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 SEPTEMBER 30, 2000
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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 9,176,523 shares of common stock, $.001 par value, outstanding as of
September 30, 2000.
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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 5
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Part II:
Item 1. Legal Proceedings 6
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Item 2. Changes in Securities and Use of Proceeds 6
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Item 3. Defaults Upon Senior Securities 6
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Item 4. Submission of Matters to a Vote of Security Holders 6
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Item 5. Other Information 6
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Item 6. Exhibits and Reports on Form 8-K 6
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PART I:
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ITEM 1. FINANCIAL STATEMENTS
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BGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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SEPTEMBER 30, DECEMBER 31, 1999
2000 1999
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<S> <C> <C>
Current assets:
Cash $ 57,368 $ 89,636
Accounts receivable - trade, net 135,994 174,868
Inventories 77,683 123,458
Prepaid expenses 24,637 18,173
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Total current assets 295,682 406,135
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Property and equipment, at cost - net 820,701 1,060,922
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Other assets:
Intangible assets - net 78,964 61,721
Deferred financing costs 43,969 83,366
Deposits 30,150 33,803
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Total other assets 153,083 178,890
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$
Total assets $ 1,269,466 $ 1,645,947
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable - trade and accrued expenses $ 319,952 $ 299,826
Current maturities of long-term debt 218,920 237,083
Current maturities of capital lease obligations 472,845 494,889
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Total current liabilities 1,011,717 1,031,798
Long-term debt, less current maturities 31,615 43,835
Capital lease obligations, less current maturities 5,172 73,705
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Total liabilities 1,048,504 1,149,338
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Stockholders' equity:
Preferred stock, nonvoting; $.001 par; 10,000,000
shares authorized; no shares issued and outstanding - -
Common stock, $.001 par; 70,000,000 shares authorized;
8,551,819 and 8,558,418,6021,5
9,176,523 and 8,862,389 issued and outstanding 9,176 8,862
Additional paid-in capital 957,134 808,348
Retained earnings (deficit) (745,348) (320,601)
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Total stockholders' equity 220,962 496,609
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Total liabilities and stockholders' equity $ 1,269,466 $ 1,645,947
================= ===================
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
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BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue:
Phone card sales $ 560,193 909,282 2,108,699 $ 3,263,039
Hall rental and concession income 82,602 102,947 249,777 378,033
Machine sales 4,995 22,800 40,976 211,400
Other revenue 8,367 15,940 34,058 106,036
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Total revenue 656,157 1,050,969 2,433,510 3,958,508
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Cost of revenue:
Phone cards 243,359 309,337 830,215 1,048,713
Prizes paid 187,040 270,538 701,405 1,171,264
Hall rental and concession expenses 47,632 50,687 143,393 175,665
Machines sold 3,875 19,375 27,705 178,575
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Total cost of revenue 481,906 649,937 1,702,718 2,574,217
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Gross margin 174,251 401,032 730,792 1,384,291
General and administrative expenses 290,088 289,627 948,668 965,548
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Operating income (loss) (115,837) 111,405 (217,876) 418,743
Interest expense 78,981 60,217 206,863 228,901
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Income (loss) before federal income tax (194,818) 51,188 (424,739) 189,842
Federal income tax - - - -
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Net income (loss) (194,818) 51,188 (424,739) 189,842
Retained earnings (deficit):
Beginning (550,522) 40,796 (320,601) (97,858)
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Ending $ (745,340) $ 91,984 $ (745,340) 91,984
============= ============ ============= =============
Basic and diluted earnings (loss)
per common share $ (0.02) $ 0.01 $ (0.05) $ 0.02
============= ============ ============= =============
Weighted average shares outstanding 9,004,639 8,663,006 9,323,870 8,663,006
============= ============ ============= =============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
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<CAPTION>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
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2000 1999
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<S> <C> <C>
Operating activities:
Net income $(424,739) $ 189,842
Adjustments to reconcile net income to net cash income:
Depreciation and amortization 278,445 263,489
Recovery from bad debts (67,848) -
Stock issued for consulting fee 76,433 9,378
Deferred financing cost 39,398 48,154
Changes in current assets and liabilities:
Accounts receivable 38,874 3,802
Inventories 45,775 (50,673)
Prepaid expenses (6,464) (16,770)
Accounts payable - trade and accrued expenses 20,126 (530)
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Cash provided by operating activities 155,461 446,692
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Investing activities:
Purchase of property and equipment (57,757) (98,312)
Increase (decrease) in other assets (25,807) (36,312)
Proceeds from sale of equipment 3,000 31,500
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Cash provided (used) by investing activities (80,564) (103,124)
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Financing activities:
Payments on long-term debt (73,884) (113,292)
Payments on long-term leases (98,281) (318,067)
Proceeds from long term debt - 12,936
Proceeds from issuance of common stock 65,000 15,002
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Cash provided (used) by financing activities (107,165) (403,421)
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Net increase (decrease) in cash (32,268) (59,853)
Cash at beginning of period 89,636 133,184
Cash at end of period $ 57,368 $ 73,331
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Supplemental disclosures of cash flow information:
Interest paid $ 206,863 $ 228,901
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Taxes paid $ 23,981 $ 20,860
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Supplemental disclosures of non-cash investing and
financing activities:
Stock issued to consultant $ 76,433 $ 9,378
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Stock issued to acquire distributor $ - $ 221,169
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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BGI, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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BASIS OF PRESENTATION:
The financial statements for the nine months ended September 30, 2000 and
September 30, 1999 are unaudited. They have however been prepared from the
books and records of the Company in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission. All adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of financial position, operating results and cash flows for the
interim periods have been reflected. These financial statements should be read
in conjunction with the Company's most recent Annual Report on Form 10-KSB,
which includes audited financial statements for the year ended December 31,
1999.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with this
September 30, 2000 presentation.
GOING CONCERN:
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. Numerous factors could affect
the Company's operating results, including, but not limited to, general economic
conditions, competition, and changing technologies. Any significant adverse
change in any of these factors could have an adverse effect on the Company's
consolidated financial position or results of operations. Further, the Company
has had losses for the year ended December 31, 1999 and the nine months ended
September 30, 2000, and its working capital position has, therefore
deteriorated. At September 30, 2000, current liabilities exceeded current
assets by $716,035. Additionally, payments under a master lease agreement for
equipment were delinquent but with the permission of the lessor.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheets is dependent upon the Company's success with its
operations in the future.
TAXES ON INCOME:
The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible changes in the tax laws or rates. The Company provides a
valuation allowance against its deferred tax assets to the extent that
management estimates that it is not "more likely than not" that such deferred
tax assets will be realized. Accordingly, the Company has not anticipated any
tax benefits from tax losses for the nine months ended September 30, 2000 and
September 30, 1999.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is including the following cautionary statement in this
Quarterly Report on Form 10-QSB to make applicable and utilize the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 regarding any
forward looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in such statements.
The Company's expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will be realized.
RESULTS OF OPERATIONS
-----------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1999
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Total revenue for the three months ended September 30, 2000, was $656,157
compared to $1,050,969 for the three months ended September 30, 1999. This
37.6% decrease resulted from declines in phone card and machine sales due to
recent competitive pressures and a decrease in the number of machines operating
in bingo and other facilities. Additionally, reduced hall rental and concession
income from bingo facility operations occurred as a result of regulatory
pressures previously noted in the Form 10-KSB for the year ended December 31,
1999.
Gross margin for the three months ended September 30, 2000, was $174,251 as
compared to $401,032 for the three months ended September 30, 1999. The
decrease of $226,781 resulted from the above mentioned 37.6% decline in revenue
and the continuing fixed costs associated with hall rental and machine
depreciation.
General and administrative expenses for the three months ended September 30,
2000, were $290,088 as compared to $289,627 for the three months ended September
30, 1999. These expenses remained constant compared to three months ended
September 30, 1999.
The $18,764 increase in interest expense is due to additional interest charges
on late payment of principal and interest on several unpaid notes.
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------
Total revenue for the nine months ended September 30, 2000, was $2,433,510
compared to $3,958,508 for the nine months ended September 30, 1999. This 38.5%
decrease was the result of declines in phone card and machine sales, primarily
from increased competition in the Company's primary areas of operations and a
decrease in the number of machines operating in bingo and other facilities.
Additionally, reduced hall rental and concession income from bingo facility
operations occurred as a result of regulatory pressures previously noted in the
Form 10-KSB for the year ended December 31, 1999.
Gross margin for the nine months ended September 30, 2000, was $730,792 or 30%
as compared to $1,384,291 or 34.9% for the nine months ended September 30, 1999.
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 nine months ended September 30,
2000, were $948,668 compared to $965,548 for the nine months ended September 30,
1999. For the most part, this decrease was the result of improvements in
expense controls. Management has undertaken a complete review of all business
processes and implemented revisions where appropriate.
5
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The $22,038 decrease in interest expense is the result of decrease in principal
balances.
LIQUIDITY
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Current assets of $295,682 as of September 30, 2000, represented 29.2% of
current liabilities of $1,011,717 as compared to current assets of $406,135 at
September 30, 1999, which represented 39.4% of current liabilities of
$1,031,798. The Company's decreased cash position at September 30, 2000, is
primarily the result of decrease in sale of phone cards, machines, and
increased competition in the Company's primary areas of operations.
Additionally, the Company has funded approximately $200,000 of development costs
for the Virtual Sweepstakes Internet site.
This site is being designed to enhance the sale of the Company's prepaid phone
cards currently being sold through its prepaid phone card dispensers in
conjunction with the instant win sweepstakes on the Internet. In addition to
enhancing the sale of the Company's prepaid phone cards, additional revenue may
be generated by marketing the system as a Virtual Sweepstakes Engine to operate
promotional sweepstakes for other businesses.
As of September 30, 2000, the Company was delinquent on $478,689 of monthly
installments due under a master lease for certain equipment, but with the
permission of the lessor. The Company was also over 30 days past due on trade
accounts payable of $197,673 with one supplier, but such supplier has provided
an extension of terms. Management is acutely aware of the Company's liquidity
problem and is concentrating on returning to profitability as quickly as
possible, rearranging or replacing the Company's indebtedness, including its
capital lease obligations, and arranging for the additional financing required
to go forward with the Virtual Sweepstakes Internet operations.
PART II
ITEM 1. LEGAL PROCEEDINGS.
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None
ITEM 2. CHANGES IN SECURITIES.
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The Company has contracts with a limited number of consultants and expects to
issue them shares of common stock upon completion of registration under Form
S-8.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-----------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None
ITEM 5. OTHER INFORMATION.
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George Majewski, resigned as President, on May 15, 2000 to pursue other business
interests. Thomas B. Murphy was then elected as President by the Board of
Directors. Rhonda McClellan resigned as the Company's Treasurer and Chief
Financial Officer on June 8, 2000. She has not as yet been replaced.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibit
Annual Report on Form 10-KSB for the year ended December 31,
filed April 15, 2000**
**This document and related exhibits have been previously
filed with the Securities and Exchange Commission and by
this reference are incorporated herein.
6
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BGI, INC.
Date: 11/10/00 By /s/ Reid Funderburk
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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: 11/10/00
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By /s/ Reid Funderburk
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Reid Funderburk, Chairman, C.E.O. & Director
Date: 11/10/00
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By /s/ Thomas Murphy
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Thomas Murphy, President
Date: 11/10/00
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By /s/ Robert Chappell
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Robert Chappell, Controller & Secretary/Treasurer
7
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