<PAGE>
As filed with the Securities and Exchange Commission on July 16, 1996
Registration No. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
AMERICAN BINGO & GAMING CORP.
(Name of small business Issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
7990
----------------
(Primary Standard Industrial Classification Code Number)
74-2723809
----------------
(I.R.S. Employee Identification No.)
--------------------
515 Congress Avenue, Suite 1200
Austin, Texas 78701
(512) 472-2041
(Address and telephone number of principal executive offices
and principal place of business)
--------------------
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
(212) 779-8600
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box: [x]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Title of Each Class Registered Per Share(1) Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 Par Value 617,500 $3.00 $1,852,500 $638.75
Redeemable Warrant to Purchase One Share 1,005,000(3) $.10 $100,500 $34.65
of Common Stock ("Warrant")
Common Stock Issuable Upon Exercise of 1,005,000(2) $3.00 $3,015,000 $1,039.57
Warrants
TOTAL 2,627,500 $4,968,000 $1,712.98
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Underlying shares of Common Stock issuable upon exercise of Warrants. This
Registration Statement also covers such additional number of shares as may
become issuable upon exercise of the Warrants by reason of anti-dilution
provisions pursuant to Rule 416.
(3) This Registration Statement also covers such additional number of Warrants
as may become issuable to the Selling Security Holders by reason of anti-
dilution provisions pursuant to Rule 416.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
ii
<PAGE>
AMERICAN BINGO & GAMING CORP.
Cross-Reference Sheet
Pursuant to Item 501(b)
Showing Location in Prospectus of Information
Required by Items of Form SB-2
Registration Statement Item Caption in Prospectus
--------------------------- -----------------------------------
1. Front of Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover of Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Prospectus Cover Page; Prospectus
Pages of Prospectus Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; The Company;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Dilution and Other Comparative Data
7. Selling Security Holders Description of Securities; Resales
by Selling Security Holders
8. Plan of Distribution Prospectus Cover Page; Resales by
Selling Security Holders
9. Legal Proceedings Business
10. Directors, Executive Officers, Management; Principal Shareholders
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
15. Organization Within Five Years Prospectus Summary; Business;
Certain Transactions
16. Description of Business Business
17. Management's Discussion and Management's Discussion and
Analysis of Financial Condition Analysis or Plan of Operation
and Results of Operations
18. Description of Property Business
19. Certain Relations and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Description of Securities;
Stockholder Matters Price Range of Common Stock
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Not applicable
Accountants on Accounting and
Financial Disclosure
iii
<PAGE>
[TO BE INSERTED ALONG LEFT HAND SIDE OF PROSPECTUS COVER PAGE]
[RED HERRING LEGEND]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
iv
<PAGE>
PROSPECTUS
DATED JULY 16, 1996 SUBJECT TO COMPLETION
AMERICAN BINGO & GAMING CORP.
617,500 SHARES OF COMMON STOCK AND
1,005,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $5.00 commencing upon the date of this Prospectus (the "Effective
Date") through December 14, 1998 (the "Exercise Period"). The Warrants may be
redeemed by the Company (with the prior consent of Investors Associates, Inc.
(the "Representative") on 30 days' written notice at a price of $.001 per
Warrant provided that the average closing bid quotation of the Company's Common
Stock was at least $8.00 for 20 consecutive trading days ending three days prior
to the notice of redemption.
This Prospectus relates to a) the possible resale, from time to time, by
certain shareholders ("Selling Security Holders") of American Bingo & Gaming
Corp. (the "Company") of up to 617,500 shares of Common Stock, $.001 par value,
b) the possible resale of 1,005,000 Redeemable Common Stock Purchase Warrants
(the "Warrants") by certain Warrantholders and c) 1,005,000 shares of Common
Stock issuable upon the exercise of such Warrants.
The Company will not realize any proceeds from possible resales by Selling
Security Holders of their respective shares of Common Stock of the Company. The
Company will receive maximum gross proceeds of $5,025,000 upon exercise of all
Warrants registered hereby. There can be no assurance that any Warrants will be
exercised.
The Selling Security Holders may sell their shares of Common Stock or
Warrants from time to time, in market transactions, in negotiated transactions,
through the writing of options, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Security Holders may effect such transactions by selling
their shares of Common Stock or Warrants to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holders and/or the purchasers of such
shares of Common Stock or Warrants for whom such broker-dealer may act as agents
or to whom they may sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions.) The
Company has agreed to share all expenses in connection with the registration of
the shares of Common Stock and Warrants to which this Prospectus relates with
the Representative who is a Selling Security Holder.
Shares of the Company's Common Stock and Warrants are quoted on the NASDAQ
Small Cap Market System ("NASDAQ System") under the symbols "BNGO" and "BNGOW",
respectively as well as on the Boston Stock Exchange under the symbols "ABG" and
"ABGW", respectively. On July 10, 1996 the last sale price of the Common Stock
as reported on the NASDAQ System was $2 5/8 and the last sale price of the
Warrants was $1/2.
THESE SECURITIES ARE HIGHLY SPECULATIVE. THEY INVOLVE
A HIGH DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY
PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF
THEIR ENTIRE INVESTMENT.
(See "Risk Factors" - Page 6)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July __, 1996
<PAGE>
ADDITIONAL INFORMATION
With respect to the securities offered hereby, the Company has filed with
the principal office of the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended (the "Securities Act"). For purposes
hereof, the term "Registration Statement" means the original Registration
Statement and any and all amendments thereto. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, to which reference hereby is made. Each statement made in this
Prospectus concerning a document filed as an exhibit to the Registration
Statement is not necessarily complete and is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions. Any
interested party may inspect the Registration Statement and its exhibits without
charge, or obtain a copy of all or any portion thereof, at prescribed rates, at
the public reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Registration Statement and exhibits may also be inspected at the Commission's
regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New
York, New York 10048.
The Company is a reporting company subject to certain informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files reports and other information with the Commission.
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent certified public accountants and
files quarterly reports with the Commission containing unaudited financial
information for each of the first three quarters of each fiscal year following
the end of each such quarter.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
American Bingo & Gaming Corp. (the "Company") was incorporated under the
laws of the State of Delaware in 1994. The Company was formed to consummate the
acquisition of four entities engaged in the operation of charity bingo
entertainment Centers (the "Centers"). The Company subsequently completed its
initial public offering in December 1994, from which approximately $5.2 million
was raised through the sale of 1,000,000 shares of Common Stock and 1,725,000
Warrants.
The Company, through its subsidiaries, provides maintenance and management
support for charities which utilize bingo events as a means of fund raising.
The Company presently operates nine Centers in Texas, Alabama and South
Carolina. The Company's current Centers average nine sessions per Center per
week at an average per-session fee to the Company of $450. In addition,
revenues are derived from the operation and/or lease of vending and concession
outlets at the Centers. The Company also derives rental revenues from its South
Carolina gaming facility where video gaming is legal. The Company is required
to operate the Centers in compliance with applicable state and local laws and
regulations. Presently, approximately 45 states and the District of Columbia
allow charities to operate regulated bingo halls as a method of fund raising.
The Company has designed an aggressive expansion plan centered around the
acquisition of existing Centers as well as the opening of new Centers. The
Company's goal is to establish itself as a major force in the estimated multi-
billion dollar per year charity bingo market. No assurances may be given that
the Company's goals will be achieved.
The Company is knowledgeable with respect to states whose legislation
permits charity bingo and gaming events. The Company identifies and analyzes
desirable bingo markets that offer favorable population and income demographics.
Where viable, the Company currently plans to establish Centers in each of these
markets (see "Business"). This can be accomplished either by building a new
bingo Center or by acquiring an existing Center.
The Company's corporate headquarters are located at 515 Congress Avenue,
Suite 1200, Austin, TX 78701. The Company's telephone number is (512) 472-2041.
3
<PAGE>
THE OFFERING
Securities Outstanding 4,108,394 shares of Common Stock.
2,730,000 Redeemable Common Stock Purchase Warrants.
337,500 Bridge Warrants
Securities
Registered: 617,500 shares of Common Stock, 1,005,000 Warrants and
1,005,000 shares issuable upon exercise of such
Warrants issued by the Company in December 1995. The
Company will not receive any proceeds from the sale of
securities by the Selling Security Holders, but will
receive money to the extent that warrant holders
exercise their Warrants.
Risk Factors: An investment in the Company's securities involves a
high degree of risk. For a discussion of certain risk
factors effecting the Company, see "Risk Factors".
Use of Proceeds: The Company intends to utilize any funds realized
through Warrant exercise for the acquisition of
additional charity bingo Centers, and for working
capital and general corporate purposes.
NASDAQ
Symbols BNGO - Common Stock
BNGOW - Redeemable Warrants
Boston Stock Exchange ABG - Common Stock
Symbols ABGW - Redeemable Warrants
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For the three
Months Ended For the Years Ended
March 31, December 31,
------------------------ ------------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA
Revenues $ 931,058 $532,581 $3,351,677 $2,014,124
Net Income (Loss) $ 167,674 21,207 ($2,369,281) ($5,531,727)
Per Share Data:
Net Income (Loss) Per Share $ 0.04 $0.01 ($ 0.58) ($ 1.87)
Weighted Average Number of
Common Shares Outstanding 4,093,333 3,259,908 4,090,000 2,954,497
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA
Total Assets $4,403,551 $4,411,171
Working Capital $ 266,593 $ 76,835
Long Term Debt $ 521,378 $ 588,742
Shareholders' Equity $3,052,240 $2,884,566
</TABLE>
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR
TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
1. RELATIVELY NEW VENTURE, NEED FOR FURTHER ACQUISITIONS.
The Company must be regarded as in a formative stage. The Company's future
success depends upon its ability to continue to expand its existing operations
through the acquisition of Centers, and the establishment of new Centers. There
can be no assurance that the Company will be successful in making such
acquisitions or establishing new Centers. The Company is subject to all the
risks inherent in attempting to expand a relatively new business venture. These
risks include the potential inability of the Company to efficiently operate
additional Centers, the existence of undisclosed actual or contingent
liabilities, the inability to fund the working capital requirements of
additional Centers and the inability to locate and/or establish Centers which
have a positive effect on the Company's operations. Recently, the Company
encountered a hostile regulatory environment in Florida and found it necessary
to dispose of its four Centers there. (See "Business-Litigation.") There can
be no assurance that the Company will achieve a level of profitability that will
provide a return on invested capital or will result in an increase in the market
value of the Company's securities.
2. NEED FOR ADDITIONAL FINANCING.
The Company's business plan includes an aggressive program to identify
acquisition candidates that meet certain demographic and other criteria, and to
seek to acquire them. Growth to date has been funded initially with cash
advanced by shareholders and from operations, and since December, 1994 with the
proceeds of the Company's initial public offering. The Company believes it will
have resources to enable it to make significant acquisitions. However, there
can be no assurance that the remaining cash, coupled with the Company's Common
Stock which has been used as currency to facilitate certain acquisitions, will
enable the Company to finance all of its acquisition plans. Moreover,
additional funds may be needed to fund the working capital requirements of newly
acquired Centers. No assurance can be given that additional needed financing
will be available to the Company, or if available, on terms acceptable to the
Company. If further financing is needed, but not available, the Company will be
required to scale down its acquisition plans.
3. COMPETITION.
The Company competes with other Centers located in the general area where
the Company's subsidiaries presently operate. Competition is based on such
factors as location,
6
<PAGE>
comfort, cleanliness, personal relationships and other amenities. The Company
continues to seek to maximize the competitive advantages of its facilities. The
Company does expect to encounter increased competition as it seeks to acquire
additional Centers. Other forms of gaming, principally non-charity operations
also represent additional competitive threats to the Company. There can be no
assurance that additional competing Centers will not be opened by parties not
affiliated with the Company or that existing Centers will not be refurbished to
the extent that they are more amenable to the charity bingo players who
presently frequent the Company's Centers.
4. DEPENDENCE UPON KEY PERSONNEL.
The Company is substantially dependent upon the continued services of
Gregory Wilson, its Chairman and Chief Executive Officer who is the Company's
most experienced person in the operation of charity bingo Centers. Mr. Wilson
has entered into a three-year employment agreement with the Company which has
about a year and one half to run. The loss of the services of Mr. Wilson
through incapacity or otherwise would have a material adverse effect upon the
Company's business and prospects. To the extent that his services become
unavailable, the Company will be required to retain other qualified personnel,
and there can be no assurance that it will be able to recruit and hire qualified
persons upon acceptable terms. The Company maintains key person life and
disability insurance in the amount of $1,000,000 on the life of Mr. Wilson, with
the Company as beneficiary. However, in the event of loss, there can be no
assurance that the insurance proceeds will adequately compensate the Company.
5. GOVERNMENT REGULATION.
The Company believes that forty-five (45) states and the District of
Columbia have enacted laws permitting and controlling the operation of the
Centers. In some states the Company is required to obtain and maintain permits
and/or licenses from state and local regulatory agencies. State regulations
often limit the amount of revenues which the Company can generate by limiting
the number of sessions, revenues per session, number of locations which may be
operated, or other matters. Certain states may also restrict bingo operators to
locally formed entities or may restrict ownership to private investors who are
active in management. The Company believes it currently complies with all
regulations affecting its operations. However, there can be no assurance that
current laws and regulations will not be changed or interpreted in such a way as
to require the Company to alter its present activities, further restrict profit
margins or obtain additional capital equipment in order to obtain or maintain
licenses and permits (see "Government Regulation"). The Company has encountered
regulatory problems in the States of Florida and Texas, respectively (see
"Business-Litigation.")
6. NO ASSURANCE AS TO FUTURE ACQUISITIONS.
The Company's business has grown solely through acquisitions and the
opening of new Centers. The Company's business plan calls for the acquisition
of entities engaged in the operation of charity bingo Centers. The Company's
ability to achieve its expansion plans
7
<PAGE>
depends in large part on its sound business judgment relative to quality targets
and its negotiating strength. Acquisitions to date have been based on a
multiple of pre-tax income. Since the Company has become a public company, it
has acquired properties for a combination of cash, seller-financed notes and
stock, and hopes to continue to do so. If potential sellers are receptive to
accepting equity in the Company as part of the purchase price, the Company's
ability to expand will be enhanced. There can be no assurance, however, that
the Company's acquisition targets will continue to be receptive to such
proposals. Nor can there be assurance that the Company will succeed in
effecting future acquisitions of additional Centers that meet management's
criteria of profitability, physical attributes and demographics in the targeted
states and locales. Moreover there can be no assurance that once acquisitions
are made they will have a positive effect on the Company's operations.
7. GENERAL ECONOMIC RISKS.
The Company's current and future business plans are dependent, in large
part, on the state of the general economy. Adverse changes in general and local
economic conditions may adversely impact on investment in the Company. These
conditions and other factors beyond the Company's control include, among other
factors (i) competition from other hospitality and entertainment properties;
(ii) changes in regional and local population and disposable income composition;
(iii) the need for renovations, refurbishment and improvements; (iv)
unanticipated increases in operating costs; (v) changes in federal, state, local
laws, rules and regulations including laws regulating the environment, signage
and the like; (vi) the inability to secure property and liability insurance to
fully protect against all losses, or to obtain such insurance at reasonable
cost; (vii) seasonality, and (ix) changes or cancellation in local tourist,
athletic or cultural events.
8. POSSIBLE VOLATILITY OF STOCK PRICE.
There can be no assurance that a public market price for the Common Stock
or Warrants will continue. The market prices of the Common Stock and the
Warrants may be significantly affected by factors such as announcements by the
Company or its competitors, as well as variations in the Company's results of
operations and market conditions in the gaming industry in general. The market
prices may also be affected by movements in prices of stocks in general. The
relatively limited amount of publicly trading shares and Warrants (the "float")
renders the Company's securities especially susceptible to sharp price
fluctuations.
9. ARBITRARY EXERCISE PRICE.
The exercise price of the Warrants does not necessarily bear any relation
to book value, assets, earnings or any other objective criteria of value. It
has been arbitrarily determined by the Company and the Representative. Nor
should it be regarded as an indication of the future market price of the Common
Stock.
8
<PAGE>
10. FURTHER DILUTION.
The Representative has been permitted to acquire, for services rendered by
it in 1995 but for nominal cash consideration, Warrants entitling it to purchase
a maximum of 550,000 shares of Common Stock. The Company is registering hereby
those Warrants as well as the shares underlying such Warrants under the
Securities Act of 1933, as amended. In addition, another 455,000 Warrants and
underlying shares are being registered hereby on behalf of other Selling
Security Holders. Exercise of such Warrants including the Representative's
Warrants will result in a reduction of the ownership interest of the Company's
shareholders. The holders of the Warrants may be expected to exercise them at a
time when the Company may, in all likelihood, be able to obtain needed capital
from other sources on more favorable terms (see "Underwriting" and "Certain
Transactions").
11. SHARES ELIGIBLE FOR FUTURE SALE.
A large number of shares of Common Stock presently outstanding will be
eligible for public sale under the Securities Act of 1933, as amended, in
September, 1996. Possible or actual sales of Common Stock in the future by
existing shareholders may have a depressive effect on the price of the Common
Stock in the open market.
12. POSSIBLE EFFECTS OF CERTAIN ARTICLES OF INCORPORATION AND BYLAW
PROVISIONS.
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage acquisition bids for the Company. The Company has substantial
authorized but unissued capital stock available for issuance. The Company's
Articles of Incorporation contain provisions which authorize the Board of
Directors, without the consent of stockholders, to issue additional shares of
Common Stock and issue shares of Preferred Stock in series, including
establishment of the voting powers, designation, preferences, limitations,
restrictions and relative rights of each series of Preferred Stock.
13. ABSENCE OF CASH DIVIDENDS.
The Board of Directors does not anticipate paying cash dividends on the
Common Stock for the foreseeable future and intends to retain any future
earnings to finance the growth of the Company's business. Payment of dividends,
if any, will depend, among other factors, on earnings, capital requirements and
the general operating and financial conditions of the Company. See "Dividend
Policy."
14. RISK OF REDEMPTION OF WARRANTS.
The Company may redeem the Warrants (with the Representative's prior
consent) for $.001 per Warrant, on 30 days' written notice, at any time after
the closing bid quotation of the Common Stock on NASDAQ was at least $8.00 for
20 consecutive trading days ending three days prior to the notice of redemption.
Notice of redemption of the Warrants could cause the
9
<PAGE>
holders thereof to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the Warrants at
the current market price when they might otherwise wish to hold the Warrants, or
to accept the redemption price, which is likely to be less than the market value
of the Warrants at the time of the redemption. See "Description of Securities."
15. INVESTORS MAY BE UNABLE TO EXERCISE WARRANTS.
For the term of the Warrants, the Company will attempt to maintain a
current effective registration statement with the Commission relating to the
shares of Common Stock issuable upon exercise of the Warrants. If the Company
is unable to maintain a current registration statement because the costs render
it uneconomical, or because the value of the shares of Common Stock underlying
the Warrants is less than the exercise price, or any number of other reasons,
the Warrant holders will be unable to exercise the Warrants and the Warrants may
become valueless. Although during the Offering the Warrants will not knowingly
be sold in any jurisdiction in which they are not registered or otherwise
qualified, a purchaser of the Warrants may relocate into a jurisdiction in which
the shares of Common Stock underlying the Warrants are not so registered or
qualified. In addition, a purchaser of the Warrants in the open market may
reside in a jurisdiction in which the shares of Common Stock underlying the
Warrants are not registered or qualified. If the Company is unable or chooses
not to register or qualify or maintain the registration or qualification of the
shares of Common Stock underlying the Warrants for sale in all of the states in
which the Warrant holders reside, the Company would not permit such Warrants to
be exercised and Warrant holders in those states may have no choice but to
either sell their Warrants or let them expire. Prospective investors and other
interested persons who wish to know whether or not the Common Stock may be
lawfully issued upon the exercise of Warrants by a Warrant holder in a
particular state should consult with the securities department of the state in
question or send a written inquiry to the Company.
16. SPECULATIVE NATURE OF WARRANTS.
Warrants are generally more speculative than Common Shares which are
purchasable upon the exercise thereof. During the term of the Warrants, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Company's Common Shares, subject to the Company's right of
redemption. Historically, the percentage increase or decrease in the market
price of a Warrant has tended to be greater than the percentage increase or
decrease in the market price of the underlying common shares. A Warrant my
become valueless, or of reduced value, if the market price of the Common Shares
decreases, or increases only modestly, over the term of the Warrant. See
"Description of Securities - Warrants."
10
<PAGE>
USE OF PROCEEDS
The Company intends to utilize the net proceeds received from the exercise
of the Warrants estimated to be a maximum of $5,025,000 to finance the Company's
continued acquisition and expansion plans, as well as for other general
corporate and working capital purposes. There can be no assurance that any of
the Warrants will be exercised. The forgoing represents the Company's best
estimate of its projected use of proceeds generated from the possible exercise
of Warrants based upon the current state of its business operations, its current
plans and current economic and industry conditions.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends and does not
intend to do so for the foreseeable future. The Company currently intends to
retain all earnings, if any, to finance the continued development of its
business. Any future payment of dividends will be determined solely in the
discretion of the Company's Board of Directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996; and as adjusted to give effect to the possible issuance of up to
1,005,000 shares of Common Stock upon exercise of outstanding Warrants. There
can be no assurance that any of the Warrants will be exercised.
March 31, 1996 March 31, 1996
Actual As Adjusted
-------------- --------------
(Unaudited)
Current Liabilities $ 829,983 $ 829,983
----------- -----------
Long Term Debt $ 521,328 $ 521,328
----------- -----------
Stockholders' Equity
Common Stock $.001 par value
20,000,000 shares authorized;
4,093,333 shares issued and
outstanding; 5,113,394 shares(2)
outstanding as adjusted $ 4,093 $ 5,113
Additional Paid in Capital 10,991,676 15,960,156 (1)(3)
Subscription Notes Redeemable (3) (100,500) --- (3)
Retained Earnings (Deficit) (7,843,029) (7,843,029)
----------- -----------
Total Stockholders Equity 3,052,240 8,122,240
----------- -----------
Total Capitalization $ 4,403,551 $ 9,473,551
----------- -----------
(1) Assumes receipt by the Company of $5,025,000 through exercise of Warrants.
(2) Based on issuance of an additional 15,061 shares since March 31, 1996 plus
assumed issuance of 1,005,000 shares upon exercise of Warrants registered
hereby.
(3) Assumes receipt of subscription notes receivable totalling $100,500.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock, $.001 par value, and its Redeemable Common
Stock Purchase Warrants are traded on the NASDAQ Small Cap Market System under
the symbols "BNGO" and "BNGOW," respectively, and on the Boston Stock Exchange
under the symbols "ABG" and "ABGW", respectively. The following table shows the
range of reported high and low closing bid quotations for the Company's Common
Stock and Redeemable Common Stock Purchase Warrants, for the fiscal periods
indicated, as reported on the NASDAQ Regular Market System through the National
Quotation Bureau and NASDAQ Monthly Reports.
Redeemable Common
Common Stock Stock Purchase Warrants
------------- -----------------------
High Low High Low
---- --- ---- ---
FISCAL 1994:
Fourth Quarter(a) $6 5/8 $6 1/2 $2 7/8 $2 13/16
FISCAL 1995:
First Quarter $6 1/2 $3 7/8 $2 13/16 $1
Second Quarter $5 $3 5/8 $1 13/32 $1
Third Quarter $5 $3 1/2 $1 1/8 $1
Fourth Quarter $4 1/2 $3 $1 1/4 $1
FISCAL 1996:
First Quarter $3 1/2 $3 1/4 $1 $ 3/4
Second Quarter(b) $3 1/4 $2 $ 3/4 $ 1/4
(a) The Company's securities commenced trading on December 15, 1994.
(b) On July 10, 1996 the closing bid and ask prices of the Company's Common
Stock were $2 5/8 and $3 respectively and the closing prices of the Company's
Warrants were $1/2 and $5/8 respectively.
The Company has outstanding 3,067,500 Redeemable Common Stock Purchase
Warrants. Each Warrant entitles the holder to purchase one share of Common
Stock at a price of $5.00 through December 14, 1998. Since June 15, 1995, the
Company has had the right to redeem the Warrants, with the consent of Investors
Associates, Inc., the Company's representative of underwriters in the Initial
Public Offering, after 30 days written notice. The Company may redeem the
Warrants at a price of $.001 per Warrant, provided that the average closing bid
13
<PAGE>
quotation of the Company's Common Stock is at least $8.00 for 20 consecutive
trading days ending three days prior to the notice of redemption.
As of March 27, 1996, the approximate number of record holders of the
Company's Common Stock was 59 and the approximate number of beneficial
shareholders was 1,073. Such number of holders was determined from the
Company's transfer agent's list of shareholders.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data at December 31, 1995 and for the two
years ended December 31, 1995 have been derived from the audited financial
statements of the Company which have been audited by Weinick, Sanders & Co,
LLP(1). This information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------------ -----------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Statement of income data:
Revenue $931,058 $532,581 $3,351,677 $2,014,124
Costs and expenses $763,384 511,374 $5,719,897 $7,466,187
Provision for Taxes $ 1,061 $ 1,351
-------- -------- ----------- ------------
Net income (loss) $167,673 $ 21,207 ($2,369,281) ($5,531,727)
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
Balance sheet data:
Total assets $4,403,551 $4,411,171
Working capital (deficiency) 266,593 76,835
Current liabilities 829,983 937,863
Long-term debt 521,328 588,742
Stockholders' equity $3,052,240 $2,884,566
</TABLE>
- --------------
(1) The financial data at March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are derived from the Company's Financial Statements and
are unaudited.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
American Bingo & Gaming Corp. was incorporated on September 8, 1994 to
pursue the acquisition and development of bingo and gaming business
opportunities. The Company believes that the U.S. bingo market is extremely
fragmented and inefficient and thus potentially profitable to commercial
lessors. The Company's strategy is to consolidate a portion of the bingo
industry through the acquisition and/or development of bingo Centers in
attractive markets. In October of 1994, the Company acquired eight bingo
Centers in Texas and Alabama through stock-for-stock exchanges for the Company's
common stock. In 1995 the Company closed two of these eight Centers, one in
Texas and one in Alabama, due to poor financial performance. During 1995 the
Company opened a bingo and gaming Center in Columbia, South Carolina and
acquired four bingo Centers in Florida. Due to substantial legal problems, the
Company decided to exit the Florida market at the end of 1995 (See "Business-
Litigation"). The Company intends to open four additional bingo Centers in
South Texas during 1996 (the opening of two of which is subject to favorable
resolution of the pending proceedings against the Texas Lottery Commission), one
of which is presently operational and expand its gaming operations in South
Carolina. The Company is also evaluating additional bingo Center acquisitions
to further expand its operations, primarily in the southern region of the U.S.,
which offers favorable demographics and operational logistics for the Company's
business.
The Company leases to a variety of non-profit organizations to conduct
bingo operations in its Centers. By law, the Company itself cannot run the
actual bingo operations in most jurisdictions; rather, the Company trains and
provides ongoing consulting services to the charities to enable them to maximize
revenues and earnings from operations. It is in the mutual interest of both the
Company and charities for the bingo Center operations to be profitable. The
Company derives revenues from the charities in the form of lease rental payments
for use of its bingo Center facilities and equipment. In addition, the Company
generates revenues from the sale of bingo supplies (papers, daubers, etc.),
vending sales and concessions in certain of its Centers. The Company also earns
revenues from the leasing of its video gaming facilities in South Carolina where
video gaming is legal. Depending on the specific regulations, and the arms-
length agreements negotiated with the charity tenants, the Company may be
responsible for various expenses including property rental, finish-out of the
property for bingo operations, bingo supplies, janitorial services, utilities,
maintenance and repairs, security, property taxes, permits and insurance. The
Company must be able to cover these expenses, plus corporate overhead, from its
charity rental payments in order to earn a profit. The charities earn the net
proceeds from bingo events after paying session rentals to the Company, payroll
costs to employees and other operating and marketing expenses, if any.
The Company's revenues and results of operations are determined by the
number of Company bingo Centers in operation, the number of charities and
sessions at each Center, the lawful rentals that the Company may charge, the
attendance and financial participation of the
16
<PAGE>
players, and the Company's ability to manage operating costs and overhead. In
addition, bingo and gaming activities are strongly regulated and are subject to
state and local laws. The Company's financial results may therefore fluctuate
at certain of the Company's bingo Centers. Thus, a key component of the
Company's strategy is to continue to grow revenues through expansion. The
Company must leverage its investment cost in its management team and operational
infrastructure to increase profits.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of $583,000,
an increase of over $150,000 (35%) from the end of fiscal 1995. This increase
was generated by earnings from existing operations. The Company also generated
$3,000 from investing and financing activities during the quarter, including
$86,000 of notes receivable collections less $73,000 of investments in the
Company's South Texas facilities and $10,000 paid on Florida notes payable. The
Company has invested over $800,000 in its four South Texas bingo properties and
may be required to make further investments there. The Company also expects to
make further investments in its Columbia, South Carolina facility in order to
expand the size of its gaming operation due to strong customer demand. The
Company expects its cash position to continue to increase assuming: i) continued
collection of its Florida notes, ii) the opening of all or some of the Company's
South Texas bingo facilities, and iii) no unfavorable developments from the
Company's pending legal proceedings. There can be no assurance of the
foregoing. The Company intends to finance future acquisitions primarily through
the use of stock and, to a lesser extent, cash and notes.
Accounts and sundry receivables totaled $112,000 at March 31, 1996.
Because the Company collects most of its receivables from its participating
charities within one to four weeks from the time earned, accounts receivable
normally represent only a small portion of the Company's total assets. Notes
receivable, less provision for doubtful collectability, totaled $1.1 million at
March 31, 1996. All note collections were current at the end of the quarter.
Bingo paper and other supplies are expensed at the time of purchase; the Company
thus records no inventory for its operations. Current liabilities totaled
$830,000 at the end of the quarter, but less than 10% of this total represented
trade payables. Over 90% of current liabilities are comprised of a note payable
on which the Company is not currently making payments due to a dispute with the
seller, plus accrued expenses. The Company has also recorded a $450,000
liability for acquisition which is comprised of Company stock which the Company
currently has no intention of issuing. The Company has no long-term debt. The
Company had total assets of over $4.4 million and total liabilities of $1.35
million at the end of the first quarter, with shareholder equity of $3.05
million. The Company believes that its current capital resources, together with
expected positive operational cash flows and note collections, will support
operational requirements for the next year.
The Company's net cash position was $431,000 at the end of fiscal 1995,
down from $3.5 million at the end of 1994. The majority of this reduction in
cash was due to the investment of the Company's IPO proceeds during 1995,
including the Company's $1.4 million
17
<PAGE>
investment in South Carolina, $625,000 initial investment in Florida and
$600,000 investment (through the end of 1995) in South Texas. The balance of
the cash decline was due to the Company's operating losses, capital expenses and
note payments in 1995. The Company incurred a loss of $2.4 million for fiscal
1995, of which approximately $1.9 million represented non-cash charges, leaving
approximately $500,000 as the actual cash loss. Operational cash flows from the
Company's bingo Center operations were positive and totaled nearly $1 million,
but were offset by $1.5 million of cash overhead costs, which were heavily
burdened by legal expenses (See "Business-Litigation"). The Company expects
ongoing bingo operations to remain profitable and annual overhead to approximate
$1 million, although there can be no assurance in that regard.
During the first quarter of fiscal 1996 the Company invested an additional
$75,000 in its four south Texas bingo Centers, bringing the Company's total
investment in these properties to approximately $700,000. The Company plans to
open two bingo Centers at each facility in McAllen and Brownsville, Texas,
during fiscal 1996. One of these Centers is presently operational. Both
facilities will conduct daytime and nighttime bingo. The Company has been
delayed approximately six months in opening these facilities due to licensing
problems with the Texas Lottery Commission which regulates bingo in Texas (See
"Business-Litigation"). These delays have cost the Company over $100,000 in
rent expense during the time in which the halls were not able to open, plus
foregone rental income that would have been earned during this delay. The
Company also plans additional investments in its South Carolina facility to
expand its video gaming operations. The Company currently has three video game
rooms in operation there, and plans to increase that number by up to six
additional rooms due to strong customer demand. The Company does not anticipate
that any substantial capital expenditures will be required in 1996 for its other
bingo Center facilities and currently has no plans for additional bingo Center
acquisitions or developments which would require significant cash outlays that
would not be covered by internal cash flow. The Company intends to fund its
overhead costs from cash flows of its current bingo Centers.
The Company had $4.4 million in total assets at the end of fiscal 1995.
This total included $431,000 of cash and cash equivalents, $2 million in net
fixed assets, $1.2 million in current and non-current net notes receivable, and
$430,000 of net intangible assets. The Company's $2 million in net fixed
assets included approximately $1.1 million for investment in South Carolina and
$583,000 for the Company's investment in South Texas. The net notes receivable
are due from the purchasers of the Company's former Florida bingo Centers. The
net intangible assets represent goodwill and covenants not to compete from
various acquisitions. Accounts receivable totaled $197,000 at year-end and were
comprised of both trade and sundry receivables. Bingo paper and other supplies
are expensed at the time of purchase, and inventory of such is not considered
material. The Company had $117,000 of trade payables and $534,000 of accrued
expenses, of which approximately $120,000 represented near-term liabilities.
The balance of accrued expenses included reserves for Florida, Texas and South
Carolina legal activities and accruals for severance pay. Liabilities for
acquisitions totaled $450,000 and represented Company stock payable. Total
shareholder equity was $2.9 million at the end of fiscal 1995. Although there
can be no assurance, the Company believes that its current capital
18
<PAGE>
resources, together with cash expected to be generated from operations and note
collections from the sale of the Florida Centers, will be sufficient to fund
operations for the next fiscal year.
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1996. The Company generated consolidated revenues
of $931,000 during its first fiscal quarter of 1996 ended March 31, 1996, as
compared to $533,000 in the comparable period of the prior fiscal year, which
represents a 75% increase. This increase was primarily due to incremental
revenues from the opening of two bingo Centers and a gaming Center in Columbia,
South Carolina in the second quarter of 1995. Over half of the Company's first
quarter 1996 revenues were derived from bingo Center rentals, with the balance
comprised of gaming, paper and concession revenues. The Company expects
quarterly revenues to increase upon the successful opening of the Company's four
South Texas bingo Centers and expansion in South Carolina, although there can be
no assurance in this regard.
Costs and expenses totalled $810,000 during the first quarter of 1996
compared to $550,000 for the comparable period of a year ago, an increase of
47%. The increase is primarily attributable to the additional costs associated
with the Company's South Carolina facilities, which were not in operation during
this time period a year ago. Salaries and other compensation increased $57,000
to $191,000, an increase of 42% which is primarily attributable to the addition
of certain key personnel. Rent and utilities increased $67,000 to $229,000, an
increase of 50%. This increase is primarily attributable to the Company's four
Centers in South Texas, one of which was opened during the first quarter of
1996.
Interest income for the period ended March 31, 1996 totaled $47,000
compared to $38,000 in the first quarter of 1995. A majority of the current
period's interest income was attributable to interest collected on the Company's
notes receivable (See Note 2).
The Company did not record any tax expense during the current quarter or
comparable 1995 period due to tax loss carryforwards. The Company's tax
loss carryforward balance at the end of fiscal 1995 was in excess of $2 million
and, as such, the Company does not expect to incur any federal income tax
liability until this carryforward is depleted by operational profits, although
there can be no assurance in that respect.
Net income for the first fiscal quarter of 1996 was $168,000, which equated
to earnings per share of $.04. Net income for the comparable quarter of 1995
was $21,000, which equated to earnings per share of $.01. This net income
increase of nearly 700% was primarily due to the success of the Company's South
Carolina operations which were not open in the first quarter of 1995.
Management believes that the Company's direct operating costs and G&A expenses
are relatively fixed. As such, management will continue to seek expansion
opportunities that offer incremental operating revenues which, in turn,
favorably leverage the Company's net income performance.
19
<PAGE>
FISCAL 1995. The Company incurred a net loss during fiscal 1995 of $2.4
million (-$.58 per share) compared to a loss of $5.5 million ($1.87 per
share) in fiscal 1994. The Company's 1995 loss per share was reduced by an
increase in the weighted average shares outstanding pursuant to the Company's
1994 Initial Public Offering. The Company's operations in 1995 were
substantially burdened by over $1.6 million dollars of non-recurring costs and
charges. The Company expects operational results to improve in fiscal 1996
assuming that 1) the Company quickly and favorably resolves its Florida and
Texas litigation, and 2) the Company's South Texas bingo Centers open as
currently scheduled and are well received and patronized by customers. However,
there can be no assurance of either of the foregoing assumptions.
COMPARISON OF FISCAL 1995 TO FISCAL 1994. Total revenue increased by over
66% to $3.4 million in fiscal 1995 from $2 million in fiscal 1994. Total 1995
revenue is comprised of $2.6 million of charity lease rental payments, $318,000
of paper and other supplies sales, $248,000 of gaming revenues and $216,000 of
concessions and other revenues. Revenues increased in fiscal 1995 primarily due
to the opening of the Company's South Carolina facility and the acquisition of
four bingo Centers in Florida. The Florida acquisitions were sold by the
Company in late 1995 due to legal problems there (See "Business-Litigation").
The Company will no longer generate revenues from these properties, but expects
to collect note payments, including interest, from the sale of these properties
for several years. Should the Company's notes be collected in full, the Company
will recognize a gain on the sale of these assets.
Costs and expenses totaled $5.7 million in fiscal 1995 compared to $7.5
million in fiscal 1994, representing a 23% decrease. However, fiscal 1995
expenses were substantially inflated by nearly $2 million of non-recurring
expenses for:
1) issuance of Company Common Stock Purchase Warrants at a substantial
discount to market ($750,000),
2) losses in Florida on the disposition of bingo Centers, legal fees and
operations ($700,000),
3) employee severance costs, consulting contracts and various asset write-
downs ($325,000),
4) start-up costs for South Carolina and South Texas which were expensed
($200,000).
Fiscal 1994 expenses were also inflated due to $5.0 million of non-
recurring non-cash charges for the issuance of founder's stock and $563,000 for
the issuance of stock associated with the Company's Bridge Financing prior to
its public offering. If these 1995 and 1994 non-recurring expenses were
excluded, fiscal 1995 and 1994 costs and expenses would have totaled
approximately $3.7 and 2.0 million, respectively.
Direct costs of operating the Company's bingo Centers (all operating costs
excluding rent, utilities, salaries, depreciation and amortization) totaled $1.2
million in fiscal 1995 vs. $455,000 in fiscal 1994. This increase was led by
increased operating costs for the Company's South Carolina facility and former
Florida bingo Centers. The Company expects direct costs to decline in fiscal
1996.
20
<PAGE>
Rent and utilities totaled $903,000 in fiscal 1995 vs. $610,000 in fiscal
1994. This increase was led by Facility rental and utility costs for the
Company's former Florida bingo Centers from July through December of 1995. Due
to the addition of the south Texas facilities in 1996, the Company expects rent
and utilities to remain constant in fiscal 1996.
Salaries and other compensation increased from $213,000 in fiscal 1994 to
$945,000 in fiscal 1995. This increase was caused by: 1) an increase in staffing
from three to eight employees from the end of 1994 to the end of 1995; ii)
severance pay of $145,000 for two former employees; iii) a bonus of $113,000 to
the two founding officers of the Company payable through the issuance of
redeemable Common Stock Purchase Warrants at a substantial discount to market;
and iv) the addition of employees in Florida and South Carolina. Pursuant to
the Company's exit from Florida and leasing of its South Carolina facility, it
no longer has any employees in these two states and expects salaries and other
compensation to decline in fiscal 1996.
Depreciation and amortization totaled $402,000 in fiscal 1995 vs. $144,000
in fiscal 1994. This increase was due to asset increases for the Company's
South Carolina and former Florida properties, and the amortization of goodwill
for the Florida acquisitions. This goodwill was written off at the end of 1995
upon the sale of the Florida Centers).
Operating expenses increased from $360,000 in fiscal 1994 to $1.9 million
in fiscal 1995. This increase was caused by: i) the recognition of $700,000 of
consulting fees, the majority of which was recorded for investment banking
services and compensated with redeemable Common Stock Purchase Warrants; ii) the
recording of over $600,000 of legal fees pursuant to the Company's legal
problems in Florida and Texas and start-up activities in South Carolina; and
iii) a substantial increase in accounting fees, insurance, professional services
and travel expenses concurrent with the Company's expansion activities. The
Company expects operating expenses to decline significantly in fiscal 1996.
Loss on disposal of property and equipment was $424,000 in fiscal 1995
compared to $0 in fiscal 1994. Most of this loss was attributable to the
Company's exit from the Florida bingo market.
The Company recorded $111,000 of net interest income in fiscal 1995
compared to $21,000 of interest expense in fiscal 1994. The Company expects
to record additional interest income in fiscal 1996 from its interest-bearin
notes receivable from the sale of its former Florida bingo Centers. The Company
incurred substantial expenses in fiscal 1994 for the issuance of founder's stock
and interest paid on a bridge note financing. There were no such comparable
expenses in fiscal 1995.
The Company's income tax expense for fiscal 1995 and 1994 was negligible
due to reported losses. The Company has accumulated tax loss carryforwards of
approximately $2 million to offset against future income, if any. The
Company's tax loss carryforwards do not include the $5 million charge in
fiscal 1994 for the issuance of founder's stock or the charges
21
<PAGE>
for the 1995 issuance of redeemable Common Stock Purchase Warrants, which are
not deductible for tax purposes. The Company recognized interest
income of $78,000 in fiscal 1994 attributable to minority shareholders of one of
the Company's bingo properties.
22
<PAGE>
BUSINESS
GENERAL
American Bingo & Gaming Corp. (the "Company") was organized under the laws
of the State of Delaware on September 8, 1994 in order to consummate the
acquisition of four entities engaged in the operation of bingo entertainment
Centers (the "Centers"). The Company subsequently completed its Initial Public
Offering in December of 1994, from which approximately $5.2 million was raised
through the sale of 1,000,000 shares of the Company's Common Stock and
1,725,000 redeemable Common Stock purchase Warrants. The Company netted
approximately $3.8 million from the offering, prior to the retirement of
promissory notes related to a Bridge Financing in the amount of $755,000. The
Company used a majority of the remaining public offering proceeds for expansion
activities during 1995.
The Company, through its subsidiaries, provides initial investment capital,
facility set up, maintenance and management support for charities which utilize
bingo events as a means of fund raising. The Company's participating charities
raised approximately $2.5 million in net proceeds in 1995. The Company
currently operates nine bingo Centers, including three Centers in Texas, four in
Alabama and two in South Carolina, and has three additional completed bingo
Centers scheduled to open in Texas in the second fiscal quarter of 1996. The
Company's revenues are primarily derived from rental revenues received from
participating charities that conduct bingo activities at the Company's bingo
Centers. Additional revenues are derived from vending and concession operations
located in the Centers as well as the sale of bingo paper, daubers and other
supplies at certain of the Centers. The Company also derives rental revenues
from its South Carolina gaming facility where video gaming is legal. The
Company is required to operate its Centers in compliance with applicable state
and local laws and regulations. Approximately 45 states currently allow
charities to operate regulated bingo Centers as a method of fund raising.
A report by the National Association of Fundraising Ticket Manufacturers
estimated that in 1992 annual gross receipts to charities in the U.S. from
charity bingo games were approximately $2.5 billion. Industry groups estimate
the growth rate of the industry at more than 10% annually. Management therefore
estimates that the U.S. charitable bingo market currently totals $3 - $3.5
billion in annual receipts. Thus, while the charity bingo market is only a
small percentage of the total U.S. gaming market, the Company believes that
charity bingo is, and will continue to be, an attractive, growing market
segment, despite the proliferation of alternative gaming options available to
the public. Management believes that the U.S. commercial bingo industry will
remain attractive due to: i) increased customer recognition and participation;
ii) favorable demographic trends, including an aging population with increasing
disposable income; iii) reduced governmental funding of charities due to
budgeting pressures; iv) the trend towards legalization of gaming activities;
and v) the requirement in most jurisdictions that charity lessors operate
commercial bingo Centers and retain responsibility for all staffing and
marketing costs. Management is also confident that the Company will prosper in
the bingo industry based on: i) management's industry and operational
experience; ii) the Company's early entry into the nationally fragmented bingo
market, with no competition on a
23
<PAGE>
similar scale; and iii) the Company's positioning of its bingo Centers in
demographically and economically desirable markets, primarily in the southern
part of the U.S.
BUSINESS OVERVIEW
Although state regulations vary, the Company's basic operation is as
follows. The Company identifies and analyzes desirable bingo markets that offer
favorable population and income demographics. After the Company selects an
attractive market for expansion, the Company determines whether it would be more
desirable to build a new bingo Center or acquire an existing Center, if one
exists. Building and finishing out a new commercial Center, which typically
costs $100,000 - $250,000, is often less expensive than acquiring an existing
Center and allows the Company to potentially earn a higher rate of return and
accelerated payback on its investment. Conversely, acquisitions typically cost
more than building a comparable new Center, but offer certain advantages over
building, including: i) greater predictability of investment return since the
Center's past performance is known; ii) preventing dilution of the existing
bingo market through the addition of another bingo Center; and iii) preservation
of the Company's cash resources (if the acquisition is funded in whole or in
part with seller-financed notes and/or Company stock). The Company will
continue to expand through both developments and acquisitions. The Company will
only pursue acquisitions of desirable halls that offer proven cash flows and
opportunities for enhanced financial performance. Concurrent with new bingo
Center development or acquisitions, the Company will acquire all necessary
operating permits and licenses from the appropriate state or local municipality.
After the Company selects a site for development or acquisition and
initiates legal fulfillment activities, the Company then contacts local
charities to promote the fund raising possibilities which charity bingo
provides. When selecting charities, the Company considers such factors as i)
the charitable cause and presence in the local community; ii) the background of
charity officers or trustees; and iii) a charity's financial stability. Once
charity selection is complete, the Company assists the charities in the
development of an operating plan consistent with current regulations, which may
include the creation of a bingo management team comprised of representatives
from the participating charities. The management team hires and oversees Center
employees and volunteers, sets up an accounting system and bank accounts, and
hires a Center manager/head cashier who manages the Center. Lease agreements
between the Company and the charities are typically structured on an annual
basis, with cancellation options for both parties. The Company believes that
short term leases allow it to limit commitments to under-performing charities.
After the bingo Center is opened, the Company continues to act as a
consultant to the participating charities, as well as property manager for the
building in which the bingo games are held. The Company's role is to ensure
profitable operation of the Center and help resolve any conflicts that may
arise. The Company's primary income is derived from rental payments from the
charities for the lease of the building and equipment for bingo sessions at the
Center. These rental payments are generally controlled by state or local
regulations and typically place a cap or ceiling on the amount to be realized by
the Company per session. The participating
24
<PAGE>
charities keep the net proceeds after payment of rent to the Company and payroll
costs to the bingo Center employees. Additional income may also be earned by
the Company through vending and concessions operations, the sale of bingo paper
and supplies at certain of the Centers and revenues from video gaming, where
legal.
The thrust of most applicable state or local regulations is to make
participating charities responsible for the direct operation of the bingo Center
and employment and payment of personnel. These regulations generally prohibit
management control by the Company, which reduces the Company's staffing
obligations and expenses. In addition, most states require that participating
charities be responsible for all marketing and advertising activities and
expenses. The Company's role as consultant does permit it to advise in the
selection and training of key employees and the formulation and execution of a
Center's business plan.
The Company usually bears initial responsibility for all non-personnel and
non-advertising costs of a bingo Center, including property rental, finish-out
of the property for bingo operations, janitorial services, utilities,
maintenance and repairs, security, property taxes, permits and insurance. The
Company must be able to cover these expenses, plus corporate overhead, from its
charity rental payments in order to earn a profit. However, as a Center becomes
better established and more profitable, the Company transfers a portion of these
expenses to the participating charities. The Company's objective is allow the
operation to run on a "turnkey" basis by the charities to the extent possible.
However, because of the Company's substantial investment in opening a bingo
Center and significant continued commitment in funding operating and overhead
costs, the Company must maintain an advisory role with respect to its bingo
Center operations. The Company and its participating charities each has a
vested stake in making sure that operations are conducted in a mutually
profitable way. The Company's objective is to ensure maximum proceeds from
Center operations, which allows charities to generate substantial funds, and in
turn, allows the Company to earn the maximum legal rent from leasing its
properties to charities.
CURRENT OPERATIONS
The Company's bingo Centers strive to offer first class facilities and
amenities, are committed to customer satisfaction and offer generous charity
support. The Company believes that these principles, together with the
Company's management experience, site selection methodology and ability to raise
capital, distinguish the Company from direct competition and allow the Company
and its charities to mutually prosper. The Company's participating charities
raised approximately $2.5 million in net proceeds in 1995. The Company's
current operations and potential expansions will likely remain focused on the
southern part of the U.S. which offers favorable demographics and logistical
advantages to the Company. A brief description of the Company's current
operations by state is as follows.
TEXAS (SIX BINGO CENTERS)
The Company has bingo operations in Austin (1) and San Antonio (1) that have
been in existence since 1987 and 1988, respectively. The Company has also
invested over $800,000 in the
25
<PAGE>
development of four bingo Centers in McAllen (2) and Brownsville (2), Texas,
which are located near the Texas - Mexico border. The first of two McAllen
Centers opened in March of 1996. The second McAllen Center and both Brownsville
Centers are scheduled to open in the second half of 1996, but have been delayed
due to licensing problems (See "Business-Litigation"). Texas is currently the
largest bingo revenue market in the U.S., but is also a highly regulated bingo
state and limits the number of weekly sessions and charity rental payments.
Bingo in Texas is regulated by the Texas Lottery Commission ("TLC"). A rule was
adopted by the TLC on March 30, 1996 prohibiting more than one bingo Center
under a single roof. The Company promptly obtained a temporary restraining
order from the district court in Travis County, Texas staying the implementation
of that rule, pending a hearing on the Company's application for a temporary
injunction. A hearing on that application for a temporary injunction was held
on May 23, 1996, at which time the court granted a temporary injunction
enjoining the implementation of the new rule, pending trial of the case
initiated by the Company.
ALABAMA (FOUR BINGO CENTERS)
The Company has bingo operations in Mobile (3) and Montgomery (1) that have been
in existence since 1991 and 1992, respectively. Bingo in Alabama is regulated
at the local level with varying laws between counties. Most local laws provide
limits on the number of weekly charity sessions that can be conducted.
SOUTH CAROLINA (TWO BINGO CENTERS AND THREE VIDEO GAMING ROOMS)
The Company's bingo and gaming operation in Columbia has been in existence since
1995. This facility represents the Company's largest single investment, costing
nearly $1.4 million to develop, and also includes the Company's first gaming
investment in three game rooms offering video gaming machines. The State
Department of Revenue and Taxation regulates bingo and gaming in South Carolina,
and limits the number of participating charities and sessions per facility. In
March of 1996 the Company leased the bingo Centers to an individual operator
under a fixed rent arrangement and leased the gaming operation to the same
individual under a revenue sharing arrangement.
FLORIDA
The Company acquired and subsequently resold four bingo Centers in Florida
during 1995. The State of Florida proved to be hostile to out-of-state
ownership of Florida bingo Centers by a public company and essentially forced
the Company's exit from the state. Although the Company no longer has any
involvement or control over these bingo Centers, the Company's collection of
notes resulting from the sale of these Centers is highly contingent upon the
future success of these bingo Centers (See "Business-Litigation").
EXPANSION PLANS
The Company continuously reviews industry developments and regulations for
potential expansion opportunities. It plans to acquire or develop bingo Centers
in markets that meet the Company's financial, legal, operational and demographic
criteria. The Company will continue to target those states that have enacted
legislation enabling charities to raise money through bingo
26
<PAGE>
and gaming events. Such states recognize that most charities lack the
investment capital and/or business acumen to independently establish such
Centers. These states have provided a regulatory structure that allows
commercial lessors such as the Company to act as landlord and consultant to the
charities. The Company operates within this regulatory structure and
essentially provides the charities with the expertise needed to open and operate
a profitable bingo entertainment Center.
It is imperative that the Company continue to increase its operational
revenues. The Company has made a significant investment in assembling its
management team and operational infrastructure. This investment cost is now
relatively fixed, however, and the Company has the potential to significantly
leverage its profitability through incremental revenue increases. The Company
will therefore continue to employ an aggressive yet methodical growth strategy.
It intends to make strategic expansions in markets with i) accommodating
regulations; ii) amenable charities; iii) favorable demographics (areas with
concentrations of middle-lower income earners and/or elderly population); and
iv) significant driving distance to competing gaming establishments. Once the
Company has made an expansion decision, the success of the venture is determined
by i) site selection; ii) a continued favorable legal environment; iii)
successful operations management; and iv) customer acceptance and patronization.
The Company intends to grow through both acquisitions and developments. It
uses extensive review procedures to evaluate expansion opportunities, including
market studies, legal evaluations, financial analyses and operational reviews.
The Company determines development budgets and acquisition prices based on the
proposed investment's expected financial performance, competitive market
position, risk profile and overall strategic fit within the Company's
operational plans. Acquisition terms typically include cash payments, issuance
of Company securities and seller-financed notes. Consulting and non-competition
agreements may also be included.
The Company expects to continue its expansion activities in those markets
that allow charity gaming activities. Some states currently allow video gaming
in charity Centers while other states are considering the legalization of
charity video gaming. Based on continued government and charity funding
shortages and demonstrated customer interest, the Company believes that the
number and types of games that charities can offer in conjunction with bingo
will continue to increase. Management believes that video gaming such as bingo,
blackjack, keno and poker, as well as video pull-tab machines, has tremendous
appeal to both existing bingo clientele and potential new customers, and would
substantially increase charity fund-raising and expand the overall market for
charity gaming. The Company will remain actively involved in the legislative
process of bringing charity gaming to states where the Company operates. The
Company has successfully established a non-charity video gaming operation with
three game rooms and fifteen video gaming machines in its South Carolina bingo
Center.
27
<PAGE>
COMPETITION
There are currently numerous entities engaged in the operation of
commercial bingo entertainment Centers in the U.S. Commercial bingo Center
start-up expenses are generally comprised of site selection and preparation,
finish-out, equipment and licensing fees, and typically cost from $100,000 to
$250,000 per Center. Thus, there are no significant financial barriers to
entry. However, rigorous regulatory requirements and legal complexities of the
involvement of non-profit organizations serve to reduce the entry of new
competitors. Since bingo prize payouts are often legally limited, competition,
where it exists, is normally focused on package prices and on a Center's
amenities. Bingo Centers with convenient locations, attractive facilities,
maximum bingo prize payouts, ample parking, attentive security, comfortable
environment, friendly personnel and value-priced concessions usually succeed in
their market. The Company seeks to provide the most desirable bingo Center(s)
in its respective markets in order to generate long-term player loyalty. The
Company is committed to ensuring that its bingo Centers remain appealing and
that its customers are provided maximum comfort and enjoyment. Additional
competition within the bingo market comes from charitable bingo operations owned
and run by charities. In general, however, such operations have not been able
to compete with commercial operations due to, according to most bingo players,
smaller and less desirable facilities and amenities, lower bingo prize payouts
and fewer bingo sessions.
Additional competition comes from other sectors of the gaming industry such
as lotteries, horse and dog racing and casino operations. While the Company is
cognizant of these competing operations, and does try to locate its facilities
in areas insulated from such competition, the Company believes that its patrons
represent unique, value-oriented customers from whom a day or night of bingo
represents a small investment of $10 -$50 that provides several hours of
entertainment with payouts that rival the average slot machine. Lottery players
seek much larger payouts with less time commitment, despite the infinitesimal
odds. Horse and dog racing bettors and casino patrons do enjoy comparable
entertainment value that bingo provides, but generally require longer commutes
to the gaming establishment as well as higher investments for the same period of
playing time. In addition, these other gaming venues do not provide the
socializing value that bingo provides. The Company also recognizes competition
from American Indian gaming establishments, which enjoy certain legal,
operational and tax advantages. The Company has no plans to compete in American
Indian gaming markets.
EMPLOYEES
As of March 29, 1996 the Company had seven permanent employees, including
four officers and three administrative staff. The Company also retains the
services of property managers who oversee operation of its Alabama and South
Carolina properties. No employee of the Company is represented by a labor union
or is subject to a collective bargaining agreement.
28
<PAGE>
GOVERNMENT REGULATION
Approximately 45 states and the District of Columbia have enacted laws
permitting and controlling the operation of bingo Centers. A small but growing
number of these states also allow video gaming in charity sponsored Centers.
The Company operates within this regulated structure as both landlord and
consultant to the charities. In most states the Company is required to obtain
and maintain permits and/or licenses from state and local regulatory agencies.
State regulations often limit the dollar amount that the Company can charge the
charity for rent per bingo session. Some states also limit the number of weekly
sessions that may be conducted in a given bingo Center, as well as the prize
money that a charity may pay out per session.
The Company views this situation as a "double-edged sword," however,
because the regulatory limitations and complexities discourage new competitors
that lack the Company's experience and charity relationships. However, there
can be no assurance that current laws and regulations will not be changed or
interpreted in such a way as to require the Company to further restrict its
activities or rentals, as occurred in Florida. It is also possible that
liberalization of such regulations is certain areas would diminish the Company's
competitive advantage. In states that limit the number of charity sessions, the
Company recruits sufficient local charities to ensure that the maximum number of
sessions are conducted.
All states providing for the operation of charity bingo Centers have unique
regulations. While the vast majority of these states assign the regulation of
charity bingo to a state agency, in some states, regulation is under the control
of localities or both state and local authorities. The requirements typically
imposed on a commercial bingo lessor include the acquisition of necessary
licenses and permits, a limit on the rental payments to be made by a charity to
the commercial lessor, and a prohibition against the lessor directly operating a
Center. The Company is thus prohibited from paying the wages of those employees
operating the Center as well as any marketing or advertising expenses for the
Center. The regulations against the direct operation and marketing of a bingo
Center by the Company reduce the Company's payroll and advertising costs for the
Center. Since the Company is allowed to act as a consultant, the Company can
advise in the selection of key employees and the creation and execution of the
Center's operating plan. It should be noted that under South Carolina law, the
Company is not prohibited from the direct staffing or marketing of its bingo and
gaming Center.
PROPERTIES
The Company's principal executive offices are located at 515 Congress
Avenue, Suite 1200, Austin, Texas, 78701, telephone (512) 472-2041. The Company
leases approximately 2,400 square feet for these offices pursuant to a lease in
Greg Wilson's name which runs through February 28, 1997. Except for the
Company's South Carolina facility, which the Company owns, its bingo Centers are
leased or subleased by its subsidiaries pursuant to the terms set forth below.
In some cases, increases in real estate taxes or operating expenses are passed
through to the Company, as well as insurance, common area maintenance and repair
expenses. Certain leases are guaranteed by the Company, its Chairman and a
former shareholder.
29
<PAGE>
CURRENTLY MONTHLY
LEASEHOLD EXPENSE
INCLUDING PASS
LEASE THROUGHS AND
PREMISES EXPIRATION OTHER CHARGES
- -------- ---------- -----------------
TEXAS CHARITIES, INC.
1919 E. Riverside Dr.(1) June 30, 2001 $12,635
Austin, TX
2410 E. Riverside Dr. February 28, 1999 $ 9,325
Austin, TX
SAN ANTONIO CHARITIES, INC.
3719 Blanco Rd. September 30, 2001 $ 7,598
San Antonio, TX
AMERICAN BINGO & GAMING CORP.
2901 N. 23rd Street April 19, 2002 $ 9,410
McAllen, TX
CHARITY BINGO OF TEXAS, INC.
1124 Central Blvd. December 14, 2000 $ 9,356
Brownsville, TX
BINGO-O-RAMA, INC.
Theodore Oaks Shopping Center September 15, 1997 $ 4,322
Theodore, AL
Village Square Shopping Center August 11, 1996 $ 1,325
Chickasaw, AL
4130-E and F, Government Blvd(1) June 30, 1997 $ 5,150
Mobile, AL
COLUMBIA ONE CORP. & MHJ CORP.
1470 Charleston Hwy. Company-owned -
West Columbia, SC
CHARITY BINGO, INC.
3660 East Atlanta Highway June 30, 1997 $ 4,800
Montgomery, AL
- ---------------
(1) Subleased premises. There can be no assurance that the Company's
interest in this Center will not be adversely affected upon a default by the
tenant under the prime lease or otherwise by a termination of the prime lease.
The Company has not received any notice alleging a default under the prime lease
nor has it obtained other knowledge of any such default.
30
<PAGE>
LITIGATION
FLORIDA
In July of 1995 the Company formed two subsidiaries and acquired a third for the
acquisition of interests in three bingo Centers in North Fort Myers, Bradenton
and Port Charlotte, Florida, respectively. On November 6, 1995 the Office of
the Attorney General of the State of Florida filed a civil complaint in the
Circuit Court for Manatee County, Florida against two of these subsidiaries and
an individual whose corporation provided certain management services for the
Centers. On November 9, 1995, the civil complaint was amended to name the
Company as a defendant. The complaint alleges that the bingo games conducted at
the three Centers failed to qualify as authorized bingo under the relevant
Florida statutes and violated the Florida Civil RICO Act. The Florida Attorney
General sought injunctive relief prohibiting the future conduct of illegal bingo
games and a money judgment in the amount of any illegally obtained funds. On
November 16, 1995, the temporary injunction issued by the Circuit Court for
Manatee Country against the conduct of bingo games at the Florida bingo Centers
in which the Company's subsidiaries had interests, and freezing funds
representing proceeds of bingo events, was dissolved. Those interests in the
Florida bingo halls were recently sold by the Company, including a Del Ray Beach
Center that was not involved in the litigation. An indictment was also issued
on October 25, 1995 against two of the Company's subsidiaries and the same
individual based on the same conduct that gave rise to the civil complaint. On
February 28, 1996, the Circuit Court for Manatee County entered an order
dismissing the civil complaint with prejudice. The State's subsequent motion
for clarification of this order was denied. On March 20, 1996, the Company's
motion to dismiss the criminal indictment was denied. This case is set for
trial on September 3, 1996.
TEXAS
On November 10, 1995, the Texas Lottery Commission ("TLC") served the Company
with Notice of Intent to Commence Proceedings to Suspend or Revoke and
Opportunity to Show Compliance with Law with respect to the Company's six
commercial bingo lessor licenses, including those covering two active bingo
Centers in Texas known as Blanco Ballroom in San Antonio and Paradise Bingo in
Austin. The TLC has alleged that the Company, through certain of its Texas
subsidiaries, has extended credit or loaned money to, paid approximately $50 of
license fees for, and charged variable rentals to authorized charitable
organization(s) in violation of Texas law. The TLC also alleged that the
Company advertised or promoted bingo, failed to submit required reports and
failed to pay taxes due, also in violation of Texas law.
Prior to the TLC's November 10, 1995 action, the Company had applied to the TLC
to amend the commercial bingo lessor's licenses held by certain subsidiaries in
order to use them at the Company's four recently developed bingo Centers in
McAllen and Brownsville, Texas. The notices served by TLC included Notices of
Denial with regard to the McAllen applications. Under Texas law, the Company
took an appeal from the denials to the Office of Administrative Appeals. After
a hearing on June 17, 1996 the Administrative Law Judge issued his Proposal for
Decision finding that the Company had not violated bingo regulations relating to
payment of charity license fees and recommending that the Company's McAllen
applications be granted. On July 2, 1996, the TLC staff filed objections to the
Administrative Law Judge's Proposal. The TLC has not yet acted on the proposal
or the staff objections. The Company has already successfully opened one of the
McAllen bingo Centers and is in the process of opening the other Centers by
leasing them to charity commercial lessor(s). If the TLC were to revoke the
Company's Texas commercial lessor licenses, the Company would continue to
operate its Centers
31
<PAGE>
by leasing them to non-profit commercial lessors or to unrelated for profit
commercial lessors which could potentially reduce the Company's Texas revenues,
although this could be mitigated by a greater transfer of expenses to charities.
A rule was adopted by the TLC on March 30, 1996 prohibiting more than one
bingo Center under a single roof. The Company promptly obtained a temporary
restraining order from the district court in Travis County, Texas, staying the
implementation of that rule, pending the Company's application for a temporary
injunction. A hearing on that application for a temporary injunction was held
on May 23, 1996. The court granted the relief sought by the Company and
enjoined the TLC from implementing the new rule, pending trial of the case
initiated by the Company.
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the names and ages of all directors and
officers of the Company and their positions in the Company.
Name Age Position
- ---- --- --------
Gregory Wilson 43 Chief executive officer, Chairman
of the Board of Directors
Courtland Logue 48 President, Director
Robert S. Hersch 29 Director
Len Bussey 50 Director
John Orton 33 Chief Financial Officer
Richard Henry 43 Secretary, Chief Operating Officer
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Officers serve at the discretion of the Board of Directors.
Gregory Wilson has served as the Company's Chief Executive Officer and
Chairman since the Company's formation and was president until February, 1996.
He has been involved with the operation of the Company's subsidiaries for more
than nine years. Prior to founding the Company, Mr. Wilson was a practicing
attorney for 16 years, maintaining a general law practice with emphasis on real
estate, municipal and charity law. He also served as City Attorney for the City
of Cedar Park, Texas. Mr. Wilson was an Assistant Attorney General of Texas
from 1979-81 before entering private practice. He graduated with honors from
Tulane University in 1975 and the University of Texas Law School in 1978. Mr.
Wilson devotes his full time efforts to the Company.
32
<PAGE>
Courtland Logue, Jr. has served as a director of the Company since January,
1996 and as President since February, 1996. Prior to joining the Company,
Mr. Logue served as Chairman of EZCORP., Inc., a NASDAQ Company, from July,
1994 until February, 1995, and as Chief Executive Officer, President and a
director of EZCORP from July, 1989 until July, 1994. EZCORP. is the second
largest public pawn shop chain in the United States with over 200 stores.
Between 1974 and the time he founded EZCORP., Mr. Logue served as Chief
Executive Officer, President and a director of most of the entities that were
consolidated to form EZCORP. Mr. Logue served as a director of Crescent
Jewelers, a regional jewelry store chain, from September, 1989 to November,
1991. Additionally, Mr. Logue served as alderman of the City of Rollingwood,
Texas from 1983 to 1988 and as Mayor from 1988 to 1994. Mr. Logue graduated
from the University of Texas in 1969.
Robert Hersch has served as a director of the Company since its formation.
Mr. Hersch also served as Executive Vice President and Secretary of the Company
from its formation through February, 1996. He is presently a Consultant to
the Company, having recently resigned as an officer and full-time employee to
divide his time between his responsibilities to the Company and other pursuits.
Between June, 1993 and the formation of the Company, Mr. Hersch served as an
advisor to the entities that were consolidated to form the Company. From
November, 1991 until June, 1993, Mr. Hersch served as marketing director of
Roband Media and Financial, a marketing consulting firm. From December, 1988
until August, 1991, Mr. Hersch was President and sole stockholder of Summer
Services, Ltd., a media buying and marketing consulting firm. From January,
1988 to December, 1988, Mr. Hersch was media director of Inventory Merchandise
Systems, a firm engaged in domestic and international barter transactions. Mr.
Hersch attended the University of Texas.
Len Bussey has served as a director of the Company since April, 1995.
Mr. Bussey is Director of Government and Regulatory Relations for GTE
Information Services in Dallas, Texas. Prior to joining GTE, Mr. Bussey served
in various senior management capacities in the telecommunications industry with
Southwestern Bell, Claydesta Communications and Lomas Telemarketing. Mr. Bussey
graduated from the University of Texas in 1967, and is the brother-in-law of Mr.
Greg Wilson, Chairman and Chief Executive Officer.
John Orton has served as Chief Financial Officer of the Company since
February, 1995. Prior to joining the Company, Mr. Orton served in various
senior financial management capacities for First National Entertainment, a
public family entertainment concern; XeTel Corp., a public electronics
manufacturing concern; Dell Computer, a public computer manufacturing concern;
Ericsson, a public telecommunications manufacturing concern; and Arthur Anderson
& Co., an accounting and consulting firm. Mr. Orton holds both Bachelors and
Masters of Business Administration degrees in Finance, with Honors, from the
University of Texas, and is a Certified Public Accountant.
Richard Henry, Corporate Secretary, has served as Chief Operating Officer
of the Company since July, 1995. From 1979 to the time he joined the Company,
Mr. Henry served as Vice President-Administration, Project Director and General
Counsel of Radco Inc., a petrochemical engineering firm. Prior to 1979, Mr.
Henry served as a practicing attorney with the firm Schuman, Milsten & Jackson
in Tulsa, Oklahoma. Mr. Henry received his undergraduate degree from Tulane
University in 1974 and graduated with a law degree from Tulsa University School
of Law in 1977. Mr. Henry is a member of the Oklahoma Bar Association.
33
<PAGE>
EXECUTIVE COMPENSATION
The following table indicates the amount of annual compensation received by
the Company's officers. No employees of the Company received total annual
salary and/or bonuses for any of the last two fiscal years in excess of
$100,000, except as disclosed below:
SUMMARY COMPENSATION TABLE FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993
ANNUAL COMPENSATION AWARDS PAYOUTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Principal Year Compensation Bonus $ Other Annual Restricted Options/ LTIP All Other
Position Ended Salary $ Compensation $ Stock Awards $ SARS Pay-outs Compensation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory Wilson, 1995 170,000 75,000(a) ------ --------- ----- None None
Chief Executive 1994 51,250 ------ 79,000(c) 1,477,085(b) ----- ---- ----
Officer, President 1993 316,204 ------ ------ --------- ----- None None
- ----------------------------------------------------------------------------------------------------------------------------------
Robert Hersch, Exec. 1995 72,000 37,500(d) ------ --------- 100,000(e) None None
Vice President 1994 23,000 ------ ------ 212,500(f) 85,000(f) None None
Secretary, Director
- ----------------------------------------------------------------------------------------------------------------------------------
John Orton, Chief 1995 60,000 ------ ------ --------- 100,000(e) None None
Financial Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Richard Henry, Chief 1995 34,550 ------ ------ --------- 100,000(g) None None
Operating Officer
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes 100,000 redeemable Common Stock Purchase Warrants granted, valued
at $.85 each, with a $.10 purchase price.
(b) Includes 590,834 shares issued as Founder's stock. These shares were
assigned a value of $2.50 per share.
(c) Represents compensation paid for management fees through the Company's
operating subsidiaries.
34
<PAGE>
(d) Includes 50,000 redeemable Common Stock Purchase Warrants granted, valued
at $.85 each, with a $.10 purchase price.
(e) Represents stock options granted under the Company's 1994 Employee Stock
Option Plan.
(f) Includes 85,000 shares issued as Founder's Stock. These shares were
assigned a value of $2.50 per share.
(g) Represents stock options granted under the Company's 1994 and 1995 Stock
Option Plan.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Following the Company's public offering which was completed in December
1994, the Company entered into employment agreements with Messrs. Wilson and
Hersch. Both agreements provided for three-year terms and included annual
compensation for Mr. Wilson of approximately $175,000 and for Mr. Hersch of
approximately $72,000, plus certain benefits including health insurance and life
insurance. On or about February 20, 1995 the Company entered into a three-year
employment agreement with John Orton providing for an annual salary of $70,000,
and effective July 10, 1985 the Company entered into a three-year employment
agreement with Richard Henry, providing for an annual salary of $70,000, plus
benefits.
The Company has not entered into an employment agreement with the
President, Courtland Logue, however while Mr. Logue receives no salary, he has
received health insurance, the use of an automobile and for each month he has
served as president, 10,416.67 stock options for the purchase of shares of the
Company's Common Stock. In March, 1996, Robert Hersch resigned as an officer
and agreed to continue as a paid consultant to the Company through August 30,
1997. He will continue on the Company's health insurance plan and will continue
to have the use of a leased automobile at Company expense up to the Effective
Date of this Registration Statement. Mr. Hersch will receive 100,000 stock
options to which he is entitled under the Company's Employee Stock Option Plan.
Commencing with the Company's 1995 fiscal year and in each additional year
of employment, the Orton and Henry agreements provide for a Bonus Pool
consisting of 2% of the Company's net operating income as reported on its
certified financial statements in the year in question, provided that the
Company reports net operating income of $2,000,000 or greater in any such year.
The maximum Bonus Pool shall not exceed $400,000. Participants include
employees earning more than $60,000 per year, although the Board of Directors by
unanimous vote may allow any other employee to participate.
35
<PAGE>
STOCK OPTION PLAN
In 1994, 1995 and 1996, respectively the Company adopted stock option plans
(the "Plan"). The Plan permits the granting of awards to employees,
professionals and consultants of the Company, in the form of stock appreciation
rights, restricted stock, cost stock rewards and/or stock options. Stock
options granted under the Plan may be "incentive stock options" meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which do not meet the requirements of
Section 422. In no event will options to purchase shares of common stock be
exercisable at less than 100% of the fair market value of the common stock on
the date of the grant of the option. In 1994 a maximum of 250,000 shares of the
Company's Common Stock was reserved for issuance pursuant to awards granted
under the plan, and in 1995 and 1996, respectively, the plan provided for
issuance of up to 500,000 shares. Options granted to date are as shown on the
above Summary Compensation Table. Stock Options granted to date pursuant to the
Company's 1994 and 1995 Employee Stock Option Plans are priced according to a
formula which allows employees to exercise their options at the lower of fair
market value or $4, $5 or $6 per share at the options' vesting dates in 1996,
1997 or 1998.
The Plan is administered by the Board of Directors. The Plan gives broad
powers to the Board or any committee thereof to administer and interpret the
Plan, including the authority to select the individuals to be granted options
and rights, and to prescribe the particular form and conditions of each option
or right granted, subject to specific provisions contained in the various
employment agreements.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, the Company's Articles
of Incorporation and the Company's Bylaws contain provisions for indemnification
of officers, directors, employees and agents of the Company. The Company's
Bylaws require the Company to indemnify such persons to the full extent
permitted by Delaware law. Each person will be indemnified in any proceeding if
he acted in good faith and in a manner which he reasonably believed to be in, or
not opposed to the best interests of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement.
The Company's Bylaws also provide that the Board of Directors may cause the
Company to purchase and maintain insurance on behalf of any present or past
director or officer insuring against any liability asserted against such person
incurred in the capacity of director or officer or arising out of such status,
whether or not the Company would have the power to indemnify such person. No
such insurance policies have been purchased.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
36
<PAGE>
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such court.
DIRECTORS' COMPENSATION
Non-employee directors of the Company are reimbursed for their expenses
incurred and may receive compensation for each meeting of the Board of Directors
attended and for each telephonic meeting of the Board of Directors in which he
or she participates. Courtland Logue will be entitled to certain options to
purchase the Company's Common Stock in return for services as a director. His
right to compensation as a director may be superseded by an employment
agreement covering his role as president, which is currently being negotiated.
37
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 31, 1996, the number of shares
of the Company's Common Stock owned and the percentage of outstanding shares
held by (i) owners of more than 5% of the outstanding voting stock of the
Corporation, (ii) each director of the Corporation, and (iii) all officers and
directors of the Company as a group. Each person named in the table has sole
investment power and sole voting power with respect to the shares of voting
securities set opposite his name, except as otherwise indicated.
Number of Shares Acquirable
Name and Address of Beneficially Within Percent
Beneficial Owner Owned (1) 60 Days (2) of Class
- ------------------- ---------------- ----------- --------
Gregory Wilson 1,759,167(3) 43.0%
American Bingo & Gaming Corp.
515 Congress Ave., Suite 1200
Austin, Texas 78701
Courtland Logue Jr. - 41,666 1.0%
American Bingo & Gaming Corp.
515 Congress Ave., Suite 1200
Austin, Texas 78701
Robert Hersch 210,833(4) 42,361 6.2%
American Bingo & Gaming Corp.
515 Congress Ave., Suite 1200
Austin, Texas 78701
Len Bussey 300,000(5) 7.3%
3905 Asbury Lane
Bedford, Texas
Current Officers and 2,270,000 168,749 59.6%
Directors as a group
(Six persons)
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except where indicated, and subject to
community property laws where applicable, the persons in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Shares of Common stock subject to options currently exercisable or
exercisable within 60 days of March 31, 1996 are deemed outstanding for proposes
of computing the percentage ownership of the person holding such option but are
not deemed outstanding for purposes of computing the percentage ownership of any
other person. Does not include 100,000 Warrants issued to Mr. Wilson or 50,000
Warrants issued to Mr. Hersch in December 1995.
38
<PAGE>
(3) Includes 560,417 shares held by Mrs. Sally Wilson, the wife of Mr. Wilson;
200,000 shares held by Mrs. Linda Bussey, the wife of Mr. Len Bussey and sister
of Mr. Wilson; 100,000 shares held by the Linda Bussey Irrevocable Trust, of
which Mrs. Bussey is trustee for the benefit of Mr. Wilson's minor children;
145,416 shares held in the Wilson Family Trust, of which Mr. Wilson is trustee
for the benefit of Mr. Wilson's mother, Barbara Wilson; and 84,523 shares held
individually by Mrs. Barbara Wilson. Mr. Wilson disclaims beneficial ownership
of all such shares.
(4) Includes 125,833 shares owned by R&R Tortola Company, Ltd., an entity
controlled by Mr. Hersch.
(5) Includes 200,000 shares held by Mrs. Linda Bussey, the wife of Mr. Len
Bussey and sister of Mr. Wilson, and 100,000 shares held by the Linda Bussey
Irrevocable Trust, of which Mrs. Linda Bussey is trustee for the benefit of Mr.
Wilson's minor children. Mr. Bussey disclaims beneficial ownership of all such
shares.
39
<PAGE>
RESALES BY SELLING SECURITY HOLDERS
This Prospectus relates to the proposed resale by the Selling
Security Holders of up to 617,500 shares of outstanding Common Stock as well as
the resale of up to 1,005,000 Warrants and the Common Stock issuable upon
exercise of the Warrants. The following table sets forth certain information
with respect to the persons for whom the Company is registering the shares and
Warrants, except as footnoted below. None of such persons has had a material
relationship with, or has held any position or office with the Company or any of
its affiliates within three years, other than as footnoted below (also see
"Certain Transactions"). The Company will not receive any of the proceeds from
the sale of the shares, and will receive a maximum of $5,025,000 if all Warrants
registered hereby are exercised.
COMMON STOCK
Names of Selling No. of Shares Beneficially No. of Shares Offered for
Security Holders Owned Before this Offering Account of Beneficial Owner
- ---------------- -------------------------- ---------------------------
Gregory Wilson 1 1,759,167 300,000
Barbara Wilson 84,523 75,000
Wilson Family Trust 145,416 25,000
R&R Tortola 125,833 50,000
Company, Ltd. 2
Robert Hersch 85,000 50,000
Ronald McCann 30,000 30,000
Jerome O'Brien 15,000 15,000
Daniel Sheridan 15,000 15,000
Kip Hix 4 35,000 35,000
Robert Blessey 5,000 5,000
Silverman, Collura
& Chernis, P.C. 5 7,500 7,500
Ignazio Posadino 3 10,000 10,000
- ---------------
1) Chief Executive Officer of the Company.
2) Owned beneficially by Robert Hersch, formerly Vice-President and Secretary
and presently serving as a consultant to the Company.
3) Mr. Posadino has agreed with the Company that he will not sell or otherwise
dispose of his shares prior to September 1, 1996.
4) Kip Hix has agreed with the Company that she will not sell or otherwise
dispose of 15,000 of her shares prior to February 1, 1997.
5) Presently Special Securities Counsel to the Company.
40
<PAGE>
WARRANTS
No. of Warrants No. of Warrants
Names of Selling Beneficially Owned Offered for Account
Security Holders Before this Offering of Beneficial Owner
- ---------------- -------------------- -------------------
Investors Associates, Inc. 3 550,000 550,000
Howard Bronson 4 75,000 75,000
Robert Hersch 2 50,000 50,000
Greg Wilson 1 100,000 100,000
Kraige Polan 5 25,000 25,000
Minton, Burton, Foster 175,000 175,000
& Collins, P.C.
Silverman, Collura
& Chernis, P.C. 6 30,000 30,000
- ---------------
1) Chief Executive Officer and Board Chairman of the Company.
2) Owned beneficially by Robert Hersch who was Executive Vice President and
Secretary since the formation of the Company and presently serves as a
consultant and a director.
3) The Company's Representative in its Initial Public Offering, and has since
acted as its investment banker.
4) Principal of Howard Bronson Associates which provides financial public
relations services to the Company. Mr. Bronson has agreed to a lockup agreement
with the Company with respect to his Warrants, pursuant to which 6,250 Warrants
will be released from lockup each month for twelve months following the
effective date.
5) These Warrants were issued for work done relating to the Company's Texas
regulatory dispute. Mr. Polan has agreed with the Company that he may not
sell his Warrants prior to December 31, 1996.
6) Presently Special Securities Counsel to the Company.
41
<PAGE>
The Selling Security Holders may effect transactions by selling the Shares,
or Warrants, as applicable, directly to purchasers or to or through broker-
dealers which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders, and/or the purchasers of their Shares, as applicable,
for which such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions). The Selling Security Holders and any
broker-dealers that act in connection with the sale of their Shares might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act.
The Company has notified the Selling Security Holders of the prospectus
delivery requirements for sales made pursuant to this Prospectus and that, if
there are material changes to the stated plan of distribution, a post-effective
amendment with current information would need to be filed before offers are made
and no sales could occur until such amendment is declared effective.
42
<PAGE>
CERTAIN TRANSACTIONS
Upon formation of the Company in September, 1994, the Company issued an
aggregate of 590,834 shares of Common Stock to Gregory Wilson in consideration
of Mr. Wilson's payment of $.001 per share. Subsequently, the Company issued an
aggregate of 1,397,499 shares of Common Stock to 16 individuals and/or entities,
in consideration of payment of $.001 per share including Mr. Hersch (85,000
shares) and Diversified Investors Capital Services of America, Ltd
("Diversified") and its designees (523,333 shares). Diversified's shares were
originally issuable to Mr. Wilson who directed their issuance to Diversified and
its designees in consideration of services performed by Diversified including
(i) the review and analysis of acquisition candidates; (ii) assisting the
Company in structuring and negotiating acquisitions; (iii) assisting in the
preparation, review and formulation of the Company's business plan and financing
strategies; and (iv) various marketing and financial services. Following
completion of the Company's Initial Public Offering, Diversified was a paid
financial consultant to the Company, but that relationship was discontinued
because the Company no longer required the services of Diversified.
In September 1994 Mr. Wilson acquired an 80% interest in a start-up bingo
Center in Pell City, Alabama ("Pell City Center"). The Pell City Center
commenced operations in September 1994. In November 1994 Mr. Wilson transferred
his 80% interest in the Pell City Center to the Company for nominal
consideration. The Company then funded certain start-up expenses of
approximately $40,000 and later closed the Pell City Center in July, 1995.
During 1994, Elan Custom Homes, Inc. ("Elan"), a company engaged in real
estate investment and construction, received an aggregate of $83,000 from
subsidiaries of the Company for construction and consulting services rendered
to such subsidiaries. Elan is wholly owned by Mr. Wilson.
In December, 1995, the Company issued 100,000 Warrants to Greg Wilson and
50,000 Warrants to Robert Hersch. Each Warrant entitles the holder to purchase
one share of Common Stock at an exercise price of $5.00 per share through
December 14, 1998. The total of 150,000 Warrants so issued to Messrs. Wilson
and Hersch are being registered hereby.
CHARITY BINGO, INC. ("CBI")
During 1992, CBI received loans from Mr. Wilson, payable on demand, in the
amount of $98,600. During the same year Mr. Wilson received $9,100 in loan
repayments. In 1993, CBI received loans from Mr. Wilson, payable on demand, in
the amount of $28,500. In 1994 an adjustment of imputed interest in the amount
of $5,160 was made to the loans resulting in a total loan balance payable to Mr.
Wilson of $123,160. The loan was repaid in full on October 25, 1994.
In October 1994, the Company acquired all of the issued and outstanding
shares of stock of CBI from Mr. Wilson in exchange for 300,000 shares of Common
Stock.
43
<PAGE>
TEXAS CHARITIES, INC. ("TCI")
As of January, 1992, TCI had received loans, payable on demand, from Reid
Funderburk (then an officer, director and shareholder of TCI and presently a
shareholder of the Company), in the aggregate amount of $64,868. On December
31, 1992 the loan was reduced by $56,068. On December 31, 1993, TCI received a
loan, payable on demand, from Mr. Funderburk in the amount of $20,600. On
January 1, 1994, TCI, with the consent of Mr. Funderburk, converted the loan
balance of $29,400 to equity in TCI.
As of January, 1992, TCI had received loans, payable on demand, from Mr.
Wilson in the amount of $127,941. On December 31, 1992, TCI repaid Mr. Wilson
$104,342. On January 1, 1994, with the consent of Mr. Wilson, TCI converted Mr.
Wilson's loan balance of $23,599 to equity in TCI. In October, 1994 the Company
acquired all of the issued and outstanding shares of TCI from Messrs. Wilson and
Funderburk and from the Linda Bussey Irrevocable Trust in exchange for 120,000
shares of Common Stock.
SAN ANTONIO CHARITIES, INC. ("SAC")
On December 31, 1992, SAC received a loan from Mr. Funderburk (then an
officer, director and shareholder of SAC), payable on demand, in the amount of
$35,171. On the same date SAC received a loan from Mr. Wilson, payable on
demand, in the amount of $70,341. On January 31, 1994 both loans were converted
to equity in SAC with the consent of Messrs. Funderburk and Wilson.
In October 1994 the Company acquired all of the issued and outstanding
shares of SAC from Messrs. Wilson and Funderburk and from the Linda Bussey
Irrevocable Trust, in exchange for 330,000 shares of Common Stock.
BING-O-RAMA, INC. ("BRI")
In March, 1992, BRI merged with Sunland Investments, Inc. ("Sunland"), a
corporation controlled by Mr. Wilson through an exchange of stocks, treated for
financial reporting purposes as a pooling of interests with BRI as the surviving
Company. As both Sunland and BRI were operating Alabama bingo entertainment
Centers, the merger was effectuated for purposes of efficiency. Prior to the
merger, Sunland had received demand loans from Mr. Wilson in the amount of
$56,025 and from Ronald McCann, in the amount of $50,210. Upon the merger,
these loans were assumed by BRI.
On January 1, 1992 BRI received loans, payable on demand, in the amounts of
$100,000 from Mr. Wilson and $50,000 from Mr. McCann. These transactions
resulted in total demand loans payable to Mr. Wilson of $156,025 and a total of
$100,210 payable to Mr. McCann. During the course of 1993, BRI made payments on
the loans totaling $46,950 to Mr. Wilson and $20,000 to Mr. McCann. In
December, 1993 BRI received additional demand loans from Messrs. McCann and
Wilson in the amounts of $26,500 and $53,000, respectively. In the same month
BRI made repayments to Mr. McCann in the amount of $12,108 and to Mr. Wilson in
the amount of $24,722.
44
<PAGE>
In May, 1994, with the consent of Mr. McCann, BRI converted Mr. McCann's
outstanding loan balance of $94,602 to equity in BRI. On the same date, with
the consent of Mr. Wilson, BRI converted $62,342 of Mr. Wilson's loan balance to
equity in BRI satisfying the debt to Mr. McCann and reducing to $75,011 the
loans payable to Mr. Wilson. The balance of the loan was repaid to Mr. Wilson
on October 25, 1994.
In 1994 the Company acquired 100% of the issued and outstanding common
stock of BRI from Messrs. Wilson and McCann, Daniel Sheridan and Jerome O'Brien,
in exchange for an aggregate of 120,000 shares of Common Stock.
45
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.001
par value, and 1,000,000 shares of Preferred Stock, $.01 par value. As of the
date of this Prospectus the Company had 4,108,394 shares of Common Stock and no
shares of Preferred Stock outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted upon by the Company's stockholders. Stockholders do not
have cumulative voting rights in the election of directors. Subject to
preferences that may be applicable to any shares of Preferred Stock, the holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid, and does not presently intend to
pay, dividends on its Common Stock. In the event of a liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets, remaining after payment of liabilities, subject to prior
distribution rights of holders of Preferred Stock, if any, then outstanding.
The Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. All outstanding shares of Common Stock are validly authorized and
issued and are fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of undesignated
Preferred Stock. The Board of Directors will have the authority to issue the
undesignated Preferred Stock from time to time in one or more series and to
establish the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued shares of undesignated Preferred Stock and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by the stockholders. Any future issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
At present, the Company has no plans to issue any Preferred Stock. The Company
has agreed that it will not issue Preferred Stock to the Company's officers,
directors or shareholders owning 5% or more of the outstanding Common Stock
during the first five-year period following completion of its initial public
offering on December 14, 1994 without the prior consent of the Representative.
BRIDGE WARRANTS
Each of the nine Warrants issued by the Company in its Bridge Financing in
late 1994 (the "Bridge Warrants") entitles the holder thereof to purchase 22,500
shares of Common Stock per full Bridge Unit purchased at an exercise price of
$5.00 per share and expires at the close of business on the fourth anniversary
of the December 14, 1994 Effective Date of the Company's Initial Public
Offering. The Bridge Warrants contain provisions that protect the Bridge
Investors against dilution by adjustment of the exercise price in certain events
including, but not limited to, stock dividends, stock splits, reclassification
or mergers. A Bridge Investor
46
<PAGE>
does not possess any rights as a shareholder of the Company. The shares of
Common Stock, when issued upon the exercise of the Bridge Warrants in accordance
with the terms thereof, will be fully paid and non-assessable.
The Company may redeem the Bridge Warrants (with the Representative's prior
consent) at a price of $.001 per Bridge Warrant at any time commencing
six months after the December 14, 1994 Effective Date of the Company's Initial
Public Offering upon 30 days' prior written notice if the average closing bid
quotation of the Common Stock has been at least $8.00 over the 20 consecutive
trading days ending on the third day prior to the day on which notice of
redemption is given.
The Company has issued nine Bridge Warrants entitling the holders to
purchase a total of 337,500 shares of Common Stock and has reserved an
equivalent number of shares of Common Stock for issuance upon exercise of such
Bridge Warrants. No fractional shares will be issued upon the exercise of the
Bridge Warrants. The Company will pay cash in lieu of fractional shares.
In connection with its Initial Public Offering, the Company registered the
Bridge Warrants on behalf of the Bridge Investors. Each Bridge investor signed
a "lock-up" agreement with the Representative whereby no sales of the Bridge
Warrants or underlying shares could be made for 18 months without the
Representative's consent. The lockup agreements expired on June 14, 1996,
although the Representative has consented to prior sales in isolated instances.
WARRANTS
The Warrants are governed by and subject to the terms of a warrant
agreement (the "Warrant Agreement") between the Company and American Stock
Transfer & Trust Company, as warrant agent (the "Warrant Agent"). The following
statements are brief summaries of certain provisions of the Warrant Agreement.
Copies of the Warrant Agreement may be obtained from the Company or the Warrant
Agent and have been filed with the Commission as an exhibit to the Registration
Statement relating to the Company's Initial Public Offering. See "Additional
Information."
The Company originally authorized the issuance of Warrants to purchase a
maximum of 1,725,000 shares of Common Stock and reserved an equivalent number of
shares of Common Stock for issuance upon exercise of such Warrants. In
December, 1995, the board of directors authorized the issuance of an additional
1,005,000 Warrants which are registered hereby on behalf of Selling Security
Holders.
The Company may redeem the Warrants (with the Representative's prior
consent) at a price of $.001 per Warrant at any time upon 20 days prior
written notice if the average closing bid quotation of the Common Stock on
NASDAQ has been at least $8.00 during the 20 consecutive trading days ending
on the third day prior to the day on which notice of redemption is given.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $5.00 per share until December 14, 1998. The right to
exercise the Warrants will terminate at the close of business on that date. The
Warrants contain provisions that protect the holders thereof against dilution by
adjustment of the exercise price in certain events including but not limited to,
stock dividends, stock splits, reclassification or mergers. The ownership of
47
<PAGE>
a Warrant will not grant its holder any rights as a shareholder of the Company.
The shares of Common Stock, when issued upon the exercise of the Warrants in
accordance with the terms thereof, will be fully paid and non-assessable.
At any time when the Warrants are exercisable, the Company is required to
have a current registration statement on file with the Commission and to effect
appropriate qualifications under the laws and regulations of the states in which
the holders of Warrants reside in order to comply with applicable laws in
connection with the exercise of the Warrants and the resale of the Common Stock
issued upon such exercise. So long as the Warrants are outstanding, the Company
has undertaken to file all post-effective amendments to the Registration
Statement required to be filed under the Securities Act, and to take appropriate
action under federal and state securities laws to permit the issuance and resale
of Common Stock issuable upon exercise of the Warrants. However, there can be
no assurance that the Company will be in a position to effect such action under
the federal and applicable state securities laws, and the failure of the Company
to effect such action may cause the exercise to become unlawful. The Company
may amend the terms of the Warrants but only by extending the termination date
or lowering the exercise price thereof. The Company has no present intention of
amending such terms.
REPRESENTATIVE'S OPTION
The Company sold to the Representative upon the closing of the Initial
Public Offering, for $100, an option (the "Representative's Option") to purchase
a maximum of 100,000 shares of Common Stock and 150,000 Warrants. The Common
Stock and the Warrants sold to the Representative were the same as the Common
Stock and the Warrants offered to the public at that time except that they have
purchase prices of $6.00 per share of Common Stock and $.12 per Warrant) or 120%
of the respective offering prices applicable to the Company's Initial Public
Offering. The Representative's Option is exercisable for a 36-month period
commencing one year from its date of issuance. The exercise price and number of
shares of Common Stock and Warrants purchasable will be subject to customary
anti-dilution provisions. The holders of the Representative's Option will have
certain registration rights with respect to the Common Stock and the Warrants
issuable upon exercise of the Representative's Option.
STOCKHOLDER ACTION
Pursuant to the Company's Articles of Incorporation, with respect to any
act or action required of or by the holders of the Common Stock, the affirmative
vote of the holders of a majority of the issued and outstanding Common Stock
entitled to vote thereon is sufficient to authorize, affirm, ratify or consent
to such act or action, except as otherwise provided by law.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued capital stock consists of 1,000,000
shares of Preferred Stock and 15,891,606 shares of Common Stock. One of the
effects of the existence of authorized but unissued capital stock may be to
enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby to protect the continuity of the
Company's management. If in the due exercise of its fiduciary obligations, for
example, the Board of Directors were to determine that a takeover proposal was
not in the Company's best interests, such shares could be issued by the Board of
Directors without stockholder approval in one or
48
<PAGE>
more private placements or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquiror or insurgent stockholder or
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent Board
of Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise. In this regard, the Company's Articles of Incorporation
grant the Board of Directors broad power to establish the rights and preferences
of the authorized and unissued Preferred Stock, one or more series of which
could be issued entitling holders to vote separately as a class on any proposed
merger or share exchange, to convert Preferred Stock into a large number of
shares of Common Stock or other securities, to demand redemption at a specified
price under prescribed circumstances related to a change in control, or to
exercise other rights designed to impede a takeover.
CERTAIN CHARTER AND BYLAWS PROVISIONS
Limitation of Liability
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws limit the liability of directors and officers to the maximum
extent permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, including gross negligence, except
liability for (i) breach of the directors' duty of loyalty; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) the unlawful payment of a dividend or unlawful stock
purchase or redemption, and (iv) any transaction from which the director derives
an improper personal benefit. Delaware law does not permit a corporation to
eliminate a director's duty of care, and this provision of the Company's Amended
and Restated Certificate of Incorporation has no effect on the availability of
equitable remedies, such as injunction or rescission, based upon a director's
breach of the duty of care.
The Company is planning to enter into indemnification agreements with each
of its current and future directors and officers which provide for
indemnification of, and advancing of expenses to, such persons to the greatest
extent permitted by Delaware law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and the
advancing of expenses are discretionary under Delaware law. The Company
believes that the limitation of liability provision in its Amended and Restated
Certificate of Incorporation, its Amended and Restated Bylaws and the
indemnification agreements will facilitate the Company's ability to continue to
attract and retain qualified individuals to serve as directors of the Company.
The Company's Amended and Restated Certificate of Incorporation authorizes
the Company to purchase and maintain insurance for the purposes of
indemnification. The Company intends to apply for directors' and officers'
insurance, although there can be no assurance that the Company will be able to
obtain such insurance on reasonable terms, or at all. At present, there is no
pending litigation or proceeding involving any director, officer, employee or
agent for which indemnification will be required or permitted under the
Company's Amended and Restated Certificate of Incorporation, Amended and
Restated Bylaws or indemnification agreements. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
49
<PAGE>
CORPORATION TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during t he previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
STOCKHOLDER MEETINGS AND OTHER PROVISIONS
Under the Amended and Restated By-laws, special meetings of the
stockholders of the Company may be called only by a majority of the members of
the Board of Directors or, the Chairman. Stockholders are required to comply
with certain advance notice provisions with respect to any nominations of
candidates for election to the Company's Board of Directors or other proposals
submitted for stockholder vote. The Company's Amended and Restated Certificate
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of the Company. The Company's most recent Annual Meeting was held on
April 29, 1996 in Austin, Texas.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street,
46th Floor, New York, NY 10005-1303.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of its initial public offering the Company had outstanding
4,083,333 shares of Common Stock. Of these shares, the 1,000,000 shares sold in
that offering are freely tradeable without restriction or further registration
under the Securities Act except for any shares purchased by an "affiliate" of
the Company, which will be subject to the limitations of Rule 144 promulgated
under the Securities Act ("Rule 144"). There are currently 4,108,394 shares
outstanding, of which 1,617,500 are freely tradable.
Following the Initial Public Offering, Mr. Wilson agreed with the
Representative not to publicly sell any of his shares of Common Stock for a
period of 18 months following the Effective Date, without the prior
written consent of the Representative. That agreement expired on June 14, 1996.
Thereafter, such Common Stock may not be sold unless it is registered under the
Securities Act or is sold pursuant to an applicable exemption from registration,
inducing an exemption pursuant to Rule 144. Mr. Wilson is registering 300,000
of his shares hereby.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of Common Stock
for at least two years, including persons who are "affiliates" of the Company,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock of the Company or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding a sale by such person. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. Under Rule 144, however, a person who has held shares of Common Stock
for a minimum of three years and who is not, and for the three months prior to
the sale of such shares has not been, an affiliate of the company is free to
sell such shares without regard to the volume, manner-of-sale and certain other
limitations contained in Rule 144.
REGISTRATION RIGHTS
The Representative's Option contains a "demand" right to require on any one
occasion after 1995, that the Company file a registration statement with respect
to the Warrants and/or Common Stock (including Common Stock issued upon exercise
of such Warrants) issued upon exercise of the Representative's Option (the
"Registrable Securities") in order to effect a public offering thereof, and
certain "piggyback" rights to require the registration of such Common Stock on
certain registration statements filed by the Company with the Commission. Such
registration rights may be transferred to any subsequent holder of the
Registrable Securities. Holders of Registrable Securities may exercise their
demand registration right with respect to all or part of their Registrable
Securities provided, in either case, that the holders demanding registration
represent not less than a majority of the Registrable Securities then
outstanding. The Company has agreed to pay all expenses with respect to
registration pursuant to the registration demand right described above.
51
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this Registration Statement are
being passed upon for the Company by Silverman, Collura & Chernis , P.C., 381
Park Avenue South, Suite 1601, New York, New York 10016. That firm owns 7,500
shares of the Company's Common Stock, and 30,000 Warrants, which shares and
Warrants are being registered hereby.
EXPERTS
The financial statements included in this Registration Statement have been
examined by Weinick, Sanders & Co. LLP, Independent Certified Public
Accountants, as set forth in its report appearing elsewhere herein, and are
included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
52
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
MARCH 31, 1996
I N D E X
Page No.
--------
INDEPENDENT ACCOUNTANTS' REPORT . . . . . . . . . . . . . . . . F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and December 31, 1995 . . . . F-3
Consolidated Statements of Operations
For the Three Months Ended March 31, 1996 and 1995
(Unaudited) and for the Years Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 1996 and 1995
(Unaudited) and for the Years Ended December 31, 1994
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited) and for the Years Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . F-8 - F-24
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
American Bingo & Gaming Corp.
We have audited the accompanying consolidated balance sheet of American
Bingo & Gaming Corp. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the years ended December 31, 1995 and 1994,
in conformity with generally accepted accounting principles.
New York, N. Y.
February 18, 1996
(Except for Notes 11(b) and 14 as to
which the dates are March 20, 1996
and March 29, 1996, respectively)
F-2
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
March 31, December 31,
1996 1995
--------- ------------
(Unaudited-
Note 15)
Current assets:
Cash and cash equivalents (Note 1) $ 583,078 $ 431,087
Accounts receivable (Note 3) 80,034 151,547
Sundry receivables (Note 4) 31,688 45,568
Notes receivable - current portion -
net of allowance for doubtful accounts
(Notes 1 and 6) 337,776 336,496
Prepaid expenses 64,000 50,000
---------- ----------
Total current assets 1,096,576 1,014,698
---------- ----------
Property and equipment - at cost,
net of accumulated depreciation and
amortization (Notes 1 and 5) 2,054,020 2,031,036
Other assets:
Notes receivable, net of allowance for
doubtful accounts (Notes 1 and 6) 800,644 888,479
Intangible assets, net of accumulated
amortization (Notes 1 and 7) 408,052 432,699
Security deposits 44,259 44,259
---------- ----------
Total other assets 1,252,955 1,365,437
---------- ----------
$4,403,551 $4,411,171
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,664 $ 117,304
Notes payable - current portion
(Notes 2 and 10) 343,852 286,338
Accrued expenses and other current
liabilities (Note 9) 405,467 534,221
---------- ----------
Total current liabilities 829,983 937,863
---------- ----------
Notes payable - net of current portion
(Notes 2 and 10) 71,328 138,742
Liability for acquisition (Notes 2 and 8) 450,000 450,000
Commitments and contingencies (Note 11) - -
Stockholders' equity (Notes 2 and 12):
Preferred stock - $.01 par value
Authorized and unissued - 1,000,000 shares
Common stock - $.001 par value
Authorized - 20,000,000 shares
Issued and outstanding - 4,093,333 shares 4,093 4,093
Additional paid-in capital 9,964,926 9,964,926
Additional paid-in capital - warrants 1,026,750 1,026,750
Subscription notes receivable ( 100,500) ( 100,500)
Accumulated deficit ( 7,843,029) ( 8,010,703)
---------- ----------
Total stockholders' equity 3,052,240 2,884,566
---------- ----------
$4,403,551 $4,411,171
---------- ----------
---------- ----------
See notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three
Months Ended For the Years Ended
March 31, December 31,
--------------------- -----------------------
1996 1995 1995 1994
------ ------ ------ ------
(*)
(Unaudited - Note 15)
<S> <C> <C> <C> <C>
Revenues (Note 1):
Rental $523,798 $435,658 $2,568,869 $1,700,313
Concession and other 407,260 96,923 782,808 313,811
-------- -------- ---------- ----------
Total revenues 931,058 532,581 3,351,677 2,014,124
-------- -------- ---------- ----------
Costs and expenses:
Direct costs 186,894 126,958 1,248,804 454,611
Rent and utilities 228,589 161,304 903,457 610,289
Salaries and other compensation 191,036 134,296 945,233 212,583
Depreciation and amortization 74,989 48,193 401,721 143,999
Operating expenses 121,400 78,961 1,907,728 359,684
Loss on disposal of property and equipment - - 423,625 -
Compensatory element of common stock
issued to founders (Note 11) - - - 4,968,845
Financial costs and (income) (Notes 12 and 13):
Interest income ( 46,816) ( 38,338) ( 116,979) -
Interest expense 7,292 - 6,308 21,176
Bridge notes - - - 132,500
Compensatory element of common stock issuance - - - 562,500
Total costs and expenses 763,384 511,374 5,719,897 7,466,187
-------- -------- ---------- ----------
Income (loss) before provision for
income taxes and minority interest 167,674 21,207 ( 2,368,220) ( 5,452,063)
Provision for income taxes (Note 1) - - 1,061 1,351
-------- -------- ---------- ----------
Income (loss) before minority interest 167,674 21,207 ( 2,369,281) ( 5,453,414)
Minority interest (Note 1) - - - 78,313
-------- -------- ---------- ----------
Net income (loss) $167,674 $ 21,207 ($2,369,281) ($5,531,727)
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Earnings per share (Note 1):
Net income (loss) per share $ .04 $ .01 ($ .58) ($ 1.87)
Weighted average number of shares outstanding 4,093,333 3,259,908 4,090,000 2,954,497
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(*) Reclassified for comparability.
See notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three
Months Ended For the Years Ended
March 31, December 31,
--------------------- -----------------------
1996 1995 1995 1994
------ ------ ------ ------
(*)
(Unaudited - Note 15)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $167,674 $ 21,207 ($2,369,281) ($5,531,727)
-------- ---------- ---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Minority interest - - - 78,313
Depreciation and amortization 74,989 48,193 401,721 143,999
Provision for uncollectible notes receivable - - 370,481 -
Loss on disposal of property and equipment - - 624,777 -
Compensatory element of common stock and warrant issuances - - 803,750 5,531,345
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable 71,513 30,156 ( 57,230) ( 13,144)
Prepaid expenses and other current assets ( 14,000) ( 56,815) 7,554 -
Sundry receivables 13,880 - ( 135,894) ( 33,114)
Security deposits - ( 11,335) ( 8,708) ( 1,000)
Accounts payable ( 36,640) ( 52,171) ( 126,133) 221,173
Other current liabilities ( 128,753) ( 412) 533,809 ( 2,374)
-------- ---------- ---------- ----------
Total adjustments ( 19,011) ( 42,384) 2,414,127 5,925,198
-------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 148,663 ( 21,177) 44,846 393,471
-------- ---------- ---------- ----------
Cash flows from investing activities:
Capital and intangible expenditures ( 73,327) ( 147,009) ( 1,551,904) ( 356,407)
Acquisition of non-compete covenants - - ( 60,000) ( 28,000)
Increase (decrease) in notes receivable 86,555 567,000 ( 1,595,456) -
-------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 13,228 ( 714,009) ( 3,207,360) ( 384,407)
-------- ---------- ---------- ----------
Cash flows from financing activities:
Payment for offer of recision - ( 165,490) -
Proceeds of notes - - - 785,500
Payments of notes payable ( 9,900) ( 5,000) ( 63,934) ( 755,000)
Payments of stockholders' loans - - - ( 168,440)
Dividend distributions - - - ( 127,765)
Proceeds from issuance of common stock - - - 3,790,619
Net cash provided by (used in) financing activities ( 9,900) ( 170,490) ( 63,934) 3,524,914
-------- ---------- ---------- ----------
Net increase (decrease) in cash 151,991 ( 905,676) ( 3,226,448) 3,533,978
Cash - beginning 431,087 3,657,535 3,657,535 123,557
-------- ---------- ---------- ----------
Cash - ending $583,078 $2,751,859 $ 431,087 $3,657,535
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
</TABLE>
(*) Reclassified for comparability.
See notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three
Months Ended For the Years Ended
March 31, December 31,
--------------------- -----------------------
1996 1995 1995 1994
------ ------ ------ ------
(Unaudited - Note 15)
<S> <C> <C> <C> <C>
Supplemental Disclosures of
Cash Flow Information:
Cash payments for the year:
Interest expense (income) $7,292 $ - ($ 92,635) $ 21,176
------ ------ ---------- ----------
------ ------ ---------- ----------
Income taxes $ - $ - $ 1,061 $ 1,351
------ ------ ---------- ----------
------ ------ ---------- ----------
Non-Cash Transactions for the Year:
Issuance of common stock for consulting services $ - $ - $ 50,000 $ -
------ ------ ---------- ----------
------ ------ ---------- ----------
Issuance of redeemable common stock purchase warrants for
consulting, legal and other services $ - $ - $ 753,750 $ -
------ ------ ---------- ----------
------ ------ ---------- ----------
Acquisition of subsidiary in exchange for common stock
(Note 8) $ - $ - $ 450,000 $ -
------ ------ ---------- ----------
------ ------ ---------- ----------
Loss on disposal of assets from property sales and
closures $ - $ - $ 423,625 $ -
------ ------ ---------- ----------
------ ------ ---------- ----------
Acquisition of property and equipment in exchange for
notes payable $ - $ - $ 700,000 $ -
------ ------ ---------- ----------
------ ------ ---------- ----------
Loans payable to stockholders which were contributed to
paid-in capital $ - $ - $ - $ 339,095
------ ------ ---------- ----------
------ ------ ---------- ----------
Issuance of common stock to founders $ - $ - $ - $4,968,845
------ ------ ---------- ----------
------ ------ ---------- ----------
Issuance of common stock in conjunction with bridge
notes at fair value $ - $ - $ - $ 562,500
------ ------ ---------- ----------
------ ------ ---------- ----------
Issuance of common stock to minority shareholders of
wholly-owned subsidiaries at fair value $ - $ - $ - $ 329,302
------ ------ ---------- ----------
------ ------ ---------- ----------
Conversion of minority interest to paid-in capital
upon exchange of stock $ - $ - $ - $ 229,970
------ ------ ---------- ----------
------ ------ ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(The information at and for the three months ended
March 31, 1996 and 1995 is unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES.
(a) Basis of Presentation:
The accompanying consolidated financial statements include the
accounts of American Bingo & Gaming Corp. (the Company), a Delaware
corporation and its subsidiaries, Texas Charities, Inc. ("TCI"), SA
Charities, Inc. ("SAC"), Charity Bingo, Inc. ("CBI"), Bingo-O-Rama,
Inc. ("BRI"), Delray Hall For Hire, Inc. ("DELRAY"), 6323 14th Street
Hall For Hire, Inc. ("6323 HFH"), 959 Hall For Hire, Inc. ("959 HFH"),
M H J Corp. ("MHJ"), Columbia One Corp. ("COLUMBIA ONE"), S.C.
Properties II Corp. ("S.C.II"), Concessions Corp. ("Concessions"), B/J
Charity Bingo, Inc. ("B/J"), J B J Enterprises, Inc. ("JBJ"), and
Murdock Hall For Hire, Inc. ("MHHI"), all of which are wholly-owned
and Charity Bingo - Birmingham, Inc. ("CBB"), in which the Company
owns an 80% interest. The financial statements at and for the three
months ended March 31, 1996 include the accounts of 1919 Riverside
Corp. ("1919") a wholly owned subsidiary of TCI, which was
incorporated on February 20, 1996.
Management believes the consolidated financial statements are
more meaningful for purposes of evaluating the financial position,
results of operations and cash flows of the Company. All intercompany
accounts and transactions have been eliminated.
(b) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
F-8
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Property and Equipment:
The cost of equipment, furniture and fixtures is depreciated over
the estimated useful lives of the assets of between five or seven
years, using the straight-line method. Leasehold improvements are
amortized over the lesser of the term of the lease or the estimated
useful lives. The cost of buildings are being amortized over thirty-
nine years which approximates their estimated useful lives. Building
improvements are being amortized over their estimated useful lives of
between seven and fifteen years. Upon sale, retirement or abandonment
of assets, the related cost and accumulated depreciation are
eliminated from the accounts and gains or losses are reflected in
income. Repairs and maintenance expenditures which do not extend
asset lives are expensed as incurred.
(d) Income Taxes:
Prior to their acquisition by the Company, several of the
subsidiaries had elected "S" corporation status for federal and, where
applicable, state income tax purposes. Under these elections, income
or loss is passed through directly to the shareholders. Upon
acquisition by the Company, these elections were automatically
terminated.
As of December 31, 1995, the Company and its wholly-owned
subsidiaries, which intend to file a consolidated federal income tax
return for 1995, have a net operating loss carryforward of
approximately $2,000,000 available to reduce future taxable income
which expires in the year 2010. Based on this net operating loss
carryforward, no provision for income taxes has been made for the
three months ended March 31, 1996 and 1995, respectively.
The Company adopted Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), Accounting for Income Taxes at its inception
which did not have a material effect on the consolidated financial
statements presented herein. Under SFAS 109, the deferred tax
provision is determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on
differences between the financial statement carrying amount and the
tax basis of assets and liabilities using presently enacted tax rates.
(e) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. The Company places its cash investments with high credit
quality financial institutions. At times, such investments may be in
excess of the FDIC insurance limit.
F-9
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Revenue Recognition:
The Company generates revenue principally from the following
sources:
(a) Rental Revenues:
Rents are received from not-for-profit organizations through
various sub-lease agreements of some of the Company's
centers. Certain subsidiaries are licensed by state
regulatory authorities, which dictate the number and
frequency of events an organization can conduct, as well as
the maximum rental fee that a licensed operator, such as
these subsidiaries, may charge for usage.
(b) Concession and Other Revenue:
The Company's other sources of revenue are; (i) concessions
located in the centers for the sale and supply of
refreshments; (ii) vending machines located in the centers;
(iii) the sale of bingo supplies, such as cards and daubers
to the not-for-profit organizations and (iv) video gaming
machines. Inventory in the vending machines and concessions
is not a material asset of the Company and is therefore
deemed a periodic expense.
All revenue is recognized in the period in which it is earned,
and expenses are recorded in the period in which they are incurred, in
accordance with generally accepted accounting principles.
(g) Provision for Doubtful Collectibility on Notes Receivable:
In December 1995, the Company sold certain capital assets which
it had employed in the operation of three bingo centers for
an aggregate selling price of $1,360,034. In February 1996, the
Company sold the capital assets employed in the operation of a fourth
center for $696,574. All of the sales were in exchange for
installment notes receivable, ranging in terms of from 24 to 48 months
(see Note 2).
Management elected to set up a provision for doubtful
collectibility of $370,481 at December 31, 1995 based on the limited
experience of the purchasers in the operations of commercial bingo
centers. The Company has made no adjustment to this provision at
March 31, 1996.
F-10
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(h) Intangible Assets:
Intangible assets, consisting of non-compete covenants, certain
gaming and commercial lessor licenses and goodwill, are periodically
reviewed by management to evaluate the future economic benefits or
potential impairments which may affect their recorded values to the
Company.
(i) Per Share Data:
Net loss per share for 1995 and net income per share for the
three months ended March 31, 1996 and 1995 were computed by using the
weighted average number of common shares.
Net loss per share for 1994 was computed by using the weighted
average number of common shares outstanding during each period
retroactively reflecting all mergers and all issuances of common
shares as if they had occurred at inception.
Fully diluted earnings per share have not been presented as they
are deemed to be anti-dilutive.
Per share data does not include shares the Company is obligated
to issue, but has not issued at December 31, 1995 and at March 31,
1996 and 1995.
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS.
The Company was incorporated on September 8, 1994. By agreements
dated October 7, 10 and 14, 1994, the Company acquired all the
outstanding shares of TCI, SAC, CBI, BRI, in exchange for 870,000
shares of its common stock. These acquired companies and the Company
were under common control at the dates of acquisition by virtue of
their ownership and management. The acquisitions of these wholly-
owned subsidiaries were accounted for (i) at historical cost as a
pooling of interests for the acquired stock of the Company's majority
stockholder, and (ii) as a purchase recorded at market value for the
acquired stock of the minority interests and the resultant goodwill
for the difference between the market value and their equity on the
dates acquired.
In October 1994, Mr. Wilson, on behalf of the Company, acquired
an 80% interest in Charity Bingo-Birmingham, Inc., which operated a
bingo center in Pell City, Alabama ("Pell City Center"). The Pell
City Center commenced operations in October 1994. Mr. Wilson
transferred his 80% interest in the Pell City Center to the Company
for nominal consideration. The Company closed the Pell City Center in
July of 1995.
F-11
<PAGE>
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
In April 1995, the Company acquired all of the outstanding shares
of stock of J B J Enterprises, Inc. for $50,000 in cash. JBJ was
incorporated in the State of Texas in October 1994. At the date of
acquisition, the corporation was inactive and its sole asset consisted
of a commercial bingo lessor's license issued by the State of Texas.
In May 1995, the Company acquired a promissory note secured by a
collateral mortgage on real property, located in West Columbia, South
Carolina for approximately $569,000 in cash. The Company foreclosed
on the note shortly thereafter and took title to the aforementioned
property.
In June 1995, the Company transferred the real property and the
value of the building improvements to COLUMBIA ONE a wholly-owned
South Carolina subsidiary, whereupon it commenced operation of two
bingo entertainment centers. S.C. II and Concessions have been
inactive since their inception in April 1995.
In April 1995, the Company acquired all the outstanding stock of
MHJ for certain concession rights in the Company's bingo entertainment
center. MHJ was incorporated in the State of South Carolina in May
1993. Prior to its acquisition by the Company, MHJ was a real estate
brokerage company and was inactive for the periods presented herein.
After acquiring the stock of MHJ, the Company obtained several gaming
licenses for use by MHJ in its operation of video gaming machines
which are located in or near COLUMBIA ONE's bingo centers.
In July 1995, the Company acquired all of the outstanding stock
of MHHI in exchange for 110,008 shares of the Company's common stock
which had a fair market value of $450,000 on the date of acquisition.
As of the date of these financial statements, the Company has not
issued these shares. The Company has recorded a liability in the
amount of $450,000 as at December 31, 1995 and March 31, 1996,
respectively (see Note 8).
In December 1995, the Company sold all of the tangible and
intangible assets employed by MHHI. The assets had been used in the
operation of the Company's bingo center in Port Charlotte, Florida.
In exchange, the Company received a promissory note in the amount of
$400,000, payable in 36 equal monthly installments including interest
at 12% per annum, commencing January 1, 1996. Payment of the note is
secured by a collateral interest in the aforementioned property.
In July 1995, the Company acquired certain assets for use in the
operation of two bingo entertainment centers from Pondella Hall For
Hire, Inc. ("PHHI"), for the conditional purchase price of $900,000.
The Company paid the seller cash in the amount of $450,000 and issued
a promissory note in the amount of $450,000, payable in 24 equal
monthly installments including interest at 8% per annum. The purchase
price was adjustable up or down based on the results of operations
from the centers during the first twelve months of operation by the
Company. PHHI had previously operated up to 15 bingo centers in the
State of Florida. The Company transferred the aforementioned assets
to two of its wholly-owned subsidiaries, 6323 HFH and 959 HFH, both of
which were incorporated in the State of Florida on July 13, 1995. See
Note 10.
F-12
<PAGE>
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
In December 1995, the Company sold all of the tangible and
intangible assets employed by 6323 HFH. The assets had been used in
the operation of the Company's bingo center in Bradenton, Florida. In
exchange, the Company received a promissory note in the amount of
$797,453, payable in 48 monthly installments including interest at 12%
per annum, commencing January 1, 1996. Payment of the note is secured
by a collateral interest in the aforementioned property.
In December 1995, the Company sold all of the tangible and
intangible assets employed by 959 HFH. The assets had been used in
the operation of the Company's bingo center located in North Fort
Meyers, Florida. In exchange, the Company received a promissory note
in the amount of $162,581, payable in 36 monthly installments
including interest at 12% per annum, commencing January 15, 1996.
Payment of the note is secured by a collateral interest in the
aforementioned property.
In July 1995, the Company acquired certain assets to be used in
the operation of a bingo entertainment center from Lou Rob, Inc. and
S. Mark, Inc. (corporations under common control) for the conditional
purchase price of $675,000. Payment of the total amount consisted of
cash of $175,000, a promissory note in the amount of $250,000, payable
in 24 equal monthly installments including interest at 8% per annum
and a liability to issue shares of the Company's common stock having a
fair market value of $250,000 on the date of closing. The Company
transferred these assets to its wholly-owned subsidiary, DELRAY, which
was incorporated in the State of Florida on July 13, 1995. In
February 1996, the Company sold the assets which it had so acquired to
an affiliate of Lou-Rob and S. Mark, Inc. The sales price was (i)
$10,000 in cash at closing, (ii) 9% interest bearing installment note
in the amount of $235,422, and (iii) the satisfaction of $201,152 of
the note payable and $250,000 obligation to issue stock to Lou-Rob,
Inc. and S. Mark, Inc.
In March 1996, one of the Company's subsidiaries leased its
gaming operation, located in West Columbia, South Carolina, to an
unrelated third party. The lease includes the use of all the
facilities and equipment employed by the Company in the operation of
its gaming centers. Rent charged under the lease is equal to a
specified percentage of the net revenues earned in the operation of
these facilities, exclusive of all operating costs. The term of the
lease if for a period of three years from the commencement date.
In March 1996, a subsidiary of the Company entered into a lease
with an unrelated third party for the use of the Company's bingo
centers located in West Columbia, South Carolina. The lease is for a
period of three years and calls for the Company to receive rent in the
amount of $30,000 per month. In addition, the lease requires the
tenant to reimburse the Company for a percentage of its fire and
liability insurance.
F-13
<PAGE>
NOTE 3 - ACCOUNTS RECEIVABLE.
Accounts receivable consist principally of amounts due from not-
for-profit organizations which conduct bingo events within the
Company's various Centers and are generally payable within one month
of the event. It also includes rent due from operators of concessions
located within the Centers. All of the amounts due at December 31,
1995 and March 31, 1996, amounting to $151,547 and $80,034,
respectively, were subsequently collected and, therefore, no allowance
for doubtful accounts is required.
NOTE 4 - SUNDRY RECEIVABLES.
Sundry receivables consist of the following:
March 31, December 31,
1996 1995
--------- ------------
Advances to suppliers,
employees and officers $31,688 $35,394
Other - 10,174
------- -------
$31,688 $45,568
------- -------
------- -------
NOTE 5 - PROPERTY AND EQUIPMENT.
Property and equipment consists of the following:
March 31, December 31,
1996 1995
--------- ------------
Land $ 189,671 $ 189,671
Buildings and building improvements 709,454 709,454
Leasehold improvements 707,296 423,719
Equipment, furniture and fixtures 542,440 493,201
Construction in progress 323,205 582,692
Autos 42,531 42,531
---------- ----------
2,514,597 2,441,268
Less: Accumulated depreciation
and amortization ( 460,577) ( 410,232)
---------- ----------
$2,054,020 $2,031,036
---------- ----------
---------- ----------
Construction in progress includes the cost of certain equipment
and costs incurred in the construction of two bingo centers which the
Company will open in early 1996. Accordingly, no depreciation has been
taken on these assets for the periods presented herein. Depreciation
expense charged to operations for the years ended December 31, 1995
and 1994 amounted to $177,627 and $86,904, respectively.
Depreciation expense charged to operations for the three months ended
March 31, 1996 and 1995 amounted to $50,345 and $23,196, respectively.
F-14
<PAGE>
NOTE 6 - NOTES RECEIVABLE - NET.
Notes receivable - net consist of the following:
March 31, December 31,
1996 1995
--------- ------------
A promissory note due in 35 equal
monthly installments of $13,300,
including interest at 12% per
annum with a final installment of
$12,685, maturing December 1, 1998 $ 371,820 $ 400,000
A promissory note due in 36 equal
monthly installments of $5,400,
including interest at 12% per annum,
maturing December 15, 1998 151,144 162,581
A promissory note due in 48 equal
monthly installments of $21,000,
including interest at 12% per annum,
maturing December 1, 1999 757,985 797,453
A promissory note due in 26 equal
monthly installments of $10,000,
including interest at 9% per annum,
maturing April 15, 1998 227,952 235,422
---------- ----------
1,508,901 1,595,456
Less: Provision for doubtful
collectibility of notes based on
management's estimate of purchasers'
ability to pay all notes in full to
their maturity ( 370,481) ( 370,481)
---------- ----------
Notes receivable - net of provision
for collectibility $1,138,420 $1,224,975
---------- ----------
---------- ----------
Payment of these notes is dependent solely upon the future
profitability of the Centers. The purchasers of these Centers have
limited experience in the management of commercial bingo entertainment
centers. Should the purchasers default in the performance of the
notes, the only recourse available to the Company would be to
foreclose on the same assets which it has sold in these transactions.
None of the purchasers has made any guarantee of payment, express or
otherwise. While management believes the purchasers will make a good
faith effort to fulfill the terms of the agreements, it has doubts as
to the full collectibility of the notes. Management has elected to
take a provision for doubtful collectibility of $370,481 at December
31, 1995 and March 31, 1996, respectively, which it estimates would be
the resultant loss should the Company have to foreclose and
subsequently resell the assets. Management reevaluates the
sufficiency of this provision periodically and will adjust the amount
of the provision as necessary.
F-15
<PAGE>
NOTE 6 - NOTES RECEIVABLE - NET. (Continued)
Annual principal maturities under these notes are as follows:
Years Ending
-----------------------
March 31, December 31,
--------- ------------
1997/1996 $ 445,567 $ 416,188
1998/1997 497,788 483,971
1999/1998 385,660 458,940
2000/1999 179,886 236,357
---------- ----------
1,508,901 1,595,456
Less: Provision for doubtful
collectibility 370,481 370,481
---------- ----------
Net receivable - net 1,138,420 1,224,975
Less: Current maturities 337,776 336,496
---------- ----------
$ 800,644 $ 888,479
---------- ----------
---------- ----------
NOTE 7 - INTANGIBLE ASSETS.
Intangible assets consist of the following:
March 31, December 31,
1996 1995
--------- ------------
Goodwill $326,787 $326,787
Covenants not to compete 256,668 256,668
Bingo and gaming licenses 116,663 116,663
-------- --------
700,118 700,118
Less: Accumulated amortization 292,066 267,419
-------- --------
$408,052 $432,699
-------- --------
-------- --------
Goodwill, which represents the excess of the cost of assets
acquired over the fair value of those assets on the date of their
acquisition, is being amortized over a period of fifteen years. The
covenants not to compete are being amortized over the periods of the
stated benefits, ranging from one to five years. The bingo licenses
which the Company acquired in 1995 at a cost of $65,275, are perpetual
licenses which can be renewed on an annual basis at a nominal cost.
Management has elected to amortize the cost to acquire these licenses
over a period of forty years. The other licenses amounting to $51,388
are being amortized over their useful lives of one to two years.
Amortization expense charged to operations for the years ended
December 31, 1995 and 1994 amounted to $224,094 and $57,094,
respectively. Amortization expense charged to operations for the
three months ended March 31, 1996 and 1995 amounted to $24,647 and
$24,997, respectively.
Intangible assets which are determined to have no future benefit
to the Company are written off as of the date of determination.
F-16
<PAGE>
NOTE 8 - LIABILITY FOR ACQUISITION.
This liability represents the unpaid purchase price in connection
with the acquisition of all the outstanding stock of MHHI (see Note
2). The Company is obligated to issue 110,008 shares of its common
stock as payment in full. As of the date of these financial
statements, the Company has not issued the stock and is negotiating an
adjustment of the purchase price and accordingly has recognized the
entire obligation as a liability.
NOTE 9 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accrued expenses and other current liabilities are comprised of
the following:
March 31, December 31,
1996 1995
--------- ------------
Accrued compensation $ 88,500 $145,000
Accrued professional fees 210,928 328,360
Accrued rent - 20,000
Other 106,039 40,861
-------- --------
$405,467 $534,221
-------- --------
-------- --------
NOTE 10 - NOTES PAYABLE.
Notes payable, consist of the following:
March 31, December 31,
1996 1995
--------- ------------
A $450,000 promissory note issued in
connection with the acquisition of
assets previously employed in the
Company's bingo centers located in
Bradenton and North Fort Meyers,
Florida, payable in 24 equal monthly
installments of $20,352 including
interest at 8% per annum (a) $415,180 $415,180
A $250,000 promissory note issued in
connection with the acquisition of
assets previously employed in the
Company's bingo center located
in Delray Beach, Florida, payable
in equal monthly installments of
$11,307 including interest at 8%
per annum (b) - 9,900
-------- --------
415,180 425,080
Less: Current maturities 343,852 286,338
-------- --------
$ 71,328 $138,742
-------- --------
-------- --------
F-17
<PAGE>
NOTE 10 - NOTES PAYABLE. (Continued)
(a) The Company has ceased making payments on the note and is
delinquent at December 31, 1995 and March 31, 1996. This
transaction originally obligated the Company to pay $450,000 in
cash and $450,000 in note payments, plus interest, with a
purchase price adjustment up or down on the note payments to be
made based on the results of operations from the two centers
during the first twelve months of operation by the Company. The
subsequent legal problems and seller's misrepresentations
regarding certain material issues have left the amount owing, if
any, undetermined. Thus, the Company has ceased making payments
on this note until a settlement is negotiated. However, until a
settlement is reached, the Company will recognize the original
obligation, less payments made, as its liability (see Note 2).
Current maturities reflect the arrearages and payments originally
scheduled for payment through December 31, 1996 and March 31,
1997, respectively.
(b) The liability to the noteholder has been reduced by $201,152 at
December 31, 1995 to reflect the effects of the sale of all of a
subsidiary's assets on February 1, 1996 to an entity controlled
by a related party of the noteholder. The sale of the
subsidiary's assets are retroactively included in the
accompanying financial statements at December 31, 1995.
NOTE 11 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company is obligated under various operating leases relating
to its bingo entertainment centers. Generally, the leases provide for
minimum annual rentals as well as a proportionate share of the real
estate taxes and certain common area charges which may be applicable.
Minimum annual rentals under these leases as of the Company's most
recent fiscal year end are approximately as follows:
Years Ending
December 31, Amount
------------ ----------
1996 $ 731,000
1997 645,000
1998 548,000
1999 497,000
2000 473,000
Thereafter 288,000
----------
$3,182,000
----------
----------
Rent expense for the years ended December 31, 1995 and 1994
amounted to $772,510 and $388,605, respectively. Rent expense for the
three months ended March 31, 1996 and 1995 amounted to $198,999 and
$140,326, respectively.
F-18
<PAGE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES. (Continued)
(b) Litigation:
FLORIDA
In October 1995, two of the Company's wholly-owned subsidiaries
and a consultant were indicted by the State of Florida for various
alleged illegal acts, ranging in severity from felonies to
misdemeanors and have pleaded not guilty to all of the charges. On
March 20, 1996, the Company's motion to dismiss the charges was
denied. The case is presently scheduled for trial on September 3,
1996. The Company has no estimate of the eventual outcome or what, if
any, monetary or other penalties and damages might result should the
determination by the court be unfavorable to the Company.
In November 1995, the Attorney General for the State of Florida
filed a civil complaint against the same parties referenced above,
alleging violations of the Florida Civil RICO Act. The complaint
sought among other things, forfeiture of certain assets and an
injunction against the future conduct of bingo games in the State of
Florida. The Company successfully petitioned the court for the
removal of the injunction. In February 1996, the presiding court
entered an order dismissing the civil compliant with prejudice. The
State's subsequent motion for clarification of this order was denied.
TEXAS
In November 1995, the Texas Lottery Commission ("TLC") served the
Company with Notice of Intent to Commence Proceedings to Suspend or
Revoke and Opportunity to Show Compliance With Law with respect to the
Company's six commercial bingo lessor licenses, including the two
which are currently utilized by the Company. The TLC has alleged that
the Company, through certain of its subsidiaries, has extended credit
or loaned money to, paid license fees for and charged variable rentals
to authorized charitable organizations in violation of Texas law. The
TLC also alleged that the Company advertised or promoted bingo, failed
to submit required reports and failed to pay taxes due, also in
violation of Texas law.
The Company had previously applied to the TLC for the amendment
of two commercial bingo lessor's licenses acquired by the Company for
use in its planned operations in McAllen and Brownsville, Texas. The
TLC denied those applications. In accordance with Texas law, the
Company has defended itself in a hearing, presenting evidence to
demonstrate that it is in compliance with all legal requirements for
retention of its licenses, and corrected any misinformation which may
have been relied upon by the TLC. The June 17, 1996 hearing also
dealt with the Company's applications to amend the two recently
acquired licenses. Following the hearing, the administrative law
judge found no violations of bingo regulations and also recommended
that the applied for amendments be granted. On July 2, 1996, the TLC
filed objections to the proposed decision. The Company has
successfully opened one of the McAllen centers and is in the process
of opening the other centers by leasing them to a charity commercial
lessor, pending the outcome of this matter.
The Company is also a party to actions which arise in the normal
course of business. In the opinion of management, the ultimate
disposition of these matters will not have material adverse effect on
the consolidated financial position, liquidity or results of
operations of the Company.
F-19
<PAGE>
NOTE 12 - STOCKHOLDERS' EQUITY.
(a) Common Stock:
In September 1994, the Company issued 1,988,333 shares of its
common stock to officers, directors, employees and consultants of the
Company, in exchange for notes receivable aggregating $1,988.
Management attributed a fair value of $2.50 per share to these shares,
resulting in a charge to operations of $4,968,845 as additional
compensation, and in October 1994, the Company acquired all of the
outstanding shares of stock of TCI, SAC, BRI and CBI, in exchange for
870,000 shares of the Company's common stock. The financial
statements presented herein have been restated to reflect these
transactions retroactively to the beginning of all periods presented.
In October 1994, in conjunction with the issuance of bridge notes
and as an inducement to the potential lenders, the Company issued
225,000 shares of its common stock. The bridge units attributed no
value to the shares. Management attributed a fair value to the shares
of $2.50 per share at the time of issuance and charged $562,500 to
operations.
In December 1994, the Company completed the initial public
offering of its securities, resulting in the sale of 1,000,000 shares
of common stock at $5.00 per share and 1,725,000 warrants at a price
of $.10 per warrant. The offering resulted in proceeds to the
Company, net of offering costs, of $3,788,631.
In May 1995, the Company issued 10,000 shares of its common stock
to a public relations firm for services rendered through 1995. The
Company attributed a fair value of $5.00 per share to the stock,
resulting in a charge to operations of $50,000 for the year ended
December 31, 1995.
As discussed in Note 8 to these financial statements, the Company
is contingently liable for the issuance of 110,008 shares of its
common stock, having a fair value of $450,000. As of the date of
these financial statements, the Company was negotiating with the
sellers for a reduced purchase price which may be paid in a form other
than common stock.
(b) Warrants:
In connection with the sale of the bridge loan units in October
1994, the Company issued redeemable warrants to purchase 337,500
shares of the Company's common stock at an exercise price of $5.00 per
share. The warrants are exercisable through December 14, 1998.
In connection with its initial public offering of securities in
December 1994, the Company sold redeemable warrants to purchase
1,725,000 shares of its common stock at a price of $.10 per warrant.
Each warrant entitles the holder thereof to purchase a share of the
Company's common stock for $5.00 per share and is exercisable through
December 14, 1998.
F-20
<PAGE>
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(b) Warrants: (Continued)
In December 1995, the Board of Directors formerly resolved to
issue 1,005,000 warrants to acquire a like number of the Company's
common stock at $5.00 per share as follows:
(i) 550,000 warrants to the Company's underwriter,
(ii) 150,000 warrants to two consultants to the Company,
(iii) 155,000 warrants to several of the Company's counsels, and
(iv) 150,000 warrants to two officer/directors of the Company.
The holders were granted the warrants in exchange for services
rendered by these persons through December 31, 1995 of $753,750 ($0.75
per warrant) and notes receivable of $100,500 ($0.10 per warrant) for
an aggregate of $854,250. The Board attributed a value of $0.85 to
each warrant, which approximated the market value of the Company's
fully traded warrants at that date. The $753,750 compensatory element
of the warrants was charged to operations in 1995.
In June 1996, 75,000 of said warrants were cancelled and 75,000
warrants of an identical nature were granted to certain of the
Company's legal counsel.
(c) Stock Options:
In December 1994, the Board of Directors amended the Company's
1994 Employee Stock Option Plan ("1994 Plan"), authorizing the Company
to grant options for the purchase of up to 250,000 shares of its
common stock to employees, consultants, professionals and non-employee
Directors.
In April 1995, the shareholders approved the adoption of the
Company's 1995 Employee Stock Option Plan ("1995 Plan"), authorizing
the Board of Directors to grant options for the purchase of up to
500,000 shares of the Company's common stock to selected key employees
of the Company.
In April 1996, the shareholders approved the adoption of the
Company's 1996 Employee Stock Option Plan ("1996 Plan"), authorizing
the Board of Directors to grant options for the purchase of up to
500,000 shares of the Company's common stock to selected key employees
of the Company.
In February 1995, the Company granted options to two key
employees under the Company's 1994 Plan each to acquire 100,000 shares
of the Company's common stock. The options are exercisable for a
period of five years from the date of issuance. The options vest over
a period of three years with varying exercise prices which are related
to the average market values on the determination dates. As of
December 31, 1995 and March 31, 1996, 50,000 and 70,834 of such
options were vested with exercise prices of $3.75 and $2.975 per
share, respectively.
F-21
<PAGE>
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(c) Stock Options: (Continued)
In September 1995, the Company granted options to a key
employee under the Company's 1994 and 1995 Plans to acquire 100,000
shares of the Company's common stock. The options are exercisable for
a period of five years from the date of issuance. The options vest
over a period of two and one-half years, with varying exercise prices
which are related to the average market values on the dates of
determination. As of December 31, 1995 and March 31, 1996, 25,000 and
35,417, respectively, of such options have vested with exercise prices
of $3.75 and $2.975 per share, respectively.
Commencing in February 1996, the Company is granting its
current president options to acquire 10,416.67 shares of stock at a
price of $2.95 per share as compensation for services rendered. The
Company plans to grant options to acquire 8,333.33 shares per month of
service in the second and third years of employment. All such options
are exerciseable for a period of five years from the date of grant.
At March 31, 1996, 20,833 of such options have been granted at an
exercise price of $2.95 per share.
In April 1996, the Company granted options to an employee to
acquire 5,000 shares of the Company's common stock. The options vest
on March 1, 1997 and are exerciseable for a period of five years with
an exercise price of $3.00 per share.
(d) Employee Stock Purchase Plan:
In April 1995, the shareholders voted to approve and adopt
the Company's 1995 Employee Stock Purchase Plan. Under the terms of
the plan, all full time employees are eligible to participate in the
plan with the exception of employees who own, either directly or
indirectly, 5% or more of the outstanding shares of the Company's
common stock. The plan is administered by the disinterested Directors
of the Company. The Company has reserved 50,000 shares of stock for
sale under the plan. The plan currently has two participants. At
December 31, 1995, the Company was obligated to issue 61 shares to a
Participant. The shares have not yet been issued, and are deemed
immaterial in relation to these financial statements.
(e) Additional Paid-In Capital:
In January 1994, certain stockholder loans amounting to
$339,095, were contributed to paid-in capital as per agreement with
the stockholders. The contributions to capital were adjusted for the
portion attributable to the then minority shareholders of several of
the Company's wholly-owned subsidiaries, resulting in a reduction of
paid-in capital of $139,189.
In September 1994, the Company issued 1,988,333 shares of
its common stock to certain officers, directors and employees for an
aggregate cost of $1,988. The shares were valued at their estimated
fair value on the date of issuance, of $2.50 per share. The excess of
the fair value over the price of the shares, amounting to $4,968,845,
was charged to operations as additional compensation for the year
ended December 31, 1994, and resulted in a corresponding credit to
additional paid-in capital.
F-22
<PAGE>
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(e) Additional Paid-In Capital: (Continued)
In October 1994, the Company acquired all the outstanding
shares of TCI, SAC, BRI and CBI in exchange for 870,000 shares of the
Company's common stock. At the date of acquisition, these
subsidiaries were under common control with the Company by virtue of
stock ownership and management by the Company's principal stockholder.
The exchange of shares resulted in credit to additional paid-in
capital of $9,507.
In October 1994, as an inducement to lend the Company funds,
the Company issued 225,000 shares of its common stock and warrants to
purchase an additional 337,500 shares of its common stock to
purchasers of the Company's bridge notes. On the date of issuance,
management attributed a fair value of 2.50 per share to the common
stock, resulting in a charge to operations of $562,225 and a credit to
additional paid-in capital of $562,500.
In December 1994, the Company completed its initial public
offering of securities, resulting in the sale of 1,000,000 shares of
the Company's common stock at a price of $5.00 per share and 1,725,000
redeemable common stock purchase warrants at a price of $.10 per
warrant, with proceeds to the Company, net of offering costs and the
costs of an offer of recision, aggregating $3,788,631. The sale
resulted in a credit to paid-in capital of $3,615,131.
In December 1994, the Company agreed to indemnify its underwriter
for costs associated with an offer of recision on stock sold in one
state prior to the Company's receipt of "Blue Sky" clearance. In
February 1995, the Company agreed to pay its underwriter $165,490 for
costs associated with the offer of recision. Management determined
that these costs were treatable as a reduction of the proceeds of the
offering and accrued the transaction as if it had occurred prior to
December 31, 1994. The effects of the recision were included in the
net proceeds from the public offering.
In May 1995, the Company issued 10,000 shares of its common stock
to a public relations consultant for services rendered in 1995. The
Company attributed a fair value of $5.00 per share to the stock,
resulting in a charge to operations of $50,000 and a credit to paid-in
capital of $49,990.
(f) Paid-In Capital - Warrants:
In October 1994, the Company issued redeemable common stock
purchase warrants to acquire 337,500 shares of the Company's common
stock at an exercise price of $5.00 per share, to purchasers of the
Company's bridge loan units as an inducement for making the loan. The
units attributed no value to the warrants.
In December 1994, through its initial public offering of
securities, the Company sold 1,725,000 redeemable common stock
purchase warrants at a price of $.10 per warrant. Each warrant is
exchangeable for one share of stock, at an exercise price of $5.00 per
share. This sale resulted in a credit to additional paid-in capital-
warrants of $172,500.
F-23
<PAGE>
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(f) Paid-In Capital - Warrants: (Continued)
As of December 31, 1995, the Board of Directors resolved to sell
1,005,000 redeemable common stock purchase warrants to various
entities and individuals (as described in more detail in note 12(b)),
at a price of $.10 per warrant, a discount of $.75 per warrant from
market value as of the date of resolution. The sale of the warrants
and the related charges for services previously rendered have been
recorded as of December 31, 1995, resulting in a credit to additional
paid-in capital-warrants of $854,250.
NOTE 13 - FINANCIAL COSTS.
Financial costs for the year ended December 31, 1994 include: (i)
interest paid to stockholders of $21,176, including $16,016 paid to
bridge note holders; (ii) costs incurred in connection with the bridge
financing of $132,500 and; (iii) the compensatory element of common
stock issued in connection with the bridge financing, having a fair
value of $562,500 on the date of issuance.
NOTE 14 - SUBSEQUENT EVENTS.
On March 18, 1996, the Company agreed to lease its bingo and
gaming entertainment facilities located in Columbia, South Carolina.
The leases include occupancy of the Company's premises as well as use
of all equipment located therein and are both for a term of three
years. The lease of the bingo facilities will be payable on a fixed
monthly rental and the lease of the gaming facilities will be payable
based on a fixed percentage of net gaming revenues. All operating
costs associated with the facilities are to be borne by the lessees.
On or about March 30, 1996, the Company learned that the Texas
Lottery Commission (TLC) passed a rule that disallows two bingo
centers to be licensed and operated under one roof, regardless of the
number of licenses available for use. Dependent on the date of
implementation, this ruling could potentially limit the Company's
future revenues and profits from its McAllen and Brownsville, Texas
bingo centers where the Company plans to open four bingo centers. The
Company obtained a temporary restraining order staying the
implementation of that rule pending the Company's application for a
temporary injunction. On May 23, 1996, after a hearing the court
granted a temporary injunction and enjoined the TLC from implementing
the new rules.
NOTE 15 - UNAUDITED FINANCIAL STATEMENTS.
The consolidated financial statements as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995, and the
information in notes to consolidated financial statements pertaining
thereto, are unaudited, but include all adjustments, consisting only
of normal recurring adjustments, and disclosures which management of
the Company considers necessary for a fair presentation of its
financial position as at March 31, 1996 and the results of its
operations, statement of stockholders' equity and cash flows for the
three months ended March 31, 1996 and 1995.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Representative. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
----
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . .16
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Government Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Resale by Selling Security Holders . . . . . . . . . . . . . . . . . . . . . .40
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .46
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . .51
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F1
--------------------
Until August ___, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMERICAN BINGO & GAMING CORP.
617,500
SHARES OF
COMMON STOCK AND
1,005,000
REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
1,005,000
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
--------------------
PROSPECTUS
--------------------
July ___, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware and
Article 7 of the Company's Articles of Incorporation contain provisions for
indemnification of officers, directors, employees and agents of the Company.
The Articles of Incorporation require the Company to indemnify such persons to
the full extent permitted by Delaware law. Each person will be indemnified in
any proceeding if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interest of the Company.
Indemnification would cover expenses, including attorney's fees, judgments,
fines and amounts paid in settlement.
The Company's Articles of Incorporation also provided that the Company's
Board of Directors may cause the Company to purchase and maintain insurance on
behalf of any present or past director or officer insuring against any liability
asserted against such person incurred in the capacity of direct or officer or
arising out of such status, whether or not the Company would have the power to
indemnify such person. The Company may seek to obtain directors' and officers'
liability insurance.
Item 25. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 1,712.98
Printing Expenses $ 30,000.00*
Legal Fees and Expenses $ 30,000.00*
Accounting Fees and Expenses $ 20,000.00*
Transfer Agent Fees $ 2,000.00*
Miscellaneous Expenses $ 5,000.00*
TOTAL $ 88,712.98*
__________
* Estimated
The Selling Security Holders will not be paying any portion of the
foregoing expenses of issuance and distribution.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all shares of the $.001 par value
Common Stock and
II-1
<PAGE>
redeemable Warrants of the Registrant sold by it within the past three years
which were not previously registered under the Securities Act of 1933,
as amended. The Registrant was incorporated as a Delaware corporation on
September 8, 1994.
The total number of outstanding shares of Common Stock as of July 12, 1996
were 4,108,394, after giving effect to the 1,000,000 shares issued in the
Company's initial public offering in December, 1994.
Upon formation of the Corporation in September 1994 the Company issued
590,834 shares of its Common Stock to Greg Wilson at $.001 per share.
Subsequently, in September 1994 the Company issued the following shares of its
Common Stock to the following parties:
NUMBER OF CONSIDERATION
NAME SHARES ISSUED PAID
- ---- ------------- -------------
Leonard Wilson, Sr. 290,833 $.001
Linda Bussey 200,000 $.001
Linda Bussey Irrevocable Trust 70,000 $.001
Robert Hersch 85,000 $.001
Kathy Jan Hix 20,000 $.001
Silverman, Collura & Chernis, P.C. 7,500 $.001
R&R Tortola Co., Ltd. 200,833 $.001
Diversified Investors Capital
Services 30,000 $.001
Jackie Stepnewski as custodian
for Christopher Stepnewski 20,000 $.001
Mitchell Finesod 50,000 $.001
Francis Toth 10,000 $.001
Paula Mann 10,000 $.001
Ben Finesod 10,000 $.001
Anandy Hazoury 153,333 $.001
Vanguard Limited 140,000 $.001
George Funck 100,000 $.001
Effective October 7, 1994, the Registrant entered into a stock
purchase agreement (the "Stock Purchase Agreement") with all of the stockholders
of Bing-O-Rama, Inc. ("Bing-O-Rama"), an Alabama corporation which operates
bingo entertainment Centers in Alabama. The shareholders of Bing-O-Rama,
pursuant to the Stock Purchase Agreement exchanged all of their shares of Bing-
O-Rama (valued at an aggregate of $164,603) for shares of the Registrant's
II-2
<PAGE>
Common Stock. Accordingly, the following shares were issued to former
shareholders of Bing-O-Rama:
# OF SHARES OF REGISTRANT'S
COMMON STOCK ISSUED IN
NAME EXCHANGE FOR BING-O-RAMA SHARES
- ---- -------------------------------
Greg Wilson 60,000
Ronald McCann 30,000
Jerome O'Brien 15,000
Daniel Sheridan 15,000
Effective October 14, 1994, the Registrant entered into a stock purchase
agreement (the "Stock Purchase Agreement") with all of the stockholders of Texas
Charities, Inc. ("TCI"), a Texas corporation which operates bingo entertainment
Centers in Texas. The shareholders of TCI, pursuant to the Stock Purchase
Agreement exchanged all of their shares of TCI (valued at $296,527) for shares
of the Registrant's Common Stock. Accordingly, the following shares were issued
to former shareholders of TCI:
# OF SHARES OF REGISTRANT'S
COMMON STOCK ISSUED IN
NAME EXCHANGE FOR TCI SHARES
- ---- ---------------------------
Greg Wilson 72,000
Reid Funderburk 40,000
Linda Bussey Irrevocable Trust 8,000
Effective October 7, 1994, the Registrant entered into a stock
purchase agreement (the "Stock Purchase Agreement") with all of the stockholders
of Charity Bingo, Inc. ("CBI"), an Alabama corporation which operates bingo
entertainment Centers in Alabama. The shareholders of CBI, pursuant to the
Stock Purchase Agreement exchanged all of their shares of CBI (valued at
$123,729) for shares of the Registrant's Common Stock. Accordingly, the
following shares were issued to former shareholders of CBI:
II-3
<PAGE>
# OF SHARES OF REGISTRANT'S
COMMON STOCK ISSUED IN
NAME EXCHANGE FOR CBI SHARES
- ---- ---------------------------
Greg Wilson 300,000
Effective October 14, 1994, the Registrant entered into a stock
purchase agreement (the "Stock Purchase Agreement") with all of the stockholders
of San Antonio Charities, Inc. ("SACI"), a Texas corporation which operates a
bingo entertainment Center in Texas. The shareholders of SACI, pursuant to the
Stock Purchase Agreement exchanged all of their shares of SACI (valued at
$27,370) for shares of the Registrant's Common Stock. Accordingly, the
following shares were issued to former shareholders of SACI:
# OF SHARES OF REGISTRANT'S
COMMON STOCK ISSUED IN
NAME EXCHANGE FOR SACI SHARES
- ---- ---------------------------
Greg Wilson 198,000
Reid Funderburk 110,000
Linda Bussey Irrevocable Trust 22,000
The foregoing shares have been marked with restrictive legends and are
"restricted" shares as defined by Rule 144 promulgated under the Securities Act
of 1933, as amended. No underwriter was involved in the distribution of these
securities, and no commissions were paid in connection therewith. Accordingly,
the Registrant believes that these transactions are exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated thereunder as private transactions which did not
involve a public offering of securities. The purchasers are aware that the
shares were not registered under the Securities Act of 1933, as amended, and
cannot be transferred or sold until they have been so registered or until the
availability of the exemption therefrom has been established to the satisfaction
of the Registrant.
On October 17, 1994, the Registrant issued an aggregate of 225,000 shares
of Common Stock, 337,500 Warrants to purchase approximately 337,500 shares of
Common Stock and $750,000 principal amount of promissory notes to 13 accredited
investors in the Bridge Financing, as follows:
PROMISSORY SHARES OF CONSIDERATION NUMBER OF
NAME NOTE COMMON STOCK PAID WARRANTS
- ---- ---------- ------------ ------------- ---------
Europe American Capital Corp. $ 25,000 7,500 $.001 11,250
Linthill Investments Limited $200,000 60,000 $.001 90,000
Irwin and Selma Roth $ 25,000 37,500 $.001 11,250
John J. Pasquale $125,000 37,500 $.001 56,250
Joseph Pennacchio $ 25,000 7,500 $.001 11,250
II-4
<PAGE>
PROMISSORY SHARES OF CONSIDERATION NUMBER OF
NAME NOTE COMMON STOCK PAID WARRANTS
- ---- ---------- ------------ ------------- ---------
Carlos Villanueva $150,000 45,000 $.001 67,500
James Scibelli $100,000 30,000 $.001 45,000
George Rizos $ 50,000 15,000 $.001 22,500
Debra Huff Evans $ 50,000 15,000 $.001 22,500
In May, 1995 the Company issued 10,000 shares of its Common Stock to Howard
Bronson Associates, a public relations firm,, for services rendered through
1995.
In June, 1996, the Company issued 15,000 shares to Kathy Jan Hix for
consulting services to be rendered through 1996, and an additional 61 shares
were issued to Trenton D. Walsh, an employee, pursuant to the Company's 1995
Employee Stock Purchase Plan.
There is also a total of 3,067,500 of the Company's Redeemable Common Stock
Purchase Warrants outstanding as of July 12, 1996, including 2,062,500 Warrants
registered in the Company's Registration Statement which became effective on
December 14, 1994.
In December, 1995, the Company issued 1,005,000 Redeemable Warrants as
follows:
CONSIDERATION NUMBER OF
NAME PAID WARRANTS
- ---- ------------- ---------
Investors Associates, Inc. Services 550,000
Howard Bronson Services 75,000
Robert Hersch Services 50,000
Greg Wilson Services 100,000
Kraige Polan Services 25,000
Minton, Burton, Foster
& Collins, P.C. Services 175,000
Silverman, Collura &
Chernis, P.C. Services 30,000
All of the above-listed 1,005,000 Redeemable Warrants are registered
hereby.
The issuance of the foregoing securities was made without registration
under the Securities Act in reliance upon the exemption provided by Section 4(2)
of the Securities Act and in compliance with Rule 506 of Regulation D under the
Securities Act.
Item 27. Exhibits
All exhibits marked with an asterisk (*) were included with the Company's
original Form SB-2 Registration Statement filed with the Securities and Exchange
Commission on October 19, 1994, as amended on November 17, 1994. Exhibits
marked with a double asterisk (**) were included with the Company's subsequent
reports filed with the Commission.
II-5
<PAGE>
3.1 Original and Amended Articles of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Form of Specimen Common Stock Certificate.*
4.2 Form of Specimen Warrant Certificate.*
4.3 Form of Representative's Option, as amended.*
4.4 Form of Warrant Agreement.*
5.1 Opinion of Silverman, Collura & Chernis, P.C., special counsel for the
Registrant, as to the legality of the securities being registered.
10.1 Stock Purchase Agreement between the Registrant and Bing-O-Rama.*
10.2 Stock Purchase Agreement between the Registrant and Texas Charities,
Inc.*
10.3 Stock Purchase Agreement between the Registrant and Charity Bingo,
Inc.*
10.4 Stock Purchase Agreement between the Registrant and San Antonio
Charities, Inc.*
10.6 1994 Employee Stock Option Plan.*
10.7 1995 Employee Stock Option Plan.**
10.8 1996 Employee Stock Option Plan.**
10.9 1995 Employee Stock Purchase Plan.**
10.10 Form of Employment Agreement with Gregory Wilson**
10.11 Form of Employment Agreement with Robert Hersch**
10.12 Form of Employment Agreement with John Orton**
10.13 Form of Employment Agreement with John Richard Henry**
24.1 Consent of Weinick, Sanders & Co. LLP, Certified Public Accountants.
24.2 Consent of Silverman, Collura & Chernis, P.C. (to be included in their
opinion to be filed as Exhibit 5.1).
Item 28. Undertakings.
(a) Rule 415 Offerings.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during the period required by Rule 415, a post-effective
amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Includes any additional or changed material information on
the plan of distribution.
provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration
II-6
<PAGE>
Statement is on Form S-3 or Form S-8, and the information required in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such court.
(c) Reliance upon Rule 430A under the Securities Act.
The undersigned small business issuer hereby undertakes that it will:
(1) For determining any liability under the Securities Act of 1933,
as amended, treat the information omitted from the form of prospectus filed
as part of the registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the small business issuer under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933,
as amended, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in
the registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
II-7
<PAGE>
POWER OF ATTORNEY
Each person whose signature appear below constitutes and appoints Greg
Wilson his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and to take such actions in, and file with
the appropriate authorities in, whatever states said attorney-in-fact and agent
shall determine, such applications, statements, consents and other documents as
may be necessary or expedient to register securities of the Company for sale,
granting unto said attorney-in-fact and agent full power and authority to do so
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof and the Registrant hereby confers like authority on its
behalf.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Austin,
State of Texas on July 8, 1996.
AMERICAN BINGO & GAMING CORP.
By: /s/ Gregory Wilson
---------------------------------------
Gregory Wilson, President
In accordance with the requirements of the Securities Act of 1933, this
Registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Gregory Wilson Chief Executive Officer July 8, 1996
- ------------------------- and Chairman of the Board
Gregory Wilson
/s/ Courtland Logue, Jr. President and Director July 8, 1996
- -------------------------
Courtland Logue, Jr.
/s/ John Orton Chief Financial Officer July 8, 1996
- -------------------------
John Orton
/s/ Robert Hersch Director July 8, 1996
- -------------------------
Robert Hersch
Director July 8, 1996
- -------------------------
Len Bussey
<PAGE>
[LETTERHEAD]
July 11, 1996
American Bingo & Gaming Corp.
515 Congress Avenue, Suite 1200
Austin, Texas 78701
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to American Bingo & Gaming Corp. (the "Company"),
a Delaware corporation, pursuant to a Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on July 15, 1996 (the
"Registration Statement"), covering 617,500 shares of the Company's Common
Stock, $.001 par value (the "Shares"), 1,005,000 Redeemable Warrants to purchase
one share of Common Stock (the "Warrants") and 1,005,000 shares Common Stock
issuable upon exercise of the Warrants. The Shares and the Warrants are
hereinafter referred to as the "Securities".
In acting as counsel for the Company and arriving at the opinions as
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of natural persons and the conformity to original documents of
all documents submitted to us as certified or photostated copies.
Based on the foregoing, and subject to the qualifications and limitations
set forth herein, it is our opinion that:
1. The Company has authority to issue the Securities in the manner
and under the terms set forth in the Registration Statement.
<PAGE>
2. The Securities have been duly authorized and when issued,
delivered and paid for in accordance with their respective terms, will be
validly issued, fully paid and non-assessable.
We express no opinion with respect to laws other than those of the
State of New York and Federal Laws of the United States of America, and we
assume no responsibility as to the applicability thereof, or the effect
thereon, of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to its use as part of the Registration Statement.
Very truly yours,
SILVERMAN, COLLURA & CHERNIS, P.C.
/s/ Silverman, Collura & Chernis P.C.
<PAGE>
Consent of Weinick, Sanders & Co. LLP
(Independent Certified Public Accountants)
We consent to the use in the Registration Statement on Form SB-2 under the
Securities Exchange Act of 1933 of our report dated February 18, 1996 (except
for Notes 11(b) and 14 as to which the dates were March 20, 1996 and March 29,
1996, respectively) on the consolidated financial statements of American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1995 and 1994, and to the reference to our firm
under the heading "Experts" in the Prospectus.
/s/ Weinick, Sanders & Co. LLP
New York, New York
July 12, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 DEC-31-1996
<CASH> 583,078 431,087
<SECURITIES> 0 0
<RECEIVABLES> 80,034 151,547
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,096,596 1,014,698
<PP&E> 2,514,597 2,441,268
<DEPRECIATION> (460,577) (410,232)
<TOTAL-ASSETS> 4,403,551 4,441,171
<CURRENT-LIABILITIES> 829,983 937,863
<BONDS> 0 0
0 0
0 0
<COMMON> 4,093 4,093
<OTHER-SE> 3,048,147 2,880,473
<TOTAL-LIABILITY-AND-EQUITY> 4,403,551 4,411,171
<SALES> 0 0
<TOTAL-REVENUES> 931,058 3,351,677
<CGS> 0 0
<TOTAL-COSTS> 256,092 5,713,589
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,292 6,308
<INCOME-PRETAX> 167,674 (2,368,220)
<INCOME-TAX> 0 1,061
<INCOME-CONTINUING> 167,674 (2,369,281)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 167,674 (2,369,281)
<EPS-PRIMARY> .04 (.58)
<EPS-DILUTED> 0 0
</TABLE>
