U.S. Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE \tab SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE \tab SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission File No. 0-10519
Bingo & Gaming International, Inc.
(Name of Small Business Issuer in its Charter)
OKLAHOMA 73-1092118
(State or Other Jurisdiction of (IRS Employer ID No.)
incorporation or organization)
13581 Pond Springs Rd. Suite 105
Austin, Texas 78729
(Address of Principal Executive Offices)
(512)335-0065
(Issuer's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
There were 8,541,819 shares of common stock, $.001 par value, outstanding as
of June 30, 1998.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statement
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
BALANCE SHEETS
(unaudited)
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
Current assets
Cash and cash equivalents $ 83,901 $ 53,934
Accounts receivable - trade 843,670 347,029
Inventories 52,514 19,811
Note receivable 7,494 7,494
Prepaid expenses 24,666 6,445
Total current assets 1,012,245 434,713
Property and equipment, at cost - net of
accumulated depreciation and amortization 1,527,268 456,945
Other assets
Organizational costs and intangible
assets - net of accumulated amortization 10,904 19,705
Deposits 62,806 49,860
Total other assets 73,710 69,565
Total assets $ 2,613,223 961,223
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade and
accrued expenses $ 325,280 $ 180,862
Accounts payable - other - 253,190
Current maturities of long-term debt 385,341 122,898
Deferred federal income tax 10,600 -
Total current liabilities 721,221 556,950
Long-term debt, net of current maturities 1,159,942 227,162
Total liabilities 1,881,163 784,112
Common stock, $.001 par; 70,000,000
shares authorized; 8,541,819 and 8,418,602
issued and outstanding 8,740 8,418
Additional paid-in capital 463,544 393,197
Retained earnings (deficit) 259,776 (224,504)
Total stockholders equity 732,060 177,111
Total liabilities and stockholders'
equity $ 2,613,223 $ 961,223
</TABLE>
See note to consolidated financial statements.
<TABLE>
BINGO & GAMING INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 and 1998
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Phone card sales $ 880,327 $ 357,597 $1,849,696 $ 787,308
Rental Income 134,044 125,844 254,213 251,288
Concession Income 19,371 14,804 27,571 27,570
Machine sales 29,618 - 67,883 -
Other (4,948) - 1,232 -
Total revenue 1,058,412 498,245 2,200,595 1,066,166
Cost of revenue:
Phone card and royalties 315,157 132,373 518,232 254,678
Machine and location rental (135,000) 89,171 308 203,056
Prizes paid 75,064 32,180 161,181 131,289
Hall rental 56,732 47,565 110,984 92,579
Machines sold 37,485 - 70,805 -
Total cost of revenue 349,438 301,289 861,510 681,602
Gross Margin 708,974 196,956 1,339,085 384,564
Expenses:
Operating expenses 181,585 89,892 244,288 172,886
Salaries 99,718 61,736 186,457 119,584
General and administrative expenses 174,898 9,806 260,133 21,634
Total expenses 456,201 161,434 690,878 314,104
Operating income 252,773 35,522 648,207 70,460
- 1,198 - 1,198
Interest expense 140,931 8,616 153,325 18,097
Net income before federal income tax 111,842 28,104 494,882 53,561
Deferred federal income tax (44,500) - 10,600 -
Net income 156,342 28,104 484,282 53,561
Retained earnings:
Beginning (deficit) (224,504) (267,936) (222,504) (267,936)
Ending (deficit) $ (68,162)$(239,832)$ 261,778 $(214,375)
Basic and diluted income (loss)
per common share $ 0.02 $ 0.00 $ 0.06 $ 0.01
Weighted average shares outstanding 8,454,557 8,360,434 8,552,774 8,360,434
</TABLE>
See notes to consolidated financial statement.
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<CAPTION>
June 30, June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss): $ 484,282 $ 53,561
Adjustments to reconcile net income
(loss) to net cash from
operating activities:
Depreciation and Amortization 138,061 29,229
Changes in current assets and liabilities:
Accounts receivables (496,641) (51,618)
Inventories (31,362) 186
Prepaid expenses (31,220) (29,502)
Deferred federal income tax 10,600 -
Accounts payables-trade and accrued
expenses (108,772) 17,200
Net cash from operating
activities (35,052) 19,056
INVESTING ACTIVITIES:
Purchase of property and equipment (29,728) (27,637)
Proceeds from long-term debt 14,409 -
Increase (decrease) in other assets - 2,539
Payments received on notes receivable - 25,026
Cash from investing activities (15,319) (72)
FINANCING ACTIVITIES:
Payments on long-term debt 169,033 (47,730)
Proceeds from long term debt (159,366) 36,061
Issuance of common stock 70,670 1,650
Cash from financing activities 80,337 (10,019)
Net increase (decrease) in cash and
cash equivalents 29,966 8,965
Cash and cash equivalents at beginning
of period 53,934 53,307
Cash and cash equivalents at end of period $ 83,900 $ 62,272
Supplemental disclosures of cash flow information:
Interest paid $ 153,325 $ 8,616
Taxes paid $ 10,000 $ -
Supplemental disclosure of non-cash investing
and financing activities:
Financing of equipment purchases $ 1,310,264 $ -
</TABLE>
See notes to consolidated financial statements.
BINGO & GAMING INTERNATIONAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Such financial statements as of June 30, 1998 and for the three months ended
June 30, 1998 and 1997 and for the six months ended June 30, 1998 and 1997 are
unaudited, but, in management's opinion, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results from such interim periods. The results from interim periods are not
necessarily indicative of results from full years.
Such interim period financial statements, including the notes thereto, are
condensed and do not include all disclosures required by generally accepted
accounting principles. They should, therefore, be read in conjunction with
the
Company's consolidated financial statements included in the Company's Form 10-
KSB for the year ended December 31, 1997.
Note 2. INCOME TAXES
At June 30, 1998 and 1997, the Company had, for tax reporting purposes, net
operating loss carryfowards of approximately $148,166 and $200,000,
respectively, available to offset future taxable income. The statutory federal
tax rate was 34% for the six months ended June 30, 1998 and 1997.
Note 3. EARNINGS PER SHARE
Net Income (loss) per share is based upon the weighted average number of
shares outstanding during the periods (8,552,774 shares outstanding during the
six months ended June 30, 1998 and 8,360,434 during the six months ended June
30, 1997).
Note 4. RECLASSIFICATION
Certain amounts previously reported have been reclassified to conform to
current year presentation.
Item 2. Management's Discussion and Analysis and Plan of Operations.
Introduction:
Plan of Operation
Since approximately December 1994, the Company has been engaged
in the business of owning and operating, as commercial lessors, charity bingo
locations of their own and in the past operated similar locations for other
owners. In May 1996, the Company began distributing prepaid phone card
vending machines in the State of Texas.
The Company's revenues are generated primarily from and the sale
of prepaid phone cards through the industry's most unique dispenser and the
rental of bingo facilities in the charitable bingo industry.
Through its wholly-owned subsidiaries, Tupelo Industries, Inc.
("Tupelo"), Meridian Enterprises, Inc. ("Meridian"), and Red River Bingo, Inc.
("Red River"), the Company has operated as a sub-lessor of real property
to charitable bingo operations in Texas, Mississippi, Louisiana. The current
operations consist of three bingo halls located in Meridian, Iuka, and Tupelo,
Mississippi. Additionally, the Company through Monitored Investments Inc.,
("Monitored") has in the past managed similar bingo operations for others in
Texas, Louisiana, and Mississippi.
In April 1996, the Company executed an exclusive Distribution
Agreement for the state of Texas for the Lucky Shamrock Emergency Phone Card
Dispenser, a video enhanced prepaid phone card dispenser. This Distribution
Agreement was mutually terminated in August 1997. During the quarter ended
June 30, 1997, the Company operated approximately 134 of the dispensers.
Between August and December 1997, all of the 134 Lucky Shamrock Emergency
Phone Card Dispensers were returned to Diamond Game Enterprises, Inc.
In October 1997, the Company executed an Exclusive Distribution
Agreement with Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid
Phone Card Dispenser, which is based on Cyberdyne's patented cartridge based
technology. This agreement provides for the Company to have the exclusive
distribution rights for the United States and Canada for five years with two
five year options. Distribution of the Lucky Strike Prepaid Phone Cards began
in October 1997, and as of June 30, 1998, over 300 dispensers were in
operation in Texas, Oklahoma, and Connecticut.
The Company intends to further develop and substantially expand its
business, principally by continuing the operation and expanding the
distribution of the video enhanced phone card dispensers. The Company will
locate distributors, operators and chain retailers to market our products. In
addition, the Company will market the product directly to the retail location,
where this is preferable. The Company will utilize various avenues to locate
and communicate with these entities including trade shows, trade magazines,
trade organizations, direct mail, Internet site, E-mail and industry contacts.
Each territory has its own unique set of marketing characteristics;
however, the Company will target among others the following retailers: bingo
halls, bars and taverns, pool halls, bowling alleys, truck stops, major public
transportation centers, adult game arcades, prepaid phone card routes,
amusement/vending routes, convenience stores, and fraternal organizations.
The prepaid phone card industry has grown to over a $1 billion a year
business in the few years since its inception. It has been estimated that by
the year 2000 the sale of telecards will exceed $2 billion; however, this
estimate is based on numerous factors, such as the current regulatory,
taxation, and competitive environments, which are subject to change and are
beyond the Company's control. While the regulations have not yet been
issued, new federal taxation has placed a three- percent tax on the sale of
prepaid phone cards. In order to offset any increased cost of sales, the
Company plans to modify its promotional sweepstakes structure. The Company
currently uses three payout structures for its promotional sweepstakes
marketing campaign: 70%, 65%, and 55%. The 65% and 55% sweepstakes provide
sufficient margin to maintain the current level of profitability.
The Company has added distributors for the states of Kansas and Kentucky
subsequent to June 30, 1998. An initial order of three dispensers are
currently in operation in Kentucky and the distributor has purchased an
additional five dispensers, which have been shipped from the manufacturer.
Operations are pending judicial approval in Washington State and regulatory
approval in New Jersey, Pennsylvania and Illinois. Negotiations with a
potential distributor for the state of New Mexico are on going.
The Company anticipates placing additional dispensers each month for the
remainder of the 1998 fiscal year. Based on estimated sales of $250 per day
per dispenser, and the current rate of profitability; the Company believes
each dispenser will generate a minimum of $375 monthly net income after all
expenses and contribution for corporate overhead; however, no assurance
can be made that the Company will be able to meet these estimates.
Sales in Texas increased during the quarter ended June 30, 1998, due to
the addition of more dispensers in several locations, the removal of illegal
eight-liner devices in certain jurisdictions around the state, and the
placement of dispensers in new locations. Recent activities by Texas law
enforcement to prosecute the estimated 50,000 illegal eight-liner slot
machines around the state will provide for expansion opportunities for the
Company's product and dispensers. During the three months ended June 30,
1998, sales of phone cards in Oklahoma decreased significantly due to increase
competition in the Indian bingo facilities. Gaming devices such as
skill-stop eight-liners and electronic pull tab machines cut into the per
capita spending on the Company's prepaid phone card dispensers. Recently,
however, the skill-stop eight-liner devices have been declared illegal for
Indian bingo facilities, and the Company has worked with Cyberdyne Systems,
Inc., its supplier, to develop software which will print four free promotional
game pieces with the purchase of each phone card. This will add more
excitement to the Company's marketing promotion by allowing the player four
opportunities to participate in the sweepstakes. This new software will be
tested in Oklahoma in the near future.
To increase profitability without additional capital outlay the Company
recently embarked on a program of relocating low producing dispensers. An
aggressive campaign to find new locations, effectively analyze each
dispenser's profitability, and act more quickly to relocate dispensers has
been instituted. The recent development of management information system
software and the data entry of historical data will enhance this process.
Additional dispensers will be distributed by selling them directly to
vending and amusement route operators. Results from recent trade show
appearances indicate that more dispensers can be sold directly to the customer
with the Company continuing to sell the replacement cartridges. In the first
quarter of 1998 the Company executed a leasing agreement for 125 of the
dispensers, and in the second quarter of 1998 another 125 were leased under
more favorable terms with the same leasing company. The Company will continue
to use this avenue as well as other opportunities that become available to
increase the number of dispensers on location in the remainder of the fiscal
year.
The Company's ability to increase the number of income producing
dispensers will be limited by its available liquidity, and other capital
resources, as to which no assurance can be given.
Results of Operations
Three Months ended June 30, 1998
Compared with Three Months ended June 30, 1997
Revenues include rental income from charitable organizations which lease
the Company's bingo facilities, related concession and vending income and
phone card sales related to the video enhanced dispensers. Phone card sales
were $880,327 for the three months ended June 30, 1998, compared to $357,597
for the three months ended June 30, 1997. This increase of $522,730
(146%) was the result of three month's of revenue from more than 300 phone
card dispensers for 1998 compared to three months from 110 dispensers in the
previous year. Rental income remained consistent at $134,044 for the quarter
ended June 30, 1998, compared with $125,844 for the quarter ended June 30,
1997. Concession income increased to $19,371 for the quarter ended
June 30, 1998 from $14,804 for the prior year. Machine sales produced $29,618
in the three months ended June 30, 1998 compared to 1997 when the Company sold
no machines.
Cost of revenues represent expenses directly attributable to the
operations of the phone card dispensers and operations of the bingo
facilities. In total, such cost was $349,438 and $301,289 for 1998 and 1997,
respectively.
Cost of revenue specifically related to the phone card dispensers;
include phone card and, in the past, royalty's costs, machine and location
rental prizes paid and machine sales cost. Phone card and royalty costs were
$315,157 for the three month's ending June 30, 1998, compared to $132,373 for
the previous year. This 138% increase was due to the corresponding increased
sales of phone cards for the three months ended June 30, 1998 compared to
three months for the prior year. Machine and location rental costs decreased
by $224,171 for the three-month's ended June 30, 1998. The greatest portion,
$135,000, of this 251% decrease was the result of financing dispensers under a
capital lease structure, which attributed to an understated net income for the
March 31, 1998 quarter. The balance of the savings were realized by
elimination of rental costs as a result of capital lease arrangement; however,
depreciation on the capital lease offset, somewhat, the decrease in rental
costs. The capitalization of these dispensers occurred during the second
quarter 1998. Additionally, an amended 10-QSB for March 31, 1998 will be
forthcoming.
In 1998, prizes paid increased to $75,064 from $32,108 in 1997. A prize
paid reflects the amount paid to winners from dispensers operated directly by
the company, rather than those operated by the retail location. This 133%
increase is the result of a larger number of dispensers being directly
operated by the Company for three months ended June 30, 1998 as compared to
three months ended June 30, 1997.
Operating expenses, salaries, and general and administrative expense
increased by 183% from $161,434 in the second quarter of 1997 to $456,201 in
1998. Of this amount, salaries increased almost $38,000 or 62% as the result
of the addition of a national sales director and additional customer support
representatives. Significant increases were also experienced in legal costs,
travel related to attendance at trade shows and deployment of dispensers,
development of a networked internal computer system and management information
software. In addition, the size of the corporate office space was doubled
during this period.
Interest expense increased by $132,315 from $8,616 for the three months
ended March 31, 1997 to $140,931 for 1998. This increase was the result of
the recalculation of the capitalization of the dispenser lease in the second
quarter and represents interest attributable to both the first and second
quarters of 1998. As previously mentioned, an amended Form 10-QSB for March
31, 1998 will be forthcoming.
Principally, for the reasons set forth in the preceding paragraphs,
the Company had a net income of $156,342 for the three month's ended June 30,
1998, compared with a net income of $28,104 for 1997. Included in the net
income for 1998 is interest expense of $140,931 and deferred federal income
tax of $44,500.
Six Months Ended June 30, 1998
Compared with Six Months Ended June 30, 1997
Revenues were $2,200,595 for the six month's ended June 30, 1998
and $1,066,166 for the six month's ended June 30, 1997. This 106% increase
was principally the result of additional phone card sales generated during the
six month's ended June 30, 1998 and matters more fully described in the above
"Three Months Compared with Three Months" discussion.
Cost of revenues were $861,510 and $681,602 for the six month's
ended June 30, 1998 and 1997, respectively. This 26% increase was principally
the result of the increase long distance phone time used during the six
month's ended June 30, 1998 and matters more fully described in the above
"Three Months Compared with Three Months" discussion.
Other expenses were $690,878 and $314,104 for the six month's
ended June 30, 1998 and 1997, respectively. This 120% increase was
principally the result of travel to locations to place new prepaid phone card
dispensers, hiring additional staff, freight, legal, computer upgrades and
systems development and matters more fully described in the above "Three
Months Compared with Three Months" discussion.
The significant changes in revenue and related expenses are
explained in the above paragraphs more fully described in the above "Three
Months Compared with Three Months" discussion and "Management's Discussion and
Analysis."
Financial Position:
The Company's financial position recorded significant improvement
during the six month's June 30, 1998 as net income increased to $484,282
compared to $53,561 for six month's ended June 30, 1997; an increase of 804%.
Cash and cash equivalents were $83,901 at June 30, 1998, an increase of 56%
compared to $53,434 at December 31, 1997.
The Company's working capital (current assets less current
liabilities) position also improved significantly during the six month's ended
June 30, 1998: $291,024 at June 30, 1998 Compared with $(122,237) at December
31, 1997.
Liquidity:
The Company intends to substantially expand its sweepstakes-enhanced
prepaid phone card business during 1998. It had over 300 dispensers placed and
operating at June 30, 1998, and it would like to place and have operating
additional dispensers by December 31, 1998. The actual rate of expansion will
be dependent on (1) the number of dispensers that the Company's supplier can
manufacture and make available and (2) the number of dispenser
purchases/leases that the Company can internally fund and/or otherwise finance
with either borrowing or leasing arrangements or through the sale of
Dispensers directly to the retail operator.
At the present level of dispensers currently in operation, the
Company anticipates substantial increased earnings in the remainder of the
1998 Fiscal Year. As stated earlier, its rate of growth will depend on the
availability of either borrowing or leasing opportunities and the number of
dispensers it can sell directly to retail operators. No assurance can be
given that the Company can arrange such additional financing.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Except as set forth in the following paragraphs, the Company is not the
subject of 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.
Red River Bingo, Inc., was assessed civil penalties totaling $25,000 in
1995 by the State of Louisiana for alleged charitable gaming law violations.
Management vigorously contested this claim, and Louisiana's Charitable Gaming
Division canceled a hearing scheduled on this matter in 1996. No further
correspondence has been received from the State of Louisiana and
management believes that no future action will be forthcoming that could have
a material adverse affect on the Company, particularly since there have been
no operations in Louisiana since 1995.
The Company contested the Mississippi Gaming Commission's decision
to reject an appraisal on the fair market value of rents charged to the
charity at its Tupelo bingo facility. The Company secured both a temporary
and permanent injunction requiring the Mississippi Gaming Commission to issue
the Company a license renewal for the Tupelo facility based on the two
appraisals already submitted. The Mississippi Gaming Commission issued a
temporary ninety-day license, which failed to comply with the injunctions. A
hearing was held to determine whether the commission was in contempt of court
and the Mississippi Gaming commission was held to be in contempt of court.
Subsequent to the hearing a license was issued for the Tupelo facility.
Following this, a license renewal for the company's Iuka location was issued.
In the state of Washington, the company's attorneys have filed for a
summary judgement to declare that the prepaid phone card dispensers and
promotional sweepstakes comply with state law. The hearing is scheduled for
September 25, 1998.
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, 1998
(b) REPORTS ON FORM 8-K
SEC Form 8-K, filed January 5, 1998, Regarding **
Changes in Company's Certifying Accountant
** This document and related exhibits have been previously filed with the
Securities and Exchange Commission and by this reference are incorporated
herein.
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.
BINGO & GAMING INTERNATIONAL, INC.
Date: August 19, 1998 By/s/Reid Funderburk
Reid Funderburk
Chairman, C.E.O., Director
Date: August 19, 1998 By/s/Geroge Majewski
George Majewski
President, Director
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:
BINGO & GAMING INTERNATIONAL, INC.
Date: August 19, 1998 By/s/Reid Funderburk
Reid Funderburk
Chairman, CEO & Director
Date: August 19, 1998 By/s/George Majewski
George Majewski, President, Director
Date: August 19, 1998 By/s/R. E. Wilkin
R. E. Wilkin, Director
Date: August 19, 1998 By
Robert H. Hughes, Director
Date: August 19, 1998 By/s/Rick Redmond
Rick Redmond, Director
Date: August 19, 1998 By/s/Robert Chappell
Robert Chappell, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 83901
<SECURITIES> 0
<RECEIVABLES> 843670
<ALLOWANCES> 0
<INVENTORY> 52514
<CURRENT-ASSETS> 1012245
<PP&E> 1527268
<DEPRECIATION> 0
<TOTAL-ASSETS> 2613223
<CURRENT-LIABILITIES> 721221
<BONDS> 0
0
0
<COMMON> 8740
<OTHER-SE> 723320
<TOTAL-LIABILITY-AND-EQUITY> 2613223
<SALES> 1849696
<TOTAL-REVENUES> 2200595
<CGS> 518232
<TOTAL-COSTS> 861510
<OTHER-EXPENSES> 690878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153325
<INCOME-PRETAX> 494882
<INCOME-TAX> 10600
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</TABLE>
