income - - 43,432 43,432
Issuance of stock 3 1,658 - 1,661
Balance at December 31, 1997 $8,418 $393,197 $(224,504)$177,111
</TABLE>
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Operating Activities:
Net income (loss) $ 43,432 $ (48,155)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 65,425 62,526
Loss on disposal of assets - 5,059
Provisions for bad debts 36,287 22,000
Changes in current assets and liabilities:
Accounts receivable (207,512) (154,198)
Inventories 34,516 (54,327)
Prepaid expenses (6,025) 2,520
Accounts payable - trade and
accrued expenses 69,995 (9,315)
Net cash from operating
activities 36,118 (173,890)
Investing Activities:
Purchase of property and equipment (135,855) (25,690)
Proceeds from sale of equipment - 19,000
Increase (decrease) in other assets 13,689 (19,273)
Payments received on notes receivable 33,319 42,187
Cash from investing activities (88,847) 16,224
Financing Activities:
Payments on long-term debt (95,414) (84,890)
Proceeds from long-term debt 147,109 193,400
Issuance of common stock 1,661 28,401
Cash from financing activities 53,356 136,911
Net increase (decrease) in cash and cash
equivalents 627 (20,755)
Cash and cash equivalents at beginning of
year 53,307 74,062
Cash and cash equivalents at end of year $ 53,934 $ 53,307
Supplemental disclosures of cash flow information:
Interest paid $ 39,470 $ 9,499
Taxes paid $ 3,179 $ 8,776
Supplemental disclosure of non-cash investing
and financing activities:
Reduction of long-term debt from
sale of assets $ - $ 10,000
Proceeds from vendor financing of
equipment purchases $ 253,190 $ -
</TABLE>
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
BINGO & GAMING INTERNATIONAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1997 AND 1996
NOTE 1 - 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 acquired 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, managing and operating charity bingo entertainment centers.
Monitored is a commercial lessor of bingo facilities to charity lessees 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.
In May, 1996, the Company began distributing the Lucky Shamrock Emergency
Phone Card Dispenser, under an exclusive agreement with Diamond Game
Enterprises. This agreement was terminated by the mutual consent of the
parties in October 1997.
In October 1997, the Company began distributing and selling the Lucky Strike
Phone Card Dispenser, a video enhanced prepaid phone card dispenser under an
exclusive distribution agreement for five years with two successive five year
options to renew with Cyberdyne Systems, Inc.
In October 1997, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired
under the purchase method. PPI is a wholly owned subsidiary of the Company.
The corporation was formed for the purpose of transacting the prepaid
telephone card dispenser operations.
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.
Accounts receivable
The Company follows the direct write-off method of expensing accounts
receivable when considered uncollectible. The effect of using this method (as
compared to an allowance method) on the statement of income is immaterial.
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.
Significant expenses of bringing new locations into operation are recorded as
organizational costs and amortized over periods of not more than five years.
Such costs also include the cost of a noncompete agreement which is being
amortized over five years.
Property, equipment and depreciation and amortization
Property and equipment are 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 provisions of this pronouncement have been reflected in the
accompanying 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, 1997, indicated there was no impairment to
these assets' carrying values.
SFAS No. 130, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company has addressed the requirements of SFAS No.
130 and no material impact on the financial statements is expected.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports
issued to shareholders. Generally, certain financial information is required
to be reported on the basis that it is used internally for evaluating
performance of an allocation of resources to operating
segments. The Company has not yet determined to what extent the standard will
impact its current practice of reporting operating segment information.
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 and machine sales as well as rental income are recognized when
earned.
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.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company had $47,342 and $52,158 in notes payable to a present officer and
stockholder at December 31, 1997 and 1996, respectively. Interest paid to the
present officer and stockholder was $2,618 and $5,689 in 1997 and 1996,
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 in 1996. No
transactions between the companies occurred during 1997.
NOTE 3 - NOTE RECEIVABLE
The note receivable at December 31, 1997, represents advances to an unrelated
entity. 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 other entity.
During the year ended December 31, 1997, reductions in the note balance
resulted from consulting services performed by the entity. Additional
reductions in the note balance resulted from royalties due to the entity under
an agreement whereby the Company pays a 10% royalty on the gross profit from
phone card sales (as defined in the agreement).
NOTE 4 - ORGANIZATIONAL COSTS AND INTANGIBLE ASSET
Organizational costs and an intangible asset at December 31 consist of the
following:
<TABLE>
1997 1996
<S> <C> <C>
Organization costs $ 24,415 $ 24,415
Noncompete agreement 63,678 63,678
Total 88,093 88,093
Less accumulated amortization 68,388 50,588
Net organizational costs and intangible
asset $ 19,705 $ 37,505
</TABLE>
Amortization expense was $17,800 and $18,483 for the years ended December 31,
1997 and 1996, respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
<TABLE>
Lives
(Years) 1997 1996
<S> <C> <C> <C>
Vehicles 7 $ 32,558 $ -
Furniture and equipment 5-10 465,628 109,141
Leasehold improvements 5 109,818 109,817
Total 608,004 218,958
Less accumulated depreciation
and amortization 151,059 103,434
Net property and equipment $ 456,945 $ 115,524
</TABLE>
Depreciation and amortization expense was $47,625 and $44,043 for years ended
December 31, 1997 and 1996, respectively.
As of December 31, 1997, accounts payable other included $253,190 for the
purchase of machines. It is the intention of management to refinance this
liability with long-term debt.
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.
NOTE 6 - LONG-TERM DEBT
1997 1996
Long-term debt at December 31 consists of the following:
Note payable to officer and stockholder;
interest at 10%; matured August 19, 1997;
unsecured $ - $ 13,301
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 certain stockholders;
matures July 5, 2000 34,495 48,000
Note payable to a bank, due in monthly
installments of $1,005 including interest
at 10.5%; collateralized by the outstanding
stock held by certain stockholders; maturing
with an additional lump sum payment of
$17,498 due December 30, 2000 53,663 68,918
Note payable to officer and stockholder,
due on demand or in full at December 31,
1998; interest at 15%; unsecured 10,857 21,987
Note payable to individuals; principal is
due in full on various dates in the year
2000; interest at 18% due in monthly
installments; unsecured 110,000 135,000
Note payable to officer and stockholder;
Interest at 14%; matures September 24, 1998;
unsecured 25,000 -
Note payable to officer and stockholder;
due in monthly installments of $1,037
including interest at 15%; matures
August 22,1998; unsecured 11,485 -
Note payable to a bank in monthly
installments of $558 including interest
at 8.5%; collateralized by 1997 Ford truck 19,754 -
Note payable to a bank; due in monthly
installments of $1,867 including interest
at 11%; collateralized by phone card dispensers 36,872 -
Note payable to a bank; due in monthly
installments of $1,561 including interest
at prime plus 2% adjusted monthly;
collateralized by phone card dispensers 45,725 -
Other notes payable to banks 2,209 11,159
Total 350,060 298,365
Less current maturities 122,898 122,363
Long-term debt $ 227,162 $ 176,002
Future maturities of long-term debt are as follows:
Year Ending
December 31
1998 $ 122,898
1999 69,721
2000 157,441
Total $ 350,060
NOTE 7 - COMMITMENTS
The Company leases its principal general offices and bingo facilities. The
leases expire at various dates through 1999. Future minimum lease payments
are as follows:
Year Ending
December 31
1998 $ 181,160
1999 50,920
2000 30,120
2001 21,675
Total $ 283,875
The following schedule shows the composition of total rental expense:
<TABLE>
Year Ending
December 31
1997 1996
<S> <C> <C>
Minimum rentals $ 252,613 $ 297,633
Less sublease rentals 32,399 15,795
Total $ 220,214 $ 281,838
</TABLE>
An agreement between the Company and Diamond Game Enterprises to lease the
Lucky Shamrock Phone Card Dispensers was terminated by the mutual consent of
the parties in August 1997. The termination of this agreement resulted in a
substantial decrease in the future minimum lease payments as compared to the
amounts reported in the year ended December 31, 1996.
The Company subleases bingo facilities under operating subleases that expire
at various dates in 1998. These subleases are cancelable by either party at
any time.
The Company 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 effect on the Company's financial position, income, or
cash flows. The Company ceased all operations in the State of Louisiana in
1995.
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 that must be
determined before the Lucky Strike sweepstakes can be considered to be an
illegal lottery. The Company and its legal counsel believe that the Lucky
Strike sweepstakes meets all of the requirements to be considered a legal
sweepstakes.
The Company entered into an agreement for one year terminating in December
1998 with a local company that provides long distance phone cards for the
Lucky Strike Phone Card Dispensers in December 1997. This agreement replaces
a previous agreement with another local provider of long distance phone cards
that terminated by the mutual consent of the parties in December
1997.
In October 1997, the Company executed an exclusive distribution agreement with
Cyberdyne Systems, Inc. for the prepaid phone card dispensers with an initial
term of five years including two successive five year options to renew.
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 $17,000.
NOTE 8 - 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 warrants may be exercised for a period
of five years from issuance at 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.
The Company, as part of certain employment contracts, will grant options to
key employees to purchase common stock of the Company. 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, 1997, 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.
In December 1997, the Company issued options to purchase 300,000 shares of the
Company's common stock to individuals as part of certain consulting
agreements. These options are exercisable at $.60 per share which was the
approximate fair market value at the date of issuance. These options expire
on various dates in the years 1998 through 2000.
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.
NOTE 9 - STOCK OPTIONS AND WARRANTS
A summary of the status of the Company's stock options as of December 31,
1997, is presented below:
<TABLE>
Weighted
Average
Exercise
1997 Price
<S> <C> <C>
Options outstanding at December 31, 1996 325,000 $ .70
Options granted 300,000 .70
Options exercised - -
Options canceled - -
Options outstanding and
exercisable at December 31 625,000 $ .70
</TABLE>
The following table summarizes the information about the stock options as of
December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstand- Contractual Exercise Exercisable Exercise
Exercise ing at Life Price At Price
Price Dec. 31 Years (Total Shares) Dec. 31(Exercisable Shares)
<S> <C> <C> <C> <C> <C>
$ 0.55 215,000 3 $ 0.55 215,000 $ 0.55
1.00 110,000 3 1.00 110,000 1.00
.60 300,000 3 0.60 - 0.60
$ 0.55-
1.00 625,000 3 $ 0.66 325,000 $ 0.70
</TABLE>
SFAS No. 123 requires the Company to provide pro forma information regarding
net income (loss) applicable to common stockholders and income (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 estimated 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 as follows:
1997 - dividends yield of 0%; expected volatility of 233.0%; risk-free
interest rate of 5.91%; and expected lives of 0.5 to 3 years.
1996 - 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 fair value of options granted for the years ended December 31
1997, and 1996, respectively, was $0.17 and $0.07.
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) applicable to common stockholders and loss pro forma amounts are
indicated below:
1997 1996
Net income (loss) applicable to common stockholders:
As reported $43,432 $(48,155)
Pro forma (7,568) (72,905)
Income (loss) per share:
As reported $0.01 $(0.01)
Pro forma ( 0.01) (0.01)
At December 31, 1997, the Company had 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, 1997. There were no employee stock
options granted during 1997.
NOTE 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, 1997 and 1996.
NOTE 11 - EARNINGS PER SHARE
The following data details the amounts used in computing earnings per share
(EPS) and the effect on income and the weighted average number of shares of
dilutive potential common stock.
<TABLE>
1997 1996
<S> <C> <C>
Income (loss) from continuing operations
available to common stockholders used
in basic EPS $ 43,432 $(48,155)
Weighted average number of common
shares used in basic EPS 8,421,086 8,360,433
Effect of dilutive securities:
Stock options - -
Warrants - -
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 8,421,086 8,360,433
</TABLE>
Options on 625,000 shares of common stock were not included in computing
diluted EPS for the year ended December 31, 1997, since there is an
incremental per share effect of zero under the treasury stock method required
by FASB 128 "Earnings Per Share." In addition, options on 325,000 shares of
common stock were not included in computing diluted EPS for the year ended
December 31, 1996, because their effects were antidilutive.
NOTE 12 - INCOME TAXES
The income tax expense (credit) differs from the amount of income tax
determined by applying the applicable statutory federal tax rates is as
follows:
<TABLE>
1997 1996
<S> <C> <C>
Federal income tax expense (credit) $ 6,500 $(16,000)
Effect of net operating loss (7,200) 16,000
Other 700 -
$ - $ -
Temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities that give rise to significant portions of
the net deferred tax asset (liability) relate to the following:
1997 1996
Difference in method of accounting
for financial and tax purposes $ 4,200 $ -
Depreciation (8,200) 1,886
Net operating loss carryforward 70,917 74,096
Valuation allowance (66,917) (85,982)
Net deferred tax asset $ - $ -
</TABLE>
Since management can not determine that it is more likely than not that the
Company will realize the deferred tax assets, a 100% valuation allowance has
been recorded.
At December 31, 1997, the Company has available for federal income tax
purposes unused net operating losses of approximately $148,200 which may
provide future tax benefits that began expiring beginning in the year ending
December 31, 2009.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents. The carrying amounts at December 31, 1997 and
1996, 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, 1997.
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, 1997 and 1996.
NOTE 14 - CONTINGENCY
The Company has an account payable to and an account receivable from Diamond
Game Enterprises recorded at December 31, 1997. Diamond Game Enterprises was
unable to confirm the balance of either the payable or receivable that existed
at year end. However, management believes that the proper amounts are
recorded.
NOTE 15 - SUBSEQUENT EVENTS
Debt
As of April 2, 1998, subsequent borrowings for the acquisition of additional
dispensers through a master lease amounted to approximately $568,000.
Commitment to sell segment of business
In February 1998, the Company executed a Stock Purchase Agreement to sell the
stock of Tupelo Industries, Inc. and Meridian Enterprises, Inc. The due
diligence period for the contemplated sale expires on April 30, 1998. The
currently negotiated price of the sale of the stock is in an amount
in excess of book value.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On January 5, 1998, the Company filed an SEC Form 8-K providing
notification of a Change in Registrant's Certifying Accountant from BDO
Seidman, LLP, to Brown, Graham & Company, P.C. There were no disagreements
with either the attached audit by Brown, Graham & Company, P.C., for the year
ended December 31, 1997 and or the prior audits by BDO Seidman, LLP, for the
year ended December 31, 1996. The SEC Form 8-K is incorporated by reference.
See the Exhibit Index, Part III, Item 13 of this report.
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, 1997, 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 **
George Majewski President and COO 04/96 **
Director 12/94 **
V-P, Sec., Treasurer 12/94 09/97
Robert H. Hughes Director 12/94 **
R. E. Wilkin Director 12/94 **
Rick Redmond Director 09/97 **
Robert Chappell Secretary & Treasurer 09/97 **
Clay McCalla Vice-President 09/97 **
* These officers and directors were re-elected on 09/24/97 at the Annual
Stockholders and Board of Directors Meeting
** 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. 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 45, 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 54, has been associated with Bingo & Gaming
International, Inc. and its affiliated companies and/or predecessor companies
since 1989. He holds a BBA from the University of Texas and has prior
experience as an owner of businesses in the entertainment, catering,
concessions, and vending industries.
Mr. Hughes, age 70, is a retired attorney and a legislative
consultant in Austin, Texas, spending much of his time representing various
clients in the charity bingo and amusement and vending industry.
Mr. Wilkin, age 65, 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). For the past
several years Mr. Wilkin has been the Chief Financial Officer of US Cast
Products of Fort Worth, Texas.
Mr. Redmond, age 45, is the founding owner and major stockholder
of Lone Star Cafe, Inc., a restaurant chain based in Austin, Texas, with
operations in Texas and Colorado. He serves as Vice President of Real Estate
Acquisitions for that corporation. In addition, Mr. Redmond is General
Partner and majority stockholder of VIP Marina and Volente Beach Club.
Mr. McCalla, age 39, was graduated with a BBA from Texas Tech
University, Lubbock, Texas, in 1980. Until his employment with the Company,
he was president of Logistics by Clay, Inc., an event management corporation
from 1988 through present. Mr. McCalla planned and managed executive travel
programs for corporate clients such as RJR Nabisco and PepsiCo. Mr. McCalla
was Chief of Staff for Bob Bullock, State Comptroller from 1981 through 1985.
Robert Chappell, age 37, was graduated with an Associate of
Applied Sciences (Financial Management) from Community College of the Air
Force in 1993. He served with the U.S. Air Force in the positions of
Financial Manager and Auditor. In December of 1996, he accepted a position as
a senior accountant with the City of Austin - Neighborhood Housing Division.
Mr. Chappell accepted his current position in September, 1997.
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 10,000
shares as gifts to five individuals on April 21,1997, as reported on Form 4 of
April 25, 1997. He disposed of 25,000 shares as gifts on October 27, 1997, as
reported on Form 4 dated December 4, 1997, and 12,000 shares as gifts on
November 6, 1997, as reported on Form 4 dated December 5, 1997. Mr.
Funderburk also disposed of 50,000 shares on January 30, 1998, which is
subsequent to the period covered by this report, as reported on Form 4 dated
March 17, 1998.
George Majewski, an officer and director, sold 2,000 shares on
April 2, 1997, as reported on Form 4 of July 11, 1997. Mr. Majewski disposed
of 70,000 shares as gifts to various persons on January 6, 1998, which is
subsequent to the period covered by this report, as reported on Form 4 of
March 17, 1998.
Robert H. Hughes, a director, sold 100,000 shares to an individual
on March 26, 1997, as reported on Form 4 of April 24, 1997. He also sold
50,000 shares to two individuals on August 13, 1997, as reported on Form 4 of
September 5, 1997.
Clay McCalla, an officer, received 15,000 shares as a gift on
October 27, 1997, which will be reported on Form 3 to be filed by April 15,
1998.
Robert Chapell, an officer, received 7,500 shares as a gift on
October 27, 1997, which will be reported on Form 3 to be filed by April 15,
1998.
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, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities.
(4) Was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended, or vacated.
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, President, and Directors for the fiscal years 1995, 1996 and 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation(1) Awards SARS(#) Payouts sation($)
<S> <C> <C> <C>
Reid Funderburk 1997 $64,759 $1,241 - 0 - - 0 - - 0 - - 0 - - 0 -
Chairman 1996 $66,241 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
CEO, Director 1995 $67,917 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
George Majewski 1997 $58,759 $1,241 - 0 - - 0 - - 0 - - 0 - - 0 -
President, COO 1996 $61,000 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Director 1995 $61,500 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Robert H. Hughes1997 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Director 1996 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
1995 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
R.E. Wilkins 1997 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Director 1996 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
1995 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Rick Redmond 1997 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Henry A. Anawaty1997 $ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Former President1996 $16,250 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
and Director 1995 $69,116 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
</TABLE>
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, 1997.
Employment Contracts and Termination of Employment and Change of Control
Arrangement
Except as indicated below, during 1997, 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.
Messrs. Funderburk and Majewski entered into Employment Agreements
in 1995 with the Company. These Employment Agreements provide, among other
things, for payment of all compensation due under such Agreements for a period
of one year from the date of termination of employment due to physical or
mental disability that results in the non-performance of the employee's duties
for a period of six months in any 12 month period, death, thirty days notice
of breech of the Agreement, which is not cured, or termination by the Company
for specified causes.
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 March 31, 1997.
<TABLE>
Directors and Executive Officers Number and Percentage
Name and Address of Shares Beneficially Owned
<S> <C> <C>
Reid Funderburk 2,515,3741 29.53%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
Robert H. Hughes 490,000 5.75%
1506 West 13th, #12
Austin, Texas 78704
George Majewski 467,461 5.49%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
R. E. Wilkin 257,600 3.02%
4304 Kirkland Drive
Fort Worth, Texas 76109
Rick Redmond 100,000 1.17%
13492 Research Boulevard
Austin, Texas 78750
Clay McCalla 15,000 .18%
11602 Hare Trail
Austin, Texas 78726
Robert Chapell 7,500 .09%
P.O. Box 624
Martindale, Texas 78655
________ ______
TOTALS 3,852,935 45.23%
</TABLE>
<TABLE>
5% Owners Number and Percentage
of Shares Beneficially Owned
<S> <C> <C>
Name and Address
Reid Funderburk 2,515,374(1) 29.53%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
Henry A. Anawaty, III 577,722(2) 6.78%
5910 Courtyard Drive Suite 150
Austin, Texas 78731
Robert H. Hughes 490,000 5.75%
1506 West 13th, #12
Austin, Texas 78704
George Majewski 467,461 5.49%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
________ ______
TOTALS 4,050,557 47.55%
</TABLE>
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.
2. This figure does not include certain shares of stock, which may be held by
brokers in street name and of which the Company is not aware.
Changes in Control
To the knowledge of the Company's management, there are no present
arrangements or pledges of the Company's securities that may result in a
change of control of the Company.
Item 12. Certain Relationships and Related Transactions.
Transactions with Management and Others.
During the two years ended December 31, 1996 and December 31,
1997, 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 two years ended December 31, 1996 and December 31,
1997, 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 two years ended December 31, 1996 and December 31,
1997, 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.
Parents of the Issuer.
The Company has no parents.
Transactions with Promoters.
During the two years ended December 31, 1996 and December 31,1997,
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.
SEC Form 8-K, filed January 5, 1998, regarding Changes in Company's
Certifying Accountant
Exhibits*
(i) Where Incorporated Page
In This Report Number
Annual Report on Form 10-KSB for the Part I **
Year Ended December 31, 1996
Definitive Proxy Statement, Schedule 14-A Part I **
Information, September 2, 1997
* 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.
(ii)
Exhibit Number Description
21 Subsidiaries of the Company
27 Financial Data Schedule
EXHIBIT 21
Date Incorporated State Name
March 4, 1988 Texas Monitored Investments, Inc.
June 18, 1992 Mississippi Meridian Enterprises, Inc.
September 6, 1991 Louisiana Red River Bingo, Inc.
June 5, 1992 Mississippi Tupelo Industries, Inc.
April 1, 1980 Oklahoma Bingo & Gaming International,Inc.
October 8, 1997 Texas Prepaid Plus, Inc.
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: 4/14/98 By/s/Reid Funderburk
Reid Funderburk, CEO
Date: 4/14/98 By/s/George Majewski
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: 4/14/98 By/s/Reid Funderburk
Reid Funderburk, Chairman, C.E.O. &
Director
Date: 4/14/98 By/s/George Majewski
George Majewski, Director, President
Date: 4/14/98 By/s/R. E. Wilkin
R. E. Wilkin, Director
Date: 4/15/98 By/s/Robert H. Hughes
Robert H. Hughes, Director
Date: 4/15/98 By/s/Rick Redmond
Rick Redmond, Director
Date: 4/15/98 By/s/Robert Chappell
Robert Chappell, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 53934
<SECURITIES> 0
<RECEIVABLES> 347029
<ALLOWANCES> 0
<INVENTORY> 19811
<CURRENT-ASSETS> 434713
<PP&E> 456945
<DEPRECIATION> 341421
<TOTAL-ASSETS> 961223
<CURRENT-LIABILITIES> 556950
<BONDS> 0
0
0
<COMMON> 8418
<OTHER-SE> 393197
<TOTAL-LIABILITY-AND-EQUITY> 177111
<SALES> 1621748
<TOTAL-REVENUES> 2212164
<CGS> 1397056
<TOTAL-COSTS> 730677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40999
<INCOME-PRETAX> 43342
<INCOME-TAX> 0
<INCOME-CONTINUING> 43342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43342
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
