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 MARCH 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No. 0-13530
---------
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.)
1440 CHARLESTON HIGHWAY, WEST COLUMBIA, SC 29169
-------------------------------------------------
(Address of principal executive offices)
(803) 796-7875
--------------
(Issuer's telephone number)
N/A
---
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the issuer (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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [ X ] NO [ ]
As of April 30, 1999, the Issuer had 9,945,590 shares of its Common Stock, par
value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
CHANGES TO THE 10-QSB
FOR THE FISCAL QUARTER ENDED MARCH 31, 1999
This Quarterly Report on Form 10-QSB/A amends the Company's Quarterly Report on
Form 10-QSB previously filed for the quarter ended March 31, 1999. This
Quarterly Report on Form 10-QSB/A is filed in connection with the Company's
restatement of its financial statements for the periods presented to reflect an
adjustment for an error in the computation of prepaid license expenses and to
disclose the gain on settlement with a related party as a separate line item in
the consolidated statement of operations.
As a result of the error in the computation of the prepaid license expense, the
financial statements have been adjusted to reflect a decrease in prepaid license
expense of approximately $105,000 at March 31, 1999 on the consolidated Balance
Sheet and an increase to license expense of approximately $105,000 for the three
months ended March 31, 1999 on the consolidated statement of operations. A
further adjustment was made to reflect a decrease in state income tax payables
of approximately $5,500 at March 31, 1999 on the consolidated balance sheet and
a decrease to state income tax expense of approximately $5,500 for the three
months ended March 31, 1999 on the consolidated statement of operations. These
changes result in a $99,500 decrease to earnings. Net income for the first
quarter of 1999 is amended to $76,342 which equates to a basic and fully diluted
earnings per share of $.01. The gain on settlement with a related party has
been reclassified out of other income and expenses to a separate line item for
the three months ended March 31, 1999. Except as otherwise noted, information
contained in this Quarterly Report is as of March 31, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
------
March 31, 1999
----------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 4,372,742
Accounts receivable net of allowance for doubtful
accounts of $136,566 513,044
Notes receivable - current portion ($165,204 to related parties),
net of allowance for doubtful accounts of $162,699 388,103
Prepaid license expense - current portion 1,187,486
Other prepaid expenses 410,659
----------------
Total Current Assets 6,872,034
----------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 6,595,768
Other Assets:
Notes receivable, net of current portion ($383,695 to related parties) 835,458
Prepaid license expense, net of current portion 220,202
Intangible assets, net of accumulated amortization 4,607,827
Other non-current assets 177,603
----------------
Total Other Assets 5,841,090
----------------
TOTAL ASSETS $ 19,308,892
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable - current portion ($47,888 to related parties) $ 824,463
Capital leases payable - current portion 416,507
Trade accounts payable 99,606
Accrued expenses and other current liabilities 322,383
----------------
Total Current Liabilities 1,662,959
----------------
Long-term Liabilities:
Notes payable, net of current portion ($271,392 to related parties) 1,046,990
Capital leases payable, net of current portion 111,687
----------------
Total Long-term Liabilities 1,158,677
----------------
Stockholders' Equity:
Common stock, $.001 par value,
authorized 20,000,000 shares,
issued 10,176,890 shares 10,177
Additional paid-in-capital 23,481,630
Treasury stock - 231,300 shares (686,399)
Accumulated deficit (6,318,152)
----------------
Total Stockholders' Equity 16,487,256
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,308,892
================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
1999 1998
<S> <C> <C>
REVENUES:
Video Gaming $1,974,322 $ 2,599,154
Bingo 1,372,361 981,766
Other 274,445 136,355
----------- ------------
TOTAL REVENUES 3,621,128 3,717,275
----------- ------------
COSTS AND EXPENSES:
Direct salaries and other compensation 289,547 540,028
Rent and utilities ($26,310 and $26,310, respectively to related parties) 536,393 498,402
Direct operating costs 619,019 527,513
Depreciation and amortization 727,430 424,800
License expense 461,491 315,815
General and administrative 885,298 1,003,979
----------- ------------
TOTAL COSTS AND EXPENSES 3,519,178 3,310,537
----------- ------------
OPERATING INCOME 101,950 406,738
OPERATING INCOME AND EXPENSES:
Interest and investment income ($7,265 and $0, respectively to related parties) 59,443 180,541
Interest expense ($6,688 and $0, respectively to related parties) (71,304) (91,755)
Gain on settlement with a related party, net of legal expenses of $100,000 137,321 ---
Other income and (expense) 33,000 35,104
----------- ------------
TOTAL OTHER INCOME AND EXPENSES 158,460 123,890
----------- ------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 260,410 530,628
PROVISION FOR INCOME TAXES 184,068 76,403
----------- ------------
NET INCOME $ 76,342 $ 454,225
=========== ============
EARNINGS PER SHARE:
Basic $ .01 $ .05
=========== ============
Diluted $ .01 $ .04
=========== ============
Weighted average shares outstanding - basic 9,851,316 9,353,518
Weighted average shares outstanding - diluted 9,851,975 10,577,657
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
1999 1998
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income $ 76,342 $ 454,225
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 724,186 740,615
Provision for uncollectible receivables 75,631 ---
Unrealized investment losses --- (40,112)
Gain on litigation settlement 1,300 ---
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable (209,279) (159,183)
Prepaid licenses 91,704 (329,696)
Deposits (5,918) ---
Other prepaid expenses and current assets 131,446 (32,967)
Trade accounts payable (40,704) (356,630)
Accrued expenses and other current liabilities 52,048 ---
----------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITES 896,756 276,252
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Intangible expenditures --- (509,391)
Property and equipment expenditures (404,998) (571,672)
Collections of notes receivable 170,226 43,472
Issuance of notes receivable (20,000) --
Reductions of notes receivable allowance (32,896) ---
Proceeds from sale of property and equipment 7,335 ---
----------- -------------
NET CASH USED IN INVESTING ACTIVITIES ( 280,333) ( 1,037,591)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (113,778) (87,610)
Payments on notes payable (397,885) (216,666)
Proceeds from issuance of common stock --- 39,000
Payments related to warrant financing costs --- (354,422)
Dividend payments to preferred stockholders --- (31,828)
Proceeds from issuance of common stock for employee stock purchase plan 3,000 ---
Proceeds from option exercises 311,581 ---
Proceeds from margin line of credit --- 651,613
----------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (197,082) 87
----------- -------------
NET INCREASE (DECREASE) IN CASH 419,341 (761,252)
CASH AT BEGINNING OF PERIOD 3,953,401 11,936,862
----------- -------------
CASH AT END OF PERIOD $4,372,742 $ 11,175,610
=========== =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $ 71,304 $138,887
======== ========
Income taxes $102,203 $126,649
======== ========
Non-cash transactions:
Acquisition of business in exchange for note payable
($0 and $400,000, respectively from related parties) $ --- $400,000
======== ========
Acquisition of property and equipment in exchange
for notes payable $434,415 $439,007
======== ========
Acquisition of businesses in exchange for common stock $ --- $ 90,000
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND 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 and with instructions to Form 10-QSB and Item
310(b) of Regulation S-B of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. 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. Certain
items in the financial statements have been reclassified to maintain consistency
and comparability for all periods presented. Operating results for the three
month period ended March 31, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1999. Except for
historical information contained herein, certain matters set forth in this
report are forward looking statements that are subject to substantial risks and
uncertainties, including the impact of government regulation and taxation,
customer attendance and spending, competition, 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, 1998.
NOTE 2 - PROPERTY AND EQUIPMENT.
- -------------------------------------
<TABLE>
<CAPTION>
Property and equipment at March 31, 1999 consists of the following:
<S> <C>
Land $ 189,671
Buildings 379,342
Building and leasehold improvements 2,655,750
Video gaming machines and bingo equipment 7,545,446
Equipment, furniture and fixtures 1,042,661
Automobiles 326,356
------------
12,139,226
Less: Accumulated depreciation and amortization (5,543,458)
------------
Property and equipment, net $ 6,595,768
============
</TABLE>
Property and equipment at March 31, 1999 includes $1.3 million of assets held
under capital leases and related accumulated amortization of $347,000. Related
amortization expense charged to operations for the three months ended March 31,
1999 and 1998 was $54,000 each period.
Total depreciation and amortization expense, for owned and leased assets,
charged to operations for the three months ended March 31, 1999 and 1998 was
$494,000 and $342,000, respectively.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 3 - INTANGIBLE ASSETS.
- -------------------------------
Intangible assets at March 31, 1999 consists of the following:
<S> <C>
Goodwill $ 5,095,436
Covenants not to compete 553,891
------------
5,649,327
Less: Accumulated amortization (1,041,500)
------------
Intangible assets, net $ 4,607,827
============
</TABLE>
Amortization expense charged to operations for the three months ended March 31,
1999 and 1998 was $230,000 and $83,000, respectively.
NOTE 4 - SHAREHOLDERS' EQUITY.
- ----------------------------------
The Company issued 327,308 shares of its common stock in the first quarter of
1999, including 325,000 shares pursuant to stock options exercised and 2,308
shares pursuant to purchases under the Company's Employee Stock Purchase Plan.
The Company received proceeds of $310,781 and $3,000 related to these purchases,
respectively. The Company also recognized $1,300 in equity proceeds for the
reimbursement of Founders Shares related to litigation settlement.
NOTE 5 - EARNINGS PER SHARE.
- ---------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------
1999 1998
---------------------- ------------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Numerator:
- -----------------------------------------
Net income $ 76,342 $ 76,342 $ 454,225 $ 454,225
less preferred dividends --- --- (31,228) ---
---------- ---------- ----------- -----------
Income available to common stockholders $ 76,342 $ 76,342 $ 422,997 $ 454,225
========== ========== =========== ===========
Denominator:
- -----------------------------------------
Weighted average shares outstanding 9,851,316 9,851,316 9,353,518 9,353,518
Effect of dilutive securities:
Preferred stock --- --- --- 543,153
Stock options and warrants --- 659 --- 680,986
---------- ---------- ----------- -----------
Weighted average shares outstanding 9,851,316 9,851,975 9,353,518 10,577,657
========== ========== =========== ===========
Earnings per share $ .01 $ .01 $ .05 $ .04
========== ========== =========== ===========
</TABLE>
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 6 - INCOME TAXES
- -------------------------
The Company recorded approximately $184,000 and $76,000 of state income tax
expense, respectively, for the three months ended March 31, 1999 and 1998. The
Company does not expect to incur material federal income tax charges until the
depletion of its accumulated federal income tax loss carryforwards, which
totaled approximately $2.4 million at March 31, 1999. The utilization of the
net operating loss is subject to limitations in accordance with 382 of the
Internal Revenue Code.
NOTE 7 - RELATED PARTY TRANSACTIONS.
- -----------------------------------------
At March 31, 1999, notes receivable included promissory notes receivable from
related parties totaling $549,000. The interest rates range from 7.0% - 8.0%
with maturity dates ranging from May 9, 1999 to May 31, 2001. Interest income
related to these notes recorded by the Company was $7,265 for the three months
ended March 31, 1999.
In conjunction with the purchase of Ambler Bingo in March 1998, the Company
issued a promissory note payable in the amount of $400,000 to the seller (a
related party), as partial consideration for this purchase. This note payable
is due in monthly installments of $9,765, with an interest rate of 8.0% and a
maturity date of May 2002. For the three months ended March 31, 1999, the
Company recognized $6,688 of interest expense related to this obligation.
As a part of the Company's acquisition of Darlington Music Co., Inc, the Company
assumed a related party lease for an office and game machine warehouse facility.
The lease is by and between the Company and a Company Director and Officer, and
two immediate family members of the related party. The lease originated on
January 15, 1990 for a 15 year term with monthly rental payments of $3,500. For
the three months ended March 31, 1999 and 1998, the Company has expensed $10,500
for rental payments to the related parties under this lease.
As a part of the acquisition of Gold Strike, Inc. and Lucky 4, Inc. the Company
assumed an operating lease for gaming properties located in South Carolina. The
lessor is a partnership in which a Director of the Company is a 50% general
partner. This lease expires November 2001, and contains renewal options. The
monthly rental payments under this lease are $5,270. For the three months ended
March 31, 1999 and 1998, the Company has expensed $15,810 for rental payments to
the related party under this lease.
An entity owned and managed by one person who is a shareholder and Director of
the Company, and a second person who is a shareholder of the Company, entered
into a three year Agreement with the Company in November, 1998 to operate the
Company's non-route video gaming operations at eight video gaming machine
centers. In connection with this Agreement, the Company entered into a lease or
sublease with the operator at seven of the eight video gaming machine centers
which provide for the monthly payment of rent by the operator. The Company has
recognized a benefit of $89,583 for the three months ended March 31, 1999
related to these lease and subleases.
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- -------------------------------------------
In July of 1995 the Company bought three Florida bingo centers from Phillip
Furtney and two corporations related to Mr. Furtney (which corporations and Mr.
Furtney are referred to collectively for purposes of this discussion as
"Furtney"). On June 12, 1997, Furtney filed a lawsuit against the Company in
the Circuit Court in Florida, alleging breach of contract on these purchases.
Furtney alleged that the Company defaulted on its original purchase note and
stock obligations under the purchase agreements. Furtney seeks to recover
damages in the amount of $900,000 related to these allegations. On July 12,
1997, the Company answered this lawsuit and filed a counterclaim against Furtney
alleging, among other things, fraud, negligent misrepresentation, breach of
express warranties, contractual indemnity and tortious interference with
contractual rights. The Company believes that it was materially defrauded in
its purchase of these three Florida bingo centers from Furtney in that; Furtney
made no disclosure to the Company of an ongoing criminal investigation of the
operation of these bingo centers by the Florida State Attorney General's Office,
and that Furtney was fully aware of this investigation. The state of Florida
temporarily closed these three bingo centers, as well as several other centers
formerly owned by Mr. Furtney, in November 1995. The Company re-sold these
three bingo centers in December of 1995. In January 1997, the Company and the
State of Florida settled all matters regarding the Company's previous ownership
and operation of these bingo centers. The Company believes that Furtney's
lawsuit against the Company is completely without merit and that the Company
will prevail in its counterclaim against him. There can be no assurance of this
result, however, and a decision against the Company could have a material
adverse effect on the financial position and operations of the Company.
In 1997, one of the Company's subsidiaries was named a defendant (among many
other video gaming operators) in a legal action in the Federal U.S. District
Court in Columbia, South Carolina filed by video poker players. This action
alleges various wrongful acts by the defendants, including allegations that
certain of the defendants' video gaming operations in South Carolina: i)
comprise a lottery, which violates the state constitution; ii) violate the
state's daily net video gaming machine payout limit of $125 per player; iii)
violate the state's single premise rule which only allows up to five video
gaming machines per premise; and iv) violate the state's prohibition against
beer and wine permit holders allowing gambling or games of chance. The
plaintiffs in this action are attempting to have this action certified as a
class action lawsuit. The plaintiffs seek to recover the money lost from
playing video poker and to restrict or otherwise limit in various respects the
manner in which video gaming operations are conducted in South Carolina. The
District Judge certified questions for an advisory opinion of the South Carolina
Supreme Court regarding whether video gaming constitutes an illegal lottery in
South Carolina. The Supreme Court issued an opinion in November 1998 stating
that video gaming does not constitute an illegal lottery. In addition, in April
1999 the District Court ruled that video gaming cash payouts are limited to $125
per day per player based on the existing law in South Carolina. Other issues in
this case are still pending in the District Court. The Company believes that
this action is completely without merit and will defend itself vigorously. If
this case were to be decided against the Company, it would likely have a
material adverse effect on the financial position and operations of the Company.
Refer, also, to Note 10.
In 1997, the South Carolina Department of Revenue and the South Carolina Law
Enforcement Division brought a declaratory judgment action against various
organizations whose members have beer and wine permits and also offer video
poker for play. The suit was also brought against certain businesses in the
video poker industry. Neither the Company nor any subsidiary is a named
defendant in this case. The plaintiffs have styled the case as a class action
and have requested that the court declare that the South Carolina Code prohibits
beer and wine from being sold at establishments that provide video poker
machines for play. At issue in the case is whether a specific South Carolina
statute (S.C. Code Section 61-4-580(3)) prohibits a beer and wine permit holder
from also offering video poker for play. The plaintiffs have filed a motion
that the case be certified as a class action and have filed a motion for summary
judgment. The defendants are vigorously defending the case. If this case were
to be decided in favor of the Department of Revenue, it would likely have a
material adverse effect on the financial position and operations of the Company.
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
- ---------------------------------------------------------
On June 30, 1998, the South Carolina Department of Revenue announced that as of
August 1, 1998, it would no longer allow beer and wine permits at any location
that also offers video poker, based on its interpretation of the South Carolina
statute noted above. However, in two separate state court cases, two state
Circuit Court judges have entered injunctions prohibiting the Department of
Revenue from enforcing its interpretation of the South Carolina statute at issue
at the current time. At the current time, the Department of Revenue is issuing
beer and wine permits for locations which also offer video poker. If this issue
were to be decided in favor of the Department of Revenue, it would likely have a
material adverse effect on the financial position and operations of the Company.
On September 9, 1998, the Company filed a lawsuit in the Court of Common Pleas
for the Fifth Judicial Circuit in Columbia, South Carolina, against two former
directors, Greg Wilson and Robert Hersch, Investors Associates, Inc., who
previously served as the Company's underwriter, and two former employees, Roy
Stevens and Paul Hermelink. On February 26, 1999, the Company and Greg Wilson
entered into a settlement with respect to this lawsuit and other issues and thus
Greg Wilson has since been dismissed with prejudice from this lawsuit. Also on
April 14, 1999, the Company and Robert Hersch entered into a settlement with
respect to this lawsuit and other issues and thus Robert Hersch has since been
dismissed with prejudice from this lawsuit. The lawsuit seeks to recover both
actual and punitive damages, as well as the return of profits wrongfully
obtained and the return of assets, including common stock of the Company,
wrongfully acquired, pursuant to various causes of action. On September 30,
1998, Greg Wilson and various family members filed suit against the Company in
the Court of Chancery for the State of Delaware, which lawsuit was also
dismissed with prejudice in connection with the settlement with Greg Wilson and
various family members discussed above. Refer, also, to Note 10.
On December 17, 1998, Roy Stevens, a former employee and current shareholder of
the Company, filed a lawsuit against the Company, certain of its subsidiaries,
and certain officers, directors and employees of the Company in the Court of
Common Pleas for the Eleventh Judicial Circuit in Lexington, South Carolina.
The lawsuit alleged that the defendants breached fiduciary duties, breached
contracts, maliciously prosecuted the plaintiff, and engaged in various
fraudulent and illegal acts. In April 1999, the Court dismissed this lawsuit
without prejudice due to the pending litigation between the parties discussed
above. The possibility exists that Mr. Stevens may re-file these allegations as
a counterclaim to the pending litigation. The plaintiff sought to recover
actual and punitive damages of an unspecified amount, the reassignment of a
lease agreement which secures a promissory note issued by the Company to the
plaintiff, and to have a receiver appointed to take control of the Company
during the pendency of this lawsuit. The Company believes that the allegations
are completely without merit and the Company will defend itself vigorously if
the allegations are re-filed in any manner. If such allegations were to be
decided against the Company they would likely have a material adverse effect on
the financial position and operations of the Company. Refer, also, to Note 10.
The South Carolina legislature is currently considering proposed legislation
that would significantly overhaul the regulatory framework for video poker in
South Carolina and would impose significantly higher taxes. The legislation
currently proposed in the South Carolina House of Representatives differs
significantly from the legislation currently proposed in the South Carolina
Senate. Accordingly, there is uncertainty as to whether any legislation will be
adopted in the current year and, if adopted, the nature and impact of such
legislation. However, any such legislation, if adopted, could have a material
adverse effect on the financial position and operations of the Company.
In the normal course of its business, the Company is subject to litigation.
Management of the Company does not believe any claims, individually or in the
aggregate, will have a material adverse effect on the Company's financial
position or operations of the Company, except as otherwise stated above.
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 9 - SEGMENTS
- --------------------
The Company's Chief Operating Decision Maker ("CODM"), the Chairman and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations.
The Company has identified two operating segments based on the different nature
of the services and legislative monitoring and, in general, the type of
customers for those services. The video gaming segment represents operations of
the Company's video gaming machines in South Carolina. The bingo segment
encompasses bingo center services provided to charitable organizations in South
Carolina, Texas and Alabama.
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 1,974,322 $ 1,372,361 $ 274,445 $ 3,621,128
Depreciation and Amortization 342,446 378,807 6,177 727,430
Segment profit (loss) 429,646 129,707 (483,011) 76,342
Segment Assets 7,749,800 11,186,487 372,605 19,308,892
Capital expenditures by segment 544,573 286,023 8,817 839,413
March 31, 1998
---------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ----------- -------------- -------------
Revenue $ 2,599,154 $ 981,766 $ 136,355 $ 3,717,275
Depreciation and Amortization 211,828 191,885 21,087 424,800
Segment profit (loss) 641,062 157,048 (343,887) 454,223
Segment Assets 6,961,445 6,699,889 11,400,276 25,061,610
Capital expenditures by segment 974,339 28,101 8,239 1,010,679
</TABLE>
The adjustments represent video gaming and bingo concession and other income,
depreciation and amortization related to corporate assets, corporate losses,
corporate assets and corporate capital expenditures to reconcile segment
balances to consolidated balances. None of the other adjustments are
significant.
NOTE 10 - SUBSEQUENT EVENTS.
In April 1999 the Federal U.S. District Court in Columbia, South Carolina ruled
that video gaming cash payouts are limited to $125 per day per player based on
the existing law in South Carolina. This ruling was issued in connection with
the lawsuit filed by video poker players against various video gaming operators
which is discussed in Note 8. The ruling was issued against five specific video
gaming operators, but did not include the Company or any of its subsidiaries.
However, the ruling could ultimately have a material adverse effect on the
entire video gaming industry in South Carolina.
On April 14, 1999, the Company and Robert Hersch entered into a settlement with
respect to the pending lawsuit filed by the Company against Robert Hersch and
others, which lawsuit is discussed in Note 8. As a result of the settlement,
Robert Hersch has been dismissed with prejudice from the lawsuit.
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED).
In April 1999, the Court of Common Pleas for the Eleventh Judicial Circuit in
Lexington, South Carolina, dismissed without prejudice the lawsuit filed by Roy
Stevens against the Company, certain of its subsidiaries, and certain officers,
directors and employees of the Company. The lawsuit is discussed in Note 8.
The lawsuit was dismissed primarily due to the other pending litigation between
the parties. The possibility exists that Mr. Stevens may re-file the
allegations as a counterclaim to the pending litigation. The Company believes
that the allegations are completely without merit and will defend itself
vigorously if the allegations are re-filed in any manner. If such allegations
were to be decided against the Company, they would likely have a material
adverse effect on the financial position and operations of the Company.
<PAGE>
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
American Bingo & Gaming Corp. was formed in 1994 as a Delaware corporation to
consummate the acquisition of charitable bingo centers and video gaming
operations. The Company operates primarily through wholly-owned subsidiaries in
Texas, Alabama and South Carolina. The Company completed its initial public
offering in December of 1994.
The following discussion should be read in conjunction with the Company's Form
10-KSB and the consolidated financial statements for the years ended December
31, 1998 and 1997; the Company's Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998; and the consolidated financial
statements and related notes, for the quarter ended March 31, 1999. The
statements in this Quarterly Report on Form 10-QSB relating to matters that are
not historical facts, including, but not limited to statements found in this
"Management Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to the impact of government regulation and taxation, customer
attendance, spending, competition, general economic conditions, and other risks
and uncertainties as discussed in this Quarterly Report and the 1998 Annual
report on Form 10-KSB.
RESULTS OF OPERATIONS
The Company generated consolidated revenues of $3.6 million during the first
fiscal quarter ended March 31, 1999 as compared with $3.7 million in the
comparable period of the prior fiscal year, representing a decrease of $96,000
or less than 3%. Revenues were led by video gaming operations, which produced
$2 million or 55% of total revenue for the first quarter of 1999, compared to
$2.6 million, or 70%, in the comparable quarter of the prior year. The decrease
in video gaming revenues was primarily a result of the re-organization of the
free-standing video gaming machine ("VGM") operations into route operations in
the fourth quarter of 1998. Bingo rental and other revenues totaled $1.6
million or 45% of revenues for the first quarter of 1999, as compared to $1.1
million or 30% of total revenues for the first quarter of 1998. Bingo rental
and other revenues increased primarily due to seven additional Texas bingo
centers which were open in the first quarter of 1999 that were not open in the
first quarter of 1998, offset partially by decreased bingo and other revenues in
South Carolina. Approximately 62% of first quarter 1999 total revenues were
generated in South Carolina, with 24% in Texas and 14% in Alabama, as compared
to first quarter 1998 revenues of 81% in South Carolina, 7% in Texas, and 12% in
Alabama. This shifting of revenues by region is a reflection of the
reorganization of the free-standing VGM operations in South Carolina as well as
the additional seven bingo halls in Texas contributing to operating revenues in
the first quarter 1999.
Total costs and expenses were $3.5 million in the first quarter of 1999 versus
$3.3 million in the first quarter of 1998, an increase of $209,000 or 6%. The
increase in total costs and expenses is primarily attributable to increased
operating costs, consistent with the increase in revenues, from operating seven
additional bingo centers in Texas, which, in part, offset expense reductions
resulting from the reorganization of the Company's freestanding VGM's into
effectively route locations.
Depreciation, amortization and license expense totaled $1.2 million in the first
quarter of 1999, an increase of $448,000 from the first quarter of 1998. The
expense includes the depreciation of the Company's South Carolina video gaming
machines and related license expenses as well as the amortization of the
Company's intangible assets which consist primarily of goodwill related to the
acquisition of the seven bingo halls in Texas.
General and administrative expenses totaled $885,000 in the first quarter of
1999, compared to $1,004,000 in 1998, a decrease of approximately $119,000 or
12%.
First quarter 1999 rent and utilities for the Company's freestanding video
gamerooms and bingo centers totaled $536,000, compared to $498,000 for the same
period in 1998, an increase of 8%. The Company is continuing its efforts to
minimize rent expenses by subletting, converting, or terminating leases for idle
and unperforming properties.
Direct operating costs for the first quarter of 1999 totaled $619,000 as
compared to $528,000 for the same period in 1998, an increase of approximately
$91,000 or 17%. This increase in direct operating costs is primarily
attributable to increased operating costs, consistent with the increase in
revenues, from operating seven additional bingo centers in Texas.
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Net other income totaled $158,000 for the first quarter of 1999, as compared to
$124,000 for the first quarter of 1998. Other income for the first quarter of
1998 was primarily comprised of interest income of $59,000 on the Company's
short-term investments. Included in operating income and expenses for the first
quarter of 1999 were proceeds received from the liquidation of Company common
stock by the former Company president Greg Wilson and members of his family of
$237,000, less related legal costs of $100,000. As a result of the settlement
agreement entered into on February 26, 1999, the Company will receive the net
proceeds from the sale of up to 200,000 shares of the Company's common stock,
and $1,300 as consideration for the founder's stock originally issued to the
former president.
Net income for the first quarter of 1999 was $76,000, which equated to a basic
and fully diluted earnings per share of $.01. Net income for the first quarter
of 1998 was $454,000 which equated to a basic and fully diluted earnings per
share of $.05 and $.04, respectively. The weighted average number of basic
Common Stock shares outstanding totaled 9.9 million in the first quarter of 1999
as compared to 9.4 million in the first quarter of 1998. The change is
primarily due to the issuance of Common Stock in the second half of 1998 in
connection with the redemption of preferred stock, the issuance of 128,000
shares of Common Stock in October 1998 related to the acquisition of six bingo
halls in Texas, the issuance of 325,000 shares of Common Stock in January 1999
in connection with the exercise of stock options, less the repurchase of
approximately 360,000 shares of Common Stock under the Company's buyback program
during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1999 totaled $4.4 million and represented
approximately 23% of the Company's total assets of $19.3 million. Cash flows
from operating activities for the first quarter of 1999 totaled $897,000
compared to $276,000 during the first quarter of 1998, an increase of
approximately 225%. Cash flows from operating activities in the first quarter
of 1999 were comprised of the Company's net income of $76,000, adjusted for
non-cash amounts of depreciation expense and intangible asset amortization of
$724,000, and $76,000 related to a decrease in the provision for uncollectible
receivables, increased by net changes in operating assets and liabilities of
approximately ($19,000).
Net cash used in investing activities totaled $280,000 for the three month
period ending March 31, 1999 compared to $1,038,000 in the first quarter of
1998. Cash used in investing activities consisted primarily of $405,000 related
to property and equipment purchases, offset by $170,000 from the repayment of
notes receivable. Cash used in investing activities in the first quarter of
1998 were primarily related to capital and intangible asset expenditures.
Cash used in financing activities in the first quarter of 1999 totaled $197,000,
as compared to net cash flows from financing activities in the first quarter of
1998 of less than $100.00. Cash used related to financing activities in 1999
included $512,000 of net cash paid to reduce notes payable and capital lease
obligations. Cash received relating to financing activities included $315,000
primarily related to stock options exercised during the first quarter 1999, and
stock purchases under the Employee Stock Purchase Plan.
At March 31, 1999 the Company had $19.3 million in total assets with total
liabilities of $2.8 million and $16.5 million of shareholders equity. Total
assets include $4.4 million in cash, $1.7 million of net accounts and notes
receivable, $6.6 million of property and equipment, $4.6 million of intangible
assets, $1.4 million in prepaid video gaming licenses, and $0.6 million of other
assets. Total liabilities primarily consist of notes and capital lease
obligations of $2.4 million.
Net property and equipment totaled $6.6 million at the end of the first quarter
of 1999. The majority of property and equipment is comprised of video gaming
machines. Intangible assets, net of accumulated amortization, totaled $4.6
million at the end of the first quarter of 1999 of which 73% is comprised of
goodwill and covenants not to compete associated with the Company's acquisition
of seven bingo centers in Texas during 1998.
Current liabilities totaled $1.7 million and long-term liabilities totaled $1.1
million at the end of the first quarter of 1999. The majority of liabilities
were comprised of $2.4 million of notes payable and capital lease obligations
related to the Company's acquisition of video gaming machines.
<PAGE>
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Current assets totaled $6.9 million at the end of the first quarter of 1999,
providing the Company with working capital of approximately $5.2 million and a
current ratio of over 4 to 1. Cash and cash equivalents totaled $4.4 million
and represented 23% of the Company's total assets. Net accounts receivable
totaled $513,000 and were primarily comprised of operating receivables and
short-term advances to video gaming route location owners. Total current notes
receivable, less provision for doubtful collectability, totaled $388,000 at
March 31, 1999. Note receivables are primarily comprised of a note balance due
on the Company's sale of a Florida bingo center at the end of 1995, and notes
receivable with related parties. Total prepaid licenses of $1.4 million
represent the Company's portfolio of video gaming licenses for VGM's in South
Carolina. Video gaming parts and bingo supplies are expensed at the time of
purchase, therefore no inventory is recorded for operations.
The Company's ongoing operational funding requirements include video gaming
licenses on new and existing machines which are funded by cash at a cost of
$4,000 for a two year license and is required for each of the Company's VGM's.
There are currently no additional taxes on VGM's in South Carolina, although it
is possible that variable taxes and other regulations may be implemented in the
future to replace or modify the current licensing structure. The operating
lease obligations of the Company's bingo segment will continue to use cash
derived from operations and the Company expects to renegotiate existing leases,
where possible, and to structure future lease obligations consistent with
expected future cash flows from the leased center's operations and fair market
rental rates.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify potential problems that could be caused by the Year 2000 issue. This
issue is the result of computer programs that were written using two digits
rather than four to define the applicable year. Such programs may recognize a
date using "00" as the year 1900 rather than year 2000, which could result in a
system failure or miscalculation. Management currently believes that the Year
2000 issue will not pose significant operational problems for the Company's
computer systems or result in significant costs to become Year 2000 compliant.
However, if the Company's computer systems were subject to undetected system
failures or operational problems resultant from the Year 2000 issue, there can
be no assurance that any one or more such failures would not have a material
adverse effect on the Company. The Company is currently in the process of
certifying that the vendors and suppliers of its critical components and
services are Year 2000 compliant and the Company expects certification to be
completed by May 1999. The Company intends to rely on Year 2000 compliance on
the part of public utility providers and all state and local regulatory
agencies, although non-compliance by those entities could materially adversely
affect the Company's financial condition and operations.
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
10.1 Amended and Restated 1994 Stock Option Plan (incorporated by reference
to Exhibit 10.1 of the Annual Report on Form 10-KSB filed by the
Company for the year ended December 31, 1998).
10.2 Amended and Restated 1995 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.2 of the Annual Report on Form 10-KSB filed
by the Company for the year ended December 31, 1998).
10.3 Amended and Restated 1996 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.4 of the Annual Report on Form 10-KSB filed
by the Company for the year ended December 31, 1998).
10.4 Settlement Agreement, Compromise of Claims and Mutual Release dated
February 26, 1999, by and among Gregory Wilson, Sally Stewart Wilson,
Linda Bussey, the Linda Bussey Irrevocable Trust, Len Bussey, Barbara
Wilson and the Company (incorporated by reference to Exhibit 99.1 of
the Current Report on Form 8-K filed by the Company on March 4, 1999).
10.5 Promissory Note dated February 18, 1999 between the Company and Mims &
Dye Enterprises, LLC (incorporated by reference to Exhibit 10.23 of
the Annual Report on Form 10-KSB filed by the Company for the year
ended December 31, 1998).
27.1 Restated Financial Data Schedule (for SEC use only).
(B) REPORTS ON FORM 8-K.
During the quarter ended March 31, 1999, the Company filed one report on Form
8-K. On March 4, 1999, the Company filed a Form 8-K to report the Settlement
Agreement, Compromise of Claims and Mutual Release entered into with Greg
Wilson, the Company's former President and Chief Executive Officer, and various
members of his family. Through this Agreement, the parties settled all pending
litigation between themselves.
<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 duly authorized.
American Bingo & Gaming Corp.
July 29, 1999
By:
/s/ Daniel W. Deloney
------------------------
Daniel W. Deloney
Chairman of the Board, President
and Chief Executive Officer
/s/ Larry D. Kasufkin
------------------------
Larry D. Kasufkin
Secretary and Treasurer
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
- ------- ----------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.1 Amended and Restated 1994 Stock Option Plan (incorporated by reference to Exhibit 10.1
of the Annual Report on Form 10-KSB filed by the Company for the year ended December
31, 1998).
10.2 Amended and Restated 1995 Employee Stock Option Plan (incorporated by reference to
Exhibit 10.2 of the Annual Report on Form 10-KSB filed by the Company for the year
ended December 31, 1998).
10.3 Amended and Restated 1996 Employee Stock Option Plan (incorporated by reference to
Exhibit 10.4 of the Annual Report on Form 10-KSB filed by the Company for the year
ended December 31, 1998).
10.4 Settlement Agreement, Compromise of Claims and Mutual Release dated February 26,
1999, by and among Gregory Wilson, Sally Stewart Wilson, Linda Bussey, the Linda
Bussey Irrevocable Trust, Len Bussey, Barbara Wilson and the Company (incorporated by
reference to Exhibit 99.1 of the Current Report on Form 8-K filed by the Company on
March 4, 1999).
10.5 Promissory Note dated February 18, 1999 between the Company and Mims & Dye
Enterprises, LLC (incorporated by reference to Exhibit 10.23 of the Annual Report on Form
10-KSB filed by the Company for the year ended December 31, 1998).
27.1 Restated Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-QSB of American Bingo & Gaming Corp. and is qualified in its entirety by
reference to such financial statements. This Financial Data Schedule has been
restated.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4372742
<SECURITIES> 0
<RECEIVABLES> 1200412
<ALLOWANCES> (299265)
<INVENTORY> 0
<CURRENT-ASSETS> 6872034
<PP&E> 12139226
<DEPRECIATION> (5543458)
<TOTAL-ASSETS> 19308892
<CURRENT-LIABILITIES> 1662959
<BONDS> 0
<COMMON> 10177
0
0
<OTHER-SE> 16477079
<TOTAL-LIABILITY-AND-EQUITY> 19308892
<SALES> 3621128
<TOTAL-REVENUES> 3621128
<CGS> 0
<TOTAL-COSTS> 3519178
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> (71304)
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</TABLE>
