EX-99.3 10 ex99_3.htm EXHIBIT 99.3 Exhibit 99.3


K&B SALES, INC.
d.b.a. Goodtime Action Games

Financial Statements

October 30, 2005



K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Table of Contents
 
 
Paqe(s) 
   
Report of Independent Registered Public Accounting Firm  
1 
   
Balance Sheets as of October 30, 2005 and October 31, 2004  
2-3 
   
Statements of Operations for the Fiscal Years Ended October 30, 2005 and October 31, 2004  
4 
   
Statements of Changes in Stockholders' Equity for the Fiscal Years Ended October 30, 2005 and October 31, 2004  
5 
   
Statements of Cash Flows for the Fiscal Years Ended October 30, 2005 and October 31, 2004  
6 
   
Notes to Financial Statements  
7-14 
 

 
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
K&B Sales, Inc.
d.b.a. Goodtime Action Games

We have audited the accompanying balance sheets of K&B Sales, Inc. d.b.a. Goodtime Action Games (the "Company") as of October 30, 2005 and October 31, 2004, and the related statements of operations, changes in stockholders' equity, and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of K&B Sales, Inc. d.b.a. Goodtime Action Games as of October 30, 2005 and October 31, 2004, and the results of its operations and its cash flows for the fiscal years then ended, in conformity with U.S. generally accepted accounting principles.


/s/ Weaver and Tidwell, LLP
WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
June 30, 2006
 
DALLAS
FORT WORTH
   
Three Forest Plaza
1600 West Seventh Street
12221 Merit Drive
Suite 300
Suite 1400
Fort Worth, TX 76102-2506
Dallas, Texas 75251-2280
817.332.7905
972.490.1970
F 817.429.5936
F 972.702.8321
 
   
WWW.WEAVERANDTIDWELL.COM
AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL
 


K&B SALES, INC.
d.b.a. Goodtime Action Games

Balance Sheets

Assets
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Current assets 
         
Cash 
 
$
500,616
 
$
777,981
 
Accounts receivable, less allowance for doubtful accounts of $93,620 and $55,891 in 2005 and 2004, respectively 
   
817,472
   
666,853
 
Accounts receivable - related party 
   
18,126
   
-
 
Inventory, net 
   
920,569
   
994,161
 
Prepaid expenses 
   
39,110
   
41,898
 
Deferred income taxes 
   
31,831
   
19,003
 
Federal income tax receivable 
   
29,132
   
58,688
 
               
Total current assets 
   
2,356,856
   
2,558,584
 
               
Property and equipment 
             
Building 
   
33,685
   
33,685
 
Leasehold improvements 
   
67,852
   
67,852
 
Furniture and fixtures 
   
181,126
   
176,107
 
Machinery and equipment 
   
1,339,534
   
1,094,273
 
Transportation equipment 
   
687,605
   
577,127
 
               
     
2,309,802
   
1,949,044
 
               
Less: accumulated depreciation 
   
(1,411,235
)
 
(1,168,984
)
               
Property and equipment, net 
   
898,567
   
780,060
 
               
Other assets 
             
Deposits 
   
21,144
   
14,144
 
Cash value of officer's life insurance 
   
37,582
   
29,472
 
Intangible assets, net 
   
80,833
   
-
 
               
Total other assets 
   
139,559
   
43,616
 
               
Total assets 
 
$
3,394,982
 
$
3,382,260
 

See accompanying notes to financial statements.

2


K&B SALES, INC.
d.b.a. Goodtime Action Games

Balance Sheets (Continued)

Liabilities and Stockholders' Equity
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Current liabilities 
         
Accounts payable 
 
$
102,002
 
$
86,871
 
Accrued liabilities 
   
192,075
   
213,378
 
Current maturities on debt 
   
-
   
2,103
 
               
Total current liabilities 
   
294,077
   
302,352
 
               
Deferred income taxes, net 
   
97,803
   
122,097
 
               
Total liabilities 
   
391,880
   
424,449
 
               
Commitments and contingencies 
   
-
   
-
 
               
Stockholders' equity 
             
Common stock, $1 par value; 10,000 shares authorized; 403 shares issued and outstanding as of October 30, 2005 and October 31, 2004; 
   
403
   
403
 
Retained earnings 
   
3,002,699
   
2,957,408
 
               
Total stockholders' equity 
   
3,003,102
   
2,957,811
 
               
Total liabilities and stockholders' equity 
 
$
3,394,982
 
$
3,382,260
 

See accompanying notes to financial statements.

3


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Statements of Operations
 
   
Fiscal Year Ended
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Sales 
 
$
14,946,656
 
$
12,429,642
 
 
             
Cost of sales 
   
8,570,621
   
7,089,833
 
               
Gross profit 
   
6,376,035
   
5,339,809
 
               
Selling, general and administrative expenses 
   
6,346,195
   
5,124,858
 
               
Income from operations 
   
29,840
   
214,951
 
               
Other income (expense) 
             
Interest income 
   
9,763
   
3,751
 
Gain (loss) on sale of assets 
   
2,077
   
(18,923
)
Other income 
   
29,754
   
16,817
 
               
Total other income, net 
   
41,594
   
1,645
 
               
Income before provision for income taxes 
   
71,434
   
216,596
 
Provision for income taxes 
   
(26,143
)
 
(85,141
)
               
Net income 
 
$
45,291
 
$
131,455
 

See accompanying notes to financial statements.

4


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Statements of Changes in Stockholders' Equity
 
For the Fiscal Years Ended October 30, 2005 and October 31, 2004
 
           
Total
 
   
Common Stock
 
Retained
 
Stockholders'
 
   
Shares
 
Amount
 
Earnings
 
Equity
 
                   
Balance, November 2, 2003 
   
403
 
$
403
 
$
2,825,953
 
$
2,826,356
 
                           
Net income 
   
-
   
-
   
131,455
   
131,455
 
                           
Balance, October 31, 2004 
   
403
   
403
   
2,957,408
   
2,957,811
 
                           
Net income 
   
-
   
-
   
45,291
   
45,291
 
                           
Balance, October 30, 2005 
   
403
 
$
403
 
$
3,002,699
 
$
3,003,102
 

See accompanying notes to financial statements.
5


K&B SALES, INC.
d.b.a. Goodtime Action Games

Statements of Cash Flows
 
   
Fiscal Year Ended
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Cash flows from operating activities 
         
Net income 
 
$
45,291
 
$
131,455
 
Adjustments to reconcile net income to net cash provided by operating activities 
             
Depreciation and amortization 
   
330,774
   
287,476
 
Deferred income taxes 
   
(37,122
)
 
20,407
 
Allowance for doubtful accounts 
   
37,729
   
6,868
 
Inventory valuation allowance 
   
(31,981
)
 
174,190
 
(Gain) loss on sale of assets 
   
(2,077
)
 
18,923
 
Change in operating assets and liabilities 
             
Accounts receivable 
   
(188,348
)
 
122,401
 
Accounts receivable - related party 
   
(18,126
)
 
-
 
Inventory 
   
224,531
   
(161,562
)
Prepaid expenses and other 
   
(4,212
)
 
(2,077
)
Federal income tax receivable 
   
29,556
   
(163,187
)
Accounts payable 
   
15,131
   
(15,218
)
Accrued liabilities 
   
(21,303
)
 
(6,429
)
               
Net cash provided by operating activities 
   
379,843
   
413,247
 
               
Cash flows from investing activities 
             
Purchase of property and equipment 
   
(420,352
)
 
(317,415
)
Proceeds from sale of assets 
   
8,971
   
-
 
Purchase of business 
   
(235,614
)
 
-
 
Cash surrender value of officer's life insurance 
   
(8,110
)
 
(8,251
)
               
Net cash used in investing activities 
   
(655,105
)
 
(325,666
)
               
Cash flows from financing activities 
             
Repayment of debt 
   
(2,103
)
 
(8,409
)
               
Net cash used in financing activities 
   
(2,103
)
 
(8,409
)
               
Net increase (decrease) in cash 
   
(277,365
)
 
79,172
 
               
Cash - beginning of fiscal year 
   
777,981
   
698,809
 
               
Cash - end of fiscal year 
 
$
500,616
 
$
777,981
 
               
Supplemental disclosure of cash flow information: 
             
               
Interest paid 
 
$
40
 
$
300
 
               
Income taxes paid 
 
$
25,084
 
$
219,136
 

See accompanying notes to financial statements.

6


K&B SALES, INC.
d.b.a. Goodtime Action Games

Notes to Financial Statements

Note 1 -
Nature of Organization and Summary of Significant Accounting Policies
 
Organization
 
K&B Sales, Inc. d.b.a. Goodtime Action Games (the "Company") was incorporated in 1978 in Oklahoma. In 1985 the Company relocated its headquarters to Dallas, Texas. The Company is engaged primarily in the business of selling bingo supplies and leasing electronic bingo systems in Texas. The Company is licensed and regulated by the Texas Lottery Commission.
 
Basis of presentation
 
The Company's financial statements, and the notes to financial statements, are prepared in accordance with U.S. generally accepted accounting principles.
 
Fiscal year
 
The Company uses a 52 or 53 week year, and its fiscal year ends on the Sunday nearest October 31. The fiscal year for the financial statements presented consist of a 52-week period for the fiscal years 2005 and 2004.
 
Fair value
 
The Company values financial instruments as required by SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The Company's financial instruments consist of cash, accounts receivable and accounts payable. The carrying amount of cash is fair value and the carrying amount of accounts receivable and accounts payable approximate fair value on the date of each balance sheet due to the short term nature of the accounts.
 
Revenue recognition
 
Revenue from the sale of bingo supplies to charitable conductors is recognized when the product is shipped. Revenue from the leasing of electronic bingo systems to charitable conductors is recognized in the week subsequent to use of the system.
 
The standard terms and conditions under which the Company generally ships allows a customer the right to return the product for credit on account if the product does not meet the customer's sales expectations and is deemed unsaleable by the customer; the non-performing product is identified by the customer; and the customer notifies the Company within 60 days of receipt. During the fiscal years 2005 and 2004, customer returns were less than $5,000 in each year. The Company records customer returns as a reduction in sales.
 
Shipping and handling fees costs
 
All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue, and the costs incurred by the Company for shipping and handling are reported as a contra to revenue. Shipping and handling costs incurred by the Company for the fiscal years ended October 30, 2005 and October 31, 2004 totaled $110,670 and $90,472, respectively.

7


K&B SALES, INC.
d.b.a. Goodtime Action Games

Notes to Financial Statements

Note 1 -
Nature Of Organization and Summary of Significant Accounting Policies
(Continued)
 
Advertising
 
Advertising costs generally relate to the hosting of booths at various conventions and trade shows, and are expensed in the period incurred. Advertising and promotional costs for the fiscal years ended October 30, 2005 and October 31, 2004 were $2,830 and $27,332, respectively.
 
Cash and cash equivalents
 
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. At October 30, 2005 and October 31, 2004, the Company had no cash equivalent investments.
 
Accounts Receivable
 
Trade accounts receivable are evaluated for collectibility and a provision is made for doubtful accounts. Bad debts are written off when the Company deems them to be uncollectible.
 
Inventory
 
Inventory consists of finished goods and is valued at lower of average cost or market.
 
The Company has a provision for obsolete and excess inventories in the amount of $142,209 and $174,190 at October 30, 2005 and October 31, 2004, respectively.
 
Property and equipment
 
Property and equipment are stated at cost. Expenditures for major acquisitions and improvements are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. When property and equipment are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. Amortization of leasehold improvements is provided over the shorter of the estimated useful life of the asset or the remaining term of the leases including anticipated renewals. For financial statement purposes depreciation is computed using the straight-line method over asset lives as follows:
 
Building 
20 years 
Leasehold improvements 
20 years 
Furniture and equipment 
7 to 10 years 
Machinery and equipment 
5 years 
Transportation equipment 
5 years 
 
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company periodically reviews the carrying amount of property and equipment for events or changes in circumstances that indicate that their carrying value may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less that the carrying value of the assets, the carrying values are reduced to the estimated fair value.

8


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Notes to Financial Statements
 
Note 1 -
Nature of Organization and Summary of Significant Accounting Policies
(Continued)
 
Intangible assets
 
Intangible assets, which represent $100,000 of cost assigned to a customer list acquired November 15, 2004, are carried at cost. For financial statement purposes, amortization is computed using the straight-line method over a 5 year life. Amortization expense was $19,167 for the fiscal year 2005 and accumulated amortization is $19,167 at October 30, 2005
 
The impairment evaluation of the carrying amount of intangible assets is conducted annually, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The evaluation is performed by comparing the carrying amount of these assets to their estimated fair value. If the estimated fair value is less that the carrying amount of the intangible assets, then an impairment charge is recorded to reduce the asset to its estimated fair value. The estimated fair value is generally determined on the basis of discounted future cash flows.
 
Income taxes
 
Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that enactment date (see Note 3). A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. As of October 30, 2005 and October 31, 2004, management of the Company believes that its future taxable income will be sufficient for full realization of the deferred tax assets.
 
Financial instruments and credit risk
 
Financial instruments which potentially subject the Company to credit risk include cash and trade accounts receivable. The Company maintains its cash with local banks. The terms of these deposits are on demand to minimize risk, but consistently exceed the federally insured limit of $100,000. The Company has not incurred losses related to these deposits. Trade accounts receivable consist of uncollateralized receivables from customers located in Texas. The Company routinely assesses the financial strength of its customers, and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Company purchases inventory primarily from domestic suppliers. Management believes that there are a reasonable number of alternate suppliers available for its products.

9


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Notes to Financial Statements
 
Note 1 -
Nature of Organization and Summary of Significant Accounting Policies
(Continued)
 
Use of estimates
 
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. The most significant estimates include the use of estimates for depreciation and amortization expense, the valuation allowance for accounts receivable and the valuation allowance for inventory. Actual results could differ from those estimates.
 
Recently issued accounting pronouncements
 
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." This statement requires companies to measure the cost of employee services in exchange for an award of equity instruments based on a grant-date fair value of the award (with limited exceptions), and that cost must generally be recognized over the vesting period. SFAS No. 123(R) amends the original SFAS No. 123 and SFAS No. 95 that had allowed companies to choose between expensing stock options or showing pro forma disclosure only. This statement eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25. The Company has no stock-based compensation plans so the Company expects the adoption of SFAS No. 123(R) to have no impact on its financial statements. The adoption of SFAS No. 123(R) becomes effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
 
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, "an Amendment of APB Opinion No. 26 is effective for fiscal years beginning after June 15, 2005. This statement addresses the measurement of exchange of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions" and replaces it with an exception for exchanges that do not have commercial substance. The Company expects the adoption of SFAS No. 153 to have no impact on its financial statements.
 
In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations," which clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about the timing and (or) method of settlement. The Company is required to adopt Interpretation No. 47 prior to the end of the fiscal year ending October 29, 2006. The Company expects the adoption of Interpretation No. 47 to have no impact on its financial statements.
 
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods' financial statements for changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company expects the implementation of SFAS No. 154 to have no impact on its financial statements.

10


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Notes to Financial Statements
 
Note 1 -
Nature of Organization and Summary of Significant Accounting Policies
(Continued)

Recently issued accounting pronouncements (continued)
 
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments," an amendment of SFAS No. 133 and SFAS No. 140 which is effective for fiscal years beginning after September 15, 2006. The statement was issued to clarify the application of SFAS No. 133 to beneficial interests in securitized financial assets and to improve the consistency of accounting for similar financial instruments, regardless of the form of the instruments. The statement eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS No. 155 also allows the election of fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event. Adoption is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. The Company expects the adoption of SFAS No. 155 to have no impact on its financial statements.
 
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets," an amendment of SFAS No. 140 which is effective for fiscal years beginning after September 15, 2006. This statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. The Company expects the adoption of SFAS NO. 156 to have no impact on its financial statements.
 
Note 2 -
Acquisition
 
On November 15, 2004, the Company purchased certain assets from a competitor for $235,614, which consisted of inventory for $118,958, transportation equipment for $16,656 and a customer list for $100,000. The Company has accounted for the acquisition as a purchase in accordance with SFAS No. 141, "Business Combinations," and included the results of operations of the acquired enterprise in its statement of operations effective November 16, 2004.
 
Note 3 -
Income Taxes
 
The income tax provisions consist of the following:
 
   
Fiscal Year Ended
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Current 
         
Federal 
 
$
54,640
 
$
55,950
 
State 
   
8,625
   
8,784
 
Total current 
   
63,265
   
64,734
 
               
Deferred 
             
Federal 
   
(32,783
)
 
18,022
 
State 
   
(4,339
)
 
2,385
 
Total deferred 
   
(37,122
)
 
20,407
 
               
Total income tax provision 
 
$
26,143
 
$
85,141
 
 
11


K&B SALES, INC.
d.b.a. Goodtime Action Games

Notes to Financial Statements

Note 3 -
Income Taxes (Continued)
 
Reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
 
   
Fiscal Year Ended
 
   
October 30,
 
October 31,
 
   
2005
 
2004
 
           
Federal statutory tax rate 
   
34
%
 
34
%
Expenses incurred not deductible for tax 
   
5
   
5
 
State income taxes, net of federal income tax benefit 
   
2
   
4
 
Progressive tax rate difference 
   
(4
)
 
(4
)
Effective tax rate 
   
37
%
 
39
%
 
The current and non-current deferred tax assets and liabilities are comprised of the following at October 30, 2005 and October 31, 2004:
 
   
2005
 
2004
 
   
Current
 
Non-Current
 
Current
 
Non-Current
 
                   
Deferred tax assets 
                 
Allowance for doubtful accounts 
 
$
31,831
 
$
-
 
$
19,003
 
$
-
 
Intangible assets, principally due to different tax and financial amortization lives 
   
-
   
4,250
   
-
   
-
 
                           
Total deferred tax assets 
 
$
31,831
 
$
4,250
 
$
19,003
 
$
-
 
                           
Deferred tax liabilities 
                         
Property and equipment, principally due to differences in depreciation 
 
$
-
 
$
(102,053
)
$
-
 
$
(122,097
)
Total deferred tax liabilities 
 
$
-
 
$
(102,053
)
$
-
 
$
(122,097
)
                           
Net deferred tax asset (liability) 
 
$
31,831
 
$
(97,803
)
$
19,003
 
$
(122,097
)
 
12


K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Notes to Financial Statements
 
Note 4 -
Revolving Credit Facility
 
Effective January 13, 2005, the Company entered into a Revolving Credit Facility (the "Credit Facility") with a bank which provides financing of up to $300,000 through January 31, 2006. Funds are advanced in accordance with the terms of the Credit Facility. Interest accrues based upon the Wall Street Journal prime rate index plus 1% (initially 6.5%) and is payable monthly. The Credit Facility is secured by all inventory and accounts receivable of the Company. The Company did not request any borrowings under this agreement through October 30, 2005.
 
Note 5 -
Related Party Transactions
 
The Company leases its office and warehouse space in Dallas, Houston and San Antonio from a shareholder and entities owned by the shareholders of the Company for $16,000 per month. Total lease payments for office and warehouse facilities under these agreements were $177,000 and $132,000 for the fiscal years ending October 30, 2005 and October 31, 2004, respectively.
 
During the fiscal year ended October 30, 2005, the Company paid $18,126 in start-up expenses for an entity, which is included in accounts receivable-related party.
 
Note 6 -
Retirement Plan
 
The Company sponsors a 401(k) plan in which employees may defer up to 15% of their compensation on a pre-tax basis. The Company matches 50% of the employee's first 6% contribution, The Company made matching contributions to the plan of $56,791 and $52,055 for the fiscal years ended October 30, 2005 and October 31, 2004, respectively.
 
Note 7 -
Commitments and Contingencies
 
Operating leases
 
In addition to the office and warehouse lease described in Note 5, the Company leases office equipment and certain warehouse space in Lubbock under an agreement accounted for as an operating lease which expired June 2005 and is currently being leased on a month-to-month basis.
 
Future minimum lease commitments, which are due to related parties (see Note 5) are as follows:
 
Year Ending October 31, 
     
       
2006 
 
$
192,000
 
2007 
   
192,000
 
2008 
   
192,000
 
2009 
   
60,000
 
2010 
   
15,000
 
         
   
$
651,000
 
 
Rental expense, inclusive of amounts paid to related parties (see Note 5), were $222,223 and $184,440 for the fiscal years ended October 30, 2005 and October 31, 2004, respectively.

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K&B SALES, INC.
d.b.a. Goodtime Action Games
 
Notes to Financial Statements
 
Note 7 -
Commitments and Contingencies (Continued)
 
Litigation
 
From time to time, the Company is involved in legal matters incidental to its business, which on occasion may involve claims for monetary amounts, some but not all, of which would be covered by insurance. Uninsured losses, if any, that may result from such claims are not expected to have a material adverse impact on the financial statements of the Company.
 
Note 8 -
Subsequent Events
 
Effective October 31, 2005, the shareholders of the Company contributed the 403 outstanding common shares of the Company in exchange for a 44.995% limited partnership interest in the Goodtime Action Amusement Partners, L.P. ("GAAP LP"). Contemporaneously, the members of Aces Wired LLC contributed their outstanding 10,000,000 membership units in Aces Wired LLC in exchange for a 44.995% limited partnership interest in GAAP LP. Effective October 31, 2005, the Company and Aces Wired LLC became wholly owned subsidiaries of GAAP LP.
 
Effective January 13, 2006, the Company entered into a Revolving Credit Facility (the "Credit May Facility") with a bank which provides financing of up to $300,000 through January 31, 2007. Funds are advanced in accordance with the terms of the Credit Facility. Interest accrues based upon the Wall Street Journal prime lending rate index plus 1% (initially 8.5%) and is payable monthly. The Credit Facility is secured by all inventory and accounts receivable of the Company. The Credit Facility is guaranteed by the majority shareholder of the Company. The Company received borrowings of $300,000 and made repayments of $300,000 under this agreement through June 30, 2006.
 
 
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