BGI, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 2001 AND 2000
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, 2001
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[ ] 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
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BGI, INC.
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OKLAHOMA 73-1092118
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)
13581 POND SPRINGS RD. SUITE 105
AUSTIN, TEXAS 78729
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (512) 335-0065
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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 9,533,142 SHARES OF COMMON STOCK, $.001 PAR VALUE, OUTSTANDING AS OF
MAY 11, 2001.
TABLE OF CONTENTS
PAGE
NUMBER
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PART I:
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ITEM 1. FINANCIAL STATEMENTS 1
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 6
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PART II:
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ITEM 1. LEGAL PROCEEDINGS 6
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ITEM 2. CHANGES IN SECURITIES 7
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES 7
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
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ITEM 5. OTHER INFORMATION 7
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 7
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BGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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MARCH 31, 1999 DECEMBER 31, 1999
2001 2000
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Current assets:
Cash and cash equivalents $ 43,612 $ 58,124
Accounts receivable - trade, net 96,461 117,505
Inventories 39,588 86,453
Prepaid expenses 8,367 14,099
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Total current assets 188,028 276,181
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Property and equipment, at cost - net 613,921 684,340
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Other assets:
Intangible assets - net 30,968 36,121
Deferred financing costs 25,000 34,484
Deposits 22,691 27,741
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Total other assets 78,659 98,346
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Total assets $ 880,608 $ 1,058,867
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable - trade and accrued expenses $ 325,442 $ 403,352
Current maturities of long-term debt 173,257 200,482
Current maturities of lease obligations 341,644 277,567
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Total current liabilities 840,343 881,401
Long-term debt, net of current maturities 16,272 21,814
Long-term portion of lease obligations 133,303 190,901
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Total liabilities 989,918 1,094,116
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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;
9,533,142 and 9,141,142 issued and outstanding 9,533 9,141
Additional paid-in capital 957,488 936,253
Retained earnings (deficit) (1,076,331) (980,643)
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Total stockholders' equity (deficit) (109,310) (35,249)
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Total liabilities and stockholders' equity $ 880,608 $ 1,058,867
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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
2001 2000
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Revenue:
Phone card and machine sales $ 356,667 $ 803,573
Machine rental 46,856 -
Hall rental 66,523 83,084
Other 868 11,437
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Total revenue 470,914 898,094
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Cost of revenue:
Phone cards and machines 195,638 305,203
Prizes paid 109,982 247,958
Hall rental 36,062 38,860
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Total cost of revenue 341,682 592,021
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Gross margin 129,232 306,073
General and administrative expenses 235,182 294,526
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Operating income (loss) (105,950) 11,547
Gain on sale of assets 41,569 -
Interest expense (31,305) (69,593)
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Net loss (95,688) (58,046)
Retained earnings:
Beginning (deficit) $ (980,643) $ (320,601)
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Ending (deficit) $(1,076,331) $ (378,647)
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Basic and diluted loss per common share $ ($0.01) $ (0.01)
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Weighted average shares outstanding 9,218,150 8,805,863
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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
2001 2000
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Operating activities:
Net loss $ (95,688) $(58,046)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 84,269 92,485
Provision for bad debts (11,814) (19,669)
Recovery from bad debts - (38,902)
Common stock issued for services 3,970 24,303
Deferred financing cost charged to interest 9,484 16,051
Changes in current assets and liabilities:
Accounts receivable - trade 14,512 40,295
Inventories 46,865 1,408
Prepaid expenses 5,732 (3,500)
Accounts payable - trade and accrued expenses (77,909) (5,581)
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Net cash provided from operating activities 3,049 48,844
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Investing activities:
Purchase of property and equipment (11,976) (15,360)
Increase (decrease) in other assets (10,204) (4,989)
Proceeds from sale of equipment 45,000 3,000
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Cash provided (used) by investing activities 22,820 (17,349)
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Financing activities:
Payments on long-term debt (19,607) (26,139)
Payments on long-term leases (20,774) (48,598)
Proceeds from issuance of common stock - 65,000
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Cash provided (used) by financing activities (40,381) (9,737)
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Net increase (decrease) in cash and cash equivalents (14,512) 21,758
Cash and cash equivalents at beginning of year 58,124 89,636
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Cash and cash equivalents at end of year $ 43,612 $111,394
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Supplemental disclosures of cash flow information:
Interest paid $ 31,305 $ 69,593
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Taxes paid $ 2,288 $ 5,169
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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, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF BUSINESS AND BASIS OF PRESENTATION:
BGI, Inc. formerly 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 consist of developing, managing and operating charity bingo
entertainment centers. Monitored is 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, 2000. In addition, the Company's working capital
position deteriorated due to a loss from operations. At December 31, 2000,
current liabilities exceed current assets by $652,315, and the Company had a
deficit retained earnings of $1,076,331.
In view of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which in turn may be dependent upon the success of its future
operations.
INVENTORIES:
Inventories, which consist of phone cards, prepaid vending machines, and small
equipment are valued at the lower of cost or market using the first-in,
first-out method.
CASH EQUIVALENTS:
Cash equivalents consist primarily of funds invested in short-term
interest-bearing accounts. The Companyconsiders all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
4
BGI, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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INTANGIBLE ASSETS:
Intangible assets include goodwill, the cost of a noncompete agreement, and
development of internet site Goodwill is amortized over five years, the cost of
the noncompete agreement is being amortized over two years, and the internet
site is being amortized over three years.
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.
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 "more likely than not" that such deferred
tax assets will be realized.
REVENUE RECOGNITION:
Phone card and machine sales as well as rental income are 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.
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.
NEW ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). This SAB summarizes certain of the Staff's views in applying
generally accepted accounting principles in the United States, to revenue
recognition in financial statements. The Company's revenue recognition policy is
in compliance with SAB 101.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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RESULTS OF OPERATIONS
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QUARTER ENDED MARCH 31, 2001
COMPARED WITH QUARTER ENDED MARCH 31, 2000
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Total revenues for the quarter ended March 31, 2001, was $470,914 as compared to
$898,094 for the prior quarter ended March 31, 2000. This 47.6% decrease was
the result of declines in phone card and machine sales, increased competition in
the Company's primary areas of operations and a decrease in the number of
machines operating in bingo and other facilities. As previously noted in the
Form 10KSB for the year ended December 31, 2000 the Company has expeditously
converted and placed over half of its 325 existing machines to a new product
called "Donation Station" .
Gross margin was $129,232 or 27.4% of total revenue for the quarter ended March
31, 2001 as compared to $306,073 or 34.1% of total revenue for the quarter
ended March 31, 2000. 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 quarter ended March 31, 2001 was
$235,182 compared to $294,526 for the quarter ended March 31, 2000. This 20.2%
decrease was the result of continuing improvements in expense controls
undertaken by management during the fiscal year 2000.
The 55.0% or $38,288 decrease in interest expense is the result of declines in
principal balances as of quarter ended March 31, 2001, as compared to quarter
ended March 31, 2000.
As a result of the above, the Company incurred consolidated net losses for the
quarter ended March 31, 2001 and 2000 of $95,688 and $58,046, respectively.
LIQUIDITY
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Current assets of $188,030 represented 22.4% of current liabilities of $840,344
as of March 31, 2001, as compared to current assets of $276,181 representing
31.3% of current liabilities in the amount of $881,401 as of December 31, 2000.
The Company's decreased cash position during the first quarter is primarily the
result of decreases in the sale of phone cards, machines, and increased
competition in the primary areas of operation.
Management is genuinely aware of the Company's liquidity problem and is
concentrating on returning to profitability as quickly as possible. In
addition, the Company is arranging for additional financing needed to go forward
with the Virtual Sweepstakes Internet operations. This is designed to enhance
the sale of the Company's prepaid phone cards currently being sold through its
prepaid phone card dispensers in conjunction with the instant win sweepstakes.
6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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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.
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None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
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None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None
ITEM 5. OTHER INFORMATION.
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) EXHIBIT
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Annual Report on Form 10 - KSB for the year ended December
31, filed April 17, 2001 **
**This document and related exhibits have been previously filed with the
Securities and Exchange Commission and by this reference are incorporated
herein.
7
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: 5/20/01 By: S/S
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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: 5/20/01 By: S/S
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Reid Funderburk, Chairman, C.E.O. & Director
Date: 5/20/01 By: S/S
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Thomas Murphy, President
Date: 5/20/01 By: S/S
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Robert Chappell, Treasurer
Date: 5/20/01 By: S/S
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R. E. Wilkin, Director
Date: 5/20/01 By: S/S
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Rick Redmond, Director
8