U.S. Securities and Exchange Commission Washington, D. C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 -------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to __________________ COMMISSION FILE NO. 0-10519 -------- BGI, INC. --------- OKLAHOMA 73-1092118 ---------------- -------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. NO.) INCORPORATION OR ORGANIZATION) 13581 Pond Springs Rd. Suite 105 Austin, Texas 78729 -------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ISSUER'S TELEPHONE NUMBER: (512) 335-0065 --------------- Indicate by check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-QSB or any amendment to this Form 10-QSB. [ ] There were 9,073,087 shares of common stock, $.001 par value, outstanding as of May 19, 2000. TABLE OF CONTENTS Page Number ------ PART I: - -------- Item 1. Financial Statements 1 --------------------- Item 2. Management's Discussion and Analysis 7 -------------------------------------- PART II: - --------- Item 1. Legal Proceedings 8 ------------------ Item 2. Changes in Securities 8 ----------------------- Item 3. Defaults Upon Senior Securities 8 --------------------------------- Item 4. Submission of Matters to a Vote of Security Holders 8 ----------------------------------------------------------- Item 5. Other Information 8 ------------------ Item 6. Exhibits and Reports on Form 8-K 8 ------------------------------------ BGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1999 DECEMBER 31, 1999 2000 1999 ---------------- ------------------- ASSETS ------ Current assets: Cash and cash equivalents $ 111,394 $ 89,636 Accounts receivable - trade, net 198,471 174,868 Inventories 122,050 123,458 Prepaid expenses 21,673 18,173 ---------------- ------------------- Total current assets 453,588 406,135 ---------------- ------------------- Property and equipment, at cost - net 992,661 1,060,922 ---------------- ------------------- Other assets: Organizational costs and intangible assets - net 54,732 61,721 Deferred financing costs 67,315 83,366 Deposits 35,803 33,803 ---------------- ------------------- Total other assets 157,850 178,890 ---------------- ------------------- Total assets $ 1,604,099 $ 1,645,947 ================ =================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Current liabilities: Accounts payable - trade and accrued expenses $ 294,959 $ 299,826 Current maturities of long-term debt 221,828 237,083 Current maturities of lease obligations 515,274 494,889 ---------------- ------------------- Total current liabilities 1,032,061 1,031,798 Long-term debt, net of current maturities 32,951 43,835 Long-term portion of lease obligations 4,721 73,705 ---------------- ------------------- Total liabilities 1,069,733 1,149,338 ================ =================== Stockholders' equity: Preferred stock, non-voting; $.001 par; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.001 par; 70,000,000 shares authorized; 9,058,155 and 8,862,389 issued and outstanding 9,058 8,862 Additional paid-in capital 903,955 808,348 Retained earnings (deficit) (378,647) (320,601) ---------------- ------------------- Total stockholders' equity 534,366 496,609 ---------------- ------------------- Total liabilities and stockholders' equity $ 1,604,099 $ 1,645,947 ================ =================== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 1 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31 2000 1999 ----------- -------------- Revenue: Phone card sales $ 778,582 $ 1,157,341 Hall rental and concession income 83,084 143,237 Machine sales 24,991 14,500 Other 11,437 40,515 ----------- -------------- Total revenue 898,094 1,355,593 ----------- -------------- Cost of revenue: Phone cards and royalties 181,754 292,533 Machine and location rental 36,000 11,138 Prizes paid 247,958 488,883 Hall rental 38,860 67,743 Machine depreciation 71,369 71,656 Machines sold 16,080 12,496 ----------- -------------- Total cost of revenue 592,021 944,449 ----------- -------------- Gross margin 306,073 411,144 ----------- -------------- Expenses: Operating expenses 26,028 40,215 Salaries 164,018 142,176 Bad debt expense (58,571) (38,676) Other general and administrative expenses 163,051 109,974 ----------- -------------- Total expenses 294,526 253,689 ----------- -------------- Operating income 11,574 157,455 Other income (expense): Interest expense (69,593) (91,607) ----------- -------------- Net income (loss) before federal income tax (58,046) 65,848 Deferred federal income tax - - ----------- -------------- Net income (loss) (58,046) 65,848 Retained earnings: Beginning (deficit) (320,601) (97,858) ----------- -------------- Ending (deficit) $ (378,647) $ (32,010) =========== ============== Basic and diluted income per common share $ (0.01) $ 0.01 =========== ============== Weighted average shares outstanding 8,805,863 8,551,819 =========== ============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31 2000 1999 ----------- ----------- Operating activities: Net income (loss) $ (58,046) $ 65,848 djustments to reconcile net income to net cash from operating activities: Depreciation and amortization 92,485 88,070 Provision for bad debts (19,669) (38,676) Recovery from bad debts (38,902) - Common stock issued for services 24,303 - Deferred financing cost 16,051 16,051 Changes in current assets and liabilities: Accounts receivable - trade 40,295 (37,468) Inventories 1,408 (67,701) Prepaid expenses (3,500) 3,603 Accounts payable - trade and accrued expenses (5,581) 41,689 ----------- ----------- Net cash from operating activities 48,844 71,416 ----------- ----------- Investing activities: Purchase of property and equipment (15,360) (5,111) Increase (decrease) in other assets (4,989) - Proceeds from sale of equipment 3,000 - ----------- ----------- Cash used by investing activities (17,349) (5,111) ----------- ----------- Financing activities: Payments on long-term debt (26,139) (25,104) Payments on long-term leases (48,598) (123,532) Proceeds from issuance of common stock 65,000 - ----------- ----------- Cash provided (used) by financing activities (9,737) (148,636) ----------- ----------- Net increase (decrease) in cash and cash equivalents 21,758 (82,331) Cash and cash equivalents at beginning of year 89,636 133,184 ----------- ----------- Cash and cash equivalents at end of year $ 111,394 $ 50,853 =========== =========== Supplemental disclosures of cash flow information: Interest paid $ 69,593 $ 91,607 =========== =========== Taxes paid $ 5,169 $ 6,304 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------------- NATURE OF BUSINESS AND BASIS OF PRESENTATION: Bingo & Gaming International, Inc. ("Bingo") was formed in 1981 and was dormant from 1984 to November 1994. In December 1994, the Company acquired Monitored Investment, Inc., and Affiliates (Monitored Investment, Inc., Red River Bingo, Inc., Tupelo Industries, Inc., and Meridian Enterprises, Inc., hereinafter referred to collectively as ("Monitored"). Monitored's principal operations consisted of developing, managing and operating charity bingo entertainment centers. Monitored became a commercial lessor of bingo facilities to charity lessees which utilize bingo events as a means of fund raising. The stockholders of Monitored became the controlling stockholders of Bingo in a "reverse acquisition," whereby each of the corporations comprising Monitored became wholly-owned subsidiaries of Bingo. As a result, the merger was accounted for as an "equity restructuring" of Bingo. On September 29, 1999, the shareholders of Bingo & Gaming International, Inc. voted to change its name to BGI, Inc. In October 1997, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired under the purchase method. PPI is a wholly owned subsidiary of BGI, Inc. PPI was formed for the purpose of transacting the prepaid telephone card dispenser operations. PPI began distributing and selling the Lucky Strike Phone Card Dispenser, a video enhanced prepaid phone card dispenser, under an exclusive distribution agreement for five years with two successive five-year options to renew with Cyberdyne Systems, Inc. The consolidated financial statements include the accounts of BGI, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. GOING CONCERN: The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. Numerous factors could affect the Company's operating results, including, but not limited to, general economic conditions, competition, and changing technologies. A change in any of these factors could have an adverse effect on the Company's consolidated financial position or results of operations. The Company had an operating loss for the year ended December 31, 1999. In addition, the Company's working capital position deteriorated due to a loss from operations. At March 31, 2000, current liabilities exceeded current assets by $578,473. The Company has a deficit retained earnings of $378,647. Payments under a master lease agreement for equipment were delinquent but such delinquency was with the permission of the lessor. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continuing operations of the Company. Also, management has engaged a consultant to make recommendations to restructure the Company and recommend cost containment measures to regain profitability. In addition, management is negotiating the restructure of debt. 4 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED - -------------------------------------------------------------------- CASH EQUIVALENTS: Cash equivalents consist primarily of funds invested in short-term interest-bearing accounts. The Company considers all highly liquid investments purchased with initial maturities of three months or less to be cash equivalents. INVENTORIES: Inventories, which consist of phone cards, prepaid vending machines, and small equipment is valued at the lower of cost or market using the first-in, first-out method. PROPERTY, EQUIPMENT AND DEPRECIATION AND AMORTIZATION: Property and equipment are stated at cost, net of accumulated depreciation and amortization. For financial statement purposes, depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the term of the related lease or the useful life of the leasehold improvements. Accelerated depreciation methods are used for tax purposes. Maintenance and repairs are charged to expense as incurred. The cost of betterments and renewals are capitalized. Gains or losses upon disposal of assets are recognized in the period during which the transaction occurs. ORGANIZATIONAL COSTS AND INTANGIBLE ASSETS: Organizational costs and intangible assets include significant expenses of bringing new locations into operation, goodwill and the cost of a non compete agreement. Organizational costs and goodwill are amortized over five years and the cost of the non compete agreement is being amortized over two years. REVENUE RECOGNITION: Phone card and machine sales as well as rental income is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed and determinable and collectibility is reasonably assured. An allowance for doubtful accounts is provided based on periodic reviews of the accounts. TAXES ON INCOME: The Company accounts for income taxes under the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates. The Company provides a valuation allowance against its deferred tax assets to the extent that management estimates that it is not "more likely than not" that such deferred tax assets will be realized. 5 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED - -------------------------------------------------------------------- ACCOUNTING 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 6 Item 2. Management's Discussion and Analysis - ------------------------------------------------- Results of Operations - ----------------------- Quarter Ended March 31, 2000 Compared with Quarter Ended March 31, 1999 ------------------------------------------ Total revenues decreased by 34% for the quarter ended March 31, 2000, as compared to the prior quarter ended March 31, 1999. This was the result of a 33% decrease in phone card sales primarily due to increased competition in the Texas. This was offset by a 72% increase in machine sales. The total cost of revenues represents expenses directly related to the operations of the Machines and bingo facilities. Such costs decreased by 37% which includes a 49% reduction in sweepstakes prizes paid as a result of a reduced payout structure at some route operated Company owned machines and a 33% reduction in phone card sales. Secondly, a 223% increase in machine and location rental costs related to some route locations resulted from the replacement of commission-based system (per phone card sold) to a monthly rental charge per machine installed. Third, a decrease of 38% in cost of phone cards was the result of lower phone card sales and diminished long distance costs resulting from unit cost savings and changes in usage patterns. Finally, the hall rental and concession income category decreased 43% due to the non-renewal of a lease in Meridian, the elimination of the lessor tax on bingo hall revenues, and lower building maintenance costs. Operating expenses represent expenses indirectly related to the operations of the Machines and the bingo halls. Such costs decreased by 35% principally due to reduction in costs of advertising and travel related expenses for the period ended March 31, 2000, as compared to March 31, 1999. Salaries increased by 15% during the quarter ended March 31, 2000, as compared to the previous fiscal quarter. This was principally the result of an increase in the number of support staff positions and increases in other salaries. Other general and administrative expenses increased by 48.9% during the quarter ended March 31, 2000, as a result of consultant costs and other expenses incurred in connection with the development of the virtual sweepstakes site. As a result of the above, the Company sustained a net loss for the quarter ended March 31, 2000, of $58,046 as compared to net income of $65,848 for the quarter ended March 31, 1999. Liquidity - --------- At March 31, 2000 and 1999, the Company's total assets were $1,604,099 and $1,645,947, respectively, with total liabilities of $1,069,733 and $1,149,338, respectively. Current assets of $453,588 at March 31, 2000, represent 43.9% of current liabilities in the amount of $1,032,061 as compared to current assets of $406,135 at March 31, 1999, which represent 39.4% of current liabilities amounting to $1,031,798. Deterioration of the Company's cash position during the first quarter of 2000 is primarily the result of decreased revenue from phone card sales. In addition, as of March 31, 2000, the Company is delinquent on $208,410 of monthly installments due under a master lease for equipment included in capitalized leases with the permission of lessor. The delinquent payments have been included in current liabilities. 7 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. ------------------- Except as set forth in the following paragraphs, the Company is not the subject if any pending legal proceedings, and to the knowledge of management, no proceedings are presently contemplated against the Company by any federal, state, or local governmental agency. Further, to the knowledge of management, no director or executive officer is party to any action that has an interest adverse to the Company. ITEM 2. CHANGES IN SECURITIES. ------------------------ None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ----------------------------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ----------------------------------------------------------- None ITEM 5. OTHER INFORMATION. ------------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------------- (a) EXHIBIT ------- Annual Report on Form 10 - KSB for the year ended December 31, filed April 15, 2000 ** **This document and related exhibits have been previously filed with te Securities and Exchange Commission and by this reference are incorporated herein. 8 SIGNATURES Pursuant to the requirements of 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. Date: 5/20/00 By /S/ Reid Funderburk ------- --------------------------------- Reid Funderburk, CEO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: 5/20/00 By /S/ Reid Funderburk, ------- --------------------------------- Reid Funderburk, Chairman, C.E.O. & Director Date: 5/20/00 By /S/ George Majewski ------- --------------------------------- George Majewski, Director Date: 5/20/00 By /S/ Rhonda McClellan ------- --------------------------------- Rhonda McClellan, Chief Financial Officer Date: 5/20/00 By /S/ R. E. Wilkin ------- --------------------------------- R. E. Wilkin, Director Date: 5/20/00 By /S/ Robert H. Hughes ------- --------------------------------- Robert H. Hughes, Director Date: 5/20/00 By /S/ Rick Redmond ------- --------------------------------- Rick Redmond, Director Date: 5/20/00 By /S/ Thomas B. Murphy ------- --------------------------------- Thomas B. Murphy, President 9