SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 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.
-----------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 74-2723809
-------------------------------- -------------------
(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
--------------
(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 NOVEMBER 14, 1997, the Registrant had 7,096,433 shares of its $.001 par
value Common Stock outstanding (including 1 million shares issued pursuant to
a pending acquisition).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- -----------------------------------------
September 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,769,904
Accounts receivable, net 329,544
Notes receivable - current, net 407,109
Other current assets 368,752
- ----------------------------------------------------------------------------------------
Total Current Assets 2,875,309
Property and Equipment, net 3,619,930
Other Assets
Notes receivable, net 624,184
Licenses, net 578,534
Intangible assets, net 2,452,891
Other non-current assets 173,464
- ----------------------------------------------------------------------------------------
Total Other Assets 3,829,073
TOTAL ASSETS $ 10,324,312
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 175,035
Notes payable - current 442,210
Obligations under capital leases - current 182,054
- ----------------------------------------------------------------------------------------
Total Current Liabilities 799,299
Long-term liabilities
Notes payable 705,098
Obligations under capital leases 754,232
- ----------------------------------------------------------------------------------------
Total Long-term Liabilities 1,459,330
Shareholders' Equity
Preferred Stock, $.01 par value, authorized 1,000,000 shares,
2,000 shares issued and outstanding 20
Common Stock, $.001 par value, authorized 20,000,000 shares,
issued and outstanding 5,867,888 shares 5,868
Additional paid-in capital 13,351,649
Retained earnings (accumulated deficit) (5,291,854)
- ----------------------------------------------------------------------------------------
Total Shareholders' Equity 8,065,682
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,324,312
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For Three Months Ended September 30, 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Rental $ 727,276 $ 491,256
Gaming, concession and other 1,690,824 969,823
---------- ----------
TOTAL REVENUES 2,418,100 1,461,079
COSTS AND EXPENSES:
Rent and supplies 476,909 366,170
General & administrative expenses 562,325 521,512
Depreciation and amortization 105,996 88,174
Other operating costs 651,290 251,177
---------- ----------
TOTAL COSTS AND EXPENSES 1,796,520 1,227,033
- -------------------------------------------------------------------
OPERATING INCOME 621,580 234,046
INTEREST INCOME, NET 53,187 45,732
- -------------------------------------------------------------------
INCOME BEFORE TAXES 674,767 279,778
PROVISION FOR INCOME TAXES 10,899 --
- -------------------------------------------------------------------
NET INCOME $ 663,868 $ 279,778
===================================================================
EARNINGS PER SHARE $ .12 $ .05
EARNINGS PER SHARE - ASSUMING FULL DILUTION $ .11 $ .05
WEIGHTED AVERAGE SHARES OUTSTANDING 5,543,229 5,225,394
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING FULL DILUTION 6,319,403 5,225,394
</TABLE>
See accompanying notes to consolidated financial statements.
2
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For Nine Months Ended September 30, 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Rental $1,950,205 $1,549,784
Gaming, concession and other 5,114,419 2,567,086
---------- ----------
TOTAL REVENUES 7,064,624 4,116,870
COSTS AND EXPENSES:
Rent and supplies 1,380,382 1,058,342
General & administrative expenses 1,859,621 1,385,394
Depreciation and amortization 311,770 264,674
Other operating costs 1,757,965 858,256
---------- ----------
TOTAL COSTS AND EXPENSES 5,309,738 3,566,666
- -------------------------------------------------------------------
OPERATING INCOME 1,754,886 550,204
INTEREST INCOME, NET 130,884 138,121
- -------------------------------------------------------------------
INCOME BEFORE TAXES 1,885,770 688,325
PROVISION FOR INCOME TAXES 19,587 --
- -------------------------------------------------------------------
NET INCOME $1,866,183 $ 688,325
===================================================================
EARNINGS PER SHARE $ .35 $ .13
EARNINGS PER SHARE - ASSUMING FULL DILUTION $ .33 $ .13
WEIGHTED AVERAGE SHARES OUTSTANDING 5,389,534 5,218,374
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING FULL DILUTION 5,734,905 5,218,374
</TABLE>
See accompanying notes to consolidated financial statements.
3
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For Nine Months Ended September 30, 1997 1996
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,866,183 $ 688,325
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 311,770 264,674
Issuance of Company Stock for consulting services 72,881 ---
Changes in operating assets and liabilities, net (570,329) (684,047)
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,680,505 $ 268,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,248,302) (183,846)
Acquisition of bingo and gaming centers (850,000) 36,667
Acquisition of licenses (540,575) 14,103
Renegotiated lease costs (70,000) ---
Issuance of notes receivable (80,000) ---
Collection of notes receivable 204,124 160,374
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES ($2,584,753) $ 27,298
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Preferred Stock, net 1,829,900 ---
Owner withdrawals from acquired businesses (614,939) (122,117)
Payments on notes and capital lease obligations (88,845) 127,621
Proceeds from issuance of Common Shares under
Employee Stock Option and Stock Purchase Plans 437,524 7,000
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES $ 1,563,640 $ 12,504
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 659,392 $ 308,753
CASH AND CASH EQUIVALENTS - BEGINNING $ 1,110,512 $ 439,139
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $ 1,769,904 $ 747,892
========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-Cash Transactions:
- -------------------------------------------------------------
Issuance of installment notes for renegotiated lease interest
and purchase of bingo centers $ 1,139,777 ---
Issuance of installment notes for capital lease obligations $ 863,820 $ 87,101
Issuance of Company Common Stock for gaming and
bingo center acquisitions $ 504,431 ---
Issuance of restricted Company Common Stock for
renegotiated lease interest $ 206,250 ---
</TABLE>
See accompanying notes to consolidated financial statements.
4
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 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." All 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 nine-month
periods ended September 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.
In the third quarter of 1997, the Company acquired Gold Strike, Inc. and Lucky
4, Inc., two corporations engaged in the video game machine business in South
Carolina. These two acquisitions were accounted for as poolings of interests
under APB 16 "Business Combinations." The Company acquired all of the
outstanding stock of Gold Strike and Lucky 4 in exchange for a total of
1,114,000 shares of its $.001 par value Common Stock. There were no material
adjustments in the net assets of the combining companies to adopt the same
accounting policies, nor were there any changes in their fiscal years as a
result of these combinations.
The Company's consolidated financial statements give retroactive effect to
these acquisitions for all periods presented herein. The interim results of
the Company for the period from January 1, 1996 to September 30, 1996 have
been restated to: i) include these acquisitions, and ii) be consistent with
current reporting formats. Restated results, after giving effect to the
acquisitions, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
----------------------- -----------------------
As As
As Previously As Previously
Restated Reported Restated Reported
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Revenues $1,461,079 $ 914,740 $4,116,870 $ 2,709,019
Net Income 279,778 248,427 688,325 601,958
Earnings per share $ .05 $ .06 $ .13 $ .15
Weighted average shares outstanding 5,225,394 4,111,394 5,218,374 4,104,374
</TABLE>
5
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 2 EXPANSION ACTIVITIES
- --------------------------------
The Company considerably expanded its South Carolina bingo operations in the
second and third quarters of 1997 (there were no acquisitions in the first
quarter of 1997). The Company acquired the "Lucky Bingo", "Shipwatch", and
"Ponderosa" bingo centers in Charleston during the second quarter, and "Beacon
1" and "Beacon 2" bingo centers in Charleston during the third quarter. Total
cash consideration paid for these acquisitions was $850,000. The Company also
issued notes for $400,000 and 9,969 shares of Company Common Stock valued at
$50,000 pursuant to these acquisitions. These acquisitions have been accounted
for as purchases, with the excess of consideration paid over fair market asset
values treated as goodwill. The Company has not filed 8-K reports for these
acquisitions as they individually and cumulatively fall under the 20%
significance level required for 8-K reporting for small business filers.
The Company also expanded its South Carolina gaming center operations in the
third quarter of 1997. The Company acquired the "Gold Strike" and "Lucky 4"
video gaming operations in two stock-for-stock transactions which added over
120 video gaming machines in this quarter. The Company issued a total of
1,114,000 shares of its Common Stock in exchange for all outstanding shares of
these two businesses. These acquisitions had net asset values of approximately
$454,000 at their dates of acquisition and were accounted for as poolings of
interests. The fair market value of the consideration given by the Company in
these acquisitions exceeded the 20% significance level and the Company has
filed an 8-K report on the Gold Strike acquisition and will file financial
statements on the Lucky 4 acquisition within 60 days of the initial 8-K filing
, which took place on October 16, 1997.
The Company also made significant capital expenditures totaling approximately
$1.25 million during the first nine months of 1997. The vast majority of these
costs were related to the Company's South Carolina expansion activities.
NOTE 3 PROPERTY AND EQUIPMENT, NET
- -----------------------------------------
Property and Equipment at September 30, 1997 consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Land $ 189,671
Buildings and improvements 806,490
Leasehold improvements 1,174,604
Equipment and furniture 2,419,010
Construction in progress 277,903
Automobiles 211,600
------------
Sub-total 5,079,278
Accumulated depreciation and amortization (1,459,348)
------------
Net Property and Equipment $ 3,619,930
</TABLE>
6
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 4 NOTES RECEIVABLE
- --------------------------
Notes receivable primarily consists 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 Florida notes is approximately $1.1 million, of which
$407,000 is due within the next year. The Florida notes each have unique
terms, including annual interest rates of 9-12% and maturity dates in
1998-2001. Approximately 11% of the total Florida note balance was past due at
the end of the third quarter of 1997, a portion of which was collected
subsequent to the end of the quarter. A majority of the past due Florida
balance has been paid into an escrow account in Florida pursuant to an
interpleador action by one of the creditors. The Company expects to collect
this past due account balance upon favorable legal resolution, although there
can be no assurance of this. Management has provided a reserve, currently
totaling $252,000, for collectibility on these notes. This reserve is
presently maintained at a constant percentage of the outstanding principal
balance and is amortized as the notes are collected.
NOTE 5 INTANGIBLE ASSETS
- -----------------------------
Intangible Assets at September 30, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Goodwill $1,551,491
Renegotiated lease costs $1,016,027
Covenants not to compete 60,000
-----------
Sub-total 2,627,518
Accumulated amortization (174,627)
-----------
Net Intangible Assets $2,452,891
</TABLE>
The Company's intangible assets are primarily comprised of goodwill recorded
in connection with the acquisition of certain bingo and gaming centers
in Texas, Alabama and South Carolina, and the costs of a renegotiated
lease. The Company has added $2.2 million of intangible assets during the
first nine months of 1997. Goodwill represents the excess of total
consideration paid for acquisitions over the fair market value of the assets
acquired in these acquisitions, which were treated as purchases for accounting
purposes. The Company has recorded approximately $1.2 of goodwill in 1997
pursuant to the acquisition of five bingo centers in South Carolina for $1.3
million in total consideration, which was paid in cash ($850,000), notes
payable ($400,000), and Company Stock ($50,000). The Company also recorded
$1.0 million of goodwill pursuant to the Company's renegotiation of its lease
with its Columbia bingo center lessee in 1997 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. Intangible assets are
amortized over management's estimate of their expected useful lives, which is
5 to 15 years for most intangible assets. Management reviews the valuation of
intangible assets on a regular basis, and, when events or changes in
circumstances dictate that the carrying amount may be impaired, management
will write down intangible assets to their net recoverable value.
7
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 6 NOTES PAYABLE
- -------------------------
The majority of the Company's notes payable balance represents the Company's
remaining obligation of $678,000 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
of its Columbia bingo and gaming centers for an increased interest in the
bingo, gaming and concession proceeds from the centers. This note is payable
over five years at 8% interest. Approximately $130,000 of this note is due
within the next 12 months. The Company also owes $347,000 on a $400,000 note
payable incurred in the third quarter of 1997 pursuant to the acquisition of
two bingo centers in South Carolina. This note is payable over two years at 6%
interest and may be reduced if the actual financial performance of the
underlying bingo centers does not meet certain performance requirements. The
balance of the Company's notes payable is comprised of balances due on
automobile purchases.
NOTE 7 SHAREHOLDERS' EQUITY
- --------------------------------
The Company has issued approximately 1,707,000 shares of its Common Shares
during the first nine months of 1997. Of this total, approximately two-thirds
have been issued in connection with acquisitions (Gold Strike - 828,000, Lucky
4 - 286,000, and various bingo centers - 10,000). Of these 1,124,000
acquisition shares, approximately 972,000 are subject to a Company sales
restriction over three years. The Company has also issued 300,000 shares of
stock to the lessee of its Columbia, South Carolina bingo centers pursuant to
a renegotiated lease for an increased interest in bingo, gaming and
concessions proceeds from these centers. These 300,000 shares are subject to a
two-year Company sales restriction. The Company has also issued 200,000 shares
of stock pursuant to option exercises under the Company's Employee Stock
Option Plans and 7,000 shares pursuant to the Company's Employee Stock
Purchase Plan. Lastly, the Company has issued approximately 76,000 shares of
stock in consideration for financial, legal and lobbying services, valued
at about $73,000. Subsequent to the end of the third quarter, the Company
issued 1,000,000 shares pursuant to a stock-for-stock acquisition (see note
10).
In August of 1997, the Company successfully completed a private equity
financing with Plazacorp Investments Ltd., raising $2.0 million for
acquisition and working capital purposes. The Company issued 2,000 Preferred
Series A Shares, $.01 par value, at the price of $1,000 per share. After
commissions, legal and accounting fees, the Company netted $1.83 million from
this financing. The Preferred Shares bear interest at 7% per year and are
convertible into Common Shares under a variable, discounted pricing formula
between $4.00 and $5.50 per share. Under this formula, the Company expects to
issue a minimum of 363,636 Common Shares and a maximum of 500,000 Common
Shares. The Preferred Shares are convertible in four blocks, vesting from
August, 1997 through April, 1998.
NOTE 8 INCOME TAXES
- ------------------------
The Company recorded only nominal tax liability for the first nine months of
1997 and 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.
8
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 9 EARNINGS PER SHARE
- -------------------------------
At September 30, 1997, the Company had 5,867,888 shares issued and
outstanding. The Company had 5,543,229 weighted average shares outstanding for
the third quarter, including 1,114,000 total shares issued for the Gold Strike
and Lucky 4 acquisitions and 363,636 shares expected to be issued pursuant to
the Company's Convertible Preferred equity shares. On a fully diluted basis,
the Company had 6,319,403 shares outstanding for the third quarter. Fully
diluted shares include 434,626 shares attributable to the Company's 3,317,500
outstanding Redeemable Common Stock Purchase Warrants, which are convertible
into the Company's Common Shares on a 1:1 ratio for $5.00 per share. These
warrants expire on December 14, 1998 and are callable sooner by the Company if
its Common Stock trades at $8.00 or higher for 20 consecutive trading days,
which occurred on November 4, 1997. Fully diluted shares also include 341,548
shares attributable to employee stock options priced from $.96 to $5.50 per
share which expire from 1998 - 2003. The additional fully diluted warrant and
stock option shares have been calculated pursuant to APB 15 "Earnings Per
Share" under the "Treasury Stock" method.
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 to have a material impact on the earnings per share
computation.
NOTE 10 SUBSEQUENT EVENTS
- ------------------------------
On November 13, 1997 the Company announced that, effective at the close of
business on November 14, 1997, it was calling all 3,317,500 publicly traded
Redeemable Common Stock Purchase Warrants. Under the terms of its Warrant
Agreement, the Company was able to call the warrants when its Common Stock
traded at $8.00 or greater for 20 consecutive days, which occurred on November
4, 1997. Each warrant is convertible into one Common Share at an exercise
price of $5.00 per share. Warrant holders have until the close of business on
Monday, December 22, 1997 to exercise their warrants, after which the warrants
expire. If all warrants are exercised, the Company would gross in excess of
$16.5 million cash, which would substantially enhance the Company's capital
resources. There can be no assurance that any or all of the warrants will be
exercised.
On November 18, 1997, the Company announced that it had entered into an
agreement to purchase Darlington Music Co., a South Carolina corporation
engaged in the video gaming machine business. Darlington is currently
generating nearly $4 million in annual revenues from over 400 video gaming
machines. The Company will exchange 1 million of its Common Shares for all of
the outstanding shares of Darlington. These 1 million shares were issued on or
about November 14, 1997. This acquisition is planned to close by December 16,
1997, pending completion of final due diligence, and will be accounted for as
a pooling of interests.
9
AMERICAN BINGO & GAMING CORP.
September 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 in
September 1994 to pursue bingo and gaming business opportunities. The Company
completed its initial public offering in December 1994, raising nearly $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 subsequently raised $2.0 million and
netted over $1.8 million in a private financing in August 1997. The Company
has invested a majority of its offering proceeds in expansion activities.
The Company, through its subsidiaries, provides initial investment capital,
facilities, 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 derived
from rental revenues from participating charities that conduct bingo
activities at the Company's bingo centers. Significant 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 North American charitable bingo market,
estimated by industry sources at a $5 billion total annual "handle," 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 chain of bingo and gaming
centers in lucrative markets. Management believes that the Company's industry
experience, economies of scale and financial resources provide a competitive
advantage over competing operations, which should enable the Company and its
participating charities to mutually prosper. The Company currently has 18
total bingo centers in Texas, Alabama and South Carolina, with four more
centers planned to open in the fourth quarter. The Company also currently
operates approximately 270 video gaming machines in South Carolina (prior to
the Darlington acquisition (see Note 10).
RESULTS OF OPERATIONS
The Company generated consolidated revenues of $2.42 million during its third
fiscal quarter ended September 30, 1997, as compared to $1.46 million in the
comparable period of the prior fiscal year, which represents an increase of
$957,000 or 66%. This quarter's sales increase was primarily led by the
Company's successful South Carolina acquisitions and expansion. Approximately
60% of this quarter's revenues were derived from video gaming and 30% from
bingo center rentals, with the balance comprised of paper, concessions
and other sales. Revenues for the first nine months of 1997 totaled $7.06
million as compared to $4.12 million in the comparable 1996 period, an
increase of $2.95 million or 72%. This increase was again led by the Company's
successful South Carolina operations.
Costs and expenses totaled $1.80 million during the third quarter of 1997
versus $1.23 million in the comparable 1996 quarter, which represents an
increase of $569,000 or 46%, as compared to the Company's 66% increase in
quarterly revenues for this period. Costs and expenses for the first nine
months of 1997 totaled $5.31 million as compared to $3.57 million in the
comparable period of 1996, an increase of $1.74 million or 49%, as compared to
the Company's 72% increase in revenues for this period. These cost increases
were primarily led by increased rent and supplies expenses and other operating
costs consistent with the Company's significant growth in the number of bingo
and video gaming centers. General and administrative expenses have also
increased in 1997 to support the Company's growth, with the largest increase
occurring in industry lobbying and legal costs.
10
AMERICAN BINGO & GAMING CORP.
September 30, 1997
RESULTS OF OPERATIONS (CONTINUED)
Net interest income for the quarter ended September 30, 1997 totaled $53,000
as compared to $46,000 in the year ago quarter. Net interest income for the
first nine months of 1997 totaled $131,000 as compared to $138,000 in the
comparable 1996 period. The Company recorded only nominal tax expense during
the first nine months of 1997 and 1996 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.
Net income for the third fiscal quarter of 1997 was a record $664,000, which
equated to primary earnings per share of $.12, or $.11 on a fully diluted
basis. Net income for the third quarter of 1996 was $280,000, which equated to
earnings per share of $.05. The majority of the Company's $384,000 or 137%
quarterly net income increase was due to the successful performance of the
Company's South Carolina operations. Net income for the first nine months of
1997 totaled $1.87 million, which equated to primary earnings per share of
$.35, or $.33 on a fully diluted basis. This compares to $688,000 or $.13 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
acquisitions and investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated approximately $659,000 in net positive cash flow
during the first nine months of 1997. The majority of this positive cash flow
is from operating activities, which netted over $1.68 million to date in 1997.
The Company also netted $1.56 million from financing activities to date in
1997, with the majority of this financing provided by $1.83 million of net
proceeds from a Preferred Stock financing in August of 1997. The Company has
invested over $2.58 million to date in 1997, with the majority of this total
0investment for capital expenditures, bingo center acquisitions and video
gaming license purchases.
Total cash and cash equivalents were $1.77 million at September 30, 1997.
Total current assets were $2.88 million at the end of the third quarter,
leaving the Company with working capital of approximately $2.07 million. Net
property and equipment ($3.62 million), intangible assets ($2.45 million) and
licenses ($579,000) comprise nearly two-thirds of the Company's total assets.
Total current liabilities were nearly $800,000 and total long-term liabilities
were approximately $1.46 million at the end of the third quarter of 1997.
Total shareholder's equity of $8.07 million comprised the balance of the
Company's capitalization.
The Company believes it has adequate capitalization to finance its short-term
capital requirements. The Company intends to finance its short-term capital
requirements with existing cash resources, current operational cash flows and
capital equipment lease lines, which presently total $1.25 million. The
Company intends to finance its long-term capital requirements with the
potential proceeds of over $16 million from the conversion of its 3.3 million
publicly traded redeemable Common Stock Purchase Warrants. The Company called
the warrants as of November 14, 1997 and set a redemption date of December 22,
1997. Each warrant is convertible into one share of Company Common Stock for
$5.00 per share. There can be no assurance that the Company's stock price will
maintain a $5.00 or higher price level through the redemption date that
management believes is necessary to cause these warrants to be exercised. The
Company may also consider other forms of long-term financing to fund its
long-term growth plans.
11
AMERICAN BINGO & GAMING CORP.
September 30, 1997
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed the following reports during the third quarter of 1997:
Date Items Reported Financial Statements
- ---- --------------- --------------------
August 15, 1997 Gold Strike Acquisition Yes - filed via 8-K amendment on or
about October 31, 1997
August 15, 1997 $2M Equity Financing No
<PAGE>
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.
November 18, 1997
By:
/s/ Gregory L. Wilson
--------------------------
Gregory L. Wilson
Chief Executive Officer
/s/ John T. Orton
----------------------
John T. Orton
Chief Financial Officer
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.
November 18, 1997
By:
/s/ Gregory L. Wilson
------------------------
Gregory L. Wilson
Chief Executive Officer
/s/ John T. Orton
--------------------
John T. Orton
Chief Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND CASH FLOWS FOR THE NINE MONTH ENDED
SEPTEMBER 31, 1996, AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH PERIOD END REPORT
OR FORM 10QSB.
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