SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No. 0-13530
--------
AMERICAN BINGO & GAMING CORP.
-----------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 74-2723809
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1440 CHARLESTON HIGHWAY, WEST COLUMBIA, SC 29169
-------------------------------------------------
(Address of principal executive offices)
(803) 796-7875
--------------
(Issuer's telephone number)
N/A
---
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [ X ] NO [ ]
As of April 28, 2000, the Issuer had 8,251,490 shares of its Common Stock, par
value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [X ]
<PAGE>
American Bingo & Gaming Corp.
FORM 10-QSB
For the quarter ended March 31, 2000
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
a) Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 2000 . . . . . . . . . . . 2
b) Consolidated Balance Sheet as of March 31, 2000 . . . . . . 3
c) Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 2000 . . . . . . . . . . . 4
d) Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations . . . . . . . . . . . . . . . . . . . . . 13
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 16
Signatures
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Video Gaming $1,848,377 $1,974,322
Bingo 1,358,225 1,372,361
Other 140,242 274,445
----------- -----------
TOTAL REVENUES 3,346,844 3,621,128
----------- -----------
COSTS AND EXPENSES:
Direct salaries and other compensation 218,803 289,547
Rent and utilities ($26,310 and $26,310, respectively to related parties) 468,048 536,393
Direct operating costs 351,152 619,019
Depreciation and amortization 538,944 727,430
License expense 407,653 461,491
General and administrative 283,722 885,298
----------- -----------
TOTAL COSTS AND EXPENSES 2,268,322 3,519,178
----------- -----------
OPERATING INCOME 1,078,522 101,950
OPERATING INCOME AND EXPENSES:
Interest and investment income ($1,227 and $7,265 respectively to related parties) 44,425 59,443
Interest expense ($4,812 and $6,688, respectively to related parties) (36,765) (71,304)
Gain on settlement with a related party, net of legal expenses of $100,000 --- 137,321
Other income and (expense) (4,447) 33,000
----------- -----------
TOTAL OTHER INCOME AND EXPENSES 3,213 158,460
----------- -----------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 1,081,735 260,410
PROVISION FOR INCOME TAXES 9,424 184,068
----------- -----------
NET INCOME 1,072,311 76,342
OTHER COMPREHENSIVE INCOME (LOSS) (8,024) ---
----------- -----------
NET COMPREHENSIVE INCOME $1,064,287 $ 76,342
=========== ===========
EARNINGS PER SHARE:
Basic $ .12 $ .01
=========== ===========
Diluted $ .12 $ .01
=========== ===========
Weighted average shares outstanding - basic 9,159,177 9,851,316
Weighted average shares outstanding - diluted 9,159,177 9,851,316
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
March 31, 2000
----------------
Current Assets:
Cash and cash equivalents $ 3,567,245
Accounts receivable, net of allowance for doubtful
accounts of $72,424 561,868
Prepaid license expense - current portion 991,805
Equity Securities, available for sale 252,502
Other prepaid expenses 118,459
----------------
Total Current Assets 5,491,879
----------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 3,353,117
Other Assets:
Notes receivable - ($60,357 to related parties) 60,357
Prepaid license expense - net of current portion 133,627
Intangible assets, net 3,830,898
Other non-current assets 254,114
----------------
Total Other Assets 4,278,996
----------------
TOTAL ASSETS $ 13,123,992
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable - current portion ($102,967 to related parties) $ 711,778
Capital leases payable - current portion 153,289
Trade accounts payable 170,671
Accrued expenses and other current liabilities 257,954
----------------
Total Current Liabilities 1,293,692
----------------
Long-term Liabilities:
Notes payable, net of current portion ($121,237 to related parties) 264,674
Capital leases payable, net of current portion 21,806
----------------
Total Long-term Liabilities 286,480
----------------
Stockholders' Equity:
Common stock, $.001 par value, (authorized 20,000,000 shares,
issued 10,177,290 shares, outstanding 8,276,490 shares) 10,177
Additional paid-in-capital 23,658,349
Treasury stock - 1,900,800 shares, at cost (2,351,197)
Accumulated other comprehensive income (loss) (8,024)
Accumulated deficit (9,765,485)
----------------
Total Stockholders' Equity 11,543,820
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,123,992
================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net income $ 1,072,311 $ 76,342
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 538,944 724,186
Provision for uncollectible receivables --- 75,631
Gain on litigation settlement --- 1,300
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable (62,586) (209,279)
Prepaid licenses 393,700 91,704
Deposits (74,600) (5,918)
Other prepaid expenses and current assets 14,594 131,446
Trade accounts payable 106,973 (40,704)
Accrued expenses and other current liabilities (249,946) 52,048
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,739,390 896,756
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity securities (260,526) ---
Property and equipment expenditures (188,976) (404,998)
Collections of notes receivable 32,008 170,226
Issuance of notes receivable --- (20,000)
Reductions of notes receivable allowance --- (32,896)
Proceeds from sale of property and equipment --- 7,335
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (417,494) (280,333)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (48,000) (113,778)
Payments on notes payable (24,484) (397,885)
Purchase of treasury stock (1,547,110) ---
Proceeds from issuance of common stock for employee stock purchase plan --- 3,000
Proceeds from option exercises --- 311,581
Proceeds from margin line of credit --- ---
------------ -----------
NET CASH USED IN FINANCING ACTIVITIES (1,619,594) (197,082)
------------ -----------
NET INCREASE (DECREASE) IN CASH (297,698) 419,341
CASH AT BEGINNING OF PERIOD 3,864,943 3,953,401
------------ -----------
CASH AT END OF PERIOD $ 3,567,245 $4,372,742
============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
2000 1999
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
<S> <C> <C>
Interest $ 64,823 $ 71,304
=============== ========
Income taxes $ 9,424 $102,203
=============== ========
Non-cash transactions:
Acquisition of property and equipment in exchange
for notes payable $ --- $434,415
=============== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- ------------------------------------------------------------------------
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
- ------------------------------------------------------------------------
The unaudited consolidated financial statements include the accounts of American
Bingo & Gaming Corp. and its wholly owned subsidiaries (the "Company"). The
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. The Company's accounting policies and certain other disclosures are
set forth in the notes to the consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999. The financial statements contained herein should be read in conjunction
with the notes to the Company's audited consolidated financial statements
included in the Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999. The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amount of revenue and expenses during the reported period. Actual results could
differ from these estimates. Where appropriate, items within the consolidated
condensed financial statements have been reclassified to maintain consistency
and comparability for all periods presented.
The operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. Except for historical information contained herein,
certain matters set forth in this report are forward looking statements that are
subject to substantial risks and uncertainties, including the impact of
government regulation and taxation, customer attendance and spending,
competition, and general economic conditions, among others.
- --------------------------------------------------------------------------------
NOTE 2 - PROPERTY AND EQUIPMENT.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Property and equipment at March 31, 2000 consists of the following:
<S> <C>
Land $ 189,671
Buildings 379,342
Building and leasehold improvements 3,179,383
Video gaming machines and bingo equipment 4,675,030
Equipment, furniture and fixtures 1,256,910
Automobiles 351,071
------------
10,031,407
Less: Accumulated depreciation and amortization (6,678,290)
------------
Property and equipment, net $ 3,353,117
============
</TABLE>
Property and equipment at March 31, 2000 includes $1.3 million of assets held
under capital leases and related accumulated amortization of $562,000. Related
amortization expense charged to operations for the three months ended March 31,
2000 and 1999 was $54,000 each period.
Total depreciation expense, for owned and leased assets, charged to operations
for the three months ended March 31, 2000 and 1999 was approximately $344,000
and $494,000, respectively.
6
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 3 - INTANGIBLE ASSETS.
- --------------------------------------------------------------------------------
Intangible assets at March 31, 2000 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill $ 5,095,436
Covenants not to compete 551,599
------------
5,646,997
Less: Accumulated amortization (1,816,099)
------------
Intangible assets, net $ 3,830,898
============
</TABLE>
Amortization expense charged to operations for the three months ended March 31,
2000 and 1999 was approximately $195,000 and $230,000, respectively.
- --------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDERS' EQUITY.
- --------------------------------------------------------------------------------
The Company repurchased 1,534,500 shares of its common shares in the first
quarter of 2000 for $1,547,110 under the current stock buyback program. The
average price to repurchase these shares was $1.01 and at March 31, 2000 the
Company holds 1,900,800 treasury shares. On March 13, 2000 the Board of
Directors authorized the Company to increase the targeted amount of stock to be
repurchased by the Company to 2,500,000 shares.
- --------------------------------------------------------------------------------
NOTE 5 - EARNINGS PER SHARE.
- --------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
---------------------- ----------------------
Basic Diluted Basic Diluted
Numerator:
- -----------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,072,311 $1,072,311 $ 76,342 $ 76,342
------------ ---------- ---------- ----------
Income available to common stockholders $ 1,072,311 $1,072,311 $ 76,342 $ 76,342
============ ========== ========== ==========
Denominator:
- -----------------------------------------
Weighted average shares outstanding 9,159,177 9,159,177 9,851,316 9,851,316
Effect of dilutive securities:
Preferred stock --- --- --- ---
Stock options and warrants --- --- --- 659
============ ========== ========== ==========
Weighted average shares outstanding 9,159,177 9,159,177 9,851,316 9,851,975
============ ========== ========== ==========
Earnings per share $ .12 $ .12 $ .01 $ .01
============ ========== ========== ==========
</TABLE>
7
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 6 - COMPREHENSIVE INCOME.
- --------------------------------------------------------------------------------
The Company has adopted Financial Accounting Standards Board Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement has no impact on net income or shareholders' equity.
Statement No. 130 requires unrealized gains or losses to be included in other
comprehensive income. The Company did not own any fixed maturities or available
for sale securities at March 31, 1999, thereby not requiring any prior period
reclassification to conform to the requirements of Statement No. 130.
The components of comprehensive income for the quarters ended March 31, 2000 and
1999, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
-------------------------
Net income $ 1,072,311 $ 76,342
Other comprehensive income (loss)
Net unrealized losses (8,024) ---
-------------------------
Total comprehensive income $ 1,064,287 $ 76,342
=========================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES.
- --------------------------------------------------------------------------------
The Company recorded approximately $9,000 and $184,000 of state income tax
expense, respectively, for the three months ended March 31, 2000 and 1999. The
Company does not expect to incur material federal income tax charges until the
depletion of its accumulated federal income tax loss carryforwards, which
totaled approximately $3.6 million at March 31, 2000. The utilization of the
net operating loss is subject to limitations in accordance with 382 of the
Internal Revenue Code.
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS.
- --------------------------------------------------------------------------------
Promissory notes receivable from related parties totaled $60,000 and $549,000,
respectively, for the first quarter ended March 31, 2000 and 1999. Interest
income related to these notes recorded by the Company was $1,227 and $7,265 for
the three months ended March 31, 2000 and 1999, 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.
This note payable is due in monthly installments of $9,765, with an interest
rate of 8.0% and a maturity date of May 2002. For the three months ended March
31, 2000 and 1999, the Company recognized $4,812 and $6,688, respectively, of
interest expense related to this obligation.
8
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES.
- --------------------------------------------------------------------------------
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"). 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. 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. 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 Court in and for
Manatee County, Florida. These proceedings relate to the criminal investigation
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 to add the Company and several 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
9
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 9 - COMMITTMENTS AND CONTINGENCIES (CONTINUED).
- --------------------------------------------------------------------------------
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.
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, Roy Stevens, a former employee and
shareholder of the Company, 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. Mr.
Stevens seeks to recover lost profits for the diminution of stock value, the
amount 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 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 some 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.
10
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 9 - COMMITTMENTS AND CONTINGENCIES (CONTINUED).
- --------------------------------------------------------------------------------
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, the Company will cease operations of approximately one
half of all VGM machines on or before May 31, 2000.
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 operates the Company's casino
locations. The assessments are being challenged but the total financial
exposure is approximately $50,000.
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, individually or in the aggregate, will have a material adverse
effect on the Company's financial position or operations of the Company, except
as otherwise stated above.
- --------------------------------------------------------------------------------
NOTE 10 - SEGMENTS.
- --------------------------------------------------------------------------------
The Company's Chief Operating Decision Maker ("CODM"), the Chairman and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations.
The Company has identified two operating segments based on the different nature
of the services and legislative monitoring and, in general, the type of
customers for those services. The video gaming segment represents operations of
the Company's video gaming machines in South Carolina. The bingo segment
encompasses bingo center services provided to charitable organizations in South
Carolina, Texas and Alabama.
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
March 31, 2000
----------------
Video Gaming Bingo Adjustment Consolidated
------------- ----- ---------- ------------
<S> <C> <C> <C> <C>
Revenue $1,848,377 $ 1,358,225 $ 140,242 $ 3,346,844
Depreciation and Amortization 193,347 326,379 19,218 538,944
Segment profit (loss) 993,750 386,347 (307,786) 1,072,311
Segment Assets 3,230,417 12,284,379 (2,390,804) 13,123,992
</TABLE>
11
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
- --------------------------------------------------------------------------------
NOTE 10 - SEGMENTS (CONTINUED).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1999
----------------
Video Gaming Bingo Adjustment Consolidated
------------- ----- ---------- ------------
<S> <C> <C> <C> <C>
Revenue $1,974,322 $ 1,372,361 $ 274,445 $ 3,621,128
Depreciation and Amortization 342,446 378,807 6,177 727,430
Segment profit (loss) 429,646 129,707 (483,011) 76,342
Segment Assets 7,749,800 11,186,487 372,605 19,308,892
</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 11 - ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS.
- --------------------------------------------------------------------------------
The Company is in the final process of developing two new bingo halls in
Alabama. It is anticipated that final construction will be completed and the
facilities will become operational during the second quarter of 2000. One of
the halls is located in Montgomery, Alabama and the other is in Centre Point,
Alabama, a suburb of Birmingham.
- --------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS.
- --------------------------------------------------------------------------------
From April 1, 2000 through April 28, 2000, in connection with its stock
repurchase program, the Company acquired an additional 25,000 of its common
shares at an aggregate cost of $25,000.
The Company terminated its contractual relationship with Mims & Dye Enterprises
and entered a new contract with Consolidated Gaming Company LLC of Columbia
("CGC"), to operate the Company's video gaming machines ("VGM"). The effective
date of both actions was April 10, 2000. The new contract with CGC provides
for a revenue sharing arrangement dependent solely upon CGC's ability to
increase revenue and reduce expenses. The new contract contains several
important elements as follows; (1) a right granted to CGC to acquire the
Company's VGMs as they cease to be operated at a negotiated market rate; (2) a
right to broker the sale of the Company's VGMs to third parties; and (3) the
duty to deliver and store the Company's VGMs as directed.
The Company entered into a contract with Prepaid Elite, LLP of Austin, Texas
("PE"), to provide phone card dispensing machines at all of the Company's bingo
halls in Texas. PE is responsible for providing, installing, maintaining and
servicing all machines. The Company received a non-refundable security deposit
of $100,000 which approximates the estimated quarterly earnings to be received
by the Company.
12
<PAGE>
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
American Bingo & Gaming Corp. was formed in 1994 as a Delaware corporation to
consummate the acquisition of charitable bingo centers and video gaming
operations. The Company operates primarily through wholly-owned subsidiaries in
Texas, Alabama and South Carolina. The Company completed its initial public
offering in December of 1994.
The following discussion should be read in conjunction with the Company's Form
10-KSB and the consolidated financial statements for the years ended December
31, 1999 and 1998; the Company's Form 10-QSB for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999; and the consolidated financial
statements and related notes for the quarter ended March 31, 2000. The
statements in this Quarterly Report on Form 10-QSB relating to matters that are
not historical facts, including, but not limited to statements found in this
"Management Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to the impact of government regulation and taxation, customer
attendance, spending, competition, general economic conditions, and other risks
and uncertainties as discussed in this Quarterly Report and the 1999 Annual
report on Form 10-KSB.
In late 1999, Nasdaq notified American Bingo that its SmallCap 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
Qualifications Haring Panel on February 24, 2000, at which time the Company
presented a plan to regain this regulatory minimum bid price. 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 Council may, on its own motion, decide to review the
Panel decision within forty-five (45) calendar days after issuance of the
written decision. As of May 1, 2000 the Company has not received any
notification that this matter would be called for review.
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.
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.
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.
RESULTS OF OPERATIONS
Net income for the first quarter of 2000 was $1.1 million, which equated to a
basic and fully diluted earnings per share of $.12. Net income for the first
quarter of 1999 was $76,000 which equated to a basic and fully diluted earnings
per share of $.01. The weighted average number of basic Common Stock shares
outstanding totaled 9.2 million in the first quarter of 2000 as compared to 9.9
million in the first quarter of 1999. The change is primarily due to the
repurchase of approximately 1.6 million shares of Common Stock under the
Company's buyback program during the first quarter of 2000 and the final nine
months of 1999.
13
<PAGE>
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenues
- --------
The Company generated consolidated revenues of $3.3 million during the quarter
ended March 31, 2000 as compared with $3.6 million in the comparable period of
the prior fiscal year, representing a decrease of $274,000 or 8%. Revenues were
led by video gaming operations, which produced $1.8 million, or 55% of total
revenue, for the first quarter of 2000, compared to $2.0 million, or 55%, in the
comparable quarter of the prior year. The decrease in video gaming revenues was
primarily a result of the ruling issued by the South Carolina Supreme Court
concerning the $125 per day per player gaming payout limitation. Bingo rental
and other revenues totaled $1.5 million, or 45% of revenues, for the first
quarter of 2000, as compared to $1.6 million, or 45% of total revenues, for the
first quarter of 1999. During the first quarter of 2000, approximately 16% of
the Company's bingo related revenues were generated in South Carolina, 29% in
Alabama and 55% in Texas, compared to 13%, 28% and 59%, respectively, in the
first quarter of 1999.
Costs and expenses
- --------------------
Total costs and expenses were $2.3 million in the first quarter of 2000 versus
$3.5 million in the first quarter of 1999, a decrease of $1.2 million or 36%.
The decrease in total costs and expenses is primarily attributable to operating
expense reductions resulting from the restructuring of the Company and
depreciation reductions associated with impaired assets.
Direct salaries and other compensation totaled $219,000 in the first quarter of
2000, compared to $290,000 in 1999, a decrease of $71,000, or 24%. The decrease
is a direct result in the changes in management.
First quarter 2000 rent and utilities for the Company's freestanding video
gamerooms and bingo centers totaled $468,000, compared to $536,000 for the same
period in 1999, a decrease of 13%. The Company is continuing its efforts to
minimize rent expenses by subletting, converting, or terminating leases for idle
and under-performing properties.
Direct operating costs for the first quarter of 2000 totaled $351,000, as
compared to $619,000 for the same period in 1999, a decrease of approximately
$268,000, or 43%. The decrease in direct operating costs is primarily
attributable to decreased operating costs, consistent with the decrease in total
revenue.
Depreciation, amortization and license expense totaled $947,000 in the first
quarter of 2000, a decrease of $242,000 from the first quarter of 1999. The
decrease is a result of the charge made in the fourth quarter of 1999 of $2.2
million for the impairment of assets associated with the Company's video gaming
business. Depreciation expense decreased as a direct result of the reduction in
the asset value.
General and administrative expenses totaled $284,000 in the first quarter of
2000, compared to $885,000 in 1999, a decrease of approximately $602,000, or
68%. This is a result of the Company's continued plans to reduce operating
expenses.
Other income totaled $3,000 for the first quarter of 2000, as compared to
$158,000 for the first quarter of 1999. Other income for the first quarter of
2000 was primarily comprised of interest income of $44,000 on the Company's
short-term investments. Included in operating income and expenses for the first
quarter of 1999 were proceeds received from the liquidation of Company common
stock by the former Company president, Greg Wilson, and members of his family of
$237,000, less related legal costs of $100,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 2000 totaled $3.6 million and represented
approximately 27% of the Company's total assets of $13.1 million. Cash flows
from operating activities for the first quarter of 2000 totaled $1.7 million
compared to $897,000 during the first quarter of 1999, an increase of
approximately 94%. Cash flows from operating activities in the first quarter of
2000 were comprised of the Company's net income of $1.1 million adjusted for
non-cash amounts of depreciation expense and intangible asset amortization of
approximately $539,000, increased by net changes in operating assets and
liabilities of approximately $128,000.
14
<PAGE>
AMERICAN BINGO & GAMING CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash used in investing activities totaled approximately $417,000 for the
three-month period ending March 31, 2000, compared to approximately $280,000 in
the first quarter of 1999. Cash used in investing activities consisted
primarily of $189,000 related to property and equipment purchases and $261,000
related to the acquisition of equity securities. Cash used in investing
activities in the first quarter of 1999 consisted primarily of $405,000 related
to property and equipment purchases, offset by $170,000 from the repayment of
notes receivable.
Cash used in financing activities in the first quarter of 2000 totaled $1.6
million, as compared to net cash used in financing activities in the first
quarter of 1999 of 197,000. Cash used related to financing activities in the
first quarter of 2000 included $1.5 million of Company treasury stock purchases
and $72,000 of net cash used to reduce notes payable and capital lease
obligations. Cash used related to financing activities in 1999 included
$512,000 of net cash paid to reduce notes payable and capital lease obligations.
Cash received in 1999 relating to financing activities included $315,000
primarily related to stock options exercised during the first quarter 1999, and
stock purchases under the Employee Stock Purchase Plan.
Current assets totaled $5.5 million at March 31, 2000, providing the Company
with working capital of approximately $4.2 million and a current ratio of 4.2 to
1. At March 31, 2000, the Company had $13.1 million in total assets with total
liabilities of $1.6 million and $11.5 million of shareholders equity. Total
assets include $3.6 million in cash, $622,000 of net accounts and notes
receivable, $3.4 million of property and equipment, $3.8 million of intangible
assets, $1.1 million in prepaid video gaming licenses, and $625,000 of other
assets. Total liabilities primarily consist of notes and capital lease
obligations of $1.2 million.
Net property and equipment totaled $3.4 million at the end of the first quarter
of 2000. The majority of property and equipment is comprised of video gaming
machines. Intangible assets, net of accumulated amortization, totaled $3.8
million at the end of the first quarter of 2000, and were primarily comprised of
goodwill and covenants not to compete associated with the Company's acquisition
of seven bingo centers in Texas during 1998.
Current liabilities totaled $1.3 million and long-term liabilities totaled
$286,000 at the end of the first quarter of 2000. The majority of current
liabilities were comprised of $865,000 of notes payable and capital lease
obligations related to the Company's acquisition of video gaming machines.
The Company also intends to grow its business through acquisitions 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.
YEAR 2000 ISSUE
The year 2000 issue relates to computer programs that use only two digits to
identify a year in a 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 could be no assurance that any one or more such failures
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 materially adversely affect the Company's
financial condition and operations.
As of April 28, 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 April 28, 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.
15
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of material pending legal proceedings, see Note 9 to the
unaudited Consolidated Financial Statements included in Part I hereof, which
Note 9 is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27.1 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K.
During the quarter ended March 31, 2000, the Company filed one report on Form
8-K. On January 18, 2000, the Company filed a Form 8-K to report that on
January 13, 2000, the Company's Board of Directors had engaged the accounting
services of Sprouse and Winn, L.L.P. to audit the Company's 1999 consolidated
financial statements. The Company's relationship with its former accountants,
King Griffin & Adamson, P.C., was terminated on September 17, 1999.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
American Bingo & Gaming Corp.
May 7, 2000
By:
/s/ Jeffrey L. Minch
-----------------------
Jeffrey L. Minch
Vice Chairman of the Board, President and
Chief Executive Officer
/s/ Larry D. Kasufkin
------------------------
Larry D. Kasufkin
Secretary and Treasurer
(principal financial and accounting officer)
17
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
27.1 Financial Data Schedule (for SEC use only).
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-QSB of American Bingo & Gaming Corp. for the quarter ended March 31, 2000,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3567245
<SECURITIES> 252502
<RECEIVABLES> 634292
<ALLOWANCES> (72424)
<INVENTORY> 0
<CURRENT-ASSETS> 5491879
<PP&E> 10031407
<DEPRECIATION> (6678290)
<TOTAL-ASSETS> 13123992
<CURRENT-LIABILITIES> 1293692
<BONDS> 0
0
0
<COMMON> 10177
<OTHER-SE> 11533643
<TOTAL-LIABILITY-AND-EQUITY> 13123992
<SALES> 3346844
<TOTAL-REVENUES> 3346844
<CGS> 0
<TOTAL-COSTS> 2268322
<OTHER-EXPENSES> 4447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36765
<INCOME-PRETAX> 1081735
<INCOME-TAX> 9424
<INCOME-CONTINUING> 1072311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1072311
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
