SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[x] Annual Report Under Section 13 Amendment No. 1 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-13530
-------
AMERICAN BINGO & GAMING CORP.
-----------------------------
(Exact Name of small business issuer as specified in its charter)
Delaware 74-2723809
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1440 Charleston Highway, West Columbia, SC 29169
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (803) 796-7875
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Common Stock
------------
Check 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
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of issuer's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
YES NO x
--- ---
<TABLE>
<CAPTION>
<S> <C>
Issuer's revenues for its most recent fiscal year: $15,445,456
Aggregate market value of the issuer's common stock held by non-affiliates
based on the average bid and asked price as of March 5, 1999: $14,133,498
Number of shares of the issuer's common stock outstanding as of March 5, 1999: 9,945,590
</TABLE>
Transitional Small Business Disclosure Format: Yes No x
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's Proxy Statement for its annual meeting of stockholders scheduled to
be held on May 27, 1999, is incorporated by reference in this Form 10-KSB in
Part III Item 9, Item 10, Item 11 and Item 12.
<PAGE>
This Amendment No. 1 to the Annual Report on Form 10-KSB has been filed solely
To correct a misstatement in Note 19 on page F-29 of the Company's
Consolidated financial statements.
PART II
ITEM 7 - FINANCIAL STATEMENTS
- ---------------------------------
The independent auditors' report, consolidated financial statements and
notes thereto included on the following pages are incorporated herein by
reference.
<TABLE>
<CAPTION>
<S> <C>
Report of King Griffin & Adamson P.C. F- 2
Consolidated Balance Sheet F- 3
Consolidated Statements of Operations F- 4
Consolidated Statements of Stockholders' Equity F- 5
Consolidated Statements of Cash Flows F- 6 - F- 7
Notes to Consolidated Financial Statements F- 8 - F- 29
Schedule II-Valuation and Qualifying Accounts F- 30
</TABLE>
2
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: April 6, 1999
AMERICAN BINGO & GAMING CORP.
---------------------------------
(Registrant)
By: /s/ Andre M. Hilliou
---------------------------------
Andre M. Hilliou
Chairman of the Board, President and Chief
Executive Officer
3
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No
- ---------------------------------------------------- -----------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1998 F-3
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997 F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-29
SCHEDULE II - Valuation and Qualifying Accounts F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
American Bingo & Gaming Corp.
We have audited the accompanying consolidated balance sheet of American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1998 and 1997. Our audits also included the
financial statement schedule listed in the Index at F-1. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
stan-dards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of mate-rial misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant esti-mates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ King Griffin & Adamson P.C.
- ------------------------------------
King Griffin & Adamson P.C.
Dallas, Texas
February 12, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
------
<S> <C>
Current Assets:
Cash and cash equivalents $ 3,953,401
Accounts receivable net of allowance for
doubtful accounts of $109,595 379,396
Notes receivable - current portion ($81,999 to related parties),
net of allowance for doubtful accounts of $195,595 464,260
Prepaid license expense - current portion 1,059,628
Other prepaid expenses 542,105
------------
Total Current Assets 6,398,790
------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 6,257,849
Other Assets:
Notes receivable, net of current portion ($468,654 to related parties) 876,631
Prepaid license expense, net of current portion 439,764
Intangible assets, net 4,837,874
Other non-current assets 171,664
------------
Total Other Assets 6,325,933
------------
TOTAL ASSETS $18,982,572
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------
Current Liabilities:
Notes payable - current portion $ 846,211
($93,199 to related parties)
Capital leases payable - current portion 411,891
Trade accounts payable 140,310
Accrued expenses and other current liabilities 398,928
------------
Total Current Liabilities 1,797,340
------------
Long-term Liabilities:
Notes payable, net of current portion
($248,689 to related parties) 942,793
Capital leases payable, net of current portion 147,405
------------
Total Long-term Liabilities 1,090,198
------------
Stockholders' Equity:
Common stock, $.001 par value,
authorized 20,000,000 shares,
issued 9,849,582 shares 9,850
Additional paid-in-capital 23,166,076
Treasury stock - 231,300 shares (686,399)
Accumulated deficit (6,394,493)
------------
Total Stockholders' Equity 16,095,034
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,982,572
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Video gaming $ 9,738,085 $ 8,874,257
Bingo 4,855,532 2,921,386
Other 851,839 427,492
------------ ------------
TOTAL REVENUES 15,445,456 12,223,135
------------ ------------
COSTS AND EXPENSES:
Direct salaries and other compensation 2,150,424 2,028,874
Rent and utilities ($105,240 and $76,930 to related parties) 2,352,043 1,851,228
Direct operating costs 2,375,751 1,586,824
Depreciation and amortization 2,087,477 1,103,952
License expense 1,398,636 852,317
Write-offs of future operating lease obligations
related to idle or unprofitable bingo centers 282,270 -
Write-offs and provisions for doubtful accounts 1,202,467 -
Write-offs for impairment of goodwill and leasehold improvements 1,109,845 -
General and administrative 4,838,085 3,568,915
------------ ------------
TOTAL COSTS AND EXPENSES 17,796,998 10,992,110
------------ ------------
OPERATING INCOME (LOSS) (2,351,542) 1,231,025
OTHER INCOME AND EXPENSES:
Interest and investment income ($34,000 and $0 from related parties) 518,400 115,301
Interest expense ($23,201 and $0 to related parties) (313,206) (47,113)
Other income and (expense) (190,730) 189,331
------------ ------------
TOTAL OTHER INCOME AND EXPENSES 14,464 257,519
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM (2,337,078) 1,488,544
PROVISION FOR INCOME TAXES 263,144 203,688
------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,600,222) 1,284,856
EXTRAORDINARY ITEM:
Gain on extinguishment of debt of $602,327,
net of income taxes of $204,791 --- 397,536
------------ ------------
NET INCOME (LOSS) $(2,600,222) $ 1,682,392
============ ============
EARNINGS PER SHARE:
Basic
Net income (loss) before extraordinary item $ (.29) $ .17
Extraordinary item --- .06
------------ ------------
Net income (loss) $ (.29) $ .23
============ ============
Diluted
Net income (loss) before extraordinary item $ (.29) $ .16
Extraordinary item --- .05
------------ ------------
Net income (loss) $ (.29) $ .21
============ ============
Weighted average shares outstanding - basic 9,299,908 7,160,612
Weighted average shares outstanding - diluted 9,299,908 8,133,786
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Addtl.
Addtl. Paid-in
- Common Stock - Paid-in Capital- Treasury Preferred
Description Shares Value Capital Warrants Stock Stock
- ------------------------------------------- ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 1/1/97 6,792,622 $ 6,348 $10,024,002 $ 1,026,750
Issuance of common stock pursuant to
Employee Stock Purchase Plan 10,767 11 20,439
Issuance of common stock for services 74,000 74 86,871
Issuance of common stock for stock
purchase agreement 300,000 300 205,950
Exercise of employee stock options 200,000 200 347,133
Issuance of common stock to employees 50,000 50 46,825
Subsidiary owner distributions
Purchase of subsidiary treasury stock (444,448) (651,300)
Issuance of preferred stock 1,829,880 20
Issuance of common stock for purchase
of bingo halls 9,969 10 49,990
Preferred dividends paid in cash
Redemption of warrants 2,293,995 2,294 12,150,332 (1,026,750)
Net income for the year ended 12/31/97
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 9,286,905 9,287 24,110,122 --- --- 20
----------- ------------ ------------ ------------ ------------ ------------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 2,381 2 6,071
Issuance of warrants for services 221,616
Exercise of employee stock options 33,733 34 38,934
Cancellation of common stock (1,666) (2) 2
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock 498,599 499 (1,063,182) (20)
Preferred dividends paid in cash
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Issuance of common stock for purchase
of bingo halls 29,630 30 89,970
Repurchase of common stock under stock
buyback program (359,300) (1,075,295)
Purchase of bingo halls with treasury stock 128,000 (188,896) 388,896
Net loss for the year ended 12/31/98
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 9,618,282 $ 9,850 $23,166,076 --- $ (686,399) ---
=========== ============ ============ ============ ============ ============
Accumulated
Description Deficit Total
- ------------------------------------------- ------------ -----------
<S> <C> <C>
Balance at 1/1/97 $(4,941,637) $ 6,115,463
Issuance of common stock pursuant to 20,450
Employee Stock Purchase Plan
Issuance of common stock for services 86,945
Issuance of common stock for stock 206,250
purchase agreement
Exercise of employee stock options 347,333
Issuance of common stock to employees 46,875
Subsidiary owner distributions (402,169) (402,169)
Purchase of subsidiary treasury stock (651,300)
Issuance of preferred stock 1,829,900
Issuance of common stock for purchase
of bingo halls 50,000
Preferred dividends paid in cash (35,000) (35,000)
Redemption of warrants 11,125,876
Net income for the year ended 12/31/97 1,682,392 1,682,392
------------ -----------
Balance at December 31, 1997 (3,696,414) 20,423,015
------------ -----------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 6,073
Issuance of warrants for services 221,616
Exercise of employee stock options 38,968
Cancellation of common stock ---
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock (1,983) (1,064,686)
Preferred dividends paid in cash (95,874) (95,874)
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Issuance of common stock for purchase
of bingo halls 90,000
Repurchase of common stock under stock
buyback program (1,075,295)
Purchase of bingo halls with treasury stock 200,000
Net loss for the year ended 12/31/98 (2,600,222) (2,600,222)
------------ -----------
Balance at December 31, 1998 $(6,394,493) $16,095,034
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income (loss) $(2,600,222) $ 1,682,392
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Write-off of long-lived assets 1,349,862 ---
Depreciation and amortization 2,087,477 926,481
Provision for uncollectible receivables 109,595 ---
Loss (gain) on disposal of property and equipment 858,397 (158,903)
Compensation for common stock and warrant issues 221,616 133,822
Gain on debt extinguishment --- (602,327)
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable 89,913 (444,767)
Prepaid licenses (50,551) (622,967)
Other prepaid expenses and current assets (396,802) (47,863)
Trade accounts payable (72,023) 24,321
Accrued expenses and other current liabilities (775,568) 310,439
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITES 821,694 1,200,628
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions (3,360,000) ---
Intangible expenditures --- (909,768)
Property and equipment expenditures (2,539,630) (1,364,839)
Repayments of notes receivable ($81,999 and $0 from related parties) 246,540 190,505
Issuance of notes receivable ($281,786 and $245,996 to related parties) (498,391) (355,782)
Reductions of notes receivable allowance (35,800) (58,978)
Proceeds from sale of property and equipment 420,135 ---
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,767,146) (2,498,862)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (404,945) (346,735)
Payments on notes payable ($62,931 and $0 from related parties) (916,505) (526,316)
Proceeds from notes payable 520,833 100,000
Proceeds from issuance of common stock --- 367,783
Proceeds from warrant call, net of conversion costs --- 11,125,876
Repurchase and cancellation and other warrant costs (48,561) ---
Purchase and cancellation of subsidiary treasury stock --- (251,300)
Purchase of treasury stock (1,075,295) ---
Distribution and dividends to stockholders (95,874) (437,169)
Proceeds from employee stock purchase plan issuances 6,073 ---
Proceeds from options exercises 38,968 ---
Payments related to redemption of preferred stock (1,062,703) ---
Proceeds from issuance of preferred stock --- 1,829,900
------------ ------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (3,038,009) 11,862,039
------------ ------------
NET INCREASE (DECREASE) IN CASH (7,983,461) 10,563,805
CASH AT BEGINNING OF YEAR 11,936,862 1,373,057
------------ ------------
CASH AT END OF YEAR $ 3,953,401 $11,936,862
============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended
December 31,
--------------------
1998 1997
-------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $313,206 $ 47,113
======== ==========
Income taxes $624,889 $ 442,005
======== ==========
Non-cash transactions:
Issuance of common stock and warrants for employment, services,
and consulting fees $221,616 $ 133,822
======== ==========
Acquisition of business in exchange for note payable
($400,000 and $0 from related parties) $400,000 $ 400,000
======== ==========
Acquisition of property and equipment in exchange
for notes payable $439,007 $1,093,140
======== ==========
Gain on extinguishment of debt $ --- $ 602,327
======== ==========
Acquisition of property under capital leases $ --- $1,235,812
======== ==========
Acquisition of businesses in exchange for common stock $290,000 $ 256,250
======== ==========
Purchase of treasury stock through asset distribution $ --- $ 400,000
======== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
American Bingo & Gaming Corp. actively participates in the non-casino gaming
market and U.S. Charitable bingo market. The Company's corporate headquarters
is located in West Columbia, South Carolina, and the Company operates primarily
through wholly owned subsidiaries in South Carolina, Texas and Alabama. The
Company generates the majority of its revenues from video gaming operations in
South Carolina, and also earns revenues from bingo centers in all three states.
PRINCIPLES OF CONSOLIDATION:
- -----------------------------
The accompanying consolidated financial statements include the accounts of
American Bingo & Gaming Corp. and its subsidiaries (herein collectively referred
to as the "Company"). All significant intercompany accounts and transactions
have been eliminated on consolidation.
RECLASSIFICATIONS:
- -----------------
Certain items in the financial statements have been reclassified to maintain
consistency and comparability for all periods presented herein.
MANAGEMENT ESTIMATES:
- ---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
- ----------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash is at risk to the
extent that it exceeds Federal Deposit Insurance Corporation insured amounts
(approximately $2 million at December 31, 1998). To minimize concentration and
credit risk, the Company places its cash with high credit quality institutions.
ACCOUNTS RECEIVABLE:
- --------------------
Accounts receivable consist principally of amounts due from charitable
organizations which conduct bingo events at the Company's various bingo centers,
and are generally payable within one month of the event. Receivables also
include rent due from operators of concessions located within bingo centers.
Video gaming receivables generally consist of temporary advances in connection
with video gaming route locations. Accounts receivable are not secured.
Management provides an allowance for doubtful accounts, which reflects its
estimate of the uncollectable receivables. In the event of non-performance, the
maximum exposure to the Company is the recorded amount of receivables, net of
allowance for doubtful accounts, at the balance sheet date.
F-8
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
PREPAID LICENSES:
- -----------------
Prepaid licenses consist of video gaming, bingo and other operational licenses
which are reviewed periodically to ensure their continued usefulness and ongoing
commercial value. Video gaming licenses, the largest component of the Company's
prepaid licenses, are required for the Company to operate its South Carolina
video gaming machines. Video gaming licenses currently cost $4,000 per license
for a two-year period, and are expensed over this period. The value of such
licenses can be affected by regulatory issues and changes. The Company has
recorded the net unrealized cost of its licenses as prepaid assets.
PROPERTY AND EQUIPMENT:
- ------------------------
The cost of equipment, furniture and fixtures is depreciated over the estimated
useful lives of the assets ranging from four to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser of
the term of the lease or the esti-mated useful lives. The buildings are
amortized over thirty-nine years, which approximates their estimated useful
lives. Building improvements are amortized over their estimated useful lives
ranging from seven to fifteen years. Upon sale, retirement or abandonment of
assets, the related cost and accumulated deprecia-tion are eliminated from the
accounts and gains or losses are re-flected in income. Repairs and maintenance
expenditures, which do not extend asset lives, are expensed as incurred.
INTANGIBLE ASSETS:
- ------------------
Intangible assets, which primarily consist of goodwill and non-compete covenants
resulting from the acquisition of bingo entities, are periodically reviewed by
management to evaluate the future economic benefits or potential impairments,
which may affect their recorded values. Goodwill, which represents the excess
of the cost of assets acquired over the fair market value of those tangible
assets on the date of their acquisition, is amortized over various periods
ranging from three to ten years, consistent with the estimated useful life of
the goodwill. Non-compete covenants are amortized over the periods of the
stated benefits, ranging from one to five years, and are monitored for
contractual compliance. If the projected undiscounted future cash flows related
to the intangible assets are less than the recorded value, the intangible asset
is written down to fair value.
REVENUE RECOGNITION:
- --------------------
The Company generates revenues from the following sources:
(I) VIDEO GAMING:
Video gaming revenues are recorded from the net "handle" of the Company's
video gaming machines. The net "handle" is the total player spend less prizes
paid by the machines. Video gaming revenues are derived from video gaming
machines in bingo centers, freestanding locations and route operations. The
video gaming revenues are split with route location owners, and operators of
bingo centers and freestanding locations. The Company retains a percentage of
all video gaming revenues generated in accordance with Coin Machine Agreements
between the Company and the owners and operators. Video gaming revenues can
vary depending on customer attendance and spending, games available, and the
timing of prize payouts, which occur at random.
(ii) BINGO:
Bingo rents, paper sales and head tax payments are received from charitable
organizations through various sub-lease agreements of the Company's bingo
centers. Revenues are determined by customer attendance, spending and prize
payouts, as well as state regulations which may dictate the number of bingo
sessions a charity can conduct and rent limits that can be paid to a commercial
lessor, such as the Company.
F-9
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
(iii) OTHER:
Other revenues are earned from gaming license fee collections, concessions,
vending machines, bingo supplies, pool tables and jukebox proceeds, and other
sources.
INCOME TAXES:
- -------------
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the tax bases and
financial reporting carrying amounts of assets and liabilities. The Company
periodically evaluates its deferred tax assets and adjusts any related valuation
allowance based on the estimate of the amount of such deferred tax assets which
the Company believes does not meet the "more-likely-than-not" recognition
criteria.
PER SHARE DATA:
- ----------------
Basic earnings (loss) per share of common stock is calculated by dividing income
(loss) from continuing operations by the weighted average number of common
shares actually outstanding during each period. Diluted earnings (loss) per
share of common stock is calculated by dividing net income (loss) by the fully
diluted weighted average number of common shares outstanding during each period,
which includes dilutive stock options and convertible shares.
STOCK BASED COMPENSATION:
- --------------------------
The Company measures compensation cost for its stock based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". The difference, if any, between the
fair value of the stock on the date of grant over the exercise price for the
stock is accrued over the related vesting period. SFAS No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires companies that continue to use
APB 25 to account for its stock-based compensation plan to make pro forma
disclosures of net income (loss) and earnings (loss) per share as if SFAS 123
had been applied (see Note 14).
COMPREHENSIVE INCOME:
- ---------------------
The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
NEW ACCOUNTING STANDARDS:
- --------------------------
SFAS No. 133: In June 1998, the Financial Accounting Standards Board issued
Standard No. 133 ("SFAS 133") - "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 is effective beginning in 2000. The adoption of SFAS 133
is not expected to have a material impact on the financial position or results
of operations of the Company.
SOP 98-5: In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-5, "Reporting on the Costs of Start-up Activities". This statement is
required to be adopted for fiscal years beginning after December 15, 1998 and
requires the expensing of all start-up costs, as defined, as they are incurred.
The Company has voluntarily applied accounting policies consistent with SOP 98-5
for the years ended December 31, 1998 and 1997.
F-10
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS.
On December 18, 1998, the Company acquired West Texas Bingo, Inc. for $60,000
cash. At the same time, the Company entered into a three year property lease in
Abilene, Texas, commencing in February 1999. The Company is currently
renovating this lease location and anticipates charitable bingo operations to
begin near the end of the first quarter of 1999. The $60,000 purchase price was
allocated to the fair value of the bingo license. The acquisition has been
accounted for under the purchase method of accounting.
On November 9, 1998, the Company reorganized its South Carolina video gaming
operations. The Company entered into a three year Master Coin Machine Agreement
("Agreement") with a third party operator that served to outsource the
operations of the Company's non-route video gaming operations at eight video
game machine centers. Under the agreement, the Company has agreed to provide
the video game machines to be used at these video game centers and to lease or
sublease such centers to the operator where appropriate. In return, the Company
receives a fixed percentage of the gross revenues earned from these operations.
The operator assumes all financial responsibility and liability for these
operations under the Agreement, while the Company retains all ownership rights
to the underlying video game machines and all related assets.
On October 30, 1998, the Company acquired six bingo centers in Texas. Three of
the centers are in Lubbock, two in Amarillo, and one in Odessa. The total
purchase price for this acquisition was $3.0 million which included $2.8 million
cash and 128,000 shares of the Company's Common Stock valued at $200,000, based
on the closing share price on October 30, 1998. The fair value of assets
acquired and liabilities assumed included net operating assets of $284,640,
goodwill of $2,515,360 and non-compete agreements of $200,000. The acquisitions
have been accounted for under the purchase method of accounting.
On March 25, 1998, the Company acquired Ambler Bingo, a bingo center in Abilene,
Texas. Total consideration for the acquisition was $990,000, and included
$500,000 cash, $400,000 of notes, and 29,630 shares of Company Common Stock
valued at $90,000 based on the closing price on March 25, 1998. The fair value
of assets acquired and liabilities assumed resulted in net operating assets of
$31,923, goodwill of $833,077, and a non-compete agreement of $125,000. The
acquisition has been accounted for under the purchase method of accounting.
Unaudited pro forma financial information for the years ended December 31, 1998
and 1997, as though the Ambler and the six Texas halls acquisitions had occurred
January 1, 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Revenues $16,969,657 $14,185,556
============ ===========
Net income (loss) $(2,049,043) $ 1,942,762
============ ===========
Basic earnings (loss) per share $ (.22) $ .27
============ ===========
</TABLE>
At the end of 1997, the Company closed its double bingo center in Brownsville,
Texas and sublet the property to a federal government agency for the balance of
the lease life.
On December 18, 1997, the Company acquired Darlington Music Company, Inc.
("DMC"), a South Carolina video gaming route business. The acquisition was
consummated in a stock-for-stock transaction, with the Company exchanging
1,000,000 shares of its common stock for 100% of the issued and outstanding
shares of DMC. There was no cash or other consideration. This acquisition was
accounted for as a pooling of interests, and DMC's historical financial results
have been combined with the Company's financial results. A principal in this
acquisition is a director of the Company.
F-11
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
- ------------------------------------------------------------------------------
(CONTINUED).
- ------------
In November of 1997, the Company cancelled a stock purchase agreement with the
manager of its West Columbia, South Carolina bingo and gaming property due to
poor financial performance and construction cost over-runs on new developments.
The Company and the manager mutually agreed to reduce the Company's note payable
balance to the manager from $657,000 to $100,000, plus past due payments of
$45,000, resulting
in a one-time extraordinary gain of approximately $602,000 for the Company. The
gain on extinguishment of debt is reflected as an extraordinary item net of
income taxes of approximately $205,000. The Company also canceled the
employment agreement with this manager. In exchange, the Company agreed to
reduce the lock-up on this manager's 300,000 shares of Company stock from two
years to one year. The Company retained all other assets acquired in the
original stock purchase agreement. The Company originally entered into this
stock purchase agreement in early 1997, while at the same time acquiring a South
Carolina corporation, related equipment and minority lease ownership rights. In
exchange, the Company provided the manager with $1.0 million of consideration,
including a note for $740,000, 300,000 shares of Company Common Stock valued at
$206,000, and cash of $50,000. The purchase price exceeded the net tangible
asset value acquired, resulting in goodwill of approximately $1,016,000, which
is being amortized on a straight-line basis over five years.
On October 9, 1997, the Company acquired Lucky 4, Inc. ("Lucky 4") a South
Carolina corporation engaged in the video gaming business. This acquisition was
consummated in a stock-for-stock transaction, with the Company exchanging
358,000 shares of its common stock for 100% of the issued and outstanding shares
of Lucky 4. There was no cash or other consideration. This acquisition was
accounted for as a pooling of interests, and Lucky 4's historical financial
results have been combined with the Company's financial results.
In August of 1997 the Company acquired two bingo centers in Charleston, South
Carolina, Beacon I and Beacon II, for cash and stock consideration totaling
$175,000. The Company recorded this acquisition as a purchase. The Company
closed the Beacon II center at the end of 1997 due to lack of profitability.
The Company wrote off the remaining goodwill during 1998 due to poor performance
of Beacon I.
On August 25, 1997, the Company acquired Gold Strike, Inc. ("Gold Strike"), a
South Carolina corporation engaged in the video gaming business. This
acquisition was consummated in a stock-for-stock transaction, with the Company
exchanging 827,680 shares of its common stock for 100% of the issued and
outstanding shares of Gold Strike. There was no cash or other consideration.
This acquisition was accounted for as a pooling of interests, and Gold Strike's
historical financial results have been combined with the Company's financial
results. A principal in this acquisition is a director of the Company.
In June of 1997 the Company acquired four bingo centers in Charleston, South
Carolina. The Company acquired the Lucky, Shipwatch, Ponderosa and Sea Galley
bingo centers for $1.2 million, comprised of $750,000 in cash, $400,000 in
notes, and 9,969 shares of Company stock valued at $50,000. The Company
recorded these acquisitions as purchases. The purchase price exceeded the net
tangible asset value resulting in the recording of goodwill of approximately
$1.0 million, amortized on a straight-line basis over three to five years,
consistent with the remaining property lease periods. The Company subsequently
closed the Sea Galley center due to lack of profitability. During the fourth
quarter of 1998, the Company reassessed the value of the goodwill based on
expected future cash flows. As a result of this analysis, in conjunction with
considered cash flow projections, market and business risks, the Company wrote
off the residual goodwill associated with the Shipwatch and Ponderosa bingo
centers at December 31, 1998. The remaining goodwill, related to the Lucky
bingo center, is not considered to be impaired and will continue to be
amortized, on a straight-line basis, over the remaining property lease period.
All acquisitions accounted for as purchases reflect the operations of the
acquired entities from the respective dates of acquisition. The results of
operations for all entities accounted for as poolings are included for all
periods presented.
F-12
<PAGE>
- ------
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 189,671
Buildings 379,342
Building and leasehold improvements 2,350,265
Video gaming machines and bingo equipment 7,044,703
Equipment, furniture and fixtures 1,040,743
Automobiles 302,425
------------
11,307,149
Less: Accumulated depreciation and amortization (5,049,300)
------------
Property and equipment, net $ 6,257,849
============
</TABLE>
Property and equipment at December 31, 1998 includes $1.3 million of assets held
under capital leases, related accumulated amortization of $293,000. Related
amortization expense charged to operations for the years ended December 31,
1998 and 1997 was $184,000 and $109,000, respectively.
Depreciation and amortization expense charged to operations for the years ended
December 31, 1998 and 1997 was $1,445,000 and $798,000, respectively.
NOTE 4 - INTANGIBLE ASSETS.
Amortization expense charged to operations for the years ended December 31, 1998
and 1997 was $642,000 and $306,000, respectively.
Intangible assets at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill $5,095,436
Covenants not to compete 553,891
-----------
5,649,327
Less: Accumulated amortization (811,453)
-----------
Intangible assets, net of accumulated amortization $4,837,874
===========
</TABLE>
F-13
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES RECEIVABLE.
<TABLE>
<CAPTION>
<S> <C>
Receivables from the sale of the Company's Florida bingo centers:
- -----------------------------------------------------------------
A promissory note due in equal monthly installments of $21,000 for 6 months of
the year and $11,000 for 6 months of the year, including interest at 12% per
annum, maturing October 2001, secured by certain assets $ 815,514
Various other promissory notes due in monthly installments of $5,400 to $13,300,
including interest at 9% to 12% per annum, due on demand,
secured by certain assets and personal property 47,150
Other Receivables:
- ------------------
A promissory note, with a related party, due on maturity, including interest at 7%
per annum, maturing May 2001, secured by pledged Company common stock 296,353
Three promissory notes, with related parties, due in equal annual installments of
81,999, plus simple interest 8%, maturing May 2001, un-secured 163,997
A promissory note, with a third party, due on maturity, including interest at 10%
per annum, maturing May 1999, secured by personal property 80,667
Various other promissory notes, with third parties, due in monthly installments of
100 to $4,000, including interest at 6% to 10% per annum, maturing from May
1999 to September 2001, secured by personal property 132,805
-----------
1,536,486
Less: Allowance for doubtful accounts (195,595)
-----------
Notes receivable, net of allowance for doubtful accounts $1,340,891
===========
</TABLE>
The financial statements include an allowance for collectibility of the Florida
notes receivable of $195,595. The creditor is depositing note payments into an
escrow account pending resolution of litigation (see Note 16). At December 31,
1998 the amount held in escrow is $126,517. If the Company were unable to
collect on the notes, and is unable to sell the underlying assets at their
estimated fair market value, the amount realized could be substantially less
than net amount of $493,402 (which is the note balance at December 31, 1998 of
$815,514 less the allowance and escrow accounts).
F-14
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - WRITE-OFFS AND CHARGES.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the Company recognizes impairment losses when
facts and circumstances indicate that the carrying amount of an asset may not be
recoverable. In such cases, the difference between management's estimate of
discounted future cash flows and carrying value of the asset is recorded as an
impairment.
In the second and fourth quarters of 1998, the Company recorded approximately $4
million of asset write-downs related to future operating lease obligations on
idle or unprofitable bingo centers, corporate office relocation, and other
unusual charges to reduce non-performing assets to their net realizable values.
<TABLE>
<CAPTION>
Asset write-offs recorded in 1998 in accordance with SFAS 121 consist
of the following:
<S> <C>
Leasehold improvements $ 660,000
Goodwill 436,000
Future operating lease obligations 555,000
Discontinued "8-Liner" gaming machines 204,000
----------
Total asset write-offs 1,855,000
----------
Other significant unusual charges recorded in 1998 include the following:
Uncollectible bingo advances, deposits and receivables 1,054,000
Allowance for doubtful bingo accounts receivable 110,000
Uncollectible gaming advances, deposits and receivables 87,000
Expense recognition for company stock warrants issued in
February 1998 for consulting and investment banking services 221,000
Previously capitalized legal, financial relations costs,
and realized, unrecognized investment losses 340,000
Travel, recruiting and personnel costs due to relocations 370,000
----------
Total unusual charges 2,182,000
----------
Total unusual charges $4,037,000
==========
</TABLE>
The asset write-offs increased general and administrative expenses by $204,000.
The unusual charges increased general and administrative expenses by $931,000.
NOTE 7 - EXTRAORDINARY ITEM.
In November 1997, the Company and a former bingo and gaming center manager in
South Carolina mutually agreed to amend their stock purchase agreement. Under
this agreement, the Company's note payable to this manager was reduced from
$657,000 to $100,000, and $45,000 of past due payments were forgiven, creating a
one-time extraordinary gain of $602,000, ($398,000 net of taxes) in 1997. In
exchange, the Company agreed to reduce the lockup on the manager's 300,000
shares of Company stock from two years to one year. The Company retained all
other assets acquired in this acquisition.
F-15
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES PAYABLE.
Notes payable at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Installment note payable to a third party, due in monthly installments of $17,728,
including interest at 6%, maturing June 1999 $ 104,533
Installment note payable to a financial institution, due in monthly installments of
15,615, including interest at 7.75%, maturing December 1999, secured by certain
equipment 175,874
Installment note payable to a third party, due in monthly installments of $13,570,
including interest at 13.6%, maturing January 2001, secured by certain equipment 334,165
Installment note payable to a third party, due in monthly installments of $5,009,
including interest at 13.5%, maturing January 2001, secured by certain equipment 104,842
Installment note payable to a third party, due in monthly installments of $1,525,
including interest at 13.3%, maturing March 2001, secured by certain equipment 35,234
Installment note payable to a third party, due in monthly installments of $2,240,
including interest at 13.9%, maturing April 2001, secured by certain equipment 53,340
Installment note payable to a third party, due in monthly installments of $4,220,
including interest at 12.7%, maturing June 2001, secured by certain equipment 107,919
Installment note payable to a third party, due in monthly installments of $10,162,
including interest at 13.1%, maturing December 2001, secured by certain equipment 295,803
Installment note payable to a third party, due in monthly installments of $7,069,
including interest at 12.5%, maturing January 2002, secured by certain equipment 208,345
Installment note payable to a related party, due in monthly installments of $9,765,
including interest at 8%, maturing May 2002 338,949
Installment note payable to an individual, due on demand, non-interest bearing,
unsecured 30,000
-----------
1,789,004
Less current installments (846,211)
-----------
Notes payable, net of current portion $ 942,793
===========
</TABLE>
Principle payments on notes payable for each of the next five fiscal years and
thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ending December 31,
- -------------------------
1999 $ 846,211
2000 553,101
2001 356,424
2002 33,268
Thereafter ---
----------
$1,789,004
==========
</TABLE>
F-16
<PAGE>
======
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - OBLIGATIONS UNDER CAPITAL LEASES.
In 1997, the Company entered into obligations under capital leases totaling
$1,235,812. The capital lease obligations are due in monthly and quarterly
installments ranging from $991 to $57,450, including interest at 11.67% to
14.3%, and final maturity of June 2000.
Future minimum payments due under capital lease obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ending December 31,
- -------------------------
1999 $ 456,079
2000 169,537
----------
Total future minimum lease payments 625,616
Less amount representing interest (66,320)
----------
Present value of minimum lease payments 559,296
Less current installments (411,891)
----------
Obligations under capital leases, net of current portion $ 147,405
==========
</TABLE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", requires
disclosure about the fair value of all financial assets and liabilities for
which it is practical to estimate. Cash, accounts receivable, accounts payable,
accrued liabilities and other liabilities are carried at amounts that reasonably
approximate their fair values.
The carrying amount and fair value of notes receivable and notes payable at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
---------------- -----------
<S> <C> <C>
Notes receivable $ 1,340,891 $ 1,362,935
Capital leases payable 559,296 559,296
Notes payable 1,789,004 1,767,653
</TABLE>
The fair values of the Company's fixed rate notes receivable and notes payable
have been estimated based upon relative changes in the Company's borrowing rates
since origination of the fixed rate debt.
F-17
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES.
A reconciliation of the expected federal income tax (benefit) based on the U.S.
Corporate income tax rate of 34% to actual for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------- ----------
Expected income tax (benefit) $(884,075) $ 506,105
Amounts not deductible for federal income tax purposes 53,730 11,631
State income taxes, net of federal income tax 163,806 63,036
Exercise of stock options --- (204,000)
Effective tax on unincorporated business acquired --- (207,860)
Additional income taxes related to DMC (acquisition
accounted for as a pooling) 99,336 ---
Effect of change in 1997 net operating loss 207,374 ---
Change in valuation allowance 622,973 34,776
---------- ----------
$ 263,144 $ 203,688
========== ==========
The provision for income taxes consists of the following:
1998 1997
---------- ----------
Current year income taxes:
Federal $ 99,336 $ 140,652
State 163,808 63,036
Deferred income taxes:
Federal --- ---
State --- ---
---------- ----------
$ 263,144 $ 203,688
========== ==========
</TABLE>
Deferred tax assets and liabilities as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current deferred tax asset $ 110,900
Current deferred tax liability ---
Valuation allowance for current deferred tax asset $ (110,900)
------------
Net current deferred tax asset ---
============
Non-current deferred tax asset $ 1,377,063
Non-current deferred tax liability (30,103)
Valuation allowance for non-current deferred tax asset (1,346,960)
------------
Net non-current deferred tax asset $ ---
============
</TABLE>
The current deferred tax asset results primarily from differences in contingency
and valuation reserves for financial and federal income tax reporting purposes.
The non-current deferred tax asset results from differences in amortization of
goodwill and the non-compete agreements, and asset write-off and reserves for
financial and federal income tax reporting purposes and the deferred tax benefit
of net operating losses. The non-current deferred tax liability results from
differences in depreciation of fixed assets for financial reporting purposes and
federal income tax purposes. The net deferred tax asset has a 100% valuation
allowance due to the uncertainty of generating future taxable income.
F-18
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED).
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2.1 million that begin expiring in
the year 2009. The utilization of the net operating loss is subject to
limitations in accordance with 382 of the Internal Revenue Code.
During 1997, the Company deducted, for income tax purposes, approximately
$600,000 related to employee stock options exercised which were not deductible
for financial reporting purposes. The related tax benefit of this permanent tax
difference, approximately $204,000, has been recorded as additional paid-in
capital. However, a valuation allowance has been established for the benefit
due to the uncertainty of generating future taxable income, which is included in
the above valuation allowance for non-current deferred tax assets. In the event
that the Company generates future taxable income, the related allowance will be
reduced and the full benefit will be recognized as an increase to equity.
NOTE 12 - SHAREHOLDERS' EQUITY.
During 1998 the Company issued 498,599 shares of its common stock and paid
$1,062,703 in cash and $1,983 derived from converted preferred dividends in
connection with the redemption of all outstanding preferred shares to common
stock. These common shares were issued at the $4.00 per share floor price or at
the existing fair market value above the floor price accumulated deficit. The
Company recorded a reduction of $1,063,182 to additional paid-in capital related
to these conversions and redemptions. Preferred stock dividends of $95,874 were
paid during 1998 and recorded against accumulated deficit for preferred share
dividends due prior to the redemption dates.
During 1998 the Company repurchased and cancelled 76,475 warrants for $38,237
and incurred additional warrant exercise costs of $10,321 related to the 1997
warrant call.
On October 30, 1998, the Company issued 128,000 shares of treasury stock related
to the acquisition of the six bingo centers in Texas. These shares were valued
at the existing fair market value of $1.56 per share, totaling $200,000. The
net effect of the issuance of treasury stock was recorded as a $388,896
reduction of treasury stock and a $188,896 reduction to additional paid-in
capital. All of the shares issued are subject to Company re-sale lockup
agreements of one to three years.
The Company issued 2,381 shares of its common stock in July 1998 pursuant to
purchases under the Company's Employee Stock Purchase Plan. These shares were
issued at $2.55 per share, pursuant to the Plan purchase price for the six-month
plan period of January 1 through June 30, 1998. The Company recognized $6,071
in equity proceeds through voluntary payroll deductions pursuant to these plan
purchases.
The Company's Board of Directors authorized the Company to purchase up to 1.0
million shares of its common stock in open market or privately-negotiated
transactions over an unlimited period of time, beginning in the second quarter
of 1998. The Company repurchased 359,300 of its common shares for $1,075,295
through its stock buyback program during the second and third quarters of 1998.
The price per share to repurchase these shares ranged from $2.12 to $3.75. At
December 31, 1998, the Company holds 231,300 treasury shares with a cost of
$686,399 which equates to an average price per share of approximately $2.97.
F-19
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED).
On March 25, 1998, the Company issued 29,630 shares of common stock as partial
consideration related to the acquisition of Ambler Bingo. These shares were
valued at the existing fair market value of $3.04 per share, totaling $90,000.
During the first quarter of 1998 the Company issued 33,733 shares of its common
stock pursuant to employee stock option exercises. These option shares were
exercised and issued at $1.17 per share and resulted in an increase to
additional paid-in capital of $38,968.
In February 1998, the Company entered into a one year agreement for financial
consulting and investment banking services in exchange for warrants to purchase
100,000 shares of the Company's common stock at an exercise price of $3.88 per
share. The warrants vest and become fully exercisable on February 6, 1999 and
expire on February 4, 2004. The Company recorded expense of $221,616 during
1998 related to these warrants. This amount represents managements estimate of
the fair value of these warrants at the date of grant using a Black-Scholes
pricing model with the following assumptions: applicable risk-free interest rate
based on the current treasury-bill interest rate at the grant date of 6%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 84%; and an expected life of the warrant of 3 years.
In December 1997, the Company redeemed 2,293,995 of its Redeemable Common Stock
Purchase Warrants pursuant to the Company's warrant call in November of 1997.
Each warrant was converted into one share of Company common stock at the price
of $5.00 per share. The Company grossed $11.5 million from this transaction,
and netted $11.1 million after associated financing costs.
The Company issued 2,495,649 shares of its common stock in 1997 for various
acquisitions in South Carolina. In December, the Company issued 1,000,000
shares in the stock-for-stock acquisition of the Darlington Music Company video
gaming route business. In October, the Company issued 358,000 shares in the
stock-for-stock acquisition of the Lucky 4 video gaming business. In September,
the Company issued 827,680 shares in the stock-for-stock acquisition of Gold
Strike video gaming business, and issued 9,969 shares in the acquisition of two
bingo centers. Early in the first quarter of 1997, the Company issued 300,000
shares in a stock purchase acquisition of a bingo center, equipment and various
corporations. All of the shares issued for these acquisitions, excluding the
9,969 tranche, were subject to Company re-sale lockup agreements of one to three
years.
The Company granted 50,000 shares of its common stock in January of 1997 to
employees as an annual bonus for 1997. These shares were valued at the existing
fair market value of $.94 per share.
The Company issued 2,000 preferred shares in August of 1997 at $1,000 per share
in a private equity transaction, grossing $2.0 million and netting $1.83 million
after associated financing costs. The net proceeds from this transaction were
recorded as equity. These shares are convertible into Company common shares
under a variable pricing formula ranging from $4.00 to $5.50 per share.
Conversion rights on these shares were fully vested at April 1, 1998. These
shares pay an annual dividend of 7% on a quarterly basis on the unconverted
principle balance. As of April 6, 1998, approximately 500 shares or 25% of the
total preferred shares had been converted into approximately 90,000 common
shares.
F-20
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED).
The Company issued 200,000 shares of its common stock in 1997 pursuant to
employee stock option exercises from June through September. These option
shares were exercised and issued at various prices from $1.00 to $2.50 per
share, netting $347,000 in equity proceeds for the Company.
The Company issued 74,000 shares of its common stock in the first quarter of
1997 for various professional, lobbying, and legal services rendered. These
shares were valued at the existing fair market value of $1.09 per share.
The Company issued 10,767 shares of its common stock in July and December of
1997 pursuant to purchases under the Company's Employee Stock Purchase Plan.
These shares were issued at the existing fair market value of $1.17 and $3.53,
respectively, per share, for the six-month plan periods ended in June and
December, respectively, netting the Company over $20,000 in equity proceeds
through voluntary payroll deductions.
NOTE 13 - EARNINGS PER SHARE.
A reconciliation of basic to diluted earnings (loss) per share is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1998 1997
-------------------------- -----------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Numerator:
- --------------------------------------
Net income (loss) $(2,600,222) $(2,600,222) $1,284,856 $1,284,856
less preferred dividends (97,857) (97,857) (58,333) ---
------------ ------------ ----------- ----------
Income (loss) available to
common stockholders $(2,698,079) $(2,698,079) $1,226,523 $1,284,856
============ ============ =========== ==========
Denominator:
- --------------------------------------
Weighted average shares outstanding 9,299,908 9,299,908 7,160,612 7,160,612
Effect of dilutive securities:
Preferred stock --- --- --- 220,620
Stock options and warrants --- --- --- 752,554
------------ ------------ ----------- ----------
Weighted average shares outstanding 9,299,908 9,299,908 7,160,612 8,133,786
============ ============ =========== ==========
Earnings (loss) per share before
extraordinary item $ (.29) $ (.29) $ .17 $ .16
============ ============ =========== ==========
</TABLE>
F-21
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - ACCOUNTING FOR STOCK BASED COMPENSATION.
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its stock options. At December 31,
1998, the Company has implemented four shareholder approved stock option plans.
These plans are intended to comply with Section 422 of the Internal Revenue Code
of 1986, as amended. The plans collectively provide for the total issuance of
2,000,000 common shares over ten years from the date of each plan's approval.
At December 31, 1998, a total of 1,175,600 options are outstanding under these
plans. An additional 141,525 options for shares are outstanding to
non-employees outside of these plans as of the end of 1998.
A summary of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Employee Stock Plans Other Compensatory Combined Total
------------------ ---------------- ---------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
---------- ------ -------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Outstanding at 12/31/96 1,059,999 $ 1.59 --- $ --- 1,059,999
Granted 526,667 1.00 218,000 4.53 744,667
Exercised (200,000) 1.72 --- --- (200,000)
Forfeited --- --- --- --- ---
---------- ------ -------- ------ ---------------
Outstanding at 12/31/97 1,386,666 2.89 218,000 4.53 1,604,666
Granted 531,000 3.36 --- --- 531,000
Exercised (33,733) 1.18 --- --- (33,733)
Forfeited (708,333) 3.60 (76,475) 5.50 (784,808)
---------- ------ -------- ------ ---------------
Outstanding at 12/31/98 1,175,600 $ 2.43 141,525 $ 4.00 1,317,125
========== ====== ======== ====== ===============
</TABLE>
The fair value of options issued during 1998 and 1997 was $1,305,753 and
$711,591, respectively.
The following table summarizes information about options outstanding at December
31, 1998 and 1997 under the Employee Stock Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
---------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998: $ 0.96 - $6.16 1,175,600 4.7 years $ 2.43 710,422 $ 2.19
1997: $ 0.96 - $6.25 1,386,666 3.9 years $ 2.89 430,001 $ 1.53
</TABLE>
F-22
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - ACCOUNTING FOR STOCK BASED COMPENSATION (CONTINUED).
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
---------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998: $ 3.00 - $5.50 141,525 3.4 years $ 4.00 141,585 $ 3.99
1997: $ 3.00 - $5.50 218,000 3.2 years $ 4.53 85,000 $ 3.00
</TABLE>
The options granted in 1998 and 1997 have exercise prices which approximate fair
value and accordingly, no compensation cost has been recognized for the
compensatory stock options in the consolidated financial statements. Had
compensation cost for the Company's stock options been determined consistent
with FASB statement No. 123, "Accounting for Stock Based Compensation", the
Company's net income (loss) and net income (loss) per share would have been
decreased (increased) to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997
----------- ------------
<S> <C> <C> <C>
Net income (loss) As reported $(2,600,222) $1,682,392
Pro forma $(2,900,623) $1,069,196
Basic earnings per share As reported $ (.29) $ .23
Pro forma $ (.32) $ .15
Diluted earnings per share As reported $ (.29) $ .21
Pro forma $ (.32) $ .13
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
grants in 1998; dividend yield of 0%, expected volatility of 84%, risk free
interest rates estimated at 6.0%, and an expected life of 3 years. The
following assumptions were used for grants in 1997; dividend yield at 0%,
expected volatility at 76%, risk free interest rates estimated at 6.0%, and an
expected life of 1-3 years.
F-23
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RELATED PARTY TRANSACTIONS.
At December 31, 1998, notes receivable included promissory notes receivable from
related parties totaling $460,000. The interest rates range from 7.0% - 8.0%
with maturity dates ranging from December 15, 1998 to May 31, 2001. Interest
income related to these notes recorded by the Company was $34,000 for the year
ended December 31, 1998.
In March 1998 the Company acquired Ambler Bingo. In conjunction with this
purchase, 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, and
entered into a three-year employment agreement with the seller. 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 year ended December 31, 1998, the
Company recognized $23,200 of interest expense to this obligation.
In December 1997, 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 years ended December 31, 1998 and 1997, the
Company has expensed $42,000 for rental payments to the related parties under
this lease.
As a part of the Company's 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, with renewal options. The
monthly rental payments under this lease are $5,270. For the years ended
December 31, 1998 and 1997, the Company has expensed $63,240 and $34,930
respectively for rental payments to the related party under this lease.
On November 9, 1998, the Company reorganized its South Carolina video gaming
operations by entering into a three year Agreement with an operator, effectively
outsourcing the operations of the Company's non-route video gaming operations at
eight video gaming machine centers. The operator is owned and managed by a
shareholder and former officer, Director and employee of the Company, and a
second shareholder and former employee of the Company. In addition, at seven of
the eight centers, the Company has entered into a lease or a sublease with the
operator which provides for the monthly payment of rent by the operator. Under
the Agreement, the Company retains ownership of the underlying video gaming
machines and all related assets. In connection with the execution of the
Agreement, the Company loaned $80,000 to the operator, due in full, with
interest accruing at prime-plus 2%, due upon maturity in May 1999.
F-24
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES.
(a) Operating Leases:
The Company is obligated under various operating leases. Generally, the leases
provide for minimum annual rentals as well as a proportionate share of the real
estate taxes and certain common area charges. Minimum annual rentals under
these leases are as follows:
<TABLE>
<CAPTION>
Years Ending Minimum
December 31, Rentals
- ------------ ----------
<S> <C>
1999 $2,073,802
2000 1,815,831
2001 1,319,310
2002 710,413
2003 and thereafter 2,012,951
----------
Total minimum annual rentals $7,932,307
==========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 amounted to $2.6
million and $1.5 million, respectively.
(b) Legal:
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.
F-25
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
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. 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.
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.
Additionally, 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. 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.
F-26
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
- ----------------------------------------------------------
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 alleges that the defendants breached fiduciary duties, breached
contracts, maliciously prosecuted the plaintiff, and engaged in various
fraudulent and illegal acts. The plaintiff seeks to recover actual and punitive
damages of an unspecified amount, seeks the reassignment of a lease agreement
which secures a promissory note issued by the Company to the plaintiff, and
seeks to have a receiver appointed to take control of the Company during the
pendency of this lawsuit. The Company believes that this lawsuit is completely
without merit and will defend itself vigorously. This lawsuit is in the early
stages and discovery has not yet commenced. 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.
The South Carolina legislature and the Governor of South Carolina are currently
considering proposing legislation that could significantly overhaul the
regulatory framework for video poker in South Carolina and impose significantly
higher taxes. Although it is anticipated that some legislation will be proposed
in 1999, the actual legislation has not yet been presented in the legislature
and thus the nature and impact of such legislation is not known at the current
time. 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, based on discussions with its outside legal counsel,
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.
NOTE 17 - YEAR 2000.
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 the 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 April 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.
F-27
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SEGMENTS.
The Company adopted Statement of Financial Accounting Standards No.
131,"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in the fiscal year ended December 31, 1998. SFAS 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance.
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 accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that depreciation and amortization are allocated to
each segment from functional department totals based on certain assumptions
which include, among other things, revenues. Also, the Company's CODM does not
view segment results below operating profit (loss), therefore, net interest
income, other income, and the provision for income taxes are not broken out by
segment below.
The Company's 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. These segments were identified
based on the different nature of the services and legislative monitoring and, in
general, the type of customers for those services.
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 9,738,085 $ 4,855,532 $ 851,839 $ 15,445,456
Depreciation and Amortization 986,818 1,041,236 59,423 2,087,477
Segment profit (loss) 1,643,301 (1,203,841) (3,039,682) (2,600,222)
Segment Assets 7,380,853 10,754,901 846,818 18,982,572
Capital expenditures by segment 1,883,194 605,752 50,684 2,539,630
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 8,874,257 $2,921,386 $ 427,492 $ 12,223,135
Depreciation and Amortization 345,102 758,850 - 1,103,952
Segment profit (loss) 1,299,664 1,500,639 (1,117,911) 1,682,392
Capital expenditures by segment 1,551,025 942,095 107,531 2,600,651
</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.
F-28
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SUBSEQUENT EVENTS.
On February 26, 1999 the Company entered into a settlement agreement, compromise
of claims and mutual release with the Company's former president and chief
executive officer and members of his family. Under the terms of the agreement
the Company will receive the net proceeds from the sale of 200,000 shares of the
Company's common stock owned by the former president and $1,300 as consideration
for the founder's stock originally issued to the former president. Also, the
former president and family members will sell 1.1 million shares of the
Company's common stock over a five year period beginning June 1, 1999 at a
predetermined liquidation rate.
F-29
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION and QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998 and 1997
Charged Charged
Balance to costs & to other Balance
January 1, Expenses Accounts Deductions December 31,
----------- -------- ----------- ----------- -------------
1998
- -------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for notes receivable $ 231,395 --- 35,800(1) --- $ 195,595
Allowance for doubtful accounts $ --- 109,595 --- --- $ 109,595
1997
- -------------------------------
Allowance for notes receivable $ 290,773 --- 59,378(1) --- $ 231,395
Allowance for doubtful accounts $ --- --- --- --- $ ---
<FN>
(1) Allowance was reduced to reflect net realizable value.
</TABLE>
F-30
<PAGE>
