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, 1999
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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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BINGO & GAMING INTERNATIONAL, 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
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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 8,680,819 shares of common stock, $.001 par value, outstanding as of
June 30, 1999.
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TABLE OF CONTENTS
Page
Number
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Part I:
Item 1. Financial Statements. . . . . . . . . . . . . . . . 1
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Item 2. Management=s Discussion and Analysis. . . . . . . . 6
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Part II:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 11
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Item 2. Changes in Securities . . . . . . . . . . . . . . . 11
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Item 3. Defaults Upon Senior Securities . . . . . . . . . . 11
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Item 4. Submission of Matters to a Vote of Security Holders 11
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Item 5. Other Information . . . . . . . . . . . . . . . . . 11
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Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 11
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PART I
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BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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JUNE 30, DECEMBER 31, 1999
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1999 1998
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Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 116,364 $ 133,184
Accounts receivable - trade, net
445,246 437,850
Inventories . . . . . . . . . . . . . . . . . . . 161,538 87,169
Prepaid expenses. . . . . . . . . . . . . . . . . 31,432 15,874
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Total current assets. . . . . . . . . . . . . . . 754,580 674,077
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Property and equipment, at cost - net . . . . . . 1,202,022 1,357,187
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Other assets:
Organizational costs and intangible assets - net. 4,218 6,451
Deferred financing costs. . . . . . . . . . . . . 90,469 122,572
Deposits. . . . . . . . . . . . . . . . . . . . . 32,751 32,707
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Total other assets. . . . . . . . . . . . . . . . 127,438 161,730
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Total assets. . . . . . . . . . . . . . . . . . . $2,084,040 $ 2,192,994
========== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable - trade and accrued expenses . . $ 319,030 $ 294,918
Current maturities of long-term debt. . . . . . . 126,394 142,962
Current maturities of lease obligations . . . . . 511,791 452,892
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Total current liabilities . . . . . . . . . . . . 957,215 890,772
Long-term debt, net of current maturities . . . . 223,022 268,701
Long-term portion of lease obligations. . . . . . 190,704 479,071
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Total liabilities . . . . . . . . . . . . . . . . 1,370,941 1,638,544
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Stockholders' equity:
Common stock, $.001 par; 70,000,000 shares
8,680,819 and 8,551,819 issued and outstanding . 8,681 8,551
Additional paid-in capital. . . . . . . . . . . . 663,627 643,757
Retained earnings (deficit) . . . . . . . . . . . 40,791 (97,858)
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Total stockholders' equity. . . . . . . . . . . . 713,099 554,450
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Total liabilities and stockholders' equity. . . . $2,084,040 $ 2,192,994
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
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BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
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Revenue:
Phone card sales. . . . . . . . . . . $1,196,416 $ 880,327 $2,353,757 $1,849,696
Hall rental and concession income . . 131,849 144,165 275,086 281,784
Machine sales . . . . . . . . . . . . 174,100 29,618 188,600 67,883
Other . . . . . . . . . . . . . . . . 49,581 (4,948) 90,096 1,232
----------- ----------- ----------- -----------
Total revenue . . . . . . . . . . . . 1,551,946 1,049,162 2,907,539 2,200,595
----------- ----------- ----------- -----------
Cost of revenue:
Phone cards and royalties . . . . . . 292,392 315,157 584,925 518,232
Machine and location rental . . . . . - (135,000) 11,138 308
Prizes paid . . . . . . . . . . . . . 411,843 75,064 900,726 161,181
Hall rental and concession. . . . . . 57,235 110,114 124,978 164,366
Machine depreciation. . . . . . . . . 71,657 66,928 143,313 93,975
Machines sold . . . . . . . . . . . . 146,704 37,485 159,200 70,805
----------- ----------- ----------- -----------
Total cost of revenue . . . . . . . . 979,831 469,748 1,924,280 1,008,867
----------- ----------- ----------- -----------
Gross margin. . . . . . . . . . . . . 572,115 579,414 983,259 1,191,728
----------- ----------- ----------- -----------
Expenses:
Operating expenses. . . . . . . . . . 86,238 34,228 87,777 96,931
Salaries. . . . . . . . . . . . . . . 152,166 89,005 294,342 175,744
General and administrative expenses . 183,828 212,658 293,802 270,846
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Total expenses. . . . . . . . . . . . 422,232 335,891 675,921 543,521
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Operating income. . . . . . . . . . . 149,883 243,523 307,338 648,207
Other income and expense:
Interest expense. . . . . . . . . . . 77,077 140,931 168,684 153,325
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Net income before federal income tax. 72,806 102,592 138,654 494,882
Deferred federal income tax . . . . . - - (44,500) (10,600)
----------- ----------- ----------- -----------
Net income. . . . . . . . . . . . . . 72,806 147,092 138,654 484,282
Retained earnings:
Beginning (deficit). . . (97,858) (224,504) (97,858) (224,504)
----------- ----------- ----------- -----------
Ending (deficit) . . . . $ (25,052) $ (77,412) $ 40,796 $ 259,778
=========== =========== =========== ===========
Basic and diluted earnings per share. $ 0.01 $ 0.02 $ 0.02 $ 0.06
=========== =========== =========== ===========
Weighted average shares outstanding . 8,636,786 8,552,774 8,636,786 8,552,774
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
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BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
1999 1998
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Operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 138,651 $ 484,282
Adjustments to reconcile net income to net cash from
Depreciation and amortization . . . . . . . . . . 168,498 138,061
Deferred financing cost . . . . . . . . . . . . . 32,103 -
Stock issued for consulting fee . . . . . . . . . 4,998 -
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . (7,396) (496,641)
Inventories . . . . . . . . . . . . . . . . . (74,369) (31,362)
Prepaid expenses. . . . . . . . . . . . . . . (15,602) (31,220)
Deferred federal income tax . . . . . . . . . - 10,600
Accounts payable - trade and accrued expenses 24,108 (108,772)
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Net cash (used) provided from operating activities. . 270,991 (35,052)
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Investing activities:
Purchase of property and equipment. . . . . . . . . . (11,100) (29,728)
Proceeds from long-term debt - 14,409
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Cash used by investing activities . . . . . . . . . . (11,100) (15,319)
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Financing activities:
Payments on long-term debt. . . . . . . . . . . . . . (304,649) 169,033
Proceeds from long term debt. . . . . . . . . . . . . 12,936 (159,366)
Issuance of common stock. . . . . . . . . . . . . . . 15,002 70,670
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Cash (used) provided by financing activities . . . . (276,711) 80,337
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Net increase(decrease) in cash and cash equivalents . (16,820) 29,966
Cash and cash equivalents at beginning of year. . . . 133,184 53,934
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Cash and cash equivalents at end of year. . . . . . . $ 116,364 $ 83,900
========== ===========
Supplemental disclosures of cash flow information:
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Interest paid . . . . . . . . . . . . . . . . . . . . $ 168,684 $ 153,325
========== ===========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 10,000
========== ===========
Supplemental disclosure of non-cash investing and
financing activities:
-
Proceeds from financing of equipment purchases. . $ $1,310,264
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Bingo & Gaming International, Inc. (the "Company") 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 the
consolidated company in a transaction viewed as a "reverse acquisition", whereby
each of the corporations comprising Monitored became wholly-owned subsidiaries
of the Company. As a result, the merger was accounted for as an "equity
restructuring" of Company.
In May, 1996, the Company began distributing the Lucky Shamrock Emergency Phone
Card Dispenser, under an exclusive agreement with Diamond Game Enterprises.
This agreement was terminated by the mutual consent of the parties in October
1997.
In October 1997, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired
under the purchase method. PPI is a wholly owned subsidiary of the Company.
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 the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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 Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
ORGANIZATIONAL COSTS AND INTANGIBLE ASSETS:
Organizational costs and intangible assets include significant expenses of
bringing new locations into operation and the cost of a noncompete agreement.
Organizational costs are amortized over periods of not more than five years and
the cost of the noncompete agreement is being amortized over five 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.
4
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BINGO & GAMING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
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 not "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
earned. An allowance for doubtful accounts is provided based on periodic review
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.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS.
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PLAN OF OPERATION
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In October 1997, the Company executed an exclusive distribution agreement with
Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid Phone Card
Dispenser. This agreement provides for the Company to have the exclusive
distribution rights for North America 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 locations in Texas, Oklahoma and
Washington. As of July 29, 1999, the Company has 279 dispensers in operation in
Texas, Oklahoma, Arizona, California, Illinois, Idaho, Connecticut, and
Pennsylvania, and North Dakota.
The Company's primary focus for the next quarter is to place 46 machines that
were relocated out of Oklahoma in the Texas market. The program of upgrading
machine locations implemented in January 1999 has been successful and is a
contributing factor to the increase in net phone card sales for the six months
ended June 30, 1999. In April, the Company executed an exclusive distribution
contract for the state of North Dakota, and sales of machines and phone cards
for May and June reflect expansion in this new territory. However, the
distributor, with the consent of the Company, has temporarily suspended
distribution and purchases of new machines awaiting the outcome of a request
that the Attorney General of North Dakota be permanently enjoined from taking
any action to interfere with the operation of the phone card dispensers. The
hearing for this action is scheduled for August 24, 1999.
In order to diversify its product line, the Company has secured exclusive
distribution rights for the Cyberdyne finite pull tab dispenser for Ohio. The
Company is currently performing a market test on this machine and negotiating a
distribution agreement. The dispensers have received a positive reaction from
charitable gaming organizations. In concert with the Company's plan to develop
additional products, the Electrotab pull tab dispenser was planned for
deployment in the Oklahoma territory earlier this year. However, the dispenser
was not conducive to the unique character of the market in the native American
gaming establishments in Oklahoma, and placements were never completed.
Additional machines have been placed in Texas during this quarter and this trend
is expected to continue as a result of the completion of development of an
upgrade in the machine software in June. The software decreases the current
cost of operation for retail locations as well as increases the convenience of
use by the consumer. The expansion of the Texas market, focus on concluding
negotiations to directly manage and operate machines located in the Oklahoma
territory, and the development of new territories is the basis for the Company's
projection to achieve record sales and net income for the 1999 fiscal year.
However, the rate of growth will depend on the availability of either borrowing
or leasing opportunities for the Company, as well as the number of dispensers
that can be sold to retail operators.
RESULTS OF OPERATIONS
- -----------------------
THREE MONTHS ENDED JUNE 30, 1999
COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1998
The Company experienced an overall increase of 48% in total revenues from sales
during the three months ended June 30, 1999, over the same period ended June 30,
1998. Revenues include rental income from charitable organizations that lease
the Company's bingo facilities as well as the related concession and vending
income. In addition, phone card activities produced revenues from the sale of
machines and phone cards as well as rental income from machines.
6
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The major revenue source for the Company for the quarters ended June 30, 1999
and 1998, is from the sale of phone cards. Sales for the three months ended
June 30, 1999, are $1,196,416 compared to $880,327 for the comparable period
ended June 30, 1998. This represents an increase of 36%. This increase
results from the Company's program to upgrade machine locations to optimize
sales as well as the increase in unit sales price experienced from the
transition to more machines that are directly operated by the Company.
Machine sales became the second greatest revenue source for the Company during
the quarter ended June 30, 1999. Sales from this source of revenue increased by
488% for the three month period ended June 30, 1999 as a result of the execution
of new distribution contracts for North Dakota and Pennsylvania. The Company
projects that machine sales will continue to be a significant portion of
revenues for the remainder of the fiscal year with expansion into additional
territories including California and Ohio.
Rental and concession income from charity bingo locations has decreased by 9%
for the quarter ended June 30, 1999. This decrease is a result of recent
legislation in the state of Mississippi enabling the Mississippi Gaming
Commission to restrict rents paid by charity bingo operations and is discussed
in further detail in the six month comparison following.
Cost of revenues represent expenses directly attributable to the operations of
the phone card dispensers and operations of the bingo facilities. In total,
cost of revenues as a function of total sales has increased by 18% for the
quarter ended June 30, 1999 as compared to the quarter ended June 30, 1998 and
is comprised primarily of an increase in prizes paid which is discussed more
fully in the six month comparison.
Operating expenses for the Company consist of advertising, bad debt expense,
travel, repairs and maintenance, auto expense, registration fees, and business
promotion. Operating expenses for the three month period ended June 30, 1999
increased by 152% for the comparable period ended June 30, 1998. The increase
is due primarily to an increase in travel related to developing new territories
accounting for 86% of the total increase in operating expenses. In addition,
the Company experienced an increase in bad debt expense related to the
reevaluation of the allowance for uncollectible accounts factor from 1% of net
phone card sales to 2% of net phone card sales. This, coupled with the increase
in phone card sales, impacted bad debt expense as well as the increase in sales
for this three month period. The increase in bad debt expense accounts for 66%
of the total increase in operating expenses.
General and administrative expense consists of rent, director's fees, consultant
services, director's liability insurance, computer maintenance, legal expense,
accounting services, office supplies and depreciation. This category of expense
decreased by 13% for the three month period ended June 30, 1999 as compared to
the three month period ended June 30, 1998 and is due to a decrease in legal
expense.
Finally, salaries and benefits increased by 70% for the quarter ended June 30,
1999 as compared to the quarter ended June 30, 1998. This increase is related
to pay increases for employees and increased costs of insurance and other
benefits as well as the hiring of a Chief Financial Officer, two additional
full-time technicians, and a secretary.
In summary, net income before tax for the three month period ended June 30, 1999
has decreased by 29% as compared to the comparable period ended June 30, 1998.
This decrease is due to an increase in the cost of sales related to a transition
to more Company operated machines with the offsetting benefit of allowing the
Company to collect cash more rapidly. In addition, this reduction in net income
is the result of additional overhead incurred in connection with the significant
sales growth from expansion into new territories.
7
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SIX MONTHS ENDED JUNE 30, 1999
COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998
The Company experienced an overall increase of 32% in total revenues from sales
during the six months ended June 30, 1999 over the six month period ended June
30, 1998. Revenues include rental income from charitable organizations that
lease the Company's bingo facilities as well as the related concession and
vending income. In addition, phone card activities produce revenues from the
sale of machines and phone cards as well as rents from machines.
The major revenue source for the Company for the six months ended June 30, 1999
and 1998, is from the sale of phone cards. Sales from phone cards for the six
month period ended June 30, 1999, increased by 27% over the comparable six month
period ended June 30, 1998. This increase in phone card sales is the result of
an increase of 600% in the number of machines placed in route operations that
generate a higher unit sales price per phone card. Additionally, the route
operated locations produce a higher unit sales volume, on average, than
non-route locations. Placements of machines during 1999 have resulted in
higher sales volume consistent with the Company's program to upgrade machine
placements.
Rental and concession income from charity bingo locations decreased by 2% during
the six month period ended June 30, 1999 as a result of recent legislation in
the state of Mississippi enabling the Mississippi Gaming Commission to restrict
rents paid by charity bingo operations. The Company expects revenues from hall
rentals to diminish by 34.5% in future quarters as a result of the reduction in
rents ordered by the Mississippi Gaming Commission. However, this segment of
the Company's operations has become increasingly less significant over the last
year as a result of increased focus on the prepaid phone card operations.
Machine sales increased by 178% for the six month period ended June 30, 1999 as
a result of the execution of distribution contracts for North Dakota and
Pennsylvania. The Company anticipates that machine sales will become the second
most significant revenue source by the end of the third quarter of this year
with expansion into additional territories including California and Ohio.
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 $1,924,280 and $1,008,867 for the six month period ended June 30,
1999 and 1998, respectively. Cost of revenue as a function of total sales
increased by 21% for the six month period ended June 30, 1999 as compared to the
same period in 1998.
The components of cost of revenues for the phone card segment consist of the
cost of phone cards, long distance and commissions, cost of machines sold,
prizes paid, machine depreciation and machine rental. Cost of revenues for the
phone card segment of the Company's operations totaled $1,799,302 from phone
card and machine sales of $2,542,357 for the six month period ended June 30,
1999 as compared to $844,501 from phone card and machine sales of $1,917,579 for
the six month period ended June 30, 1998. Cost of revenues for phone card
operations increased by 27% as a function of phone card and machine sales for
the six month period ended June 30, 1999 as compared to the comparable period
ended June 30, 1998. This increase is the result of an increase in prizes paid
during the six month period ended June 30, 1999 compared to the six month period
ended June 30, 1998. The increase in prizes paid is the result of two factors.
First, the Company increased the number of machines that it directly operates
by 650%, and prizes paid are an expense of the direct operator. Secondly, the
amount of sweepstakes prizes paid was increased to test the sensitivity of
sales volume to increases in the total amount of sweepstakes prizes paid. The
result of these two factors accounts for the increase in the prizes paid as a
per cent of sales during the six month period ended June 30, 1999.
The components of cost of revenues for the charity bingo facilities leasing
segment consist of the rental cost of such facilities as well as supplies.
During the six month period ended June 30, 1999, the Company experienced a
decrease as a percent of bingo segment revenues in hall rental and concession
expense of 13% as compared to the six month period ended June 30, 1998.
8
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Operating expenses for the Company consist primarily of advertising, travel,
repairs and maintenance, auto expense, registration fees, and business
promotion. Operating expenses for the six month period ended June 30, 1999
decreased by 9%. This decrease is the result of decreases in travel, small
tools, advertising, freight, registration fees, and a reduction in the allowance
for uncollectible accounts as compared to the six month period ended June 30,
1998.
General and administrative expense consists of rent, consultant services,
director's liability insurance, computer maintenance, legal expense, accounting
services, office supplies and depreciation. The Company experienced an
increase of 8% in general and administrative expense for the six month period
ended June 30, 1999 due to increased costs for lobbying, development of a
database to facilitate the tracking of individual machine production, and
implementation of a new computer network as well as the election by the Board of
Director's to begin paying director's fees.
Salaries and benefits increased by 67% for the six month period ended June 30,
1999 as compared to the same period ended June 30, 1998. This increase is
related to pay increases for employees and increased costs of insurance and
other benefits as well as the hiring of a Chief Financial Officer, two
additional full-time technicians, and a secretary.
In summary, net income for the six month period ended June 30, 1999, is $138,654
as compared to $484,282 for the comparable period ended June 30, 1998,
representing a 71% decrease. This decrease is a function of several factors.
First, during the six month period ended June 30, 1998, the Company purchased
325 machines and deployed 176 in Oklahoma. The majority of the Oklahoma
placements were in native American charitable gaming facilities that began to
place large quantities of other devices offering cash prizes in the third
quarter of 1998. The unusual competitive environment in these facilities had a
negative impact on the sales volume of the phone cards. Consequently, the
Company began focusing on opening new territories to redeploy machines from the
Oklahoma territory. Second, in the last quarter of 1998, the Company began
placing machines in route operations which produce a greater unit sales price.
In addition, the Company began experimenting with increasing the sweepstakes
prizes paid in order to stimulate further growth in sales volume. However, as
discussed earlier, the route or direct operation of machines results in a lower
gross profit due to the sweepstakes prize payments that are incurred directly by
the Company, and sales volume did not increase as quickly as projected. The
result of these factors is that the Company has accomplished the desired
increases in sales volume with a smaller contribution to gross profit with the
benefit of transitioning to a more stable operating environment by redeploying
machines in smaller concentrations into retail locations that are more
compatible with the Company's product. Therefore, the Company projects that
sales growth and profitability will continue at the present rate.
LIQUIDITY
- ---------
As of June 30, 1999, the Company's total assets were $2,084,040 as compared to
$2,192,994 for the year ended December 31, 1998. In addition, total liabilities
at June 30, 1999 were $1,370,940 as compared to $1,638,544 at December 31,
1998. Current assets as of June 30, 1999 of $754,580 and $674,077 as of
December 31, 1998, represent 78% and 75% of current liabilities of $957,215 and
$890,772, respectively. The Company's cash position has diminished since
fiscal year end due to the write off of obsolete inventory, returns credited to
accounts receivable recorded at fiscal year end for overcharges, and replacement
of parts under warranty in machines from inventory. The Company's liabilities
at June 30, 1999, of $1,370,940 consist of $702,495 of a fully secured capital
lease obligations, $445,424 of current liabilities consisting of accounts
payable, accrued expenses and notes payable, and $223,021 of long-term debt.
During the quarter ended June 30, 1999, the working capital deficit was
$395,605 as compared to a working capital surplus of $206,350 for the quarter
ended June 30, 1998. The balances of accounts payable and accrued expenses
decreased by $6,250 and accounts receivable decreased by $398,424 for the
comparative quarters. As of June 30, 1999, the Company was delinquent on
$103,634 or 41 % of total accounts payable. However, credit memos against those
delinquent accounts payable in the amount of $57,000 have been received
subsequent to June 30, 1999.
9
<PAGE>
The Company has a need for additional working capital to meet contractual
obligations. Management believes that revenues from the existing machines owned
by the Company will be sufficient to produce the necessary working capital to
meet its working capital requirements. However, there is no assurance that such
revenues will materialize.
10
<PAGE>
PART II-OTHER INFORMATION
11
<PAGE>
ITEM 1. LEGAL PROCEEDINGS.
-------------------
In 1998, the Mississippi Gaming Commission rendered a decision to reject an
appraisal on the fair market value of rents charged at the Tupelo bingo
facility. A permanent injunction was obtained in Hinds County Chancery Court
(98-CA-01198-SCT) requiring the Gaming Commission to renew the Company's license
to operate as a lessor. The Commission was ordered to accept the two appraisals
already submitted and received a contempt of court citation. The Commission
issued a license renewal for the Iuka location and appealed the injunction on
the license renewal for the Tupelo location. The Court of Appeals of the State
of Mississippi ruled in favor of the Mississippi Gaming Commission, but prior to
this, the Mississippi Supreme Court had ruled in favor of Tupelo Industries.
Tupelo Industries has filed a motion for a rehearing on the Court of Appeals
ruling. In addition, the Commission declined to renew a third facility license
for the Meridian location, but the facility has continued to operate pending the
results of a hearing whose date has yet to be determined. Finally, the
Commission has denied a renewal application for the charitable lessee of the
Iuka facility. One year passed without a hearing and a new renewal application
was required. The charitable organization was granted a 90 day license.
Legislation (HB977) passed in the most recent session of the Mississippi
Legislature eliminated the licensing requirement for commercial lessors;
thereby, making the dispute over the licensing of the Meridian facility a moot
point.
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.
-------------------
The Company is currently evaluating its computer systems to determine whether
modifications and expenditures will be necessary to make its systems and those
of its vendors compliant with year 2000 requirements. These requirements have
arisen due to the widespread use of computer programs that rely on two-digit
date codes to perform computations or decision-making functions. Many of these
programs may fail as a result of their inability to properly interpret date
codes beginning January 1, 2000. For example, such programs may interpret "00"
as the year 1900 rather than 2000. In addition, some equipment, being controlled
by microprocessor chips, may not deal appropriately with the year "00". The
Company believes it will timely meet its year 2000 compliance requirements and
does not anticipate that the cost of compliance will have a material adverse
effect on its business, financial condition, or results of operations. However,
there can be no assurance that all necessary modifications will be identified
and corrected or that unforseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of other companies on which
the Company's systems rely will be modified on a timely basis, or that the
failure by another company to properly modify its systems will not negatively
impact the Company's systems or operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------------
None
12
<PAGE>
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: 7/30/99
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: 7/30/99
By /S/ Reid Funderburk
-----------------------------------------
Reid Funderburk, Chairman, C.E.O. & Director
Date: 7/30/99
By /S/ George Majewski
-------------------------------
George Majewski, Director, President
Date: 7/30/99
By /S/ Rhonda McClellan
-------------------------------------
Rhonda McClellan, Chief Financial Officer
Date: 7/30/99
By /S/ R. E. Wilkin
------------------
R. E. Wilkin, Director
Date: 7/30/99
By /S/ Robert H. Hughes
----------------------
Robert H. Hughes, Director
Date: 7/30/99
By /S/ Rick Redmond
-----------------
Rick Redmond, Director
13
<PAGE>
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