SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission File Number 1-13530
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AMERICAN BINGO & GAMING CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1440 Charleston Highway, West Columbia, SC 29169
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (803) 796-7875
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act: Common Stock
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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
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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.
[ ]
Issuer's revenues for its most recent fiscal year: $13,107,209
Aggregate market value of the issuer's common stock held by
non-affiliates based on the average bid and asked price
as of February 24, 2000: $7,498,490
Number of shares of the issuer's common stock outstanding
as of February 24, 2000: 9,140,690
Transitional Small Business Disclosure Format: Yes No x
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DOCUMENTS INCORPORATED BY REFERENCE
The issuer's Proxy Statement for its annual meeting of stockholders scheduled to
be held on May 31, 2000, is incorporated by reference in this Form 10-KSB in
Part III Item 9, Item 10, Item 11 and Item 12.
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THIS REPORT CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS APPEAR IN A NUMBER OF
PLACES IN THIS REPORT AND INCLUDE ALL STATEMENTS REGARDING THE INTENT, BELIEF OR
CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS OFFICERS, WITH RESPECT
TO, AMONG OTHER THINGS: (I) THE COMPANY'S FINANCING PLANS; (II) TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS; (III) THE
COMPANY'S GROWTH STRATEGY AND OPERATING STRATEGY; AND (IV) THE DECLARATION AND
PAYMENT OF DIVIDENDS. INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS
DISCUSSED HEREIN AND THOSE FACTORS DISCUSSED IN DETAIL IN THE COMPANY'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
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This United States Securities and Exchange Commission Form 10-KSB, the Annual
Report required under Section 13 of the Securities Exchange Act of 1934, has
been prepared in accordance with the instructions contained in the Securities
and Exchange Commissions' instructions and guidelines.
American Bingo & Gaming Corp. ("American Bingo" or the "Company") is authorized
to file a "small business" Annual Report because its annual revenues have not
exceeded $25,000,000 for 1999; it is a United States issuer of securities; and,
it is not an investment company. In addition, there is a requirement that the
Company's public float (the aggregate market value of the Company's outstanding
securities held by non-affiliates) not exceed $25,000,000. American Bingo
currently qualifies on all of these listed criteria. This small business
designation allows an issuer of securities to file an annual report with less
detail with respect to certain issues than would otherwise be required.
It is American Bingo's sincere desire to make this Annual Report clear and
understandable and to adhere to the SEC's directive of communicating in Plain
English.
This Annual Report will be issued on or about March 30, 2000, and any material
subsequent events that have transpired since the end of 1999 will be included in
order to provide a clear picture of the Company's current status.
INTRODUCTION. American Bingo had a tough year in 1999. It is difficult to
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imagine a company enduring a more dramatic series of changes and challenges.
The greatest challenge presented was a dramatic change in the leadership of the
Company.
- After a tumultuous year of contentiousness and strife, six members of
the Board of Directors and the Management team resigned at mid-year.
This was the unfortunate culmination of a series of events that began
at the May 27, 1999, Annual Meeting at which the Company was unable to
present a clear strategic vision for reversing the Company's
continuing deteriorating stock price.
- The Board of Directors was an even number of Board members whose
presence had been dictated by certain acquisition agreements concluded
in 1998, as well as the new President/Chief Executive Office/Chairman
of the Board and his nominee. The Board structure and composition
was not effective and degenerated into personal enmities that
dramatically impaired the Company's ability to operate.
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- The previous Management team (headed by Andre Hilliou -President/Chief
Executive Officer/Chairman of the Board of Directors) had created a
Structure that in the opinion of the current Management team was
excessive and ineffective. Too much power was concentrated in the
hands of a single individual without the creation of countervailing
checks and balances. ALSO, THIS MANAGEMENT TEAM OWNED AN INSIGNIFICANT
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AMOUNT OF THE COMPANY'S STOCK.
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- The resignation of the Board of Directors and Management team was an
expensive proposition achieved at an ultimate total cost to the
Company in excess of $1,250,000, as many individuals had Employment
Agreements and other legal obstacles.
- In the end, six Board members resigned, along with the President/Chief
Executive Officer/Chairman of the Board of Directors, the Chief
Operating Officer, the Chief Administrative Officer, the Chief
Financial Officer, the Controller, an Executive Vice President and
three subsidiary Vice Presidents.
- An operating division of the Company, Darlington Music Company, was
merged into the operating corpus of the Company creating further
personnel efficiencies.
- This streamlining of the Company's Management team is expected to
result in annual savings of approximately $1,500,000.
- At year-end, the Management team was led by a President, a staff
attorney and the Controller. Jeffrey L. Minch was named President of
the Company in October 1999. MR. MINCH CURRENTLY OWNS APPROXIMATELY
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FIFTEEN PERCENT (15%) OF THE COMPANY'S STOCK AND THE BOARD OF
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DIRECTORS AND MANAGEMENT COLLECTIVELY OWN APPROXIMATELY TWENTY PERCENT
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(20%) OF THE COMPANY'S STOCK.
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Two important legal issues had a negative impact on the Company during 1999.
- The South Carolina Supreme Court, in a case referred to as the "Gentry
Case", issued a ruling that the $125 statutory payout limitation for
video gaming winnings was to be paid without regard as to how much a
player had wagered and was limited such that a player could not win
more than $125 in a 24-hour period. Previously, it had been the
practice to pay out $125 per 24-hour period in addition to the amount
wagered by the player. This limitation on payouts effectively reduced
video gaming revenue statewide (and specifically for American Bingo)
by approximately thirty to thirty-five percent (30-35%).
- The South Carolina Supreme Court ruled that a November 2, 1999
Referendum mandated by the South Carolina Legislature to decide the
future of video gaming in the State was unconstitutional thereby
eliminating the only methodology by which video gaming could continue.
This ruling effectively outlawed video gaming effective June 30,
2000. This matter may be subject to legal challenge in the future,
but as it currently stands, American Bingo is planning on ceasing
its video gaming operations in South Carolina effective June 30, 2000.
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This matter is further compounded by the fact that American Bingo
has video gaming machine licenses that expire on May 31, 2000, for
approximately half of its machines and that there is no effective
mechanism currently in place to extend these licenses for the
remaining month during which video gaming will be legal in South
Carolina. Unless this matter is resolved, the Company will cease
operations for approximately one-half of its machines on or before
May 31, 2000.
The Company has a number of financing arrangements (video gaming equipment loans
and leases) that contemplated the application of continuing video gaming revenue
to retire these financial obligations. The Company is in contact with all of
these lenders or lessors and has made a formal workout proposal to reschedule
these obligations over a four (4) year period. One lender/lessor elected to
offer a substantial discount to the Company in order to induce the Company to
immediately repay its obligation and the Company paid this obligation in full.
It is the Company's view that the collateral for these obligations (i.e. the
video gaming machines secured by these financings) is sufficient to repay all
obligations.
As is logical when a Company's leadership is distracted and the Company's
business is under pressure, operational issues were neglected and many problems
were allowed to grow undetected or unaddressed. Several important matters were
discovered and addressed by the new Management team. Other residual matters
remain to be addressed and resolved.
- The political infighting that characterized the Board's environment
was allowed to seep into the organization and structure of the
Company. The Company was poorly administered and no area was more
lacking in performance than the Company's accounting system. The
software was not appropriate for a company of American Bingo's size
and the system was not able to provide instantaneous financial
compilations of the Company's subsidiaries and operating units. Some
accounting functions were still being done in the field and there was
no centralized system.
- A new accounting software product was installed (MAS 90) that came
from the family of the predecessor software, BusinessWorks. This is a
work in progress but at this time it is apparent that this
transformation will be completed successfully. More work remains to be
done.
Ultimately all accounting will be centralized at the Company's
headquarters and operating units will be able to access their
respective information via the Internet or other distribution
mechanism.
- A number of specific State of South Carolina income taxation issues
dealing with the allocation of corporate overhead from 1995-1996 had
gone unresolved for years and the new Management team promptly
resolved these matters at a cost of approximately $50,000 to the
Company. This had the benefit of removing a distraction and allowing
the accounting staff to focus on other important operational issues.
- A number of South Carolina regulatory violations were also unresolved
and these were promptly resolved at some minor cost to the Company.
- The balance sheet was reviewed in considerable detail, a process that
will continue during 2000, and several questionable assets were
appropriately written-down, including a promissory note from a
Florida sales transaction that was essentially uncollectible.
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- The legal expenses of the Company during the beginning of 1999 were
enormous. These expenses included legal costs associated with the
continuing chaotic Board environment, the routine legal administration
of the Company and litigation expenses. The new Management team
immediately removed the necessity for some of these expenditures by
streamlining the Board and eliminating the conflicts.
A staff attorney was hired that resulted in the practical limitation
and compartmentalization of administrative expenses. Litigation
matters were assessed and the progress of individual litigation
matters was aggressively advanced in order to assess the ultimate cost
of resolving these matters. This is addressed further in "Item 3 -
Legal Proceedings."
- The Company's auditors were replaced and the Company concluded its
1999 audit in early February 2000 at an expense substantially less
than it had previously paid.
- The Company terminated its relationship with an investor relations
firm at a substantial savings.
- The Company's communication mechanism with its shareholders was
deficient. A firm commitment was made to shareholders to report
earnings on the third Thursday following the end of the quarter and to
have conference calls on the following Friday. This policy has been
adhered to since its inception.
In addition, since the advent of the Company's new accounting
software, the Company is able to provide monthly financial
performance reports to its shareholders in a timely manner.
A SHORT HISTORY OF AMERICAN BINGO. American Bingo & Gaming Corp., a Delaware
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corporation, was created in 1994 to pursue two separate and distinct business
objectives:
1. The development, ownership and operation of charitable bingo halls in
Texas and Alabama; and,
2. The operation of gaming enterprises in Texas.
The Company's operations were initially limited to Texas, its headquarters
location at the time, and Alabama. The Company subsequently expanded into
Florida (1995) and South Carolina (1997).
The Company's expansion into Florida in 1995 occurred with the flawed
acquisition of four (4) bingo halls that has resulted in continuing litigation
to this date. The Company no longer operates in Florida, though it is engaged
in proceedings to regain the right to do business in Florida and will return to
Florida if this proceeding is successful.
The Company's expansion into South Carolina was as a result of the acquisition
of several bingo halls and two (2) gaming operations. The newly acquired South
Carolina bingo halls suffered from a rapidly and negatively changing regulatory
environment and the South Carolina gaming operations have subsequently been
similarly negatively impacted. The video gaming machines will cease operations,
as a result of legislative action and the mandate of the South Carolina Supreme
Court, effective June 30, 2000, though practical licensing implications will
advance that date to May 31, 2000, for approximately one-half of the Company's
video gaming machines.
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During the same time period in which the Company was expanding into both Florida
and South Carolina, the Company entered into some failed expansion efforts in
Texas, Alabama and South Carolina that resulted in the expenditure of
substantial sums to expand the Company's operations that in a number of
instances were almost immediately discontinued.
In 1998, the Company acquired eight (8) bingo halls in Texas in three separate
transactions. These acquisitions were properly executed and represent the model
for such acquisitions in the future as the Company's focus returns exclusively
to growing its charitable bingo management business.
In 1999, the Company operated twenty (20) bingo halls in Texas, Alabama and
South Carolina as well as approximately 800 video gaming machines in South
Carolina. The video gaming machines will cease operations on or before June 30,
2000 as noted above.
With the significant changes in the Management team and Board of Directors in
mid-1999, the strategic direction of the Company has returned its focus to
growing the Company's charitable bingo management business and to consolidating
and building upon the Company's existing foundation of twenty (20) charitable
bingo halls.
Despite all of the Company's travails and ill-fated expansion efforts, American
Bingo continues to be the only public company engaged in the consolidation of
the charitable bingo management business and the largest public company owning
charitable bingo halls in the United States.
CAPITAL TRANSACTIONS. American Bingo has engaged in four (4) material capital
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transactions (other than acquisitions) since its inception:
1. The Company completed an Initial Public Offering of 1,000,000 shares
of its common stock (par value $0.001 per share) and 1,725,000
callable, redeemable, common stock purchase warrants in December of
1994. The Company received net proceeds of approximately $5,200,000.
2. The Company issued 2,000 shares of convertible preferred stock at
$1,000 per share in a private transaction in August of 1997. All
convertible preferred stock was converted to common stock by December
of 1998. The Company received net proceeds of approximately
$2,000,000.
3. The Company called all of its redeemable, common stock purchase
warrants in November of 1997. The Company received net proceeds of
approximately $11,100,000.
4. The Company has repurchased approximately 1,993,800 shares, or twenty
percent (20%), of its common stock in block transactions as of March
24, 2000, per its stock repurchase plan. The Company has a continuing
authority to repurchase an additional 506,200 shares of its common
stock.
CHARITABLE BINGO MANAGEMENT BUSINESS. The Company's main business is the
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management of charitable bingo halls. The Company might be referred to as a
"charitable bingo lessor" or "bingo conductor" or "bingo promoter" depending
upon the jurisdiction in which the Company is operating.
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A new charity bingo hall, sometimes called a "de novo" start up, is created when
the Company contracts with a real estate landlord, through a long-term real
estate lease, to rent premises suitable for a bingo hall. The Company engages in
precise market, demographic and location research in order to ensure the
suitability of a specific site for the development of a new bingo hall. The
Company then develops the physical plant for a bingo hall based upon its
experience and expertise; and, attracts the requisite number of charities to
conduct bingo on the Company's leased premises. The Company charges the
charities for the use of the premises and the services provided to support the
charity's conduct of bingo operations.
The Company anticipates recovering its entire investment (usually $100,000 to
400,000) in a new, start up bingo hall within twelve to twenty-four (12-24)
months after the attainment of a stable and predictable operating environment
(typically 6-12 months after the initiation of operations with a full contingent
of charities).
In addition to starting up new charitable bingo halls, the Company may acquire
other companies that also engage in the management of charitable bingo halls.
These acquisitions are valued by the Company's analysis of future cash flows
based upon an examination of historic cash flows. The Company anticipates an
immediate, going in return of 25-35% on its entire investment and the ability to
sustain that level of performance for a ten (10) year period, absent only
regulatory environmental changes beyond the Company's ability to predict or
control.
Bingo halls, whether acquired through Company initiated de novo start ups or
acquisitions, are anticipated to be fertile for continued financial performance
improvement by techniques outlined in the Company's Strategic Plan, including
customer growth, customer loyalty development, expense reduction and data base
marketing techniques.
Local regulation will typically define the exact role that the Company may
provide as a charitable bingo lessor/conductor/promoter and this role will
differ dramatically from jurisdiction to jurisdiction. The Company is careful to
ensure that its operations are within the permissible limitations created by
local regulation and the Company's knowledge of this local regulatory
environment is a competitive advantage enjoyed by the Company.
CHARITY SUPPORT. One of the most overlooked aspects of American Bingo has been
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its financial support of the charities that play bingo in its bingo halls.
These charities have been able to fund their noble causes with profits derived
from their association with American Bingo.
THE TOTAL AMOUNT OF CHARITABLE FUNDING PROVIDED BY AMERICAN BINGO IN 1999 WAS
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APPROXIMATELY $3,200,000.
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This funding was received by charities as diverse as:
- the arts (Abilene Opera Association, Alabama Dance Theatre);
- education (Father Joe Znotas Scholarship Fund);
- religion (Apostolic Church of the Faith, Knights of Columbus);
- the military (Veterans of Foreign Wars, American Legion, United
Veterans Association);
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- public service (numerous Volunteer Fire Departments, Fraternal Order
of Police);
- substance abuse (Substance Abuse Services Today, Alcoholic Recovery
Center);
- women's issues (ASK House for Women, Inc., Marion Moss Enterprises);
- disease treatment and prevention (Arthritis Foundation, Managed Care
Center); and
- economic development (Guadalupe Economic Services, South Plains
Economic Development).
Because of American Bingo's stewardship of these charities' bingo operations,
lives are being favorably impacted.
MANAGEMENT AND BOARD OF DIRECTORS' CHANGES. American Bingo has suffered through
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a chaotic leadership structure since its inception. There have been five (5)
separate Presidents or Chief Executive Officers during the Company's brief
history as well as a continually changing Board of Directors. Changes and
transitions have been for the most part acrimonious, disjointed and contentious.
1. Its founder, Greg Wilson, led the Company's Management team during the
period from its inception in December of 1994 until early 1998. During
this time period, the Management team owned a substantial amount of
the Company's stock and the Board of Directors was in a seemingly
continuing state of flux.
2. In early 1998, an interim President (Courtland Logue) was appointed
for a short period of time. Mr. Wilson continued as a Director of the
Company but subsequently resigned all positions with the Company at
the instigation and insistence of some of the Company's Directors. The
Company was simultaneously moved from Austin, Texas to Columbia, South
Carolina.
3. In mid-1998, a majority of the Directors of the Company named Andre
Hilliou President, Chief Executive Officer and Chairman of the Board
of Directors. The Board of Directors was composed of three distinct
factions (two factions, of two members each, being the result of video
gaming operations acquisitions in South Carolina and the third faction
being the new President/Chief Executive Officer and Chairman of the
Board and an individual nominated by him).
The Board of Directors collectively owned a substantial amount of the
Company's stock and had received a proxy for the voting rights of Mr.
Wilson's stock as part of the settlement of his departure from the
Company. The Management team, including those members who were also
members of the Board of Directors, did not own a meaningful amount of
the Company's stock.
Mr. Hilliou, with the worthy objective of turning around the Company's
operations, hired an extensive Management team whose primary common
background was previous employment in the Nevada or international
casino business.
Mr. Hilliou was unable to forge and execute a strategic vision for the
Company and was further unable to inspire the Board of Directors to
work effectively together. After almost a year of internecine warfare,
six members of the Board of Directors and the Management team resigned
in mid-1999 shortly after the Company's Annual Meeting.
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4. In mid-1999, Daniel W. Deloney was named a Director of the Company and
immediately after the resignation of the Board of Directors and
Management, was named Interim Chief Executive Officer and Chairman of
the Board of Directors.
5. In July 1999, Jeffrey L. Minch was appointed a Director of the Company
and in October 1999, was named as President. Daniel W. Deloney
continues as Chairman of the Board of Directors. The Board of
Directors is currently composed of Messrs. Deloney, Minch and Gordon
R. McNutt.
Upon joining the Company's new Management team, Mr. Minch immediately
began to streamline the Company's management structure resulting in
the elimination of the following positions: Chief Executive Officer,
Chief Operating Officer, Chief Administrative Officer, Executive Vice
President, three (3) additional Vice Presidents, and Chief Financial
Officer of the Company. Additionally, approximately ten (10) field
positions have been eliminated as part of this streamlining.
Field operations regional managers (Texas, Alabama and South Carolina
bingo and South Carolina gaming) report directly to the President and
the senior financial position has been recast as a Controller.
The new Management and Board of Directors own approximately twenty
percent (20%) of the Company's outstanding common stock. Minch owns
approximately fifteen percent (15%) of the Company's common stock.
The Company intends to relocate from South Carolina to Austin, Texas in 2000.
STRATEGIC PLAN. The Company's Strategic Plan is based upon the attainment of
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six Strategic Objectives:
1. Transform American Bingo into a profitable, streamlined, efficient,
modern company that utilizes technology to create an operating
advantage
2. Create and retain loyal customers
3. Develop a wining Company culture
4. Become the largest public manager of profitable charitable bingo halls
in the United States
5. Acquire superlative industry knowledge and leverage it into a
competitive operating advantage
6. Create public awareness and accountability thereby inspiring
shareholder confidence
American Bingo has never had a Strategic Plan and this plan is a work in
progress. Already the Company has started to implement the above objectives and
in the future it is anticipated that almost every action of the Company will be
guided by the intent and spirit of the Strategic Plan.
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As part of its strategic planning process, the Company adopted the following
Mission Statement:
HONORABLE PROFESSIONALS DEDICATED TO:
- BUILDING LOYAL CUSTOMER RELATIONSHIPS BY CONSISTENTLY DELIVERING WORLD
CLASS ENTERTAINMENT;
- SUPPORTING OUR CHARITY PARTNERS IN THEIR NOBLE CAUSES; AND
- REWARDING OUR SHAREHOLDERS WITH AGGRESSIVE GROWTH, VALUE AND PROFIT
BY CONSOLIDATING THE BINGO BUSINESS WHILE CHALLENGING OURSELVES AND REWARDING
EXTRAORDINARY PERFORMANCE.
STOCK REPURCHASE PROGRAM. As part of the Company's Strategic Plan to create
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long-term shareholder value, the Board of Directors authorized Management to
repurchase the Company's shares. The Board ultimately authorized the repurchase
of 2,500,000 shares representing approximately twenty-five percent (25%) of the
Company's outstanding shares.
As of March 24, 2000, the Company has repurchased a total of 1,993,800 shares
pursuant to its stock repurchase program. The Company is currently authorized
to purchase an additional 506,200 shares. The Company has repurchased
approximately twenty percent (20%) of its outstanding shares.
As of March 24, 2000, American Bingo has a total of 1,900,800 shares in treasury
and has 8,276,090 shares outstanding.
COMPETITION. In addressing competition, no mention is being made of the status
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of video gaming competition due to its impending cessation. American Bingo's
unit of competition is an individual bingo hall. In certain markets, American
Bingo has more than one bingo hall and thus is able to view that market from the
vantage point of "market share." In profitable markets, we would obviously like
to have superior market share.
Competition is further subdivided by the time of day or night that a bingo hall
operates. A bingo hall could generally be a day time hall, a night time hall or
a late night hall. In certain jurisdictions, American Bingo would like to
operate at all three times - day/night/late night.
An individual bingo hall competes within a trade area of approximately fifteen
(15) miles against other bingo halls operating at the same time and within the
same trade area. Within a larger market (e.g. Charleston, South Carolina) the
presence of a number of bingo halls may not really give rise to significant
competition.
In general, American Bingo believes that approximately one to one and a half
percent (1-1.5%) of the population in a city of more than 100,000 people are
meaningful and consistent bingo players. In 2000, one of the critical objectives
of American Bingo is to learn more about the exact nature of its customer base.
REGULATION. The Company operates in Texas, Alabama and South Carolina and each
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state regulates the Company's operations differently.
In Texas, the Texas Lottery Commission regulates bingo and its rules are uniform
throughout the State. In general, a bingo hall can sustain up to seven (7)
charities and can operate seven (7) days per week and can conduct up to fifteen
(15) bingo sessions per week.
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In South Carolina, the South Carolina Department of Revenue is the principal
regulator for both video gaming and bingo. Its rules are uniform throughout the
State. In general, a bingo hall can sustain a single charity and can only
operate three (3) sessions per week.
In Alabama, bingo can only be played in counties that have a "local bill"
authorizing bingo that has been passed by the State Legislature. The local
County Sheriff is the principal regulator of bingo and regulations vary from
county to county. In general, a bingo hall can sustain up to ten (10) charities
and can operate seven (7) days per week and can conduct up to fifteen (15) bingo
sessions per week.
Other than the previously noted cessation of video gaming in South Carolina,
regulation does not impose an impediment or undue burden to the Company's
operations; and, in fact, the Company's intimate knowledge of regulatory
requirements may create a significant barrier to competition and therefore a
competitive advantage.
NASDAQ LISTING. In late 1999, Nasdaq notified American Bingo that its SmallCap
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Market listing was in jeopardy because its closing bid price had dropped below
the regulatory minimum price of $1 per share for a protracted period of time.
The Company was given an opportunity to address this matter in a hearing with
the Nasdaq Listing Qualification Hearing Panel on February 24, 2000, at which
time the Company was encouraged to present a plan to regain this regulatory
minimum price level.
Management and the Board presented a plan and subsequently executed the plan. A
critical element of the plan was the Company's stock repurchase program.
Nasdaq notified the Company on March 24, 2000, that the Hearing Panel had
decided to continue the listing of the Company's securities on the Nasdaq
SmallCap Market. However, the Nasdaq Listing and Hearing Review Council may, on
its own motion, determine to review any Panel decision within forty-five (45)
calendar days after issuance of the written decision. If the Review Council
determines to review this decision, it may affirm, modify, reverse, dismiss, or
remand the decision to the Panel. The Company will be immediately notified in
the event the Review Council determines that this matter will be called for
review.
If Nasdaq had decided not to continue the Company's listing on the Nasdaq
SmallCap Market, the Company's stock would have been immediately listed on the
Nasdaq Over The Counter Bulletin Board market (Nasdaq OTCBB).
While the Company does not want to be de-listed, it is the opinion of Management
that there would be no material difference in the trading pattern of the
Company's stock due to the large number of market makers, the high average daily
trading volume and the continuing advances in trading technology.
EMPLOYEES. At the beginning of January 1999, the Company had forty-one (41)
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employees and a total of six (6) Directors of which two were full time employees
of the Company. As of March 24, 2000, the Company has twenty-two (22) full time
employees and three (3) Directors of whom one is a full-time employee of the
Company.
Of the current employment level of twenty-two (22) full time employees, nine (9)
are engaged in video gaming, seven (7) are engaged in field bingo operations and
the balance, six (6), are employed at the Company's headquarters.
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It is anticipated that the Company will have approximately ten (10) full time
employees when video gaming is eliminated and the Company relocates to Austin,
Texas. The hiring of a financial analyst and a marketing director in 2000,
after relocation, will increase this number.
LEADERSHIP. American Bingo has streamlined its leadership during 1999 and will
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continue to aggressively justify every employment position. A President (who
reports to a three (3) man Board of Directors and directly supervises the field
operations in Texas, Alabama and South Carolina) leads the Company. Experienced
operators (who are knowledgeable in their industry and have been with the
Company for some time) lead field operations. The field operators are not new
hires and they represent one of the most stable elements of the Company's
management. The Controller and the Staff Attorney report directly to the
President.
This streamlined leadership structure is a radical departure from the previous
organizational structure that featured a President/Chief Executive
Officer/Chairman of the Board of Directors as well as a Chief Operating Officer,
a Chief Administrative Officer, a Chief Financial Officer, an Executive Vice
President, a Controller, a Manager of Accounting and other Vice Presidents with
direct operating responsibilities. The streamlined structure is a realistic
assessment of the "small" company reality of American Bingo.
REPORTS AND COMMUNICATIONS WITH SHAREHOLDERS. American Bingo electronically
- -------------------------------------------------
files its reports with the United States Securities and Exchange Commission,
including quarterly reports (Form 10-QSB), an annual report (this report, Form
10-KSB) and periodic reports of material events (Form 8-K), all of which may be
accessed via the Internet athttp://www.sec.gov or http//www.edgar-online.com.
The Securities and Exchange Commission provides a Public Reference Room at which
materials may be copied and read.
United States Securities and Exchange Commission
Public Reference Room
450 Fifth Street, NW
Washington, District of Columbia 20549
1-800-SEC-0330 or 1-800-732-03230
American Bingo maintains a website - ambingo.com - at which it is possible to
access information about the Company. This website is currently being revised
and it is anticipated it will again be operational on or before May 1, 2000.
Information is also available directly from the Company at 1-800-272-8023 or by
corresponding directly with the Company at its principal address. The President
of the Company is accessible via e-mail at [email protected].
American Bingo communicates with its shareholders and potential investors via
press releases generally distributed by PR Newswire, a professional news
dissemination service. Earnings announcements are released no later than the
third Thursday after the end of each quarter and a conference call is normally
scheduled for the following day, Friday. Conference calls are available to all
shareholders and always feature a question and answer period. Questions may be
submitted to the Company prior to the conference calls and will be answered
during the conference call. Notification of conference calls is made by press
release and is usually posted on Yahoo's BNGO Message Board, which may be
accessed via the Internet.
12
<PAGE>
The Company has also instituted a policy of releasing an abbreviated overview of
its monthly financial performance at the end of each month as soon as this
information is available. This policy is subject to continuing review and may
be discontinued or continued dependant upon its demonstrated usefulness to
shareholders and investors.
ITEM 2 - DESCRIPTION OF PROPERTY
- -------------------------------------
The Company's principal executive offices are located at 1440 Charleston
Highway, West Columbia, South Carolina, 29169. The Company leases space for the
majority of its bingo operations in Texas, Alabama and South Carolina and in
turn subleases its bingo centers to various charities. The Company is
responsible for real estate taxes, insurance, common area maintenance and repair
expenses on certain of its leases. The Company owns three of its bingo centers
and its corporate headquarters in South Carolina. The Company believes that the
condition of its leased and owned properties is good. No single property, leased
or owned, amounts to 10% or more of the Company's total assets.
13
<PAGE>
The following table summarizes the Company's leased properties as of December
31, 1999.
<TABLE>
<CAPTION>
State City Location Purpose Location Name Status
- -------------- ------------- ---------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alabama Mobile Bingo Hall Bingo Haven Operating
Mobile Bingo Hall Sunbelt Bingo Operating
Montgomery Bingo Hall Charity Bingo Operating
South Carolina
Charleston Bingo Hall Beacon I Operating
Charleston Bingo Hall Lucky I Operating
Charleston Bingo Hall Lucky II Closed
Charleston Bingo Hall Shipwatch Operating
Charleston Bingo Hall Ponderosa Operating
Darlington Video Gaming Warehouse Operating
North Augusta Bingo Hall RedWing Subleased to video gaming
route and bingo operator
North Augusta Video Gaming Double 7's Closed
North Augusta Video Gaming Wild Cherries Closed
North Augusta Video Gaming Golden Palace Subleased - part of route
operations
North Augusta Video Gaming Golden Palace Bar & Grill Subleased - part of route
operations
North Augusta Video Gaming Lucky 4 Subleased - part of route
operations
Texas Abilene Bingo Hall Ambler Operating
Abilene Bingo Hall Super Operating
Amarillo Bingo Hall Goldstar II Operating
Amarillo Bingo Hall High Plains Operating
Austin Bingo Hall American Operating
Brownsville Bingo Hall Subleased
Lubbock Bingo Hall Goldstar Operating
Lubbock Bingo Hall Lucky Operating
Lubbock Bingo Hall Parkway Operating
McAllen Bingo Hall Americana Operating
Odessa Bingo Hall Strike It Rich Operating
San Antonio Bingo Hall Blanco Operating
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS
- ------------------------------
Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal proceeding that involves a claim for damages
in excess of ten percent (10%) of its current assets. The litigation and
proceedings discussed below do not necessarily meet this threshold, but are
included in the interest of full disclosure. In general, the Company will
vigorously defend itself against all claims to the fullest extent possible. In
1999, the Company created a $200,000 accounting reserve to address impending
litigation expenses.
Pondella Hall for Hire, Inc., d/b/a Eight Hundred v. American Bingo and Gaming,
Case No.: 97-2750, Circuit Court of the Twelfth Judicial Circuit in and for
Manatee County, Florida. 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 as "Furtney").
14
<PAGE>
On June 12, 1997, Furtney filed a lawsuit against the Company in Florida,
alleging breach of contract. Furtney alleged that the Company defaulted on its
original purchase note and stock obligations under the purchase agreements. 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. 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.
State of Florida v. 959 Hall for Hire, Inc. and 6323 Hall for Hire, Inc., Case
No.: 95-2943 F, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida; State of Florida, Office of the Attorney General v. 959 Hall
for Hire, Inc., 6323 Hall for Hire, Inc., and American Bingo and Gaming, Case
No. 95-4278, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida. These proceedings relate to the criminal investigations
undertaken by the Florida State Attorney General's Office with respect to the
bingo centers acquired by the Company from Phillip Furtney as discussed above
In January of 1997, the Company and the State of Florida settled all matters
regarding the Company's previous ownership and operation of these bingo centers.
Additionally, in light of the recent Florida Supreme Court decision in
Department of Legal Affairs v. Bradenton Group, Inc., 23 FL, Weekly, S485 (Fla,
September 24, 1998), the Company has filed a Petition for Coram Nobis in the
State of Florida criminal and civil cases to withdraw its settlement pleas in
these cases or, in the alternative, agree to strike those portions of the State
Plea Agreements which prohibit the Company from carrying out lawful business
operations in the State. The Company plans to pursue this course of action
vigorously, but the likelihood of success is unpredictable.
Joan Caldwell Johnson, et al v. Collins Music Company, et al, Civil Action No.
3:97-22136-17, United States District Court for the District of South Carolina,
Columbia. In November 1997, one of the Company's subsidiaries was named a
defendant (among many other video gaming operators) in a purported class action
brought by Plaintiffs allegedly arising out of fraudulent and unlawful promotion
and operation of video gambling devices. Plaintiffs filed a Motion to Amend the
Complaint in late 1999 to add the Company and several other Company subsidiaries
as Defendants. As of this date, the Company and its named subsidiaries have yet
to be added to this lawsuit and the present status of this case is merely one of
threatened litigation. There have been settlement discussions with Plaintiffs
counsel for the purported class but the settlement demand was unreasonable. If
the Company and its subsidiaries are added to this case, the case would be
litigated to the fullest extent possible. In the event that Plaintiffs were to
prevail on their claims, the range of potential loss could exceed several
million dollars because the Plaintiffs seek to recoup all profits Defendants
made from 1991 through the present. 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.
Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo and
Gaming Corp.; American Bingo and Gaming Corp. v. Coats and Coats Rental
15
<PAGE>
Amusement, d/b/a Ponderosa Bingo and Shipwatch Bingo, Wayne Coats, individually,
Civil Action No. 97-CP-10-4685, South Carolina Court of Common Pleas, Charleston
County. On October 9, 1997, Collins Entertainment, Inc., filed a lawsuit
alleging the Defendants had engaged in civil conspiracy and tortiously
interfered with the Plaintiff's contract, violating the South Carolina Unfair
Trade Practices Act. The Plaintiff seeks actual damages in excess of $350,000
and an unspecified amount of punitive damages. The Company believes that this
lawsuit is completely without merit and the Company will defend itself
vigorously. If this case were to be decided against the Company, it could have a
material adverse effect on the financial position and operations of the Company.
Roy Stevens v. American Bingo and Gaming and Columbia One Corporation, Civil
Action N. 99-CP-40-1662, South Carolina Court of Common Pleas, Richland County.
In this lawsuit filed in July 1999, the Plaintiff alleges that the Company has
withheld monies due under a promissory note totaling approximately $40,000 and
prevented him from selling shares of common stock that resulted in losses of
over $200,000. Plaintiff seeks to recover lost profits for the diminution of
stock value, the amounts due under the promissory note and an unspecified amount
of punitive damages. The parties have been conducting discovery and recently
participated in a February of 2000 voluntary mediation in which the Plaintiff
rejected the Company's reasonable settlement proposal. The Company believes
that this lawsuit is completely without merit, is moving forward with discovery
and depositions, 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.
Hermalink v. American Bingo and Gaming and Michael Mims, Civil Action No.
99-CP-32-1793, South Carolina Court of Common Pleas, Richland County. On July
8, 1999, Plaintiff, a former employee, accused the Company and Michael Mims, a
former officer and director of the Company, of defamation and slander based upon
comments Mr. Mims made in a newspaper article prior to the Company's annual
meeting in 1999. Plaintiff seeks actual and punitive damages in an unspecified
amount and the Company and Mr. Mims will vigorously defend this action. This
case has been moving forward slowly and no settlement discussions have been
initiated. If the case were decided against the Company, it could have a
material adverse effect on the Company.
Steve Carroll and Wilson Reed, both individually and on behalf of S.C. Music
Masters, Inc. v. Concessions Corp. and American Bingo and Gaming, Corp., Civil
Action No. 99-CP-10-1420, South Carolina Court of Common Pleas, Charleston
County. On April 16, 1999, Plaintiffs filed a lawsuit alleging the Company and a
wholly-owned subsidiary breached fiduciary duties, breached or caused the breach
of contracts, engaged in various fraudulent acts, negligently made false
statements and engaged in unfair trade practices. The Plaintiffs seek to
recover actual and punitive damages that include $240,000 of out-of-pocket
expenses and lost profits related to Plaintiffs' operation of a nightclub and
video casino on the premises in the amount of approximately $300,000. Discovery
has begun and depositions have been initiated. The Company has submitted an
informal settlement proposal to the Plaintiffs, but as of this date a settlement
has not been reached. The Company believes that this lawsuit is completely
without merit and the Company will defend itself vigorously. If this case were
to be decided against the Company, it could have a material adverse effect on
the financial position and operations of the Company.
On October 14, 1999, the South Carolina Supreme Court issued a ruling that
declared the November 2, 1999 referendum unconstitutional, which was to allow
South Carolina voters to decide whether or not video poker payouts should remain
legal. As a result of and pursuant to this ruling, video poker payouts will be
illegal in South Carolina after June 30, 2000. This Supreme Court ruling will
have a material adverse effect on the Company's financial position and
operations. This matter is further compounded by the fact that approximately
16
<PAGE>
one-half of the Company's VGM licenses expire on May 31, 2000. Presently, no
practical licensing mechanism exists to extend these licenses for the remaining
month during which video gaming will remain legal in South Carolina. Unless
this matter is resolved, the Company will cease operations of approximately
one-half of all VGM machines on or before May 31, 2000.
Regulatory Proceedings
- -----------------------
South Carolina Department of Revenue ("SCDOR") v. Gold Strike, Inc. In July
1999, SCDOR issued administrative violations and assessments totaling more than
$50,000 against Gold Strike, Inc., a wholly-owned subsidiary of the Company, for
allegedly offering inducements and exceeding the $125 payout limit in violation
of the South Carolina Video Gaming Machines Act. These proposed assessments are
currently being challenged and the Company has an indemnification agreement with
the related party management company that operated the Company's casino
locations. The assessments are being challenged but the total financial exposure
is approximately $50,000.
SCDOR v. Concessions Corp. In November 1997, SCDOR issued bingo administrative
violations and assessments totaling approximately $25,000 against Concessions
Corp., a wholly-owned subsidiary of the Company. These violations occurred in
1997 during prior management's tenure and operation of a bingo facility that is
now closed. The Company settled all violations for $5,000 in February of 2000.
SCDOR performed a tax audit of MHJ Corp. and Columbia One, Inc., two
wholly-owned Company subsidiaries, South Carolina state income tax returns for
1995 and 1996. As a result of these audits, the Company was notified by the
SCDOR that the Company may have an additional tax liability of $100,000 related
to misallocation of corporate overhead. The Company settled these SCDOR tax
assessments in February 2000 for $50,000, inclusive of interest in the amount of
$11,000.
In the normal course of its business, the Company is subject to litigation and
regulatory assessments and fines. Management of the Company does not believe any
claims, assessments or fines, 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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------------
There were no matters submitted to a vote of the stockholders of the Company
during the fourth quarter of 1999.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ---------------------------------------------------------------------------
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ SmallCap Market System under
the symbol "BNGO". The following table shows the range of reported high and low
closing bid prices for the Company's Common Stock for the periods indicated as
reported on the NASDAQ Summary of Activity monthly reports.
<TABLE>
<CAPTION>
Fiscal 1999: High Low Fiscal 1998: High Low
- ------------------------------- --------- --------------- --------------- ------ --------
<S> <C> <C> <C> <C> <C>
First Quarter $1 13/16 $1 5/16 First Quarter $6 5/8 $3 1/8
Second Quarter $1 11/16 $3/4 Second Quarter $4 $2 11/16
Third Quarter $1 3/16 $25/32 Third Quarter $3 1/8 $1 3/4
Fourth Quarter $7/8 $9/16 Fourth Quarter $3 $1 5/16
</TABLE>
17
<PAGE>
SECURITY HOLDERS
As of February 24, 2000, the approximate number of record holders of the
Company's Common Stock was 139 and the approximate number of beneficial
shareholders was 2,775.
DIVIDENDS
The Company has never paid, and currently has no intention to pay, any dividends
on its Common Stock. The Company paid a 7% annual dividend on a quarterly basis
on its convertible preferred stock, which was fully converted to Common Stock by
December 1998.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- --------------
OVERVIEW
The most important future action that will impact American Bingo in 2000 is the
impending cessation of video gaming in South Carolina on or before June 30,
2000. This will have a substantial negative impact upon the Company's financial
performance, though the Company expects to be profitable (both on a net earnings
and EBITDA basis) during 2000 in spite of this significant change. This trend
has already evidenced itself as the Company returned to profitability during
January and February 2000 as reported by recent Company press releases.
In viewing the Company's year 2000 profitability in comparison to 1999, it is
important to note that the lack of profitability in 1999 was primarily a result
of previous management's ineffective operational structure and management of
operations as well as non-recurring and extraordinary charges related to the
reorganization, severance and critical evaluation of the Company's balance
sheet.
If the cessation of video gaming in South Carolina occurs as expected on June
30, 2000, the Company is planning to (i) dispose of its excess machines and
settle all loans and leases on this equipment (approximately $1.1 million) with
the proceeds, (ii) explore expansion opportunities in other jurisdictions, and
(iii) consider all other viable alternatives. The Company may relocate
approximately fifty (50) video gaming machines to bingo hall locations (new and
existing) in Alabama where they would be operated on a redemption basis in
accordance with local regulations. Employment will also be reduced by the number
of employees engaged in video gaming in South Carolina, approximately nine (9)
persons.
The Company has announced the "de novo" start up of two (2) new bingo halls in
2000 located in Alabama. In addition, the Company continues to pursue both
acquisitions of single and multiple bingo halls in Texas, Alabama, Kentucky and
South Carolina. Some of these acquisition opportunities are "strategic" in
nature in that they provide superior market share in markets in which the
Company is currently operating.
The Company is moving with some careful deliberation on these new bingo halls as
it will be establishing a new branded identity and a substantially more focused
and higher quality facility.
18
<PAGE>
A critical strategic objective upon which the Company has begun to achieve some
traction is the turnaround of the Company's South Carolina bingo halls which
were previously losing money. The Company initiated electronic bingo card
minders in all of its South Carolina properties in late 1999 and early 2000 that
allow a single player to play multiple bingo cards thereby dramatically
increasing the average level of "play" or "spend" by each bingo player.
American Bingo is very close to finalizing a transaction to offer phone card
dispensing machines coupled with a promotional sweepstakes feature at its Texas
bingo halls in 2000. This transaction will contribute a substantial amount of
profit to the Company's Texas operations. Texas bingo operations are expected
to increase approximately twenty percent (20%) on a same store basis between
1999 and 2000.
American Bingo will be relocated from Columbia, South Carolina to Austin, Texas
in 2000; and, it is anticipated that few, if any, employees in Columbia will
relocate to Austin. The Company expects to hire a new staff in Austin and
hiring actions have begun. The character of the Company's operations in 2000
may resemble a start up company due to this fact.
The Company anticipates a major effort in 2000 to identify its customers, form
focus groups at each of its bingo halls, utilize mystery shoppers to improve the
quality of its performance at each bingo hall and to renovate bingo halls that
can achieve improved customer attendance through physical plant enhancements.
Some of the enhancements will be quite unusual when compared to current
competitors.
It is still the opinion of the new Management that it will take approximately
two (2) years (the fiscal years of 2000 and 2001) before American Bingo will
operate in a predictable and stable manner that will allow the stock market to
place a value on its shares that is an accurate reflection of its potential.
This time frame is attributable in great part to the indecipherable
uncertainties caused by the impending cessation of South Carolina video gaming
as well as the substantial damage to the Company's credibility with its
shareholders caused by the frequent and troubling changes in Management.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1999 TO FISCAL 1998
The Company reported a net loss of $4.4 million for the year ended December 31,
1999, as compared to a net loss in 1998 of $2.6 million. The loss in 1999 was
primarily attributable to the South Carolina Supreme Court decision declaring
the Referendum unconstitutional and the resignation of six members of the Board
of Directors and several members of the Management team. The Supreme Court
decision places a ban on video gaming payouts in South Carolina after June 30,
2000. As a result, the Company reviewed the asset carrying value of its video
gaming machines and made a required charge to reflect the realizable value at
December 31, 1999. Substantial costs have been incurred in connection with the
Company's changes in personnel at the Board and Management levels and the
opportunity to reform and right size operations.
Revenues
- --------
Total revenues decreased by 15% to $13.1 million in fiscal 1999 from $15.4
million in fiscal 1998. Approximately $6.7 million, or 51%, of 1999 revenues
were generated by the Company's South Carolina video gaming operations, versus
$9.7 million, or 63%, in 1998. Approximately $5.4 million, or 41%, of 1999
revenues were comprised of charitable bingo rental receipts, paper sales and
promoters fees, as compared to $4.9 million, or 31%, in 1998. The balance of
revenues for each year was comprised of supplies, vending, concessions and other
miscellaneous sales. During 1999, approximately 10% of the Company's bingo
related revenues were generated in South Carolina, 28% in Alabama and 62% in
Texas, compared to 33%, 31% and 36%, respectively, in 1998.
19
<PAGE>
1999 revenues derived from Texas bingo operations increased to $3.8 million in
fiscal 1999 from $2 million in fiscal 1998, an increase of 92%. The increase is
due to the addition of seven bingo halls opened in the latter part of 1998.
1999 revenues from South Carolina bingo operations continued to decrease over
1998 as a direct result of changes in bingo laws in October of 1997 and
increased competition. Significant tax changes in 1997 require the charity to
pay a direct tax of the total program value. This combination of events has
reduced the amount of charity proceeds available for payment to commercial
lessors and promoters. 1999 revenues from Alabama bingo operations were
relatively unchanged from 1998.
Costs and expenses
- --------------------
Total costs and expenses were $17.3 million in fiscal 1999 as compared to $17.8
million in fiscal 1998, a decrease of 3%. The 1999 expenses include $4.4 million
of charges relating to the impairment of assets and other nonrecurring expenses.
These unusual charges relate to uncollectible receivables, legal expenses, costs
associated with supporting a favorable outcome of the South Carolina Referendum,
severance and reorganization expenses in connection with Board and Management
changes and incorrectly accounted for expenses. Direct salaries and other
compensation totaled $1.3 million in 1999 versus $2.2 million in 1998, a direct
result of the changes in management. Rent and utilities totaled $2.1 million in
1999 versus $2.4 million in 1998, a decrease of 9%. Direct operating costs
totaled $2.1 million in 1999 versus $2.4 million in 1998, a decrease of $300,000
which is consistent with the decrease in total revenue. The Company's video
gaming licenses increased approximately $600,000 in 1999 and the Company had
fixed asset acquisitions (mainly gaming machines and leasehold improvements) in
the latter part of 1998, which increased depreciation costs and license expenses
in 1999 to $2.7 million and $2 million, respectively. General and administrative
expenses totaled $2.6 million in 1999 versus $4.6 million in 1998. The decrease
in costs includes approximately $1.2 million pertaining to write-offs and other
unusual charges described in the comparison of 1999 to 1998. The actual decrease
in general and administrative costs before write-offs and other unusual charges
in 1999 compared to 1998 was approximately $813,000. This is a direct result
of the Company's continued plans to reduce operating and administrative expenses
in order to improve profitability.
Net other income totaled $118,000 for fiscal 1999 versus $14,000 in 1998.
Primarily, this is the result of 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.
The Company's income tax expense for 1999 was $394,000 versus $263,000 in 1998.
Taxes for 1999 consist of state tax obligations, primarily in South Carolina and
Alabama.
<TABLE>
<CAPTION>
<S> <C>
Asset write-offs in accordance with SFAS 121:
Impairment of assets-video gaming machines $2,222,266
----------
Total asset write-offs 2,222,266
----------
Other significant unusual charges:
Severance and final compensation 982,122
Loan forgiveness 163,741
Provision for doubtful accounts and write-offs 894,602
Costs supporting a favorable outcome of the South Carolina Referendum
and state income tax issues 123,500
----------
Total other significant unusual charges 2,163,965
----------
Total unusual charges $4,386,231
----------
</TABLE>
20
<PAGE>
COMPARISON OF FISCAL 1998 TO FISCAL 1997 (Note: Fiscal 1997 results have been
restated to incorporate the historical financial operations of Gold Strike,
Lucky 4 and Darlington Music Company 1997 pooled acquisitions.)
The Company reported a net loss of $2.6 million for the year ended December 31,
1998 as compared to net income in 1997 of $1.7 million. The loss in 1998 was
primarily attributable to changes in the South Carolina bingo market and the
related cost of several idle properties on which the Company was paying rent but
generating no value, write off of uncollectible accounts receivable and unusual
corporate office relocation and other expenses.
Revenues
- --------
During 1998, the Company acquired eight bingo centers in Texas in three
unrelated purchase acquisitions. The Ambler Bingo Hall acquisition was
completed in March 1998 and contributed $460,000 in revenues during 1998. Six
additional halls were acquired in October 1998 as a single transaction, which
contributed $302,000 in revenues during 1998.
Total revenues increased by 26% to $15.4 million in fiscal 1998 from $12.2
million in fiscal 1997. Approximately $10 million, or 63%, of 1998 revenues
were generated by the Company's South Carolina video gaming operations, versus
$8.9 million, or 72%, in 1997. Approximately $4.9 million, or 31%, of 1998
revenues were comprised of charitable bingo rental receipts, paper sales and
promoter fees, as compared to $2.9 million, or 24%, in 1997. The balance of
revenues for each year was comprised of supplies, vending, concessions and other
miscellaneous sales. During 1998, approximately 33% of the Company's bingo
related revenues were generated in South Carolina, 31% in Alabama and 36% in
Texas, compared to 43%, 35% and 22%, respectively, in 1997.
Costs and expenses
- --------------------
Total costs and expenses were $17.8 million in fiscal 1998 as compared to $11.0
million in fiscal 1997, an increase of 62%. This increase includes $4.0 million
of write-offs and other unusual charges, or 23% of total costs and expenses.
These write-offs and unusual charges relate to asset write-downs principally on
non-performing bingo properties, future operating lease obligations on idle or
unprofitable bingo centers, corporate office relocation, staff recruiting, legal
and other unusual charges. Direct salaries and other compensation totaled $2.2
million in 1998 versus $2.0 million in 1997, consisting primarily of the
Company's labor-intensive freestanding video gaming business in South Carolina
during the first ten months of 1998. Rent and utilities totaled $2.4 million in
1998 versus $1.9 million in 1997, an increase of 27%, which resulted from the
increase in the number of bingo and gaming centers under lease. Direct
operating costs totaled $2.4 million in 1998 versus $1.6 million in 1997.
Direct operating costs increased approximately $800,000 to 15% of total revenues
in 1998 compared to 13% of total revenues in 1997. The Company's video gaming
licenses increased approximately $500,000 and the Company had $2.5 million in
fixed asset acquisition (mainly gaming machines) and improvements in 1998 which
increased license expense and depreciation costs to $1.4 million and $2.1
million, respectively, compared to $900,000 million and $1.1 million,
respectively, in 1997. General and administrative expenses totaled $4.6 million
in 1998 versus $3.6 million in 1997. This increase in costs includes
approximately $1.1 million pertaining to write-offs and other unusual charges as
discussed below. The actual increase in general and administrative costs before
write-offs and other unusual charges was approximately $124,000, or 3%, over
1997.
21
<PAGE>
The Company recorded $14,000 of net interest and other income in fiscal 1998
versus $257,000 in 1997. This is the result of the liquidation of investments
considered susceptible to increased market risk, and from increased interest
costs from the Company's use of a margin line of credit during 1998, offset
partially by increased interest income.
The Company's income tax expense for 1998 was $263,000 versus $204,000 in 1997.
Taxes for 1998 consisted largely of state tax obligations, primarily in South
Carolina, and additional federal income taxes related to a prior acquisition.
Income taxes in 1997 were primarily federal and state income taxes paid by
Darlington Music Company prior to acquisition by the Company, in addition to
state income taxes related to the Company's other subsidiaries.
As a result of the prior management's operational and asset reviews during 1998,
the Company recorded approximately $4 million of asset write-downs and other
charges as follows:
Asset write-offs recorded in 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Write-offs related to idle or unprofitable bingo centers:
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 write-offs and charges $4,037,000
==========
</TABLE>
The Company recorded write-offs for impairment of goodwill and leasehold
improvements of $1.1 million, write-offs of future operating lease obligations
related to idle or unprofitable bingo centers of $555,000 ($273,000 of this
amount is for 1998 lease obligations and $282,000 for post l998 lease
obligations) and write-offs and provisions for doubtful accounts of $1.2
million. The unusual charges increased general and administrative expenses by
$727,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $3.9 million at the end of 1999. Cash at
December 31, 1999 represented approximately 28% of the Company's total assets of
$14.0 million. Cash decreased in 1999 compared to 1998 by $88,000. The Company
invested $900,000 in property and equipment in 1999. Cash flows from
operational activities totaled $1.9 million in 1999 versus $800,000 in 1998.
22
<PAGE>
Cash used in investing activities totaled $800,000 in 1999 as compared to $5.7
million in 1998. Cash used in investing activities in 1999 consisted of
$900,000 related to equipment purchases, offset by $100,000 from payments
received on notes receivable.
Cash used in financing activities totaled $1.2 million in 1999 compared to $3.0
million in 1998. Cash used in financing activities in 1999 were payments made
on notes and capital lease obligations of $1.5 million offset by cash received
from stock options exercised and stock purchases under the Employee Stock
Purchase Plan of $300,000. Cash used related to financing activities in 1998
included $1.1 million in Company treasury stock purchases, $1.1 million paid in
connection with preferred stock conversions, $100,000 for preferred stock
dividends paid, and $800,000 in net cash paid to reduce notes payable and
capital lease obligations.
At December 31, 1999, the Company had $14.0 million in total assets with total
liabilities of less than $2.0 million and $12.0 million of shareholders' equity.
Total assets include $3.9 million in cash, $591,000 of net accounts and notes
receivable, $3.5 million of property and equipment, $4.0 million of intangible
assets, $1.5 million in prepaid video gaming licenses and $460,000 of other
prepaid and other assets. Total liabilities primarily consist of note and
capital lease obligations of $1.4 million.
The Company also intends to grow its business through acquisition and the
selective "de novo" start up of charitable bingo halls in markets in which it
currently operates and other attractive markets. The Company's plans are to
continue to repurchase its shares as market conditions warrant such action.
NEW ACCOUNTING STANDARDS
In 1999, the Financial Accounting Standards Board ("FASB") did not issue any new
pronouncements that the Company is required to adopt, or that are applicable to
the Company's operations.
The Company is complying with the "Audit Committee Disclosure" rule issued by
the Securities and Exchange Commission, which was effective January 31, 2000.
The rule deals primarily with requiring an independent auditor review of the
Company's quarterly reports and requiring various audit committee reports in
shareholder communications and the annual report.
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was effective for fiscal quarters of all
fiscal years beginning after June 15, 1999; however, "SFAS 137" deferred this
date to June 15, 2000. Based upon current data, the adoption of this
pronouncement is not expected to have a material impact on the Company's
consolidated financial statements.
YEAR 2000 ISSUES
The Year 2000 issue relates to computer programs that use only two digits to
identify a year in the date field. Unless corrected, these programs could read
the year 2000 as the year 1900 and likely would adversely affect any number of
calculations that are made using the date field. The Company conducted a
comprehensive review of its computer systems to identify potential problems that
could be caused by the Year 2000 issue. 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
23
<PAGE>
would not have a material adverse effect on the Company. The Company certified
that the vendors and suppliers of its critical components and services are Year
2000 compliant. The Company relied 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 have materially adversely affected the
Company's financial condition and operations.
As of March 15, 2000, the Company has not experienced any significant Year 2000
issues relating to the Company's internal systems, interfaces with third parties
or products or services. In addition, as of March 15, 2000, information and
products from third parties provided to the Company have not had any adverse
effects on the Company's operations as a result of Year 2000 issues. To date,
the costs incurred in connection with Year 2000 compliance projects have not
been material to the Company's results of operations or liquidity. In addition,
the Company does not anticipate incurring any additional significant costs to
remain compliant.
ITEM 7 - FINANCIAL STATEMENTS
- ---------------------------------
The independent auditors' reports, consolidated financial statements and notes
thereto included on the following pages are incorporated herein by reference.
Report of Sprouse & Winn, L.L.P. F-2
Report of King Griffin & Adamson P.C. F-3
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-28
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
None.
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE
- --------------------------------------------------------------------------------
EXCHANGE ACT
- -------------
In response to this item, the information included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 31, 2000,
which Proxy Statement will be filed with the Securities and Exchange Commission
no later than the end of April 2000, is incorporated herein by reference.
ITEM 10 - EXECUTIVE COMPENSATION
- ------------------------------------
In response to this item, the information included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 31, 2000,
which Proxy Statement will be filed with the Securities and Exchange Commission
no later than the end of April 2000, is incorporated herein by reference.
24
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
In response to this item, the information included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 31, 2000,
which Proxy Statement will be filed with the Securities and Exchange Commission
no later than the end of April 2000, is incorporated herein by reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------------
In response to this item, the information included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 31, 2000,
which Proxy Statement will be filed with the Securities and Exchange Commission
no later than the end of April 2000, is incorporated herein by reference.
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
- ----------------------------------------------------------
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
<C> <S>
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as amended October 17,
1994, and further amended July 31, 1997, August 13, 1998, and September 22, 1999
(incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-QSB filed by the
Company on November 15, 1999, for the quarter ended September 30, 1999).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Quarterly Report on Form 10-QSB filed by the Company on November 15, 1999, for the quarter
ended September 30, 1999).
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 on March 18, 1999, 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 on March 18, 1999, for the
year ended December 31, 1998).
10.3* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 of the Annual
Report on Form 10-KSB filed by the Company for the year ended December 31, 1994).
10.4* 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 on March 18, 1999, for the
year ended December 31, 1998).
10.5* Amended and Restated 1997 Stock Option Plan (incorporated by reference to Exhibit 10.5 of
the Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for the quarter
ended June 30, 1998).
10.6* American Bingo & Gaming Corp. Stock Option Plan (incorporated by reference to Exhibit 10.1
of the Quarterly Report on Form 10-QSB filed by the Company on August 16, 1999, for the
quarter ended June 30, 1999).
25
<PAGE>
10.7* Employment Agreement dated December 18, 1997 with George M. Harrison, Jr., as amended
February 25, 1998 and as further amended July 27, 1998 (incorporated by reference to Exhibit
10.13 of the Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for
the quarter ended June 30, 1998).
10.8* Employment Agreement dated April 30, 1998 with Andre Marc Hilliou (incorporated by
reference to Exhibit 10.14 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.9* Employment Agreement dated June 19, 1998 with Richard M. Kelley, as amended October 23,
1998 (incorporated by reference to Exhibit 10.11 of the Annual Report on Form 10-KSB filed
by the Company on March 18, 1999, for the year ended December 31, 1998).
10.10* Employment Agreement dated September 28, 1998 with Marie T. Pierson (incorporated by
reference to Exhibit 10.3 of the Quarterly Report on Form 10-QSB filed by the Company on
November 12, 1998 for the quarter ended September 30, 1998).
10.11* Employment Agreement dated November 2, 1998 with Nancy Pollick (incorporated by
reference to Exhibit 10.13 of the Annual Report on Form 10-KSB filed by the Company on
March 18, 1999, for the year ended December 31, 1998).
10.12* Consulting Agreement dated November 9, 1998 with Michael W. Mims (incorporated by
reference to Exhibit 10.14 of the Annual Report on Form 10-KSB filed by the Company on
March 18, 1999, for the year ended December 31, 1998).
10.13 Mutual Release and Settlement Agreement dated July 24, 1998 with L. Gregory Wilson
(incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed by the
Company on August 4, 1998).
10.14 Severance Agreement dated July 24, 1998 with L. Gregory Wilson (incorporated by reference to
Exhibit 99.3 of the Current Report on Form 8-K filed by the Company on August 4, 1998).
10.15 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).
10.16 Promissory Note dated February 24, 1998, with George M. Harrison, Jr. (incorporated by
reference to Exhibit 10.20 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.17 Promissory Note and Security Agreement dated June 4, 1998 with Michael W. Mims
(incorporated by reference to Exhibit 10.19 of the Quarterly Report on Form 10-QSB filed by
the Company on August 14, 1998 for the quarter ended June 30, 1998).
10.18 Master Coin Machine Agreement dated November 9, 1998, by and among the Company, Gold
Strike, Inc., Mims & Dye Enterprises, LLC, Michael W. Mims and Danny C. Dye (incorporated
by reference to Exhibit 10.20 of the Annual Report on Form 10-KSB filed by the Company on
March 18, 1999, for the year ended December 31, 1998).
26
<PAGE>
10.19 Promissory Note dated November 9, 1998, between Gold Strike, Inc. and Mims & Dye
Enterprises, LLC (incorporated by reference to Exhibit 10.21 of the Annual Report on Form 10-
KSB filed by the Company on March 18, 1999, for the year ended December 31, 1998).
10.20 Guaranty Agreement dated November 9, 1998 with Michael W. Mims and Danny C. Dye
(incorporated by reference to Exhibit 10.22 of the Annual Report on Form 10-KSB filed by the
Company on March 18, 1999, for the year ended December 31, 1998).
10.21 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 on March 18, 1999, for the year ended December 31, 1998).
10.22 Settlement Agreement dated January 27, 1997 with the State of Florida (incorporated by
reference to Exhibit 10.21 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.23 Form of Stock Purchase Warrant used in connection with warrant grant to Gaines Berland, Inc.,
Peter Blum, Steven Blumberg and Lisa Evanchuk on February 6, 1998 (incorporated by
reference to Exhibit 10.25 of the Annual Report on Form 10-KSB filed by the Company on
March 18, 1999, for the year ended December 31, 1998).
10.24 Form of Common Stock Purchase Warrant used in connection with issuance of Series A
Convertible Preferred Stock to Plazacorp. Investments Limited, P.R.I.F. #4, David Heller and
Sam Reisman on August 1, 1997 (incorporated by reference to Exhibit 10.26 of the Annual
Report on Form 10-KSB filed by the Company on March 18, 1999, for the year ended
December 31, 1998).
10.25 Form of Registration Rights Agreement used in connection with issuance of Series A
Convertible Preferred Stock to Plazacorp Investments Limited, P.R.I.F. #4, David Heller and
Sam Reisman on August 1, 1997 (incorporated by reference to Exhibit 10.27 of the Annual
Report on Form 10-KSB filed by the Company on March 18, 1999, for the year ended
December 31, 1998).
10.26* Severance Agreement with James L. Hall dated July 1, 1999 (incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.27* Severance Agreement with George M. Harrison, Jr. dated July 2, 1999 (incorporated by
reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on July 22,
1999).
10.28* Severance Agreement with Andre M. Hilliou dated July 2, 1999 (incorporated by reference to
Exhibit 10.3 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.29* Severance Agreement with Michael W. Mims dated July 2, 1999 (incorporated by reference to
Exhibit 10.4 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.30* Severance Agreement with Grover C. Seaton III dated June 30, 1999 (incorporated by reference
to Exhibit 10.5 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.31* Severance Agreement with Richard M. Kelley dated July 2, 1999 (incorporated by reference to
Exhibit 10.6 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
27
<PAGE>
10.32* Severance Agreement with Nancy J. Pollick dated July 2, 1999 (incorporated by reference to
Exhibit 10.7 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.33* Severance Agreement with Marie T. Pierson dated July 23, 1999 (incorporated by reference to
Exhibit 10.8 of the Quarterly Report on Form 10-QSB filed by the Company on November 15,
1999, for the quarter ended September 30, 1999).
10.34* Severance Agreement with Thomas M. Harrison dated September 17, 1999 (incorporated by
reference to Exhibit 10.9 of the Quarterly Report on Form 10-QSB filed by the Company on
November 15, 1999, for the quarter ended September 30, 1999).
10.35* Severance Agreement with William W. Harrison dated September 17, 1999 (incorporated by
reference to Exhibit 10.10 of the Quarterly Report on Form 10-QSB filed by the Company on
November 15, 1999, for the quarter ended September 30, 1999).
10.36* Employment Agreement effective as of September 21, 1999, with Jeffrey L. Minch.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for SEC use only).
* Denotes a management contract or compensatory plan or arrangement.
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.
28
<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: March 28, 2000
AMERICAN BINGO & GAMING CORP.
---------------------------------
(Registrant)
By: /s/ Jeffrey L. Minch
-----------------------
Jeffrey L. Minch
Vice Chairman of the Board, President and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jeffrey L. Minch Vice Chairman of the Board, President
- ---------------------
Jeffrey L. Minch and Chief Executive Officer March 28, 2000
/s/ Daniel W. Deloney
- ------------------------
Daniel W. Deloney Chairman of the Board March 28, 2000
/s/ Gordon R. McNutt
- -----------------------
Gordon R. McNutt Director March 28, 2000
/s/ Larry D. Kasufkin
- ------------------------
Larry D. Kasufkin Secretary and Treasurer March 28, 2000
29
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2 - F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1999 F-4
Consolidated Statements of Operations
Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows
Years Ended December 31, 1999 and 1998 F-7 - F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-28
</TABLE>
<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, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated statements of operations, stockholders' equity and cash flows, of
American Bingo and Gaming Corp. and Subsidiaries, for the year ended December
31, 1998 were audited by other auditors whose report dated February 12, 1999,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
stan-dards. Those standards require that we plan and perform the audit 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 consolidated 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 audit provides 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, 1999, and the results of their
operations and their cash flows for the year ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Sprouse & Winn L.L.P.
- -------------------------------
Sprouse & Winn L.L.P.
Austin, Texas
February 18, 2000
F-2
<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 year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
stan-dards. Those standards require that we plan and perform the audit 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 consolidated 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 audit provides 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 year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ King Griffin & Adamson P.C.
- ------------------------------------
King Griffin & Adamson P.C.
Dallas, Texas
February 12, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
<S> <C>
Current Assets:
Cash and cash equivalents $ 3,864,943
Accounts receivable net of allowance for
doubtful accounts of $72,424 499,282
Prepaid license expense - current portion 1,394,308
Other prepaid expenses 280,162
-------------
Total Current Assets 6,038,695
-------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 3,507,995
-------------
Other Assets:
Notes receivable - ($123,152 to related parties),
net of allowance for doubtful accounts of $30,787 92,365
Prepaid license expense - net of current portion 124,824
Intangible assets, net 4,025,988
Other non-current assets 179,514
-------------
Total Other Assets 4,422,691
-------------
TOTAL ASSETS $ 13,969,381
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities:
Notes payable - current portion ($100,935 to related parties) $ 770,626
Capital leases payable - current portion 182,686
Trade accounts payable 63,698
Accrued expenses and other current liabilities 507,900
-------------
Total Current Liabilities 1,524,910
-------------
Long-term Liabilities:
Notes payable, net of current portion
($147,754 to related parties) 396,021
Capital leases payable, net of current portion 21,806
-------------
Total Long-term Liabilities 417,827
-------------
Stockholders' Equity
Common stock, $.001 par value (authorized 20,000,000 shares,
issued 10,177,290 shares, outstanding 9,810,990 shares) 10,177
Additional paid-in-capital 23,658,349
Treasury stock - 366,300 shares, at cost (804,087)
Accumulated deficit (10,837,795)
-------------
Total Stockholders' Equity 12,026,644
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,969,381
=============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Video gaming $ 6,708,294 $ 9,738,085
Bingo 5,352,308 4,855,532
Other 1,046,607 851,839
------------ ------------
TOTAL REVENUES 13,107,209 15,445,456
------------ ------------
COSTS AND EXPENSES:
Direct salaries and other compensation 1,326,082 2,150,424
Rent and utilities ($105,240 and $105,240 to related parties) 2,138,656 2,352,043
Direct operating costs 2,109,729 2,375,751
Depreciation and amortization 2,717,006 2,087,477
License expense 2,014,462 1,398,636
Unusual and nonrecurring items:
Impairment of assets-video gaming machines 2,222,266 204,000
Severance and final compensation 982,122 ---
Loan forgiveness 163,741 ---
Contributions supporting a favorable outcome of the
South Carolina Referendum 123,500 ---
Write-offs of future operating lease obligations
related to idle or unprofitable bingo centers --- 282,270
Provisions for doubtful accounts and write-offs 894,602 1,202,467
Impairment of goodwill and leasehold improvements --- 1,109,845
General and administrative 2,582,479 4,634,085
------------ ------------
TOTAL COSTS AND EXPENSES 17,274,645 17,796,998
------------ ------------
OPERATING INCOME (LOSS) (4,167,436) (2,351,542)
OTHER INCOME AND EXPENSES:
Interest and investment income ($11,737 and $34,000 from related parties) 172,812 518,400
Interest expense ($24,002 and $23,201 to related parties) (245,340) (313,206)
Gain on settlement with a related party, net of legal expenses of $100,000 191,127 ---
Other income and (expense) (194) (190,730)
------------ ------------
TOTAL OTHER INCOME AND EXPENSES 118,405 14,464
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM (4,049,031) (2,337,078)
PROVISION FOR INCOME TAXES 394,271 263,144
------------ ------------
NET INCOME (LOSS) $(4,443,302) $(2,600,222)
============ ============
EARNINGS PER SHARE:
Basic and Diluted
Net income (loss) before extraordinary item $ (.46) $ (.29)
Extraordinary item --- ---
------------ ------------
Net income (loss) $ (.46) $ (.29)
============ ============
Weighted average shares outstanding - basic and diluted 9,585,376 9,299,908
</TABLE>
See notes to consolidated financial statements.
F-5
<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 1/1/98 9,286,905 $ 9,287 $24,110,122 --- --- 20
Issuance of common stock pursuant to
Employee Stock Purchase Plan 2,381 2 6,071
Repurchase of common stock under stock
buyback program (359,300) (1,075,295)
Cancellation of common stock (1,666) (2) 2
Exercise of employee stock options 33,733 34 38,934
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock 498,599 499 (1,063,182) (20)
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Purchase of bingo halls with treasury stock 128,000 (188,896) 388,896
Issuance of common stock for purchase
of bingo halls 29,630 30 89,970
Preferred dividends paid in cash
Issuance of warrants for services 221,616
Net (loss) for the year ended 12/31/98
---------- -------- ------------ ----------- ---------- ------
Balance at December 31, 1998 9,618,282 9,850 23,166,076 --- (686,399) ---
---------- -------- ------------ ----------- ---------- ------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 2,308 2 2,998
Exercise of employee stock options 325,400 325 487,975
Settlement agreement with former president,
Greg Wilson, and members of his family,
regarding the reimbursement of founders
stock and the surrender of common shares (35,000) 1,300 (45,938)
Repurchase of common stock under stock
buyback program (100,000) (71,750)
Net (loss) for the year ended 12/31/99
---------- -------- ------------ ----------- ---------- ------
Balance at December 31, 1999 9,810,990 $10,177 $23,658,349 --- $(804,087) ---
========== ======== ============ =========== ========== ======
Accumulated
Description Deficit Total
- ------------------------------------------------ ------------- ------------
<S> <C> <C>
Balance at 1/1/98 $ (3,696,414) $20,423,015
Issuance of common stock pursuant to
Employee Stock Purchase Plan 6,073
Repurchase of common stock under stock
buyback program (1,075,295)
Cancellation of common stock ---
Exercise of employee stock options 38,968
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock (1,983) (1,064,686)
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Purchase of bingo halls with treasury stock 200,000
Issuance of common stock for purchase
of bingo halls 90,000
Preferred dividends paid in cash (95,874) (95,874)
Issuance of warrants for services 221,616
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
------------- ------------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 3,000
Exercise of employee stock options 488,300
Settlement agreement with former president,
Greg Wilson and members of his family,
regarding the reimbursement of founders
stock and the surrender of common shares (44,638)
Repurchase of common stock under stock
buyback program (71,750)
Net (loss) for the year ended 12/31/99 (4,443,302) (4,443,302)
------------- ------------
Balance at December 31, 1999 $(10,837,795) $12,026,644
============= ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income (loss) $(4,443,302) $(2,600,222)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Write-off of long-lived assets 2,222,266 1,349,862
Depreciation and amortization 2,717,006 2,087,477
Provision for uncollectible receivables 1,727,158 73,795
Loss (gain) on disposal of property and equipment --- 858,397
Compensation for common stock and warrant issues --- 221,616
Compensation for exercise of employee stock options 176,719 ---
Gain on receipt of treasury stock (45,938) ---
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable (690,912) 89,913
Prepaid licenses (19,740) (50,551)
Other prepaid expenses and current assets 254,093 (396,802)
Trade accounts payable (76,613) (72,023)
Accrued expenses and other current liabilities 108,972 (775,568)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITES 1,929,709 785,894
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions --- (3,360,000)
Property and equipment expenditures (904,081) (2,539,630)
Repayments of notes receivable ($0 and $81,999 from related parties) 92,394 246,540
Issuance of notes receivable ($0 and $281,786 to related parties) --- (498,391)
Proceeds from sale of property and equipment 27,063 420,135
------------ ------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (784,624) (5,731,346)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (420,902) (404,945)
Payments on notes payable (1,056,772) (916,505)
Proceeds from notes payable --- 520,833
Repurchase and cancellation and other warrant costs --- (48,561)
Purchase of treasury stock (71,750) (1,075,295)
Distribution and dividends to stockholders --- (95,874)
Proceeds from employee stock purchase plan issuances 3,000 6,073
Proceeds from options exercises 311,531 38,968
Payments related to redemption of preferred stock --- (1,062,703)
Proceeds from founders shares 1,300 ---
------------ ------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (1,233,543) (3,038,009)
------------ ------------
NET INCREASE (DECREASE) IN CASH (88,458) (7,983,461)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,953,401 11,936,862
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,864,943 $ 3,953,401
============ ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended
December 31,
------------------
1999 1998
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash payments:
Interest $245,340 $313,206
======== ========
Income taxes $306,203 $624,889
======== ========
Non-cash transactions:
Issuance of common stock and warrants for employment, services,
and consulting fees $ --- $221,616
======== ========
Acquisition of business in exchange for note payable
($0 and $400,000 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 $ --- $290,000
======== ========
Acquisition of equipment in exchange
for capital lease obligation $ 66,098 $ ---
======== ========
</TABLE>
See notes to consolidated financial statements
F-8
<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 its revenues from video gaming operations in South Carolina,
and 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:
- ----------------------------
Cash equivalents consist of funds invested in money market accounts and in
investments with a maturity of ninety days or less when purchased.
ACCOUNTS RECEIVABLE:
- --------------------
Accounts receivable consist 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.
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
F-9
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
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
F-10
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
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.
(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 12).
COMPREHENSIVE INCOME:
- ---------------------
The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
NEW ACCOUNTING STANDARDS:
- --------------------------
The Securities and Exchange Commission has adopted new rules and amendments to
require an independent auditor review of the companies financial information
prior to the companies filing of their Quarterly Report on Form 10-QSB with the
Commission and to require that companies include in their proxy statements
certain disclosures about audit committees and reports. The review of financial
information by the independent auditor is effective for fiscal quarters ending
on or after March 31, 2000.
F-11
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS.
On October 21, 1999 the South Carolina Supreme Court held that the impending
Referendum on video gaming was unconstitutional. The decision effectively
causes an end to video gaming in South Carolina by June 30, 2000. As a result
the Company is in the process of attempting to restructure its notes and capital
lease payables of $1.1 million.
During the second quarter of 1999 the Company accepted the resignations of six
members of its Board of Directors and several members of the management team.
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 renovated the lease
location and charitable bingo operations began in April 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.
F-12
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
(CONTINUED).
Unaudited pro forma financial information for the year ended December 31, 1998,
as though the Ambler and the six Texas hall acquisitions had occurred January 1,
1997 is as follows:
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Revenues $16,969,657
============
Net income (loss) $(2,049,043)
============
Basic earnings (loss) per share $ (.22)
============
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment at December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 189,671
Buildings 379,342
Building and leasehold improvements 3,014,587
Video gaming machines and bingo equipment 4,677,892
Equipment, furniture and fixtures 1,236,873
Automobiles 367,774
------------
9,866,139
Less: Accumulated depreciation and amortization (6,358,144)
------------
Property and equipment, net $ 3,507,995
============
</TABLE>
Property and equipment at December 31, 1999 includes $1.3 million of assets held
under capital leases, related accumulated amortization of $508,000. Related
amortization expense charged to operations for the years ended December 31, 1999
and 1998 was $216,000 and $184,000, respectively.
Depreciation and amortization expense charged to operations for the years ended
December 31, 1999 and 1998 was $1,911,000 and $1,445,000, respectively.
NOTE 4 - INTANGIBLE ASSETS.
Amortization expense charged to operations for the years ended December 31, 1999
and 1998 was $806,000 and $642,000, respectively.
Intangible assets at December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill $ 5,095,398
Covenants not to compete 551,599
------------
5,646,997
Less: Accumulated amortization (1,621,009)
------------
Intangible assets, net of accumulated amortization $ 4,025,988
============
</TABLE>
F-13
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - 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, an impairment loss is recognized and measured as
the amount by which the carrying value of the asset exceeds the fair value of
the asset.
The Company recorded approximately $4.3 million and $4 million of asset
write-downs in 1999 and 1998, respectively, related to video gaming machine
impairment losses, future operating lease obligations on idle or unprofitable
bingo centers, and other unusual charges. In October 1999, the South Carolina
Supreme Court ruled that the impending video gaming Referendum was
unconstitutional. As a result, video gaming will cease in South Carolina no
later than June 30, 2000. The Company has recorded a charge to operations of
$2.2 million, in 1999, for the impairment of assets associated with its video
gaming machines. The carrying value of these assets has been adjusted to an
amount that the Company has determined is reasonably realizable on December 31,
1999.
Asset write-offs recorded in accordance with SFAS 121 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Impairment losses related to video gaming machines $2,222,266 $ 204,000
Write-offs related to idle or unprofitable bingo centers:
Leasehold improvements --- 660,000
Goodwill --- 436,000
Future operating lease obligation --- 555,000
---------- ----------
Total asset write-offs 2,222,266 1,855,000
---------- ----------
Other significant unusual charges recorded include the following:
Severance, reorganization and merger expenses associated with
change in personnel at the Board and Management levels, the
combining of company operations, the termination of investor
relations, legal and accounting relationships and the reduction
of administrative expenses 982,122 ---
Uncollectable receivables, deposits and incorrectly accounted for
license expense amortization 163,741 1,141,000
Provision for doubtful accounts and write-offs 894,602 110,000
Expense recognition for company stock warrants issued in February
1998 for consulting and investment banking services --- 221,000
Travel, recruiting and personnel costs due to relocations --- 370,000
Previously capitalized legal, financial relations costs,
and realized, unrecognized investment losses --- 340,000
Costs associated with the Referendum, previously capitalized costs
and state income tax issues 123,500 ----
---------- ----------
Total other significant charges 2,163,965 2,182,000
---------- ----------
Total unusual charges $4,386,231 $4,037,000
========== ==========
</TABLE>
F-14
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE.
Notes payable at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
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 151,538
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 60,265
Installment note payable to a third party, due in monthly
installments of $17,642, including interest at 13.5%, maturing
February 2001, secured by certain equipment 212,254
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 20,768
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 32,500
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 68,748
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 201,387
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 140,498
Installment note payable to a related party, due in monthly
installments of $9,765, including interest at 8%, maturing May
2002 secured by subsidiary common stock 248,689
Installment note payable to an individual, due on demand, non-
interest bearing, unsecured 30,000
-----------
1,166,647
Less current installments (770,626)
-----------
Notes payable, net of current portion $ 396,021
===========
</TABLE>
F-15
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE (CONTINUED).
Principle payments on notes payable for each of the next five fiscal years and
thereafter are as follows:
Years Ending December 31,
-------------------------
2000 $ 770,626
2001 357,580
2002 38,441
Thereafter ---
---
-------------
$ 1,166,647
=============
NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES.
The Company has 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
11.85%, and final maturity of July 2001.
Future minimum payments due under capital lease obligations are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
----------------------------
<S> <C>
2000 $ 193,455
2001 18,255
----------
Total future minimum lease payments 211,710
Less amount representing interest (7,218)
----------
Present value of minimum lease payments 204,492
Less current installments (182,686)
----------
Obligations under capital leases, net of current portion $ 21,806
==========
</TABLE>
NOTE 8 - 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, 1999 are as follows:
F-16
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED).
<TABLE>
<CAPTION>
Carrying Amount Fair Value
---------------- -----------
<S> <C> <C>
Notes receivable $ 92,365 $ 92,365
Capital leases payable 204,492 204,492
Notes payable 1,166,647 1,166,647
</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.
NOTE 9 - 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 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Expected income tax (benefit) $ (1,376,671) $ (884,075)
Amounts not deductible for federal income tax purposes 43,459 53,730
State income taxes, net of federal income tax 260,218 163,806
Additional income taxes related to DMC (acquisition
accounted for as a pooling) --- 99,336
Effect of change in 1998 and 1997 net operating loss 536,331 207,374
Change in valuation allowance 930,934 622,973
------------- -----------
$ 394,271 $ 263,144
============= ===========
The provision for income taxes consists of the following:
1999 1998
------------- -----------
Current year income taxes:
Federal $ 134,053 $ 99,336
State 260,218 163,808
Deferred income taxes:
Federal --- ---
State --- ---
------------- -----------
$ 394,271 $ 263,144
============= ===========
</TABLE>
F-17
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED).
Deferred tax assets and liabilities as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current deferred tax asset $ 35,092
Current deferred tax liability ---
Valuation allowance for current deferred tax asset (35,092)
------------
Net current deferred tax asset $ ---
============
Non-current deferred tax asset $ 3,273,835
Non-current deferred tax liability ---
Valuation allowance for non-current deferred tax asset (3,273,835)
------------
Net non-current deferred tax asset $ ---
============
</TABLE>
The current deferred tax asset results primarily from differences in 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 net deferred tax asset has a 100% valuation
allowance due to the uncertainty of generating future taxable income.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $4.7 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.
NOTE 10 - SHAREHOLDERS' EQUITY.
The Company issued 2,308 shares of its common stock in January 1999 pursuant to
purchases under the Company's Employee Stock Purchase Plan. These shares were
issued at the existing fair market value of $2.31 per share and the Company
recognized $3,000 in equity proceeds.
The Company issued 325,400 shares of its common stock in 1999 pursuant to
employee stock option exercises. The 325,000 option shares were exercised and
issued at $.95625 per share, and 400 option shares were exercised and issued at
$2.00 per share netting $311,581 in equity proceeds for the Company.
In March 1999 the Company recognized $1,300 in equity proceeds for the
reimbursement of founders shares.
In June 1999 the Company received 35,000 shares from former President Greg
Wilson and members of his family in connection with the settlements of lawsuits
and other issues between the parties. These shares have been accounted for as
treasury stock.
The Company repurchased 100,000 shares of its common shares for $71,750 under
the current stock buyback program. The average price to repurchase these shares
was $.72 and at December 31, 1999 the Company holds 366,300 treasury shares.
F-18
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED).
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.
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
F-19
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED).
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.
NOTE 11 - EARNINGS PER SHARE.
A reconciliation of basic to diluted earnings (loss) per share is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Numerator:
- --------------------------------------
Net income (loss) $(4,443,302) $(4,443,302) $(2,600,222) $(2,600,222)
Less preferred dividends --- --- (97,857) (97,857)
------------ ------------ ------------ ------------
Income (loss) available to
common stockholders $(4,443,302) $(4,443,302) $(2,698,079) $(2,698,079)
============ ============ ============ ============
Denominator:
- --------------------------------------
Weighted average shares outstanding 9,585,376 9,585,376 9,299,908 9,299,908
Effect of dilutive securities:
Preferred stock --- --- --- ---
Stock options and warrants --- --- --- ---
------------ ------------ ------------ ------------
Weighted average shares outstanding 9,585,376 9,585,376 9,299,908 9,299,908
============ ============ ============ ============
Earnings (loss) per share before
extraordinary item $ (.46) $ (.46) $ (.29) $ (.29)
============ ============ ============ ============
</TABLE>
NOTE 12 - 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,
1999, 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, 1999, a total of 757,100 options are outstanding under these
plans. An additional 156,525 options for shares are outstanding to
non-employees outside of these plans as of the end of 1999.
F-20
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACCOUNTING FOR STOCK BASED COMPENSATION (CONTINUED).
A summary of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Employee Stock Other Combined
Plans Compensatory Total
------------------ ---------------- ----------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
---------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C>
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
Granted 51,500 1.50 --- --- 51,500
Other --- --- 15,000 5.50 15,000
Exercised (325,400) .96 --- --- (325,400)
Forfeited (144,600) 2.75 --- --- (144,600)
---------- ------ -------- ------ ----------
Outstanding at 12/31/99 757,100 $ 3.11 156,525 $ 4.46 913,625
========== ====== ======== ====== ==========
</TABLE>
The fair value of options issued during 1999 and 1998 was $56,769 and
$1,305,753, respectively.
The following table summarizes information about options outstanding at December
31, 1999 and 1998 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>
1999: $ 1.49 - $5.00 757,100 3.7 years $ 3.11 645,100 $ 3.01
1998: $ 0.96 - $6.16 1,175,600 4.7 years $ 2.43 710,422 $ 2.19
</TABLE>
F-21
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACCOUNTING FOR STOCK BASED COMPENSATION (CONTINUED).
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1999 and 1998:
<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>
1999: $ 3.88 - $5.50 156,525 2.7 years $ 4.46 156,525 $ 4.46
1998: $ 3.00 - $5.50 141,525 3.4 years $ 4.00 141,525 $ 3.99
</TABLE>
The options granted in 1999 and 1998 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,
--------------------------
1999 1998
------------ ------------
<S> <C> <C> <C>
Net (loss) As reported $(4,443,302) $(2,600,222)
Pro forma $(4,717,467) $(2,900,623)
Basic (loss) per share As reported $ (.46) $ (.29)
Pro forma $ (.49) $ (.32)
Diluted (loss) per share As reported $ (.46) $ (.29)
Pro forma $ (.49) $ (.32)
</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 1999; dividend yield of 0 %, expected volatility of 80%, risk free
interest rates of 6.125% and an expected life of 6.5 years. 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.
NOTE 13 - RELATED PARTY TRANSACTIONS.
An entity owned and managed by one person who is a shareholder and former
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
and receives rental income from the operator for the use of these locations. On
October 23, 1999, the Company
F-22
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED).
renegotiated this Agreement and now receives all net proceeds from the
operations of the video gaming machine centers.
In July 1999, the Company entered into a contract with a person who is a
shareholder and former director of the Company to manage and supervise the
Company's bingo operations in South Carolina. The Company terminated this
arrangement effective October 23, 1999 and the Company is now managing and
supervising the South Carolina bingo operations.
Promissory notes receivable from related parties totaled $123,000 and $460,000
for the years ended December 31, 1999 and 1998. Interest income related to
these notes recorded by the Company was $9,200 and $34,000, respectively.
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 years ended December 31, 1999 and
1998, the Company recognized interest expense on this obligation in the amount
of $24,002 and $23,200, respectively.
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, 1999 and 1998, the
Company has expensed $42,000 for rental payments each year 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, 1999 and 1998, the Company has expensed $63,240 each year 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
F-23
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED).
operator, due in full, with interest accruing at prime-plus 2%, due upon
maturity in May 1999. Interest income recorded by the Company during 1999
totaled $11,400 and the note has been timely satisfied.
NOTE 14 - 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>
2000 $ 1,419,686
2001 978,936
2002 612,787
2003 280,376
2004 and thereafter 383,200
-------------
Total minimum annual rentals $ 3,674,985
=============
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 amounted to $1.7
million and $2.6 million, respectively.
(b) Legal:
Pondella Hall for Hire, Inc., d/b/a Eight Hundred v. American Bingo and Gaming,
Case No.: 97-2750, Circuit Court of the Twelfth Judicial Circuit in and for
Manatee County, Florida. 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 as "Furtney"). On June
12, 1997, Furtney filed a lawsuit against the Company in Florida, alleging
breach of contract. Furtney alleged that the Company defaulted on its original
purchase note and stock obligations under the purchase agreements. 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. 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-24
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
State of Florida v. 959 Hall for Hire, Inc. and 6323 Hall for Hire, Inc., Case
No.: 95-2943 F, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida; State of Florida, Office of the Attorney General v. 959 Hall
for Hire, Inc., 6323 Hall for Hire, Inc., and American Bingo and Gaming, Case
No. 95-4278, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida. These proceedings relate to the criminal investigations
undertaken by the Florida State Attorney General's Office with respect to the
bingo centers acquired by the Company from Phillip Furtney as discussed above
In January of 1997, the Company and the State of Florida settled all matters
regarding the Company's previous ownership and operation of these bingo centers.
Additionally, in light of the recent Florida Supreme Court decision in
Department of Legal Affairs v. Bradenton Group, Inc., 23 FL, Weekly, S485 (Fla,
September 24, 1998), the Company has filed a Petition for Coram Nobis in the
State of Florida criminal and civil cases to withdraw its settlement pleas in
these cases or, in the alternative, agree to strike those portions of the State
Plea Agreements which prohibit the Company from carrying out lawful business
operations in the State. The Company plans to pursue this course of action
vigorously, but the likelihood of success is unpredictable.
Joan Caldwell Johnson, et al v. Collins Music Company, et al, Civil Action No.
3:97-22136-17, United States District Court for the District of South Carolina,
Columbia. In November 1997, one of the Company's subsidiaries was named a
defendant (among many other video gaming operators) in a purported class action
brought by Plaintiffs allegedly arising out of fraudulent and unlawful promotion
and operation of video gambling devices. Plaintiffs filed a Motion to Amend the
Complaint in late 1999 to add the Company and several other Company subsidiaries
as Defendants. As of this date, the Company and its named subsidiaries have yet
to be added to this lawsuit and the present status of this case is merely one of
threatened litigation. There have been settlement discussions with Plaintiffs
counsel for the purported class but the settlement demand was unreasonable. If
the Company and its subsidiaries are added to this case, the case would be
litigated to the fullest extent possible. In the event that Plaintiffs were to
prevail on their claims, the range of potential loss could exceed several
million dollars because the Plaintiffs seek to recoup all profits Defendants
made from 1991 through the present. 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.
Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo and
Gaming Corp.; American Bingo and Gaming Corp. v. Coats and Coats Rental
Amusement, d/b/a Ponderosa Bingo and Shipwatch Bingo, Wayne Coats, individually,
Civil Action No. 97-CP-10-4685, South Carolina Court of Common Pleas, Charleston
County. On October 9, 1997, Collins Entertainment, Inc., filed a lawsuit
alleging the Defendants had engaged in civil conspiracy and tortiously
interfered with the Plaintiff's contract, violating the South Carolina Unfair
Trade Practices Act. The Plaintiff seeks actual damages in excess of $350,000
and an unspecified amount of punitive damages. The Company believes that this
lawsuit is completely without merit and the Company will defend itself
vigorously. If this case were to be decided against the Company, it 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 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
Roy Stevens v. American Bingo and Gaming and Columbia One Corporation, Civil
Action N. 99-CP-40-1662, South Carolina Court of Common Pleas, Richland County.
In this lawsuit filed in July 1999, the Plaintiff alleges that the Company has
withheld monies due under a promissory note totaling approximately $40,000 and
prevented him from selling shares of common stock that resulted in losses of
over $200,000. Plaintiff seeks to recover lost profits for the diminution of
stock value, the amounts due under the promissory note and an unspecified amount
of punitive damages. The parties have been conducting discovery and recently
participated in a February of 2000 voluntary mediation in which the Plaintiff
rejected the Company's reasonable settlement proposal. The Company believes
that this lawsuit is completely without merit, is moving forward with discovery
and depositions, 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.
Hermalink v. American Bingo and Gaming and Michael Mims, Civil Action No.
99-CP-32-1793, South Carolina Court of Common Pleas, Richland County. On July
8, 1999, Plaintiff, a former employee, accused the Company and Michael Mims, a
former officer and director of the Company, of defamation and slander based upon
comments Mr. Mims made in a newspaper article prior to the Company's annual
meeting in 1999. Plaintiff seeks actual and punitive damages in an unspecified
amount and the Company and Mr. Mims will vigorously defend this action. This
case has been moving forward slowly and no settlement discussions have been
initiated. If the case were decided against the Company, it could have a
material adverse effect on the Company.
Steve Carroll and Wilson Reed, both individually and on behalf of S.C. Music
Masters, Inc. v. Concessions Corp. and American Bingo and Gaming, Corp., Civil
Action No. 99-CP-10-1420, South Carolina Court of Common Pleas, Charleston
County. On April 16, 1999, Plaintiffs filed a lawsuit alleging the Company and a
wholly-owned subsidiary breached fiduciary duties, breached or caused the breach
of contracts, engaged in various fraudulent acts, negligently made false
statements and engaged in unfair trade practices. The Plaintiffs seek to
recover actual and punitive damages that include $240,000 of out-of-pocket
expenses and lost profits related to Plaintiffs' operation of a nightclub and
video casino on the premises in the amount of approximately $300,000. Discovery
has begun and depositions have been initiated. The Company has submitted an
informal settlement proposal to the Plaintiffs, but as of this date a settlement
has not been reached. The Company believes that this lawsuit is completely
without merit and the Company will defend itself vigorously. If this case were
to be decided against the Company, it could have a material adverse effect on
the financial position and operations of the Company.
On October 14, 1999, the South Carolina Supreme Court issued a ruling that
declared the November 2, 1999 referendum unconstitutional, which was to allow
South Carolina voters to decide whether or not video poker payouts should remain
legal. As a result of and pursuant to this ruling, video poker payouts will be
illegal in South Carolina after June 30, 2000. This Supreme Court ruling will
have a material adverse effect on the Company's financial position and
operations. This matter is further compounded by the fact that approximately
one-half of the Company's VGM licenses expire on May 31, 2000. Presently, no
practical licensing mechanism exists to extend these licenses for the remaining
month during which video gaming will remain legal in South Carolina. Unless
this matter is resolved,
F-26
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
the Company will cease operations of approximately one-half of all VGM machines
on or before May 31, 2000.
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.
(c) Stock Repurchase Plan:
During the second quarter of 1998, the Company authorized a stock repurchase
program to purchase up to 1,000,000 shares of its common stock. On February 8,
2000 the Company amended the stock repurchase program to permit the purchase of
up to 2,000,000 shares of its common stock at such time and prices the Company
deems advantageous. There is no commitment or obligation on the part of the
Company to purchase any particular number of shares, and the program may be
suspended at any time at the Company's discretion. In 1999, in conjunction with
this repurchase program, the Company acquired 100,000 shares at a cost of
$71,750. Any shares so repurchased will be held as treasury shares and be
available for general corporate purposes.
NOTE 15 - 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, 1999. 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.
F-27
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SEGMENTS (CONTINUED).
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 6,708,294 $ 5,352,308 $ 1,046,607 $ 13,107,209
Depreciation and Amortization 1,265,969 1,418,802 32,235 2,717,006
Segment profit (loss) (1,341,911) 581,837 (3,683,228) (4,443,302)
Segment Assets 4,400,806 11,886,563 (2,317,988) 13,969,381
Year Ended December 31, 1999
------------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
-------------- ------------ -------------- --------------
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
</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 16 - SUBSEQUENT EVENTS.
From January 1, 2000 through February 18, 2000, in connection with its stock
repurchase program, the Company acquired an additional 669,900 of its common
shares at an aggregate cost of $633,747. On February 8, 2000 the Company's Board
of Directors authorized the Company to increase the targeted amount of stock to
be repurchased by the Company from 1,000,000 to 2,000,000 shares.
As a result of the video gaming Referendum being declared unconstitutional, the
Company is presently in the process of restructuring its $1.1 million
outstanding debt that is secured by video gaming machines.
F-28
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C> <C>
Exhibit Sequential
Number Description Page Number
- ------- ------------------------------------------------------------------------------- -----------
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as
amended October 17, 1994, and further amended July 31, 1997, August 13,
1998, and September 22, 1999 (incorporated by reference to Exhibit 3.1 of
the Quarterly Report on Form 10-QSB filed by the Company on November
15, 1999, for the quarter ended September 30, 1999).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Quarterly Report on Form 10-QSB filed by the Company
on November 15, 1999, for the quarter ended September 30, 1999).
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 on
March 18, 1999, 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 on March 18, 1999, for the year ended December 31, 1998).
10.3* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.12 of the Annual Report on Form 10-KSB filed by the Company for the
year ended December 31, 1994).
10.4* 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 on March 18, 1999, for the year ended December 31, 1998).
10.5* Amended and Restated 1997 Stock Option Plan (incorporated by reference to
Exhibit 10.5 of the Quarterly Report on Form 10-QSB filed by the Company
on August 14, 1998 for the quarter ended June 30, 1998).
10.6* American Bingo & Gaming Corp. Stock Option Plan (incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-QSB filed by
the Company on August 16, 1999, for the quarter ended June 30, 1999).
10.7* Employment Agreement dated December 18, 1997 with George M. Harrison,
Jr., as amended February 25, 1998 and as further amended July 27, 1998
(incorporated by reference to Exhibit 10.13 of the Quarterly Report on Form
10-QSB filed by the Company on August 14, 1998 for the quarter ended June
30, 1998).
10.8* Employment Agreement dated April 30, 1998 with Andre Marc Hilliou
(incorporated by reference to Exhibit 10.14 of the Quarterly Report on Form
10-QSB filed by the Company on August 14, 1998 for the quarter ended June
30, 1998).
<PAGE>
10.9* Employment Agreement dated June 19, 1998 with Richard M. Kelley, as
amended October 23, 1998 (incorporated by reference to Exhibit 10.11 of the
Annual Report on Form 10-KSB filed by the Company on March 18, 1999,
for the year ended December 31, 1998).
10.10* Employment Agreement dated September 28, 1998 with Marie T. Pierson
(incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form
10-QSB filed by the Company on November 12, 1998 for the quarter ended
September 30, 1998).
10.11* Employment Agreement dated November 2, 1998 with Nancy Pollick
(incorporated by reference to Exhibit 10.13 of the Annual Report on Form 10-
KSB filed by the Company on March 18, 1999, for the year ended December
31, 1998).
10.12* Consulting Agreement dated November 9, 1998 with Michael W. Mims
(incorporated by reference to Exhibit 10.14 of the Annual Report on Form 10-
KSB filed by the Company on March 18, 1999, for the year ended December
31, 1998).
10.13 Mutual Release and Settlement Agreement dated July 24, 1998 with L.
Gregory Wilson (incorporated by reference to Exhibit 99.2 of the Current
Report on Form 8-K filed by the Company on August 4, 1998).
10.14 Severance Agreement dated July 24, 1998 with L. Gregory Wilson
(incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K
filed by the Company on August 4, 1998).
10.15 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).
10.16 Promissory Note dated February 24, 1998, with George M. Harrison, Jr.
(incorporated by reference to Exhibit 10.20 of the Quarterly Report on Form
10-QSB filed by the Company on August 14, 1998 for the quarter ended June
30, 1998).
10.17 Promissory Note and Security Agreement dated June 4, 1998 with Michael
W. Mims (incorporated by reference to Exhibit 10.19 of the Quarterly Report
on Form 10-QSB filed by the Company on August 14, 1998 for the quarter
ended June 30, 1998).
10.18 Master Coin Machine Agreement dated November 9, 1998, by and among the
Company, Gold Strike, Inc., Mims & Dye Enterprises, LLC, Michael W.
Mims and Danny C. Dye (incorporated by reference to Exhibit 10.20 of the
Annual Report on Form 10-KSB filed by the Company on March 18, 1999,
for the year ended December 31, 1998).
10.19 Promissory Note dated November 9, 1998, between Gold Strike, Inc. and
Mims & Dye Enterprises, LLC (incorporated by reference to Exhibit 10.21 of
the Annual Report on Form 10-KSB filed by the Company on March 18,
1999, for the year ended December 31, 1998).
<PAGE>
10.20 Guaranty Agreement dated November 9, 1998 with Michael W. Mims and
Danny C. Dye (incorporated by reference to Exhibit 10.22 of the Annual
Report on Form 10-KSB filed by the Company on March 18, 1999, for the
year ended December 31, 1998).
10.21 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 on March 18, 1999,
for the year ended December 31, 1998).
10.22 Settlement Agreement dated January 27, 1997 with the State of Florida
(incorporated by reference to Exhibit 10.21 of the Quarterly Report on Form
10-QSB filed by the Company on August 14, 1998 for the quarter ended June
30, 1998).
10.23 Form of Stock Purchase Warrant used in connection with warrant grant to
Gaines Berland, Inc., Peter Blum, Steven Blumberg and Lisa Evanchuk on
February 6, 1998 (incorporated by reference to Exhibit 10.25 of the Annual
Report on Form 10-KSB filed by the Company on March 18, 1999, for the
year ended December 31, 1998).
10.24 Form of Common Stock Purchase Warrant used in connection with issuance
of Series A Convertible Preferred Stock to Plazacorp. Investments Limited,
P.R.I.F. #4, David Heller and Sam Reisman on August 1, 1997 (incorporated
by reference to Exhibit 10.26 of the Annual Report on Form 10-KSB filed by
the Company on March 18, 1999, for the year ended December 31, 1998).
10.25 Form of Registration Rights Agreement used in connection with issuance of
Series A Convertible Preferred Stock to Plazacorp Investments Limited,
P.R.I.F. #4, David Heller and Sam Reisman on August 1, 1997 (incorporated
by reference to Exhibit 10.27 of the Annual Report on Form 10-KSB filed by
the Company on March 18, 1999, for the year ended December 31, 1998).
10.26* Severance Agreement with James L. Hall dated July 1, 1999 (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the
Company on July 22, 1999).
10.27* Severance Agreement with George M. Harrison, Jr. dated July 2, 1999
(incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K
filed by the Company on July 22, 1999).
10.28* Severance Agreement with Andre M. Hilliou dated July 2, 1999 (incorporated
by reference to Exhibit 10.3 of the Current Report on Form 8-K filed by the
Company on July 22, 1999).
10.29* Severance Agreement with Michael W. Mims dated July 2, 1999
(incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K
filed by the Company on July 22, 1999).
10.30* Severance Agreement with Grover C. Seaton III dated June 30, 1999
(incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K
filed by the Company on July 22, 1999).
<PAGE>
10.31* Severance Agreement with Richard M. Kelley dated July 2, 1999
(incorporated by reference to Exhibit 10.6 of the Current Report on Form 8-K
filed by the Company on July 22, 1999).
10.32* Severance Agreement with Nancy J. Pollick dated July 2, 1999 (incorporated
by reference to Exhibit 10.7 of the Current Report on Form 8-K filed by the
Company on July 22, 1999).
10.33* Severance Agreement with Marie T. Pierson dated July 23, 1999
(incorporated by reference to Exhibit 10.8 of the Quarterly Report on Form
10-QSB filed by the Company on November 15, 1999, for the quarter ended
September 30, 1999).
10.34* Severance Agreement with Thomas M. Harrison dated September 17, 1999
(incorporated by reference to Exhibit 10.9 of the Quarterly Report on Form
10-QSB filed by the Company on November 15, 1999, for the quarter ended
September 30, 1999).
10.35* Severance Agreement with William W. Harrison dated September 17, 1999
(incorporated by reference to Exhibit 10.10 of the Quarterly Report on Form
10-QSB filed by the Company on November 15, 1999, for the quarter ended
September 30, 1999).
10.36* Employment Agreement effective as of September 21, 1999, with Jeffrey L. Minch.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for SEC use only).
* Denotes a management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
EXHIBIT 10.36
-------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is executed as of this 21st day of
September, 1999 ("Effective Date"), by and between:
AMERICAN BINGO AND GAMING CORPORATION, a Delaware corporation ("American
----------------------------------------
Bingo"), and
JEFFREY L. MINCH, an individual ("Minch").
------------------
TERM
----
American Bingo will employ Minch, and Minch will serve American Bingo, under the
terms of this Agreement, for an initial term ("Term") of three (3) years
commencing on 21 September 1999 ("Employment Date").
The terms of this Agreement may be extended provided American Bingo and Minch
agree in writing to such an extension. Minch's employment may be terminated
earlier as provided in this Agreement.
EMPLOYMENT
----------
American Bingo hereby employs Minch as its President.
Minch shall exercise such authority, perform such executive duties and functions
and discharge such responsibilities as the Board of Directors may from time to
time determine, consistent with his position as President and the By-Laws of the
Company. Minch shall report directly and be responsible solely to the Board of
Directors of the Company.
Minch shall devote his substantially full attention and time, skill and efforts
to the business of American Bingo.
The Board of Directors will nominate Minch to serve as a Director of American
Bingo and Minch will serve as a Director, if American Bingo's shareholders elect
him. Minch will not receive additional compensation for serving as a Director.
COMPENSATION AND BENEFITS
-------------------------
American Bingo shall pay to Minch an annual base salary of $100,000, in
accordance with the normal payroll practices of American Bingo.
<PAGE>
American Bingo shall pay to Minch, as incentive compensation, 100,000 shares of
American Bingo common stock when the stock price closes at $2.00/share and
100,000 additional shares when the stock price closes at each and every even
multiple above $2.00/share.
-----------------------------------------------------------------------
|Example: When the common stock price closes at $2.00/share, American|
|Bingo pays to Minch 100,000 shares of American Bingo common stock.|
|When the common stock price closes at $3.00/share, American Bingo|
|Pays to Minch an additional 100,000 shares of American Bingo common|
|stock, etc. |
-----------------------------------------------------------------------
Minch shall be entitled to participate in American Bingo's benefit programs as
generally available to all of its employees. American Bingo will reimburse Minch
for all business expenses incurred in performing his duties under this
Agreement.
American Bingo will reimburse Minch for fifty percent (50%) of his office
expenses in Austin, Texas including rent, parking, administrative support,
insurance, maintenance, telephone, utilities, office machines, office supplies
and any other normal expenses of maintaining a business office.
American Bingo shall indemnify Minch to the fullest extent permitted by law.
Minch shall be entitled to the protection of all insurance policies American
Bingo maintains.
TERMINATION OF EMPLOYMENT
-------------------------
AMERICAN BINGO MAY TERMINATE THIS AGREEMENT AND MINCH'S EMPLOYMENT UNILATERALLY
- --------------------------------------------------------------------------------
AND IN ITS ABSOLUTE DISCRETION UPON THIRTY (30) DAYS WRITTEN NOTICE. In the
- -----------------------------------------------------------------------
event that American Bingo terminates this Agreement and Minch's employment,
American Bingo shall pay to Minch $100,000 as a severance payment and Minch will
be entitled to no other compensation.
Minch may terminate this Agreement unilaterally and in his absolute discretion
upon ninety (90) days written notice.
This Agreement will terminate automatically should American Bingo be sold to or
merged with another company, public or private. In the event such a sale or
merger should result in the shareholders of American Bingo common stock
receiving consideration, in any form, equal to or greater than $3.00/share,
Minch shall be entitled to receive 500,000 shares of common stock of American
Bingo immediately prior to the consummation of any such sale or merger.
MISCELLANEOUS PROVISIONS
------------------------
CONFIDENTIALITY. For the Term of this Agreement and twelve (12) months
- ---------------
thereafter, Minch agrees to maintain confidentiality about every aspect of
American Bingo learned during his employment by American Bingo except as
required by law.
NON-COMPETITION. Minch agrees that he will not compete directly with American
- ---------------
Bingo during the term of this Agreement and twelve (12) months thereafter.
<PAGE>
NOTICES. All communications required by this Agreement will be in writing and
- -------
delivered in person or sent by United States registered mail, return receipt
requested, postage prepaid, to:
American Bingo & Gaming Corp.
Attn: Daniel W Deloney, Chairman
1440 Charleston Highway
West Columbia, South Carolina 29169
Jeffrey L. Minch
1250 Frost Bank Plaza
Congress Avenue @ 9th Street
Austin, Texas 78701
Jeffrey L. Minch
1402 Ethridge Avenue
Austin, Texas 78703
DISPUTE RESOLUTION. Any matter arising from this Agreement that cannot be
- -------------------
resolved by direct negotiation between American Bingo and Minch, must be
resolved by binding arbitration in Austin, Texas in accordance with the rules of
the American Arbitration Association then in effect. The prevailing party will
be entitled to the award of pre-and post-judgment interest, legal fees and
expenses in accordance with the decision of the arbitrator. Judgment may be
entered on the arbitrator's award in any court having appropriate jurisdiction.
TIME. Time is of the essence in this Agreement.
- ----
ASSIGNMENT. Neither American Bingo nor Minch may assign their rights, duties or
- ----------
obligations under this Agreement.
SEVERABILITY. To the extent any provision of this Agreement or portion thereof
- ------------
shall be invalid or unenforceable, it shall be considered deleted and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
GOVERNING LAW. This Agreement shall be governed by and construed and enforced
- --------------
in accordance with the laws of the State of Texas.
ENTIRE AGREEMENT. This Agreement constitutes the entire agreement by American
- -----------------
Bingo and Minch and supersedes any and all prior agreements or understandings.
This Agreement may be amended or modified only by written instrument executed by
American Bingo and Minch.
<PAGE>
AGREED:
AMERICAN
BINGO
By: /s/ Daniel W. Deloney
------------------------
Daniel W. Deloney
Chairman of the Board
Date: 1-5-2000
--------
JEFFREY L. MINCH
/s/ Jeffrey L. Minch
-----------------------
Jeffrey L. Minch
Date: 1-5-2000
--------
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Provided below is a list of the subsidiaries of the Company, all of which
are wholly owned, grouped by their respective state of incorporation. Any name
under which a Subsidiary is doing business is provided in parentheses.
ALABAMA CORPORATIONS
- ---------------------
1. Bing-O-Rama, Inc. (Bingo Haven)
2. Charity Bingo, Inc. (Winner's Bingo; Chickasaw Bingo)
3. Charity Bingo-Birmingham, Inc.
FLORIDA CORPORATIONS
- ---------------------
1. Delray Hall For Hire, Inc.
GEORGIA CORPORATIONS
- ---------------------
1. Lucky 4, Inc.
MISSISSIPPI CORPORATIONS
- -------------------------
1. Delta Bingo, Inc.
2. Forest Bingo, Inc.
3. Grenada Bingo, Inc.
4. Louisville Bingo, Inc.
5. Starkville Bingo, Inc.
SOUTH CAROLINA CORPORATIONS
- -----------------------------
1. Columbia One Corp. (American Bingo I; American Bingo II)
2. Concessions Corp. (Shipwatch; Ponderosa; Beacon; Lucky I; Lucky II)
3. Dabber's Bingo, Inc.
4. Darlington Music Co., Inc.
5. Gamecock Promotions, Inc.
6. Gold Strike, Inc.
7. Low Country Promotions, Inc.
8. MHJ Corporation
9. Midlands Promotions, Inc.
10. S.C. Properties II, Inc.
<PAGE>
TEXAS CORPORATIONS
- -------------------
1. 1919 Riverside Corp.
2. Ambler Bingo, Inc. (Ambler Bingo)
3. Americana I, Inc. (Americana Bingo)
4. Americana II, Inc.
5. Americana III, Inc.
6. Americana IV, Inc.
7. Charity Bingo of Texas, Inc.
8. Lavaca Enterprises, Incorporated (Hi Plains Bingo)
9. Lucky Bingo, Inc. (Lucky Bingo)
10. Meeks Management Company (Goldstar Bingo)
11. Parkway Bingo, Inc. (Parkway Bingo)
12. S.A. Charities, Inc. (Blanco Bingo)
13. Strike It Rich Bingo, Inc. (Strike It Rich Bingo)
14. Texas Charities, Inc. (Fortune Bingo)
15. The Samaritan Associates, Inc. (Goldstar II Bingo)
16. West Texas Bingo, Inc. (Super Bingo)
2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements for the period ended December 31,
1999, and is qualified in its entirety by reference to such financial statements
included in this Form 10-KSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3864943
<SECURITIES> 0
<RECEIVABLES> 694858
<ALLOWANCES> (103211)
<INVENTORY> 0
<CURRENT-ASSETS> 6038695
<PP&E> 9866139
<DEPRECIATION> (6358144)
<TOTAL-ASSETS> 13969381
<CURRENT-LIABILITIES> 1524910
<BONDS> 0
0
0
<COMMON> 10177
<OTHER-SE> 12016467
<TOTAL-LIABILITY-AND-EQUITY> 13969381
<SALES> 13107209
<TOTAL-REVENUES> 13107209
<CGS> 0
<TOTAL-COSTS> 17274645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245340
<INCOME-PRETAX> (4049031)
<INCOME-TAX> 394271
<INCOME-CONTINUING> (4443302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4443302)
<EPS-BASIC> (.46)
<EPS-DILUTED> (.46)
</TABLE>
