U.S. Securities and Exchange Commission
Washington, DC 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, 1998
[ ] 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
Bingo & Gaming International, Inc.
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(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
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(Address of Principal Executive Offices)
(512)335-0065
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(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 8,516,819 shares of common stock, $.001 par value, outstanding as
of March 31, 199
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statement
<TABLE>
BINGO & GAMING INTERNATIONAL, INC
BALANCE SHEETS
(unaudited)
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 150,305 $ 53,934
Accounts receivable - trade 816,970 347,029
Inventories 28,140 19,811
Note receivable 7,494 7,494
Prepaid expenses 18,538 6,445
Total current assets 1,021,447 434,713
Property, and equipment, at cost - net of
accumulated depreciation and amortization 814,737 456,945
Other assets
Organizational costs and intangible assets- net
of accumulated amortization 15,304 19,705
Deposits 55,334 49,860
Total other assets 70,638 69,565
Total assets $ 1,906,822 961,223
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable - trade and accrued expenses $ 375,652 $ 180,862
Accounts payable - other - 253,190
Current maturities of long-term debt 103,611 122,898
Deferred federal income tax 55,100 -
Total current liabilities 534,363 556,950
Long-term debt, net of current maturities 813,228 227,162
Total liabilities 1,347,591 784,112
Stockholders equity
Common stock, $.001 par, 70,000,000 shares
authorized; 8,516,819 and 8,414,600 issued
and outstanding 8,495 8,418
Additional paid-in capital 438,050 393,197
Retained earnings (deficit) 112,686 (224,504)
Total shareholders equity 559,231 177,111
Total liabilities and
stockholders' equity $ 1,906,822 $ 961,223
</TABLE>
<TABLE>
BING0 & GAMING INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31,1997 and 1998
(unaudited)
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Revenue:
Phone card sales $ 969,369 $ 429,711
Management advisory fees - -
Rental Income 129,419 125,444
Concession Income 8,200 12,765
Machine sales 38,265 -
Other 6,180 -
Total revenue 1,151,433 567,920
Cost of revenue:
Phone card and royalties 203,075 122,305
Machine and location rental 135,308 113,885
Prizes paid 86,117 99,109
Hall rental 54,252 45,014
Machines sold 33,320 -
Total cost of revenue 512,072 380,313
Gross Margin 639,361 187,607
Expenses:
Operating expenses 62,703 82,994
Salaries 86,739 57,848
General and administrative expenses 85,235 11,828
Total expenses 234,677 152,670
Operating income 404,684 34,937
Interest expense 12,394 9,481
Net income before federal income tax 392,290 25,456
Deferred federal income tax 55,100 -
Net income 337,190 25,456
Retained earnings:
Beginning (deficit) (224,504) (267,936)
Ending (deficit) $ 112,686 $(242,480)
Basic and diluted income (loss) per common share $ 0.04 $ 0.01
Weighted average shares outstanding 8,454,567 8,360,434
</TABLE>
<TABLE>
BINGO & GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH ENDED MARCH 31,1997 AND 1998
<CAPTION>
March 31, March
31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss): $ 337,190 $ 25,456
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 42,723 14,269
Changes in current assets and liabilities:
Accounts and receivables (499,941) (7,301)
Inventories (8,330) 13,131
Prepaid expenses (12,094) 420
Deferred federal income tax 55,100 -
Accounts payables - trade and accrued expenses 269,204 (1,176)
Net cash from operating activities 183,852 44,799
INVESTING ACTIVITIES:
Purchase of property and equipment (98,878) -
Proceeds from long-term debt - -
Increase (decrease) in other assets 5,473 (761)
Payments received on notes receivable - 14,208
Cash from investing activities (93,405) 13,447
FINANCING ACTIVITIES:
Payments on long-term debt (39,005) (17,756)
Proceeds from long term debt - -
Issuance of common stock 44,930 1,650
Cash from financing activities 5,925 (16,106)
Net increase (decrease) in cash and cash equivalents 96,371 42,140
Cash and cash equivalents at beginning of period 53,934 53,307
Cash and cash equivalents at end of period $ 150,305 $ 95,447
Supplemental disclosures of cash flow information:
Interest paid $ 12,394 $ 9,868
Taxes paid $ 10,000 $ -
Supplemental disclosure of non-cash investing
and financing activities:
Financing of equipment purchases $ 605,784 $ -
</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 March 31, 1998 and for the three months
ended March 31, 1998 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 March 31, 1998 and 1997, the Company had, for tax reporting purposes,
net operating loss carryfowards of approximately $148,166 and $210,000,
respectively, available to offset future taxable income. The statutory
federal tax rate was 34% for the three months ended March 31, 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 (8,418,637 shares outstanding during
the three months ended March 31, 1998 and 8,360,434 during the three months
ended March 31, 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, Oklahoma, and Washington.
The Company's revenues are generated primarily from the rental of
bingo facilities in the charitable bingo industry and the sale of prepaid
phone cards through the industry's most unique dispenser.
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 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 March 31, 1997,
the Company operated approximately 110 of the dispensers. In the second
quarter of 1997, the total number of dispensers grew to 134. 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 by March 31, 1998, over 275 dispensers were in operation
in Texas, Oklahoma and Washington.
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 and
competitive environments, which are subject to change and are beyond the
Company's control. Approximately nine million (9,000,000) phone cards were
sold by the Company between October 1997, when the first Cyberdyne Lucky
Strike Phone Card Dispensers were received, and March 31, 1998. Of this
amount, two-thirds, or just under six million (6,000,000), were sold in the
first quarter of 1998.
The Company anticipates placing 50 additional dispensers each month for
the remainder of the 1998 fiscal year. Based on estimated sales of $250 per
day (current sales average are above this amount) 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.
Additional dispensers will also 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 it will continue to use this avenue to increase the number of
dispensers on location in the remainder of the fiscal year.
A Stock Purchase Agreement for the sale of the Company's three bingo
facilities, which was indicated on the Company's 10-KSB for December 31, 1997
was withdrawn by the buyer due to circumstances beyond the control of the
Company. 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 March 31, 1998
Compared with Three Months ended March 31, 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 $969,369 for the three months ended March 31, 1998, compared to $429,711
for the three months ended March 31, 1997. This increase of $539,658 (126%)
was the result of three month's of revenue from the 275 phone card dispensers
for 1998 compared to three months from 110 dispensers in the previous year.
The number of dispensers grew from approximately 125 to 275 during the first
quarter of 1998. Rental income remained consistent at $129,419 for the quarter
ended March 31, 1998, compared with $125,444 for the quarter ended March 31,
1997. Concession income decreased to $8,200 in 1998 from $12,765 for the
prior year. Machine sales produced $38,265 in the first three months of 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 $512,072 and $380,313 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
$203,075 for the quarter ending March 31, 1998, compared to $122,305 for the
previous year. This 66% increase was due to the increased sales of phone
cards for the three months in 1998 compared to three months for the prior
year. Additionally, phone costs increased between the first quarter of 1997
and the same period in 1998, when the prepaid phone cards were changed from a
one-minute card to a two-minute card. Machine and location rental costs were
$135,308 for the quarter ended March 31, 1998, compared with $113,308 in prior
year 1997. This 19% increase was the result of additional machines required
at various locations for three months in 1998 compared to three months in
1997. In 1998, prizes paid decreased to $86,117 from $99,109 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 13% decrease is the result of fewer dispensers being operated directly by
the Company for three months in 1998 as compared to three months in 1997.
Cost of revenue specifically related to the operations of the bingo
facilities represents the rental cost of such facilities, which rose, to
$54,252 in three months 1998 compared to $45,014 in 1997. Such cost increased
by $9,238, or 21%, as a result of a new lease at the Meridian bingo facility
with increased monthly rental amounts and an annual increase in rents at the
Tupelo bingo facility.
Other expenses include salaries and wages, indirect operating costs, and
other general and administrative expenses. In total, such expenses were
$234,677 and $152,670 for the quarter ended March 31, 1998 and 1997,
respectively. Indirect operating costs decreased by $20,291 or 24% compared to
the first three months of the prior year. Salaries and wages increased by
$28,891 or 49.9% as a result of hiring additional staff.
Principally, for the reasons set forth in the five preceding paragraphs,
the Company had a net income of $337,190 to quarter ended 1998, compared with
a net income of $25,456 for 1997. Included in the net income for 1998 is
interest expense of $12,394 and deferred federal income tax of $55,100 and
interest expense of $9,868 for 1997.
Financial Position
- ------------------
The Company's financial position recorded a significant improvement
during the three months ended March 31 1998 as net income increased to
$337,190 for 1998 compared to $25,456 for 1997; a remarkable increase of
1225%. Cash and cash equivalents of $150,305 increased by 58% at March 31,
1998, compared to $95,447 as of March 31, 1997.
The Company's working capital (current assets less current liabilities)
position also improved significantly during the first quarter of 1998:
$487,084 at March 31, 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 276 dispensers placed and
operating at March 31, 1998, and it would like to place and have operating an
additional 375 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 substantially increased earnings in 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 n the Company, particularly since there have been no operations
in Louisiana since 1995.
The Company is currently contesting the Mississippi Gaming Commission's
decision to reject an appraisal on the fair market value of rents charged t
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 has
issued a temporary ninety-day license, which failed to comply with the
injunctions. A hearing has been scheduled to determine whether the Commission
is in contempt of court.
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: May 14, 1998 By/S/Reid Funderburk
-----------------------------
Reid Funderburk
Chairman, C.E.O., Director
Date: May 14, 1998 By/S/George 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: May 14, 1998 By/S/Reid Funderburk
------------------------------
Reid Funderburk, Chairman, CEO & Director
Date: May 14, 1998 By/S/George Majewski
------------------------------
George Majewski, President, Director
Date: May 14, 1998 By/S/R.E. Wilkin
------------------------------
R. E. Wilkin, Director
Date: May 14, 1998 By/s/Robert H. Hughes
------------------------------
Robert H. Hughes, Director
Date: May 14, 1998 By/S/Rick Redmond
------------------------------
Rick Redmond, Director
Date: May 14, 1998 By/S/Robert Chappell
------------------------------
Robert Chappell, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 150305
<SECURITIES> 0
<RECEIVABLES> 816970
<ALLOWANCES> 0
<INVENTORY> 28140
<CURRENT-ASSETS> 1021447
<PP&E> 814737
<DEPRECIATION> 0
<TOTAL-ASSETS> 1906822
<CURRENT-LIABILITIES> 534363
<BONDS> 0
0
0
<COMMON> 8495
<OTHER-SE> 550736
<TOTAL-LIABILITY-AND-EQUITY> 1906822
<SALES> 969369
<TOTAL-REVENUES> 1151433
<CGS> 203075
<TOTAL-COSTS> 512072
<OTHER-EXPENSES> 234677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12394
<INCOME-PRETAX> 392290
<INCOME-TAX> 55100
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</TABLE>
