SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1997
Commission file No. 0-13530
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
AMERICAN BINGO & GAMING CORP.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 74-2723809
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 CONGRESS AVENUE, SUITE 1200, AUSTIN, TEXAS 78701
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(Address of principal executive offices)
(512) 472-2041
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
COMMON STOCK $0.001 PAR VALUE
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ X ] NO [ ]
On JULY 7, 1997, the Registrant had 4,645,919 shares of its $.001 par value
Common Stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- -----------------------------------------
June 30, 1997
- -----------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 681,736
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 216,980
Notes receivable - current, net (Note 2) . . . . . . . . . . . 331,255
Other current assets . . . . . . . . . . . . . . . . . . . . . 98,406
- -----------------------------------------------------------------------------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . 1,328,377
Property and Equipment, net (Note 3). . . . . . . . . . . . . . . 3,007,994
Other Assets
Notes receivable, net (Note 2) . . . . . . . . . . . . . . . . 556,461
Intangible assets, net (Note 4) . . . . . . . . . . . . . . . 1,252,243
Licenses, Other non-current assets, net. . . . . . . . . . . . 184,150
- -----------------------------------------------------------------------------------
Total Other Assets . . . . . . . . . . . . . . . . . . . . . . . . 1,992,854
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,329,225
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 229,546
Note payable - current (Note 5). . . . . . . . . . . . . . . . 142,337
Obligations under capital leases - current . . . . . . . . . . 58,084
- -----------------------------------------------------------------------------------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . 429,967
Long-term liabilities
Note payable (Note 5). . . . . . . . . . . . . . . . . . . . . 634,140
Obligations under capital leases . . . . . . . . . . . . . . . 137,925
- -----------------------------------------------------------------------------------
Total Long-term Liabilities. . . . . . . . . . . . . . . . . . . . 772,065
Shareholders' Equity (Note 6)
Preferred Stock, $.01 par value, authorized 1,000,000 shares,
no shares issued and outstanding . . . . . . . . . . . . . . --
Common Stock, $.001 par value, authorized 20,000,000 shares,
issued and outstanding 4,645,919 shares. . . . . . . . . . . 4,646
Additional paid-in capital . . . . . . . . . . . . . . . . . . 11,548,547
Retained earnings (accumulated deficit). . . . . . . . . . . . (6,426,000)
- -----------------------------------------------------------------------------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . 5,127,193
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . $ 6,329,225
===================================================================================
</TABLE>
See accompanying notes
1
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For Three Months Ended June 30, 1997 1996
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<S> <C> <C>
REVENUES:
Rental. . . . . . . . . . . . . . . . . $ 685,398 $ 534,730
Gaming, concession and other. . . . . . 625,015 328,490
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TOTAL REVENUES . . . . . . . . . . . . . . . 1,310,413 863,220
COSTS AND EXPENSES:
Rent and supplies. . . . . . . . . . . . 280,781 216,237
General & administrative expenses. . . . 340,254 249,695
Depreciation and amortization. . . . . . 74,656 66,883
Other operating costs. . . . . . . . . . 198,497 193,530
---------- ----------
TOTAL COSTS AND EXPENSES . . . . . . . . . . 894,188 726,345
- --------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . 416,225 136,875
INTEREST INCOME, NET . . . . . . . . . . . . 13,974 48,982
- --------------------------------------------------------------------
INCOME BEFORE TAXES. . . . . . . . . . . . . 430,199 185,857
PROVISION FOR INCOME TAXES (Note 7). . . . . -- --
- --------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . $ 430,199 $ 185,857
====================================================================
EARNINGS PER SHARE (Note 8). . . . . . . . . $ .10 $ .05
EARNINGS PER SHARE - ASSUMING FULL DILUTION. $ .10 $ .05
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . 4,194,694 4,108,394
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING FULL DILUTION . . . . . . . . . . 4,454,632 4,108,394
</TABLE>
See accompanying notes
2
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For Six Months Ended June 30, 1997 1996
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<S> <C> <C>
REVENUES:
Rental. . . . . . . . . . . . . . . . . $1,222,929 $1,058,528
Gaming, concession and other. . . . . . 1,123,270 735,750
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TOTAL REVENUES . . . . . . . . . . . . . . . 2,346,199 1,794,278
COSTS AND EXPENSES:
Rent and supplies. . . . . . . . . . . . 535,185 482,679
General & administrative expenses. . . . 610,589 498,262
Depreciation and amortization. . . . . . 165,176 139,985
Other operating costs. . . . . . . . . . 381,398 407,856
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TOTAL COSTS AND EXPENSES . . . . . . . . . . 1,692,348 1,528,782
- --------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . 653,851 265,496
INTEREST INCOME, NET . . . . . . . . . . . . 78,185 88,034
- --------------------------------------------------------------------
INCOME BEFORE TAXES. . . . . . . . . . . . . 732,036 353,530
PROVISION FOR INCOME TAXES (Note 7). . . . . -- --
- --------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . $ 732,036 $ 353,530
====================================================================
EARNINGS PER SHARE (Note 8). . . . . . . . . $ .18 $ .09
EARNINGS PER SHARE - ASSUMING FULL DILUTION. $ .17 $ .09
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . 4,167,360 4,100,864
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING FULL DILUTION . . . . . . . . . . 4,427,298 4,100,864
</TABLE>
See accompanying notes
3
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For Six Months Ended June 30, 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 732,036 $ 350,530
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 177,506 143,759
Changes in operating assets and liabilities, net . . . . . . (197,933) (311,385)
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . $ 711,609 $ 185,904
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (717,961) (101,468)
Acquisition of bingo centers . . . . . . . . . . . . . . . . (700,000) ---
Acquisition of intangible assets (106,311) ---
Renegotiated lease costs . . . . . . . . . . . . . . . . . . (70,000)
Collection of notes receivable . . . . . . . . . . . . . . . 133,284 194,723
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES. . . . . . . ($1,460,988) $ 93,255
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes (Note 5) . . . . . . . . . . . . . . . . . (30,406) (9,900)
Equipment financings under capital leases 113,668 ---
Issuance of common shares under Employee Stock Option Plans
and Employee Stock Purchase Plan . . . . . . . . . . . . . 278,884 7,000
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES. . . . . . . $ 362,146 ($2,900)
NET INCREASE/(DECREASE) IN CASH. . . . . . . . . . . . . . . . . ($387,233) $ 276,259
CASH - BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . $ 1,068,969 $ 431,087
- -------------------------------------------------------------------------------------------
CASH - END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 681,736 $ 707,346
===========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-Cash Transactions:
Issuance of installment note for
renegotiated lease interest (Notes 5 and 6) $ 739,777 ---
Issuance of restricted company common stock for
renegotiated lease interest (Notes 5 and 6) $ 206,250 ---
</TABLE>
See accompanying notes
4
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of American Bingo & Gaming Corp. and its wholly-owned subsidiaries,
hereafter collectively referred to as "The Company." The financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information pursuant to Form 10-QSB. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments and inter-company eliminations
considered necessary for a fair presentation of the interim financial
statements have been included. Operating results for the three- and six-month
periods ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1997. Except for
historical information contained herein, certain matters set forth in this
report are forward looking statements that are subject to risks and
uncertainties, including customer attendance and spending, competition,
capital resources, government regulation and general economic conditions,
among others. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form
10-KSB for the fiscal year ended December 31, 1996.
NOTE 2 NOTES RECEIVABLE
Notes receivable consist of two notes totaling $1.6 million from the sale of
four of the Company's former bingo centers in Florida. The current balance on
these notes is approximately $1.1 million, of which $331,000 is due within the
next year. These notes each have unique terms, including annual interest rates
of 9-12% and maturity dates in 1998-2001. Approximately 10% of the current
note balances were past due at the end of the second quarter of 1997, a
portion of which was collected subsequent to the end of the quarter.
Management has provided a reserve, currently totaling $265,000, for
collectibility on these notes. This reserve is amortized as the notes are
collected (See Item 1 - Legal Proceedings).
NOTE 3 PROPERTY AND EQUIPMENT
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<CAPTION>
Property and Equipment at June 30, 1997 consists of the following:
<S> <C> <C>
Land. . . . . . . . . . . . . . . . . . . $ 189,671
Buildings and improvements. . . . . . . . 744,395
Leasehold improvements. . . . . . . . . . 767,571
Equipment and furniture . . . . . . . . . 816,680
Acquisitions, capital expenditures. . . . 1,181,671
Automobiles . . . . . . . . . . . . . . . 86,875
-----------
Sub-total . . . . . . . . 3,786,863
Accumulated depreciation and amortization (778,869)
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Net Property and Equipment. . . . . . . . $3,007,994
</TABLE>
5
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
NOTE 3 PROPERTY AND EQUIPMENT (CONTINUED)
The Company considerably expanded its South Carolina operations in the
second quarter of 1997 (there were no acquisitions in the first quarter of
1997). The Company acquired the "Lucky Bingo", "Shipwatch", and
"Ponderosa" bingo center businesses in Charleston during the second quarter.
Cash consideration paid for these acquisitions was approximately $700,000,
which is approximately 11% of total company assets as of June 30, 1997. As
such, under the SEC's recently revised acquisition reporting rules for small
business filers, which eliminate acquisition reporting for business
acquisitions under the 20% significance level, the company capitalized did not
file an 8-k for these acquisitions.
The Company also made capital improvements to its various bingo centers
totaling approximately $718,000 during the first six months of 1997.
Approximately $140,000 of these improvements were made in the first quarter
and $578,000 of these improvements were made in the second quarter, primarily
for South Carilina Bingo And Gaming Centers. Thus, total cash expenditures
for acquisitions ($700,000) and capital expenditures ($718,000) for the first
half of 1997 was $1,418,000, of which approximately $1.18 million will be
classified into various property and equipment asset categories in the third
quarter of 1997 upon project completion dates.
NOTE 4 INTANGIBLE ASSETS
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<CAPTION>
Intangible Assets at June 30, 1997 consist of the following:
<S> <C> <C>
Renegotiated lease costs $1,016,027
Goodwill . . . . . . . . 326,492
Covenants not to compete 60,000
-----------
Sub-total. . . . . 1,402,519
Accumulated amortization (150,276)
-----------
Net Intangible Assets. . $1,252,243
</TABLE>
The Company's intangible assets have been recorded in connection with the
Company's acquisition of certain bingo centers in Texas, Alabama and South
Carolina. The Company added $1.02 million of intangible assets in the first
quarter of 1997 pursuant to the Company's renegotiation of its lease with its
Columbia bingo center lessee for an increased interest in the bingo, gaming
and concessions proceeds generated by its Columbia operations. In return, the
Company provided its lessee with a note for $740,000, 300,000 shares of
restricted Company stock and $70,000 in cash. The intangible asset resultant
from the Company's renegotiated lease is being amortized over 5 years,
consistent with the life of the lease. Goodwill and covenants are amortized
over 15 and 5 years, respectively, consistent with management's estimates of
the useful lives of these assets.
6
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
NOTE 5 NOTES PAYABLE
The majority of the Company's $776,000 total notes payable balance represents
the Company's remaining obligation of $709,000 on a $740,000 note payable to
the lessee of its South Carolina bingo centers. This liability was incurred in
the first quarter of 1997 pursuant to the Company's renegotiated lease with
the lessee and increased interest in the bingo, gaming and concession proceeds
from its Columbia, South Carolina bingo and gaming centers. This note is
payable over five years at 8% interest. Approximately $127,000 of this note is
due within the next twelve months. The balance of the Company's total notes
payable is $67,000, which is comprised of balances due on auto purchases.
NOTE 6 SHAREHOLDERS' EQUITY
The Company issued 300,000 shares of restricted Company common stock, valued
at $206,250, to the lessee of its South Carolina bingo centers during the
second quarter. This stock was issued pursuant to the Company's renegotiated
lease with the lessee and its increased interest in the bingo, gaming and
concession proceeds from its Columbia, South Carolina bingo and gaming
centers. This stock is subject to a two year Company lock-up agreement. The
Company also issued an additional 183,425 shares of its common stock during
the second quarter. Of this total, 100,000 shares were issued pursuant to the
exercise of a stock option by a former employee, with the balance issued in
payment of financial and legal services valued at approximately $73,000.
NOTE 7 INCOME TAXES
The Company did not record any federal income tax liability for the first or
second fiscal quarters of 1997 or 1996 due to accumulated tax loss
carryforwards of approximately $3.0 million at the end of fiscal 1995. The
Company had available over $2.0 million of tax loss carryforwards at the end
of 1996 and does not expect to incur any federal income tax liability until
this carryforward is depleted.
NOTE 8 ADOPTION OF NEW ACCOUNTING STANDARD
The Company intends to adopt SFAS No. 128, "Earnings per Share" effective
December 15, 1997. This statement requires the replacement of primary earnings
per share with basic earnings per share and fully diluted earnings per share
with diluted earnings per share. Management of the Company does not expect the
adoption of this statement will have a material impact on the earnings per
share computation.
7
AMERICAN BINGO & GAMING CORP.
June 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
American Bingo & Gaming Corp. was formed as a Delaware corporation on
September 8, 1994 to pursue bingo and gaming business opportunities. The
Company completed its initial public offering in December 1994, raising
approximately $5.2 million through the issuance of common stock and warrants.
The Company netted approximately $3.1 million from this offering after the
retirement of debt and payment of underwriting fees. The Company used a
majority of these proceeds for expansion activities in 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 fundraising. Participating charities at the Company's
bingo centers raised over $3.6 million and $2.5 million for their operations
in 1996 and 1995, respectively. The Company's revenues are primarily derived
from rental revenues from participating charities that conduct bingo
activities at the Company's bingo centers. Additional revenues are also
generated from video gaming centers in South Carolina, as well as vending and
concession operations, the sale of bingo paper and supplies, electronic bingo
"card-minders" and other miscellaneous revenues in the Company's bingo
centers.
Company management believes that the estimated $5.0 billion North American
charitable bingo market is fragmented and inefficient, yet potentially
profitable for charities and commercial lessors such as the Company. The
Company's strategy, therefore, is to consolidate a portion of the industry to
build a national chain of bingo centers in lucrative markets. Management
believes that the Company's industry experience, economies of scale and
financial resources provide a competitive advantage over competing bingo
operations, which should enable the Company and its participating charities to
mutually prosper. The Company currently has eighteen total bingo centers
operating in various markets in Texas, Alabama and South Carolina, with five
more centers planned to open in the third quarter. The Company intends to
continue its expansion through acquisitions and developments in selected
markets, with the goal of operating 25-30 bingo centers by the end of 1997 and
100 bingo centers by the end of the year 2000. The Company also operates 15
video gaming centers, with plans to open at least 15 more by yearend.
RESULTS OF OPERATIONS
The Company generated consolidated revenues of $1.31 million during its second
fiscal quarter of 1997, ended June 30, 1997, as compared to $863,000 in the
comparable period of the prior fiscal year, which represents an increase of
$447,000 or 52%. This quarter's sales increase was primarily led by the
Company's successful South Carolina operations. Approximately 52% of this
quarter's revenues were derived from charity rentals, with the balance
comprised of gaming, paper, concessions and other sales.
Revenues for the first half of 1997 totaled $2.35 million as compared to $1.79
million in the comparable 1996 period, an increase of $552,000 or 31%. This
increase was again led by the Company's successful South Carolina operations.
The Company expects revenues to continue to increase in 1997 based on: i) the
successful opening of additional bingo and gaming centers in South Carolina;
and ii) additional growth of existing operations. There can be no assurance of
either of the foregoing expectations.
Costs and expenses totaled $894,000 during the second quarter of 1997 versus
$726,000 in the comparable 1996 quarter, which represents an increase of
$168,000 or 23%, as compared to the Company's 52% increase in quarterly
revenues. Costs and expenses for the first half of 1997 totaled $1.69 million
as compared to $1.53 million in the comparable period of 1996, an increase of
$163,000 or 11%, as compared to the Company's 31% increase in first half
revenues. These cost increases were led by increased rent and supplies expense
consistent with the Company's increased number of bingo and video gaming
centers, and increased general and administrative expense primarily due to an
increase in the Company's industry lobbying activities and legal fees.
8
AMERICAN BINGO & GAMING CORP.
June 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(CONTINUED)
Net interest income for the quarter ended June 30, 1997 totaled $14,000 as
compared to $49,000 in the year ago quarter. Net interest income for the first
half of 1997 totaled $78,000 as compared to $88,000 in the comparable 1996
period. Interest income was lower in 1997 primarily due to increased interest
costs on the Company's notes and capital lease obligations.
The Company did not record any federal income tax expense during the current
quarter, first half of the year or comparable year ago periods due to tax loss
carryforwards. The Company's tax loss carryforward balance was in excess of $3
million at the end of fiscal 1995 and in excess of $2 million at the end of
fiscal 1996. 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 of sufficient profitability (See Note 7).
Net income for the second fiscal quarter of 1997 was a record $430,000, which
equated to earnings per share of $.10 on a fully diluted basis. Net income for
the second quarter of 1996 was $186,000, which equated to earnings per share
of $.05. The majority of the Company's $244,000 or 130% quarterly net income
increase was due to the success of the Company's South Carolina operations as
reflected in the Company's increased operating profits and margins. The
Company also saw increased quarterly profits in its Texas and Alabama
operations. Net income for the first half of 1997 totaled $732,000 or $.17 per
share on a fully diluted basis as compared to $354,000 or $.09 per share for
the comparable period of 1996. This increase in profitability is again due to
the continued strong performance of the Company's South Carolina investments.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $682,000, down
from $1.27 million at the end of 1996. The Company has generated over $700,000
in positive operational cash flows during the first half of 1997, but has also
invested over $2.36 million in capital investments and intangible assets,
primarily in South Carolina. These investments will result in the addition of
nine bingo centers and 24 video gaming centers in South Carolina during the
second and third quarters of 1997, of which four bingo centers and 11 gaming
centers opened in June of the second quarter. The Company has financed
approximately half of these investment costs through operator and capital
lease financing transactions. The Company currently has lease lines totaling
$1.25 million available for equipment purchases, and expects to increase these
lines concurrent with future expansion.
Current assets totaled $1.33 million at the end of the second quarter,
providing the Company with working capital of approximately $900,000 and a
current ratio (current assets divided by current liabilities) of over 3.1.
Accounts receivable totaled $217,000 at June 30, 1997. Because the Company
collects most of its receivables within one to four weeks from the time
earned, accounts receivable normally represent only a small portion of the
Company's total assets. Total notes receivable, less provision for doubtful
collectibility, totaled $887,000 at June 30, 1997. Bingo paper and other
supplies are expensed at the time of purchase; thus no inventory is recorded
for operations.
Current liabilities totaled $430,000 at the end of the second quarter, with
over half of this total comprised of accounts payable and accrued expenses and
the balance comprised of note and lease payments due over the next year. The
Company also had $772,000 of long-term obligations, the majority of which was
for a note payable to the operator of the Company's South Carolina bingo and
gaming centers (See Note 5). The Company intends to finance its long-term
liabilities with expected continued operational cash flows, particularly from
its South Carolina operations. The Company is also evaluating the possibility
of
9
AMERICAN BINGO & GAMING CORP.
June 30, 1997
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
raising additional equity financing of $1 to $3 million if business growth
requirements dictate such and favorable equity financing terms can be found,
of which there can be no assurance. Longer term, the Company expects to raise
over $15 million from the exercise of its publicly traded redeemable common
stock purchase warrants. These warrants allow the holders to purchase one
share of Company common stock at $5.00 per share. There can be no assurance
that the Company's stock price will maintain a $5.00 or higher price level
that the Company believes will be necessary to enable these warrants to be
exercised by holders.
The Company had total assets of over $6.33 million and total liabilities of
$1.20 million at the end of the second quarter, with shareholder equity of
$5.13 million. Management believes that its current cash balances, current
operational cash flows in excess of $100,000 per month and two credit lines
totaling $1.25 million will support operational and expansion requirements for
the next year. The Company may seek financing for certain lucrative expansion
opportunities.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 12, 1997 the individual who originally sold three Florida bingo
centers to the Company in July of 1995 filed a lawsuit against the Company,
alleging breach of contract. The seller (plaintiff) alleges that the Company
has defaulted on its original purchase note and stock obligations per sales
agreements.
On July 12, 1997 the Company answered this lawsuit and filed a counterclaim
against the plaintiff alleging, among other things, fraud, negligent
representation, breach of express warranties, contractual indemnity and
tortious interference with contractual rights. The Company believes that it
was materially defrauded in its purchases of the three Florida bingo centers
from the plaintiff in that he made no disclosure to the Company of a known,
ongoing criminal investigation of his operation of these centers by the
Florida State Attorney General's Office. (The state of Florida temporarily
closed these three bingo centers, as well as several others formerly owned by
the plaintiff, in November 1995). The Company believes that the plaintiff owes
the Company monetary damages in excess of $1,000,000, because: i) these bingo
centers did not perform to the plaintiff's contractually-guaranteed net income
levels during the Company's ownership; and ii) the Company incurred
substantial monetary damages in its defense against the State of Florida.
The Company and the State of Florida have since settled all matters regarding
the Company's previous ownership and operation of these bingo centers. The
State of Florida is continuing its prosecution of the plaintiff, with a
criminal trial scheduled to begin September 8, 1997. The Company believes that
the plaintiff's lawsuit against the Company is completely without merit and
that the Company will prevail in its counterclaim against the plaintiff.
On June 19, 1997, the Governor of Texas signed into law a bill which would
prohibit publicly traded corporations from holding a bingo center lessor's
license in Texas as of January 1, 2001. The Company believes that this
provision of the bill is unconstitutional and will seek to have it judicially
annulled. Management does not believe that this bill will have a materially
adverse effect on the Company because: i) the Company expects to prevail
legally; ii) even if the Company were unsuccessful in its legal efforts, this
provision of the bill would not take effect for three and a half years; and
iii) the Company's operations in the state of Texas represent an increasingly
immaterial portion of its overall profits. However, if not repealed or
subsequently changed, this provision of the new law would require the Company
to close or divest itself of its Texas bingo centers by December 31, 2000.
10
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto authorized.
American Bingo & Gaming Corp.
October 31, 1997
By:
/s/ Gregory L. Wilson
---------------------
Gregory L. Wilson
Chief Executive Officer
/s/ John T. Orton
-----------------
John T. Orton
Chief Financial Officer
