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 JUNE 30, 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 9,134,756 SHARES OF COMMON STOCK, $.001 PAR VALUE, OUTSTANDING AS OF
JUNE 30, 2000.
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I:
ITEM 1. FINANCIAL STATEMENTS 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 5
PART II:
ITEM 1. LEGAL PROCEEDINGS 6
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 6
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
ITEM 5. OTHER INFORMATION 6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 6
PART I:
- --------
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
Current assets:
Cash $ 51,413 $ 89,636
Accounts receivable - trade, net 182,769 174,868
Inventories 108,905 123,458
Prepaid expenses 27,051 18,173
----------- -----------
Total current assets 370,138 406,135
----------- -----------
Property and equipment, at cost - net 924,502 1,060,922
----------- -----------
Other assets:
Intangible assets - net 49,526 61,721
Deferred financing costs 53,452 83,366
Deposits 32,650 33,803
----------- -----------
Total other assets 135,628 178,890
----------- -----------
Total assets $1,430,268 $1,645,947
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable - trade and accrued expenses $ 280,913 $ 299,826
Current maturities of long-term debt 221,179 237,083
Current maturities of capital lease obligations 491,069 494,889
----------- -----------
Total current liabilities 993,161 1,031,798
Long-term debt, less current maturities 25,024 43,835
Capital lease obligations, less current maturities - 73,705
----------- -----------
Total liabilities 1,018,185 1,149,338
----------- -----------
Stockholders' equity:
Preferred stock, nonvoting; $.001 par; 10,000,000
shares authorized; no shares issued and outstanding - -
Common stock, $.001 par; 70,000,000 shares authorized;
8,551,819 and 8,558,418,6021,5
9,134,756 and 8,862,389 issued and outstanding 9,135 8,862
Additional paid-in capital 953,470 808,348
Retained earnings (deficit) (550,522) (320,601)
----------- -----------
Total stockholders' equity 412,083 496,609
----------- -----------
Total liabilities and stockholders' equity $1,430,268 $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 SIX MONTHS ENDED
--------------------------- ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- ----------- ----------- -----------
REVENUE:
PHONE CARD SALES $ 769,924 $1,196,416 $1,548,506 $2,353,757
HALL RENTAL AND CONCESSION INCOME 84,091 131,849 167,175 275,086
MACHINE SALES 10,990 174,100 35,981 188,600
OTHER REVENUE 14,254 49,581 25,691 90,096
-------------- ----------- ----------- -----------
TOTAL REVENUE 879,259 1,551,946 1,777,353 2,907,539
-------------- ----------- ----------- -----------
COST OF REVENUE:
PHONE CARDS 297,733 364,049 586,856 739,376
PRIZES PAID 266,407 411,843 514,365 900,726
HALL RENTAL AND CONCESSION EXPENSES 56,901 57,235 95,761 124,978
MACHINES SOLD 7,750 146,704 23,830 159,200
-------------- ----------- ----------- -----------
TOTAL COST OF REVENUE 628,791 979,831 1,220,812 1,924,280
-------------- ----------- ----------- -----------
GROSS MARGIN 250,468 572,115 556,541 983,259
GENERAL AND ADMINISTRATIVE EXPENSES 364,058 422,232 658,580 675,921
-------------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (113,590) 149,883 (102,039) 307,338
INTEREST EXPENSE 58,289 77,077 127,882 168,684
-------------- ----------- ----------- -----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (171,879) 72,806 (229,921) 138,654
FEDERAL INCOME TAX - - - -
-------------- ----------- ----------- -----------
NET INCOME (LOSS) (171,879) 72,806 (229,921) 138,654
RETAINED EARNINGS (DEFICIT):
BEGINNING (378,643) (32,010) (320,601) (97,858)
-------------- ----------- ----------- -----------
ENDING $ (550,522) $ 40,796 $ (550,522) $ 40,796
============== =========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (0.02) $ 0.01 $ (0.03) $ 0.02
============== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,981,549 8,636,786 9,073,983 8,636,786
============== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
----------- ------------
OPERATING ACTIVITIES:
NET INCOME $(229,921) $ 138,654
----------- ------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH INCOME:
DEPRECIATION AND AMORTIZATION 183,329 168,498
PROVISION FOR BAD DEBTS - 3,603
RECOVERY FROM BAD DEBTS (62,114) -
STOCK ISSUED FOR CONSULTING FEE 74,099 4,998
DEFERRED FINANCING COST 29,914 32,103
CHANGES IN CURRENT ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 46,464 (11,002)
INVENTORIES 14,553 (74,369)
PREPAID EXPENSES (8,878) (15,602)
ACCOUNTS PAYABLE - TRADE AND ACCRUED EXPENSES 18,913 24,108
----------- ------------
CASH PROVIDED BY OPERATING ACTIVITIES 66,359 270,991
----------- ------------
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (32,837) (11,100)
INCREASE (DECREASE) IN OTHER ASSETS (13,348) -
PROCEEDS FROM SALE OF EQUIPMENT 3,000 -
----------- ------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (43,185) (11,100)
----------- ------------
FINANCING ACTIVITIES:
PAYMENTS ON LONG-TERM DEBT (48,872) (304,649)
PAYMENTS ON LONG-TERM LEASES (77,525) 12,936
PROCEEDS FROM ISSUANCE OF COMMON STOCK 65,000 15,002
----------- ------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (61,397) (276,711)
----------- ------------
NET INCREASE (DECREASE) IN CASH (38,223) (16,820)
CASH AT BEGINNING OF PERIOD 89,636 133,184
----------- ------------
CASH AT END OF PERIOD $ 51,413 $ 116,364
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
INTEREST PAID $ 101,801 $ 168,684
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
BGI, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
BASIS OF PRESENTATION:
The financial statementsfor the six months ended June 30, 2000 and June 30, 1999
are unaudited. They have however, been prepared from the books and records of
the Company in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission. All
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of financial position
and operating results for the interim periods have been reflected. These
financial statements should be read in conjunction with the Company's most
recent Annual Report on Form 10-KSB, which includes audited financial statements
for the year ended December 31, 1999.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with this June
30, 2000 presentation.
GOING CONCERN:
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
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. Any significant adverse
change in any of these factors could have an adverse effect on the Company's
consolidated financial position or results of operations. Further, the Company
had losses for the year ended December 31, 1999 and the six months ended June
30, 2000, and its working capital position deteriorated. At June 30, 2000,
current liabilities exceeded current assets by $623,023. Additionally, payments
under a master lease agreement for equipment were delinquent but with the
permission of the lessor.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheets is dependent upon the Company's success with its
operations in the future.
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 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. Accordingly, the Company has not anticipated any
tax benefits from tax losses for the six months ended June 30, 2000 and June 30,
1999.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is including the following cautionary statement in this Quarterly
Report on Form 10-QSB to make applicable and utilize the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 regarding any forward
looking statements made by, or on behalf of, the Company. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical facts. Certain statements
contained herein are forward-looking statements and, accordingly, involve risks
and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in such statements.
The Company's expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result will be realized.
RESULTS OF OPERATIONS
- -----------------------
THREE MONTHS ENDED JUNE 30, 2000
COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------
Total revenue for the three months ended June 30, 2000, was $879,259 compared
to $1,551,946 for the three months ended June 30, 1999. This 43.3% decrease
resulted from declines in phone card and machine sales due to recent competitive
pressures and a decrease in the number of machines operating in bingo and other
facilities. Additionally, reduced hall rental and concession income from its
bingo facility operations occurred as a result of regulatory pressures
previously noted in the Form 10-KSB for the year ended December 31, 1999.
Gross margin for the three months ended June 30, 2000, was $250,468 as compared
to $572,115 for the three months ended June 30, 1999. The decrease of $321,647
resulted from the above mentioned 43.3% decline in revenue and the continuing
fixed costs associated with hall rental and machine depreciation.
General and administrative expenses for the three months ended June 30, 2000,
were $364,058 as compared to $422,232 for the three months ended June 30, 1999.
The decrease of $58,174 was the result of improvements in expense controls,
particularly advertising and travel, and an improvement in bad debt experience.
The $18,788 decline in interest expense is due to several notes having been paid
off.
SIX MONTHS ENDED JUNE 30, 2000
COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
Total revenue for the six months ended June 30, 2000, were $1,777,353 compared
to $2,907,539 for the six months ended June 30, 1999. This 38.8% decrease was
the result of declines in phone card and machine sales, primarily from increased
competition in the Company's primary areas of operations and a decrease in the
number of machines operating in bingo and other facilities. Additionally,
reduced hall rental and concession income from its bingo operations occurred as
a result of regulatory pressures previously noted in the Form 10-KSB for the
year ended December 31, 1999.
Gross margin decreased 2.5% to 31.3% for the six months ended June 30, 2000, to
33.8% for the comparable 1999 period. This was consistent with the decline in
revenue and the continuing fixed cost of hall rental and machine depreciation.
General and administrative expenses for the six months ended June 30, 2000, were
$658,580 compared to $675,921 for the six months ended June 30, 1999. For the
most part, this decrease was the result of improvements in expense controls.
Management has undertaken a complete review of all business processes and
implemented revisions where appropriate.
5
LIQUIDITY
- ---------
Current assets of $370,138 as of June 30, 2000, represented 37.7% of current
liabilities of $993,161 as compared to current assets of $754,580 at June 30,
1999, which represented 78.8% of current liabilities of $957,215. The Company's
decreased cash position at June 30, 2000, is primarily the result of having
funded the development costs to date for the Virtual Sweepstakes Internet site.
This site is being designed to enhance the sale of the Company's prepaid phone
cards currently being sold through its Lucky Strike Prepaid Phone Card
Dispensers by offering this instant win sweepstakes on the Internet. In addition
to enhancing the sale of the Company's prepaid phone cards, additional revenue
may be generated by marketing the system as a Virtual Sweepstakes Engine to
operate promotional sweepstakes for other businesses.
As of June 30, 2000, the Company was delinquent on $472,483 of monthly
installments due under a master lease for certain equipment with the permission
of the lessor. The Company was also over 30 days past due on trade accounts
payable of $170,861 with one supplier, but such supplier provided an extension.
Management is acutely aware of the Company's liquidity problem and is
concentrating on returning to profitability as quickly as possible, rearranging
or replacing the Company's indebtedness, including its capital lease
obligations, and arranging for the additional financing required to go forward
with the Virtual Sweepstakes Internet operations.
PART II
ITEM 1. LEGAL PROCEEDINGS.
-------------------
None
ITEM 2. CHANGES IN SECURITIES.
------------------------
The Company has contracts with a limited number of consultants and expects to
issue them shares of common stock upon completion of registration under Form
S-8.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-----------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-----------------------------------------------------------
None
ITEM 5. OTHER INFORMATION.
-------------------
George Majewski, resigned as President, on May 15, 2000 to pursue other business
interests. Thomas B. Murphy was then selected as President by the Board of
Directors to succeed. Rhonda McClellan resigned as the Company's Treasurer and
Chief Financial Officer on June 8, 2000. She has as yet not been replaced.
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 the Securities and Exchange Commission and by this
reference are incorporated herein.
6
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.
BGI, INC.
Date: 8/11/00 By S/S 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: 8/11/00
---------
By S/S
----------------------------------------------
Reid Funderburk, Chairman, C.E.O. & Director
Date: 8/11/00
---------
By S/S
-----------------------
Thomas Murphy, President
Date: 8/11/00
---------
By S/S
----------------------------------------------
Robert Chappell, Controller & Secretary/Treasurer
7