BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<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, 1998
-------------------
[ ] 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
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BINGO & GAMING INTERNATIONAL, INC.
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OKLAHOMA 73-1092118
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
13581 Pond Springs Rd. Suite 105
Austin, Texas 78729
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (512) 335-0065
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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, 1998 -
$4,207,297
The Exhibit Index commences on page 32 .
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.
Febrary 28, 1999. - $2,368,442. There are approximately 4,736,884
shares of common voting stock of the Registrant held by non-affiliates.
<PAGE>
(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, 1999
8,551,819 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 ___
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
Number
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<S> <C>
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . . . . 1
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Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . . . . . 3
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Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 4
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Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . 4
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Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . 5
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Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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Item 8. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
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with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . 26
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Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 28
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Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . 29
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Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . 30
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Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 31
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</TABLE>
<PAGE>
PART I
Item 1. Description of Business.
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BUSINESS
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Background
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Bingo and Gaming International, Inc., an Oklahoma corporation ("BGI" or the
"Company"), headquartered in Austin, Texas, is a distributor of prepaid phone
card dispensers ("dispensers") and prepaid phone cards. In addition, the
Company operates as a lessor of charity bingo facilities.
The Company consists of five wholly-owned subsidiaries, Tupelo Industries, Inc.,
a Mississippi corporation, ("Tupelo"), Meridian Enterprises, Inc., a
Mississippi corporation, ("Meridian"), and Red River Bingo, Inc., a Louisiana
corporation, ("Red River"), Monitored Investments, Inc., a Texas corporation,
("Monitored") and PrePaid Plus, Inc., a Texas corporation, ("PPI"). With the
exception of PPI, the subsidiaries are dormant or sub-lessors of real
property to three charitable bingo operations in Meridian, Iuka, and Tupelo,
Mississippi. PPI was formed in October, 1997 for the purpose of conducting the
prepaid phone card activities.
In 1994, BGI 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"). The
stockholders of Monitored became the controlling stockholders of the
consolidated company in a reverse merger.
Business
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The Company began its operations in December 1994 and was engaged in the
business of managing charity bingo locations as well as owning and operating, as
licensed commercial lessors, charity bingo locations. In May 1996, the Company
began renting and distributing prepaid phone card vending machines that employed
a novel marketing concept of permitting consumers to enter a free promotional
sweepstakes offering cash prizes from $1 to $1,000. The Company redirected its
focus to ownership of the prepaid phone card vending machines for its own
distribution as well as offering them for resale during 1997. This effort was
facilitated by negotiating an exclusive agreement with a new vendor, offering
machines with a patented cartridge based technology that offers superior
controls over cash collections and the accounting for promotional prizes paid.
In addition, this new contract expanded the exclusive territory from Texas to
all of North America.
Currently, the Company owns 325 dispensers that are located throughout the
states of Texas, Oklahoma, Arizona, California, Connecticut, Idaho, and
Illinois. Most of the machines are located in charitable bingo halls and Indian
bingo facilities, but some are located in bars and bowling alleys.
During the year ended December 31, 1998, 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.
Services and Products
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Until the end of 1996, the Company's sole business consisted of managing and/or
leasing charity bingo facilities in Texas, Louisiana and Mississippi. At the
end of 1996, the Company began to rent prepaid phone card dispensers and sell
prepaid long distance phone cards to be vended from the dispensers and
discontinued the management of bingo facilities. By the end of 1997, the
Company began to sell and purchase dispensers for its own operation as well as
continue the sale of phone cards and continued its activities as a lessor of
charity bingo facilities
1
<PAGE>
Competition
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The promotional sweepstakes phone card industry represents only a fraction of
the telecard industry. Although there is little competition in this segment of
the prepaid phone card industry, the Company feels its product, 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, are the basis of the expansion plan in new territories.
While there is significant competition in the charitable bingo industry in
certain markets, the Company does not believe that this is a factor in its
current locations.
Major Suppliers
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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 Starpoint, Inc and Tradex International. Over 39% of the Company's phone
card revenue comes from Prestige Distributing, Inc., in Oklahoma. The Company
is actively seeking locations in other states in addition to Texas, Oklahoma,
Illinois, Arizona, California, Connecticut, Pennsylvania and Idaho to continue
diversifying its operating area.
Government Regulations
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The charity bingo business is regulated by the states in which such businesses
are operated. Charity operators and commercial lessors must be licensed.
Furthermore, states regulate the amount that the charity lessees can incur for
rents of bingo facilities. In March 1999, the Mississippi legislature passed
House Bill 997 removing "the requirement that a commercial lessor obtain a
license from the Gaming Commission." In addition, this bill empowers the
Gaming Commission to determine what a reasonable fair market rental rate is for
bingo facilities. The Company has a history of four years of appraisals
approved by the Gaming Commission. However, there exists a possibility that the
Commission may challenge the rates it has previously approved. The Company will
contest any challenge by the Commission of rates it has previously approved.
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.
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.
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.
2
<PAGE>
Employees
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At February 29, 1999, the Company had one part-time and twelve 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.
Subsequent Events
- ------------------
See actions of the Mississippi Legislature discussed under Government
Regulation.
Item 2. Description of Property.
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The Company leases all of it 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. The corporate office for the Company is comprised of 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 bingo facilities are superior to those of competing bingo halls in the
comparable 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>
<CAPTION>
Expiration Option to Monthly Option
Lease Description Date Renew Rent Rent
- -------------------- ---------- --------- ------------ ------------------
<S> <C> <C> <C> <C>
Casino Bingo . . . . 2/29/00 None $ 7,150 None
Meridian, MS
Magnolia Bingo . . . 12/31/03 None $ 4,125 10% increase plus
Tupelo, MS and incrementals
Tishomingo Bingo . . 5/31/02 None $ 3,000 No increase
Iuka, MS
College Park . . . . 8/31/99 None $ 2,738 $ 7.25-$8.00 foot
Meridian, MS square foot
General Office, #105 09/30/01 None $1,125-1,200 None
Warehouse. . . . . . 05/31/01 None $1,110-1,185 None
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.
In 1995, Red River Bingo, Inc. was assessed civil penalties totaling $25,000 by
the State of Louisiana for alleged charitable gaming law violations.
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
based upon the time that has elapsed and that the Company no longer operates in
that state.
3
<PAGE>
In 1998, the Mississippi Gaming Commission rendered a decision to reject an
appraisal on the fair market value of rents charged at the Tupelo bingo
facility. A permanent injunction was obtained requiring the Gaming Commission
to renew the Company's license to operate as a lessor. The Commission was
ordered to accept the two appraisals already submitted and received a contempt
of court citation. Subsequently, the Commission issued a license renewal for
the Iuka location and has appealed the injunction on the license renewal for the
Tupelo location. In addition, the Commission declined to renew a third facility
license for the Meridian location, but the facility has continued to operate
pending the results of a hearing whose date has yet to be determined. Finally,
The Commission has denied a renewal application for the charitable lessee of the
Iuka facility. This matter is being vigorously appealed by the charity.
Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to the Stockholders during this fiscal year.
4
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
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Market Information
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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>
<CAPTION>
Common Stock
High Low
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<S> <C> <C>
Fiscal 1997
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First quarter. 1.375 0.750
Second quarter 1.125 0.250
Third quarter. 0.625 0.188
Fourth quarter 0.688 0.375
Fiscal 1998
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First quarter. 1.600 0.375
Second quarter 1.438 0.688
Third quarter. 1.375 0.688
Fourth quarter 0.813 0.250
</TABLE>
Prices are inter-dealer quotations as reported by the NASD and do not
necessarily reflect transactions, retail mark-ups, markdowns or commissions.
Shareholders
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The number of record holders of the Company's common stock as of December 31,
1998, was approximately 315; 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 February 29, 1999, there were
approximately 233 unrestricted stockholders.
5
<PAGE>
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
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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.
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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>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31,1997
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<S> <C> <C>
STATEMENT OF INCOME:
Total revenues. . . . . . . $ 4,207,297 $ 2,212,164
Cost of revenues. . . . . . (2,433,922) (1,397,056)
Total expenses. . . . . . . (1,123,725) (730,677)
Operating income. . . . . . 649,650 84,431
Net income. . . . . . . . . 126,646 43,432
Net income per common share 0.01 0.01
BALANCE SHEET:
Current assets. . . . . . . $ 674,077 $ 434,713
Current liabilities . . . . 890,772 556,950
Total assets. . . . . . . . 2,192,994 961,223
Long-term debt. . . . . . . 747,772 227,162
Stockholders' equity. . . . 554,450 177,111
</TABLE>
Plan of Operation
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In October 1997, the Company executed an exclusive distribution agreement with
Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid Phone Card
Dispenser. This agreement provides for the Company to have the exclusive
distribution rights for North America 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 locations in Texas, Oklahoma and
Washington. As of March 31, 1999, the Company has 325 dispensers in operation
in Texas, Oklahoma, Arizona, California, Illinois, Idaho, Connecticut, and
Pennsylvania.
The Company intends to further develop and expand operations by focusing on
upgrading the locations of existing machines that are owned as well as increase
the number of distributers in states other than Texas and Oklahoma. The main
focus for immediate expansion will be in California, one of the largest markets
for bingo activities in the United States. A recent court decision in that
state ruled that prepaid phone card dispensers with a sweepstakes are legal,
creating a large untapped market. In addition, the Texas machine placements of
the Company's phone card machines have increased during the last few months of
1998 and early 1999 with the pressure on local law enforcement officials and for
the Texas Legislature to restrict certain devices that compete in the same
market. The expansion of the Texas market has facilitated the optimal placement
of machines owned by the Company. Finally, the Company is reevaluating its
Oklahoma machine placements and will directly operate its owned machines in this
state during 1999.
6
<PAGE>
In order to diversify its product line, the Company secured exclusive
distribution rights for Texas, Oklahoma, and Ohio for Cyperdyne's electronic
pull tab reading machines. The Company is currently performing a market test on
these machines in Oklahoma and expects to place several in Texas on Indian
reservations in the immediate future. In addition, the Company began selling
longer term calling cards in early 1999. These cards are being marketed through
machine locations, web-site, and other retail locations.
At the present level of Dispensers currently in operation, the Company
anticipates substantially increased earnings in the 1999 Fiscal Year. The rate
of growth will depend on the availability of either borrowing or leasing
opportunities, and the number of dispensers it can sell directly to retail
operators.
As of December 31, 1998, the Company had a working capital deficit of
$216,695. This deficit is the result of financing machines owned and operated
by the Company with capital leasing arrangements at high interest rates with 2
to 3 year maturities. In addition, although these expansion efforts were
justified based upon the demand for placement of the machines in Oklahoma in the
first and second quarter of 1998, the third quarter sales of phone cards in this
territory decreased as a result of competition and unsatisfactory performance on
the part of the distributor.
Results of Operations
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Year ended December 31, 1998
----------------------------
Compared with Year ended December 31, 1997
------------------------------------------
The Company experienced an overall increase of 90.2% in total revenues from
sales during the year ended December 31, 1998, over the previous year.
Revenues include rental income from charitable organizations that lease the
Company's bingo facilities as well as the related concession and vending income.
In addition, phone card activities produce revenues from the sale of machines
and phone cards as well as rentals on machines.
The major revenue source for the Company for the years ended December 31, 1998
and 1997, was from the sale of phone cards. Sales for the year ended December
31, 1998, were $3,444,523 compared to $1,621,748 for the year ended December 31,
1997. This represents an increase of $1,822,775 or 112.4%. This increase
resulted from the placement of an additional 274 machines during the year ended
December 31, 1998.
Machine sales resulted in revenues of $118,298 for 1998 versus $19,330 for 1997.
This represents an increase of $98,968 or 512.0%. Sales of machines increased
directly as a result of acquisitions by customers for locations in which the
Company had previously placed machines. In addition, 1998 represents the
first full year of sales of the Cyberdyne prepaid phone card dispenser as
opposed to sales for 1997 that were generated in the last two months of the
year.
Rental and concession income from charity bingo locations have been major
revenue sources for the Company for both 1998 and 1997 producing 13.4% and
25.0%, respectively, of total revenues from sales. This revenue source has
remained relatively consistent over the two year period in total dollars at
$565,622 and $552,789, respectively. However, rental income is diminishing as
function of total sales. This is a result of the increased focus of the Company
on the prepaid phone card activities.
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 $2,433,922 and $1,397,056 for 1998 and 1997, respectively. While
the cost of revenues has increased by $1,036,866 in 1998 versus 1997, the cost
of revenue as a percent of sales for the years 1998 and 1997 is 57.9% and 63.2%,
respectively. This represents a decrease of approximately 5.3% in cost of
revenues for 1998 from 1997.
The components of cost of revenues for the phone card segment consist of the
cost of phone cards and royalties/commissions, machines, prizes paid, and
machine rental. The cost of phone cards and royalties/commissions as a percent
of the phone sales for 1998 and 1997 decreased by approximately 5.3%. This is
the result of changing vendors for the phone cards at the end of 1997 and
realizing a price decrease. However, the cost of prizes paid as a percent of
phone card sales for the two comparative years increased by 4.5% which is the
result of increasing the number of machines overall that were operated by the
Company. Finally, machine rent decreased by $216,583 during 1998 as compared to
1997 resulting from the direct acquisition of machines by the Company through
its new vendor rather than rental of machines during most of 1997.
7
<PAGE>
The component of cost of revenues for the charity bingo facilities leasing
segment consists of the rental cost of such facilities as well as supplies. The
cost of such rental increased by $5,820 in 1998 as compared to 1997 and is the
result of increases in lease costs for two of the three bingo locations.
Operating expenses for the Company consist primarily of advertising, travel,
repairs and maintenance, auto expense, registration fees, and business
promotion. Operating expenses for 1998 were $195,799 as compared to $136,055 for
1997. This resulted in an increase of $59,744 (or 44.0%) in operating expenses
for 1998 as compared to 1997. This increase is the result of increased
marketing efforts through trade shows and trade publications as well as direct
mail efforts.
General and administrative expense consists of rent, consultant services,
director's liability insurance, computer maintenance, legal expense, accounting
services, office supplies and depreciation. This category of expense increased
to $510,708 from $362,178 for the comparable period by $148,530 for 1998 as
compared to 1997. This represents an increase of 41.0% due to increased costs
for legal and lobbying of approximately $54,000 to facilitate the expansion of
territories for the prepaid phone card activities. Also, the Company hired an
investor relations consultant, risk management company to review insurance
coverage, and a management information system consultant resulting in a total
cost of approximately $20,000 during 1998. Finally, insurance coverage for the
Company was reviewed during 1998. Director's and officer's liability insurance,
a key man life insurance policy for the CEO, and additional coverage in other
areas was obtained resulting in an increase in insurance expense of
approximately $24,000.
Salaries and benefits increased by $184,774 or 79.5% in 1998 versus 1997. This
increase is related to pay increases and related expenses to the Chief Executive
Officer and President of approximately $30,000 incurred during 1998. In
addition, the Company hired a Chief Financial Officer accounting for $12,000 of
this increase. Finally, the Company hired two additional full-time technicians
and a secretary.
In summary, net income for 1998 is $126,646 as compared to $43,432 for 1997
which is an increase of $83,214 or an increase of approximately 191.6%.
Liquidity
- ---------
As of December 31, 1998 and 1997, the Company's total assets were $2,192,994 and
$961,223, respectively, with total liabilities of $1,638,544 and $784,112,
respectively. Current assets of $674,077 and $434,713 represent 75.7% and 78.1%
of current liabilities of $890,772 and $556,950. Deterioration of the Company's
cash position is the result of expansion efforts with company purchased machines
placed in Oklahoma during the first half of 1998 financed by capital leases at
high interest rates as well as bank loans and debt from financing companies with
two to three year maturities. Increases in accounts receivable between 1998 and
1997 are a direct reflection of the increased level of sales experienced in
1998. The Company's liabilities of $1,638,544 consist of $931,963 of a fully
secured capital lease obligation, $294,918 of current liabilities consisting of
accounts payable and accrued expenses, and $411,663 of long-term debt.
During the year ended December 31, 1998, the working capital deficit increased
$94,458 to $216,695 as of December 31, 1998, from $122,237 for the prior year
end. The balances of accounts payable and accrued expenses increased by
$114,056 and accounts receivable increased by $90,821 for the comparative years.
These increases were as a result of increased sales for 1998. As of December
31, 1998, the Company was delinquent on $138,000 or 46.8% of its accounts
payable. The Company's accounts receivable at December 31, 1998, include
approximately $273,000 from the Oklahoma distributor.
The Company has a need for additional working capital to meet contractual
obligations. Management believes that revenues from the existing machines owned
by the Company will be sufficient to produce the necessary working capital to
meet its working capital requirements.
8
<PAGE>
Year 2000 Issues
- ------------------
The Company is currently evaluating its computer systems to determine whether
modifications and expenditures will be necessary to make its systems and those
of its vendors compliant with year 2000 requirements. These requirements have
arisen due to the widespread use of computer programs that rely on two-digit
date codes to perform computations or decision-making functions. Many of these
programs may fail as a result of their inability to properly interpret date
codes beginning January 1, 2000. For example, such programs may interpret "00"
as the year 1900 rather than 2000. In addition, some equipment, being controlled
by microprocessor chips, may not deal appropriately with the year "00". The
Company believes it will timely meet its year 2000 compliance requirements and
does not anticipate that the cost of compliance will have a material adverse
effect on its business, financial condition, or results of operations. However,
there can be no assurance that all necessary modifications will be identified
and corrected or that unforseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of other companies on which
the Company's systems rely will be modified on a timely basis, or that the
failure by another company to properly modify its systems will not negatively
impact the Company's systems or operations.
THIS SPACE LEFT INTENTIONALLY BLANK
9
<PAGE>
Item 7. Financial Statements.
---------------------
The following financial statements are included hereinafter:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Certified Public Accountants' Report. . . . . . . 10
Consolidated Balance Sheets as of December 31, 1998 and 1997. 11
Consolidated Statements of Income (Loss)
for the years ended December 31, 1998 and 1997. . . . . . . 12
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1998 and 1997. . . . . . . 13
Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997. . . . . . . 14
Notes to Consolidated Financial Statements. . . . . . . . . . 15
</TABLE>
10
<PAGE>
BROWN, GRAHAM AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Bingo & Gaming International, Inc.
Austin, Texas
INDEPENDENT AUDITOR'S REPORT
We have audited the consolidated balance sheets of Bingo & Gaming International,
Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for 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 audits 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 financial position of Bingo & Gaming
International, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/ Brown, Graham and Company, P.C.
Georgetown, Texas
March 25, 1999
11
<PAGE>
<TABLE>
<CAPTION>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
------
1998 1997
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 133,184 $ 53,934
Accounts receivable - trade, net. . . . . . . . . . . . . 437,850 347,029
Inventories . . . . . . . . . . . . . . . . . . . . . . . 87,169 19,811
Note Receivable (note 3). . . . . . . . . . . . . . . . . - 7,494
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 15,874 6,445
----------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 674,077 434,713
----------- ----------
Property and equipment, at cost - net (note 5). . . . . . 1,357,187 456,945
----------- ----------
Other assets:
Organizational costs and intangible assets - net (note 4) 6,451 19,705
Deferred financing costs (note 10). . . . . . . . . . . . 122,572 -
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 32,707 49,860
----------- ----------
Total other assets . . . . . . . . . . . . . . . . . . . 161,730 69,565
----------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . $2,192,994 $ 961,223
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and accrued expenses . . . . . . $ 294,918 $ 180,862
Accounts payable - other (note 5) . . . . . . . . . . . . - 253,190
Current maturities of long-term debt (note 6) . . . . . . 142,962 122,898
Current maturities of lease obligations (note 7). . . . . 452,892 -
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . 890,772 556,950
Long-term debt, net of current maturities (note 6). . . . 268,701 227,162
Long-term portion of lease obligations (note 7) . . . . . 479,071 -
----------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . 1,638,544 784,112
----------- ----------
Stockholders' equity:
Common stock, $.001 par; 70,000,000 shares
authorized; 8,551,819 and 8,558,418,6021,5
and 8,418,602 issued and outstanding. . . . . . . . . . 8,551 8,418
Additional paid-in capital. . . . . . . . . . . . . . . . 643,757 393,197
Retained earnings (deficit) . . . . . . . . . . . . . . . (97,858) (224,504)
----------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . 554,450 177,111
----------- ----------
Total liabilities and stockholders' equity . . . . . . . $2,192,994 $ 961,223
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
<TABLE>
<CAPTION>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Phone card sales. . . . . . . . . . . . . . . . . $3,444,523 $1,621,748
Hall rental and concession income . . . . . . . . 565,622 552,789
Machine sales . . . . . . . . . . . . . . . . . . 118,298 19,330
Other . . . . . . . . . . . . . . . . . . . . . . 78,854 18,297
----------- -----------
Total revenue. . . . . . . . . . . . . . . . . . 4,207,297 2,212,164
----------- -----------
Cost of revenue:
Phone cards and royalties . . . . . . . . . . . . 1,064,644 581,393
Machine and location rental . . . . . . . . . . . 107,215 323,798
Prizes paid . . . . . . . . . . . . . . . . . . . 735,839 273,497
Hall rental . . . . . . . . . . . . . . . . . . . 207,528 201,708
Machine depreciation. . . . . . . . . . . . . . . 200,949 -
Machines sold . . . . . . . . . . . . . . . . . . 117,747 16,660
----------- -----------
Total cost of revenue. . . . . . . . . . . . . . 2,433,922 1,397,056
----------- -----------
Gross margin. . . . . . . . . . . . . . . . . . . 1,773,375 815,108
----------- -----------
Expenses:
Operating expenses. . . . . . . . . . . . . . . . 195,799 136,055
Salaries. . . . . . . . . . . . . . . . . . . . . 417,218 232,444
General and administrative expenses . . . . . . . 510,708 362,178
----------- -----------
Total expenses . . . . . . . . . . . . . . . . . 1,123,725 730,677
----------- -----------
Operating income. . . . . . . . . . . . . . . . . 649,650 84,431
Other income and expense:
Impairment of long-lived assets (note 17) . . . . (205,192) -
Interest expense. . . . . . . . . . . . . . . . . (317,812) (40,999)
----------- -----------
Net income. . . . . . . . . . . . . . . . . . . . $ 126,646 $ 43,432
=========== ===========
Basic and diluted income (loss) per common share. $ 0.01 $ 0.01
=========== ===========
Weighted average shares outstanding . . . . . . . 8,516,704 8,421,086
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
<TABLE>
<CAPTION>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996. . . $ 8,415 $ 391,539 $(267,936) $132,018
Net income. . . . . . . . . . . . - - 43,432 43,432
Issuance of common stock for cash 3 1,658 - 1,661
------- ----------- ---------- --------
Balance at December 31, 1997. . . 8,418 393,197 (224,504) 177,111
Net income. . . . . . . . . . . . - - 126,646 126,646
Issuance of warrants and options. - 174,513 - 174,513
Issuance of common stock for cash 133 76,047 - 76,180
------- ----------- ---------- --------
Balance at December 31, 1998. . . $ 8,551 $ 643,757 $ (97,858) $554,450
======= =========== ========== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- ----------
<S> <C> <C>
Operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ 126,646 $ 43,432
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 268,988 65,425
(Gain) Loss on disposal of assets . . . . . . . . . . . . . (3,161) -
Provision for bad debts . . . . . . . . . . . . . . . . . . 76,017 36,287
Deferred financing cost. . . . . . . . . . . . . . . 43,776 -
Options for common stock issued for consulting fees. 8,166 -
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . (166,838) (207,512)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (67,358) 34,516
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . (9,429) (6,025)
Accounts payable - trade and accrued expenses . . . . . . 102,880 69,995
----------- ----------
Net cash from operating activities . . . . . . . . . . . . . . 379,687 36,118
----------- ----------
Investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . (141,409) (135,855)
Proceeds from sale of equipment. . . . . . . . . . . . . . . . 56,946 -
Increase (decrease) in other assets. . . . . . . . . . . . . . 17,153 13,689
Payments received on notes receivable. . . . . . . . . . . . . 7,494 33,319
----------- ----------
Cash used by investing activities. . . . . . . . . . . . . . . (59,816) (88,847)
----------- ----------
Financing activities:
Payments on long-term debt . . . . . . . . . . . . . . . . . . (425,651) (95,414)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . 108,850 147,109
Issuance of common stock . . . . . . . . . . . . . . . . . . . 76,180 1,661
----------- ----------
Cash used (provided) by financing activities. . . . . . . . . (240,621) 53,356
----------- ----------
Net increase in cash and cash equivalents. . . . . . . . . . . 79,250 627
Cash and cash equivalents at beginning of year . . . . . . . . 53,934 53,307
----------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 133,184 $ 53,934
=========== ==========
Supplemental disclosures of cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . $ 317,812 $ 39,470
=========== ==========
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,304 $ 3,179
=========== ==========
Supplemental disclosure of non-cash investing and
financing activities:
Proceeds from financing of equipment purchases. . . . . . . . $1,093,549 $ 253,190
=========== ==========
Warrants and options issued for financing and services. . $ 174,513 $ -
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
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 Company.
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, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired
under the purchase method. PPI is a wholly owned subsidiary of the Company.
PPI was formed for the purpose of transacting the prepaid telephone card
dispenser operations. PPI 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.
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 of phone cards, prepaid vending machines, and small
equipment 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 ASSETS:
Organizational costs and intangible assets include significant expenses of
bringing new locations into operation and the cost of a noncompete agreement.
Organizational costs are amortized over periods of not more than five years and
the cost of the noncompete agreement 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.
TAXES ON INCOME:
The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates. The Company
15
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
provides a valuation allowance against its deferred tax assets to the extent
that management estimates that it is not "more likely than not" that such
deferred tax assets will be realized.
REVENUE RECOGNITION:
Phone card and machine sales as well as rental income are recognized when
earned. An allowance for doubtful accounts is provided based on periodic review
of the accounts.
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.
NEW ACCOUNTING PRONOUNCEMENTS:
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 included
segment information in the accompanying financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS
- ----------------------------------------
The Company had $14,003 and $47,342 in notes payable to an officer and
stockholder at December 31, 1998 and 1997, respectively (see Note 6). Interest
paid to the officer and stockholder was $5,201 and $2,618 for the years ended
December 31, 1998 and 1997, respectively.
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. The
balance of the note or $2,767 was written off as a bad debt during the year
ended December 31, 1998.
NOTE 4 - ORGANIZATIONAL COSTS AND INTANGIBLE ASSETS
- ----------------------------------------------------------
Organizational costs and intangible assets at December 31, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Organization costs. . . . . . . . . . . . . . $ 24,415 $ 24,415
Noncompete agreement. . . . . . . . . . . . . 63,678 63,678
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . 88,093 88,093
Less accumulated amortization. . . . . . . . (81,642) (68,388)
--------- ---------
Net organizational costs and intangible asset $ 6,451 $ 19,705
========= =========
<FN>
Amortization expense was $13,254 and $17,800, for the years ended
December 31, 1998 and 1997, respectively.
</TABLE>
16
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
Lives
(Years) 1998 1997
------- ----------- ----------
<S> <C> <C> <C>
Vehicles . . . . . . . . . . . . . 7 $ 53,974 $ 32,558
Furniture and equipment. . . . . . 5-10 1,576,165 465,628
Leasehold improvements . . . . . . 5 129,348 109,818
----------- ----------
Total 1,759,487 608,004
Less accumulated depreciation and
amortization (402,300) (151,059)
----------- ----------
Net property and equipment $1,357,187 $ 456,945
=========== ==========
</TABLE>
Depreciation and amortization expense for property and equipment was $255,734
and $47,625 for ears ended December 1, 1998 and 1997, respectively.
As of December 31, 1997, accounts payable other included $253,190 for the
purchase of machines that were refinanced with long-term debt during the year
ended December 31, 1998.
NOTE 6 - LONG-TERM DEBT
- ---------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note payable to a bank, due on demand or in monthly
installments of $1,113 including interest at 10% collateralized
by the outstanding stock held by certain stockholders; matures
January 5, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,140 $ 34,495
Note payable to a bank, due in monthly installments of $1,005
including interest at prime plus 2%; collateralized by the outstanding
stock held by certain stockholders; maturing with an additional
lump sum payment of $17,498 due December 30, 2000 . . . . . . . . . . . . . . . . . . . . 44,892 53,663
Note payable to officer and stockholder, due on demand or
in full at December 31, 1998, interest at 15%; unsecured. . . . . . . . . . . . . . . . . - 10,857
Note payable to individuals; principal is due in full on various
dates in the year 2000; interest at 18% due in monthly
installments; unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 110,000
Note payable to officer and stockholder; interest at 14%; matures
September 24, 1999; unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,003 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
</TABLE>
17
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 6 - LONG-TERM DEBT - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
Various installment notes payable to banks and other financial
institutions; due in monthly installments of $11,060 including interest
ranging from 8.5% to 15.59%; collateralized by certain equipment. . . . . . . . . . . . . 221,628 104,560
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,663 350,060
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,962) (122,898)
---------- ----------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 268,701 $ 227,162
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
- ----------------
<S> <C>
1999 $142,962
2000 204,666
2001 44,618
2002 14,645
2003 4,772
--------
Total . . . . $411,663
========
</TABLE>
NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES
- -----------------------------------------------
The Company has financed phone card dispensers under capital leases expiring in
various years through the year 2001. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair value of the assets. The assets are depreciated over the
lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation expense
(see Note 5).
In addition, the Company used funds received under capital leases to refinance
accounts payable during the year ended December 31, 1998 in the amount of
$242,010. (see note 5)
Minimum future lease payments under capital leases as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
- ------------
<S> <C>
1999. . . . . . . . . . . . . . . . . . . . . . . . $ 637,514
2000. . . . . . . . . . . . . . . . . . . . . . . . 485,120
2001. . . . . . . . . . . . . . . . . . . . . . . . 65,373
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . 1,188,007
Minimum lease payment amounts representing interest (256,044)
-----------
Present value of net minimum lease payments . . . . 931,963
Current portion . . . . . . . . . . . . . . . . . . (452,892)
-----------
Long-term portion . . . . . . . . . . . . . . . . . 479,071
===========
</TABLE>
18
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS
- -----------------------
The Company leases its principal general offices and bingo facilities. The
leases expire at various dates through 2003. Future minimum lease payments are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
- ----------------
<S> <C>
1999. . . . . $222,276
2000. . . . . 202,620
2001. . . . . 105,675
2002. . . . . 85,500
2003. . . . . 49,500
--------
Total . . . . $665,571
========
</TABLE>
The following schedule shows the composition of total rental expense:
<TABLE>
<CAPTION>
Year Ending
December 31 1998 1997
- ---------------------- -------- ---------
<S> <C> <C>
Minimum rentals . . . $256,949 $252,613
Less sublease rentals - (32,399)
-------- ---------
Total . . . . . . . $256,949 $220,214
======== =========
</TABLE>
The Company subleases bingo facilities under operating subleases that expire at
various dates through the year 2003. These subleases may be canceled 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.
NOTE 9 - STOCKHOLDERS' EQUITY
- ---------------------------------
The Company agreed to sell to the sales agent of the limited offering made
during 1995, 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 the date of 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.
The Company, as part of certain employment contracts, may 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
19
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCKHOLDERS' EQUITY - CONTINUED
- -----------------------------------------------
the Company's common stock pursuant to the Disclosure Statement, plus 10% per
share. As of December 31, 1998, 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 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 July 1998, an additional 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 vest and expire on various
dates in the years 1998 through 2000. During the year ended December 31, 1998,
75,000 options were exercised and 75,000 expired.
In July 1998, the Company issued options to purchase 25,000 shares of common
stock to an individual as part of a consulting agreement. These options are
exercisable at $1.00 per share and expire in July 2001.
Employee stock options for 100,000 shares were granted as part of an employment
contract. The options vest in increments of 25,000 shares each six months
beginning with the execution date of the contract, or October 26, 1998. The
options have a five year life and an exercise price of $.44 per share.
During the year ended December 31, 1998, the Company issued warrants to purchase
475,000 shares of common stock to a leasing company in connection with obtaining
financing on phone card dispensers.
NOTE 10 - STOCK OPTIONS AND WARRANTS
- ------------------------------------------
A summary of the status of the Company's stock options as of December 31, 1998,
is presented below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Options outstanding at beginning of year . . . . . 625,000 325,000
Options granted. . . . . . . . . . . . . . . . . . 125,000 300,000
Options exercised. . . . . . . . . . . . . . . . . (85,000) -
Options canceled . . . . . . . . . . . . . . . . . 75,000 -
-------- --------
Options outstanding and exercisable at end of year 590,000 $625,000
======== ========
</TABLE>
20
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK OPTIONS AND WARRANTS-CONTINUED
- ----------------------------------------------------
The following table summarizes the information about the stock options as of
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Number Remaining, Average Number Exercise
Range of Outstand- Contractual Exercise Exercisable Price
Exercise ing at Life Price at (Exercisable
Price Dec. 31 Years (Total shares) Dec. 31 Share)
- --------- --------- ----------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 0.55 205,000 2 $ 0.55 205,000 $ 0.55
0.60 150,000 2 0.60 - -
1.00 25,000 3 1.00 25,000 1.00
0.44 100,000 5 0.44 25,000 0.44
1.00 110,000 2 1.00 110,000 1.00
- --------- --------- ----------- --------------- ------------ --------------
0.44 to
1.00 590,000 2.5 $ 0.65 365,000 $ 0.71
========= ========= =========== =============== ============ ==============
</TABLE>
The following table summarizes the information about the stock options as of
December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Number Remaining, Average Number Exercise
Range of Outstand- Contractual Exercise Exercisable Price
Exercise ing at Life Price at (Exercisable
Price Dec. 31 Years (Total shares) Dec. 31 Share)
- --------- --------- ----------- --------------- ------------ --------------
<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
0.60. . . 300,000 3 0.60 - 0.60
- --------- --------- ----------- --------------- ------------ --------------
.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:
1998 - dividends yield of 0%; expected volatility of 54.42%; risk-free interest
rate of 5.65%; and expected lives of 3 to 5 years.
1997 - dividends yield of 0%; expected volatility of 233.0%; risk-free interest
rate ranging 5.91%; and expected lives ranging from 0.05 to 3 years.
The weighted fair value of options granted for the years ended December 31 1998,
and 1997, respectively, was $0.23 and $0.17.
21
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK OPTIONS AND WARRANTS-CONTINUED
- ----------------------------------------------------
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:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) applicable to common stockholders:
As reported. . . . . . . . . . . . . . . . . . . . . $126,646 $43,432
======== ========
Pro forma. . . . . . . . . . . . . . . . . . . . . . $120,818 $(7,568)
======== ========
Income per share:
As reported. . . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.01
======== ========
Pro forma. . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.01)
======== ========
</TABLE>
At December 31, 1998, the Company had 19,920 warrants outstanding which were
issued in connection with the Company's limited offering in 1995 (see Note 9).
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, 1998.
In addition, the Company issued warrants to purchase 475,000 of common stock at
various prices ranging from $1.05 to $3.00 and may be exercised at any time
prior to expiration at various dates in the year 2004. These warrants were
issued to a leasing company in connection with obtaining permanent financing on
phone card dispensers. The warrants were recorded at the fair value of $166,348
as deferred financing costs and amortized over the terms of the lease
agreements. The Company charged $43,776 of the deferred financing costs to
expense during the year ended December 31, 1998.
NOTE 11 - 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, 1998 and 1997.
NOTE 12 - 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>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Income (loss) from continuing operations available to common
stockholders used in basic EPS . . . . . . . . . . . . . . . $ 126,646 $ 43,432
---------- ----------
Weighted average number of common shares used in basic EPS . 8,516,704 8,421,086
Effect of dilutive securities:
Stock options. . . . . . . . . . . . . . . . . . . . . . . . - -
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . - -
---------- ----------
Weighted number of common shares and dilutive potential
common stock used in diluted EPS . . . . . . . . . . . . . . 8,516,704 8,421,086
========== ==========
</TABLE>
22
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 12 - EARNINGS PER SHARE - CONTINUED
- -----------------------------------------------
Options on 590,000 shares of common stock and warrants to purchase 494,920
shares of common stock were not included in computing diluted EPS for the year
ended December 31, 1998, 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 625,000 shares of common stock and warrants to purchase
19,920 shares of common stock were not included in computing diluted EPS for the
year ended December 31, 1997, because their effects were antidilutive.
NOTE 13 - INCOME TAXES
- --------------------------
The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences or events that have been recognized in the
Company's financial statements or tax returns in estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates. The Company
provides a valuation allowance against its deferred tax assets to the extent
that management estimates that it is not "more likely than not" that such
deferred tax assets will be realized.
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>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Federal income tax expense (credit) . . . . . . $ 32,600 $ 6,500
Utilization of net operating loss carryforward. (34,400) (7,200)
Other . . . . . . . . . . . . . . . . . . . . . 1,800 700
--------- --------
$ - $ -
========= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Difference in method of accounting for financial and tax purposes $ 10,500 $(76,700)
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . (62,400) 3,400
Net operating loss carryforward . . . . . . . . . . . . . . . . . 79,800 146,100
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . (27,900) (72,800)
--------- ---------
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, 1998, the Company has available for federal income tax purposes
unused net operating losses of approximately $415,000 which may provide future
tax benefits that begin expiring in the year ending December 31, 2009.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS:
The carrying amounts of cash and cash equivalents at December 31, 1998 and 1997,
approximate fair value because of the short maturity of those instruments.
23
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
- ------------------------------------------------------------------
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, 1998 and 1997.
NOTE 15 - SUBSEQUENT EVENTS
- -------------------------------
In March 1999, the Mississippi legislature passed House Bill 997 removing "the
requirement that a commercial lessor obtain a license from the Gaming
Commission." This bill will eliminate the lessor tax charged on rentals as well
as the need for obtaining annual appraisals for a total annual savings of
approximately $36,000. In addition, this bill empowers the Gaming Commission to
determine what a reasonable fair market rental rate is for bingo facilities.
The Company has a history of four years of appraisals approved by the Gaming
Commission. However, there exists a possibility that the Commission may
challenge the rates it has previously approved. The Company will contest any
challenge by the Commission of rates it has previously approved.
NOTE 16 - SEGMENT REPORTING
- -------------------------------
The Company's operations are divided into operating segments using individual
products or services. The Company has two operating segments: phone card
dispensers segment rents and distributes prepaid phone card vending machines
which permits customers to enter a free promotional sweepstakes offering cash
prizes. The charity bingo facility segment operates as a lessor of charity bingo
facilities. Each operating segment uses the same accounting principles as
reported - Note 1, Summary of Significant Accounting Policies, and the Company
evaluates the performance of each segment using before-tax income or loss from
continuing operations.
Listed below is a presentation of profit or loss and information for all
reportable segments. The only non-cash items are depreciation and amortization.
Taxes are not allocated to segment operations, and for 1998 and 1997, the
Company had none of the following items: discontinued operations, extraordinary
items, or accounting changes.
<TABLE>
<CAPTION>
Phone card Phone card Charity Bingo Charity Bingo
dispensers dispensers Facility Facility
----------- ---------- -------------- -------------
1998 1997 1998 1997
----------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Sales & rents. . . $ 3,641,675 1,659,375 $ 565,622 552,789
Interest expense . 317,812 39,470 - -
Depreciation/
Amortization . . . 224,489 14,718 44,499 50,707
Profit (loss). . . 3,099,374 1,605,187 521,123 502,082
Assets . . . . . . 1,541,689 498,187 217,798 109,817
Asset expenditure. 1,228,243 389,046 2,445 -
</TABLE>
24
<PAGE>
BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1998 AND 1997
NOTE 16 - SEGMENT REPORTING - CONTINUED
- -------------------------------------------
Reconciliation of reportable segment assets, revenue, profit or loss, and other
items of significance to consolidated amounts are presented as follows.
<TABLE>
<CAPTION>
--------- ---------
1998 1997
--------- ---------
<S> <C> <C>
Assets:
Assets of reportable segment . . . . . . . . . 1,759,487 608,004
Assets of non reportable segments. . . . . . . - -
Assets not allocated to operating segments . . - -
--------- ---------
Consolidated assets. . . . . . . . . . . . . . 1,759,487 608,004
========= =========
Revenues:
Revenue from reportable segment . . . . . . . 4,207,297 2,212,164
Revenue from non-reportable segments. . . . . - -
--------- ---------
Consolidated revenue. . . . . . . . . . . . . 4,207,297 2,212,164
========= =========
Profit or loss:
Profit from reportable segments. . . . . . . 716,503 471,610
Profit from non-reportable segments. . . . . - -
Expenses at corporate level not allocated to
segments . . . . . . . . . . . . . . . . . . 589,857 428,178
--------- ---------
Income before tax. . . . . . . . . . . . . . 126,646 43,432
========= =========
Other items of significance:
Interest expense . . . . . . . . . . . . . . 317,812 39,470
Depreciation and amortization. . . . . . . . 268,988 65,425
Asset expenditures . . . . . . . . . . . . . 1,230,688 389,046
</TABLE>
NOTE 17 - IMPAIRMENT OF ASSETS
- -----------------------------------
During the year ended December 31,1998, the Company leased certain phone card
dispensers under capital leases in excess of the market value of the dispensers.
As a result, pursuant to FASB Statement No. 121, Accounting for Impairment of
Long - Lived Assets and for Long - Lived Assets to be Disposed Of, an impairment
of $205,192 has been recognized for this equipment and included as a component
of income before income taxes under the caption, "Impairment of long - lived
assets" as of December 31, 1998.
Item 8. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure.
----------------------
Reported on form 8K on January 5, 1998.
25
<PAGE>
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, 1998, and to the date hereof, and the period or periods
during which each such director or executive officer has served in his
respective position.
<TABLE>
<CAPTION>
Date of Date of
Election or Termination
Name Positions Held Designation or Resignation
- ---------------- ----------------------- ----------- --------------
<S> <C> <C> <C>
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
Rhonda McClellan Chief Financial Officer 10/98
<FN>
* 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.
</TABLE>
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 46, 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 55, has been associated with Bingo & Gaming International,
- -------------
Inc. and its affiliated companies and/or predecessor companies since 1989. He
holds a B.B.A. from the University of Texas and has prior experience as an owner
of businesses in the entertainment, catering, concessions, and vending
industries.
26
<PAGE>
Ms. McClellan, age 47, is a Certified Public Accountant and held the position of
- -------------
Manager in a regional public accounting firm in Texas, specializing in SEC
practice, prior to joining the Company in October, 1998 as Chief Financial
Officer. For the previous four years, she held the position of Finance Manager
and Controller for a City of Austin department. She holds a B.B.A. from the
University of Texas.
Mr. Hughes, age 71, 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 46, 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 40, graduated with a B.B.A. 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 of Texas Comptroller from 1981 through 1985.
Robert Chappell, age 39, 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 50,000 shares on January
- ----------------
30, 1998, as reported on Form 4 dated March 17, 1998.
George Majewski, an officer and director, disposed of 70,000 shares as gifts to
- ---------------
various persons on January 6, 1998, as reported on Form 4 of March 17, 1998.
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 30, 1999.
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 30, 1999.
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.
27
<PAGE>
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 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Name and Other annual Restricted All other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation (1) Awards SARS (#) Payouts sation ($)
- --------------- ---- ------- ------ -------------- ----------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reid Funderburk 1998 $76,149 $ -0- $ -0- $ -0- $- -0- -0- $ -0- $ 3,000
Chairman 1997 $64,759 1,241 -0- -0- -0- -0- -0-
CEO, Director 1996 $66,241 -0- -0- -0- -0- -0- -0-
</TABLE>
Compensation of Directors
- ---------------------------
Directors fees of $500 per month for six months were paid to directors and $500
were paid to each non-officer directors attending the director's meeting during
the year ended December 31, 1998.
Employment Contracts and Termination of Employment and Change of Control
- --------------------------------------------------------------------------------
Arrangement
- -----------
Except as indicated below, during 1998, there were no compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any named executive officer 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.
THIS SPACE LEFT BLANK INTENTIONALLY
28
<PAGE>
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 29, 1999.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS Number and Percentage
- ----------------------------------
Name and address of Shares Beneficially Owned
- ---------------------------------- ---------- -------------------
<S> <C> <C>
Reid Funderburk 2,515,374 29.41%
13581 Pond Springs Road, Suite 105
Austin, Texas 7875
Robert Hughes 460,000 5.38%
1506 West 13th #12
Austin, Texas 78704
George Majewski 459,461 5.37%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
R. E. Wilkin 257,600 3.01%
4304 Kirkland Dr.
Fort Worth, Texas 76109
Rick Redmond 100,000 1.17%
13492 Research Boulevard
Austin, Texas 78750
Clay McCalla 15,000 0.17%
11602 Hare Trail
Austin, Texas 78726
Robert Chappell 9,800 0.11%
P.O. Box 624
Martindale, Texas 78655
---------- -------------------
Totals 3,817,235 44.62%
========== ===================
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
5% OWNERS Number and Percentage
- -----------------------------------
of Shares Beneficially Owned
---------- -------------------
Name and address
- -----------------------------------
<S> <C> <C>
Reid Funderburk (1) 2,515,374 29.41%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
Henry A. Anawaty, III (2) 502,722 5.87%
5910 Courtyard Drive Suite 150
Austin, Texas 78731
Robert H. Hughes 460,000 5.38%
1506 West 13th, #12
Austin, Texas 78704
George Majewski 457,461 5.37%
13581 Pond Springs Road, Suite 105
Austin, Texas 78758
---------- -------------------
Totals 3,935,557 46.03%
========== ===================
<FN>
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.
</TABLE>
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, 1998 and 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, 1998 and 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.
30
<PAGE>
Indebtedness of Management.
- ----------------------------
During the two years ended December 31, 1998 and 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, 1998 and 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.
13. Exhibits and Reports on Form 8-K.
-------------------------------------
None
Exhibits*
- ---------
(ii)
Exhibit Number Description
--------------- -----------
21 Subsidiaries of the Company
27 Financial Data Schedule
31
<PAGE>
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: APRIL 15, 1999 By /s/ Reid Funderburk
-------------------------------
Reid Funderburk, CEO
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: APRIL 15, 1999 By /s/ Reid Funderburk
-------------------------------
Reid Funderburk, Chairman,
C.E.O. & Director
Date: APRIL 15, 1999 By /s/ George Majewski
-------------------------------
George Majewski, Director, President
Date: APRIL 15, 1999 By /s/ Rhonda McClellan
-------------------------------
Rhonda McClellan, Chief Financial Officer
Date: APRIL 15, 1999 By /s/ R. E. Wilkin
-------------------------------
R. E. Wilkin, Director
Date: APRIL 15, 1999 By /s/ Robert H. Hughes
-------------------------------
Robert H. Hughes, Director
Date: APRIL 15, 1999 By /s/ Rick Redmond
-------------------------------
Rick Redmond, Director
32
<PAGE>
EXHIBIT 21
- -----------
<TABLE>
<CAPTION>
Date Incorporated State Name
- ----------------- ----------- ----------------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 113184
<SECURITIES> 0
<RECEIVABLES> 497850
<ALLOWANCES> 60000
<INVENTORY> 87169
<CURRENT-ASSETS> 674077
<PP&E> 1759487
<DEPRECIATION> 255734
<TOTAL-ASSETS> 2192994
<CURRENT-LIABILITIES> 890772
<BONDS> 0
<COMMON> 8551
0
0
<OTHER-SE> 643757
<TOTAL-LIABILITY-AND-EQUITY> 2122994
<SALES> 4207297
<TOTAL-REVENUES> 4207297
<CGS> 2433922
<TOTAL-COSTS> 1123725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317812
<INCOME-PRETAX> 126646
<INCOME-TAX> 0
<INCOME-CONTINUING> 126646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126646
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
