U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1999
-----------------
FOR THE TRANSITION PERIOD FROM TO
------------------- ---------------------
COMMISSION FILE NO. 0-10519
--------
BGI, INC.
---------
OKLAHOMA 73-1092118
- ----------------------------------- -----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)
13581 POND SPRINGS RD. SUITE 105
AUSTIN, TEXAS 78729
--------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (512) 335-0065
---------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE.
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: COMMON VOTING
STOCK.
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-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT CALENDAR YEAR: DECEMBER 31, 1999 -
$4,890,826
<PAGE>
THE EXHIBIT INDEX COMMENCES ON PAGE 35.
STATE THE AGGREGATE MARKET VALUE OF THE COMMON VOTING STOCK HELD BY
NON-AFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD,
OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF DATE WITHIN THE PAST 60
DAYS.
MARCH 8, 2000. - $5,679,765. THERE ARE APPROXIMATELY 4,130,738 SHARES OF
COMMON VOTING STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
NOT APPLICABLE.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF LATEST PRACTICABLE DATE:
MARCH 8, 2000
9,038,087 SHARES OF COMMON STOCK
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
A DESCRIPTION OF "DOCUMENTS INCORPORATED BY REFERENCE" IS CONTAINED IN ITEM 13
OF THIS REPORT.
TRANSITIONAL SMALL BUSINESS ISSUER FORMAT YES NO
---- ----
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
NUMBER
--------
<S> <C>
ITEM 1. DESCRIPTION OF BUSINESS 1
-----------------------
ITEM 2. DESCRIPTION OF PROPERTY 3
-----------------------
ITEM 3. LEGAL PROCEEDINGS 4
----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
---------------------------------------------------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 5
--------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS 6
------------------------------------
ITEM 7. FINANCIAL STATEMENTS 11
-------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE 30
-------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
-------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT 30
-------------------------------------
ITEM 10. EXECUTIVE COMPENSATION 33
---------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 33
-------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
---------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 35
-------------------------------
</TABLE>
PART 1
Item 1. Description of Business.
----------------------------
BUSINESS
- --------
Background
- ----------
BGI, Inc., an Oklahoma corporation ("BGI" or the "Company"), headquartered in
Austin, Texas, is a distributor of prepaid phone card dispensers ("dispensers")
and prepaid phone cards. In addition, the Company operates as a lessor of
charity bingo facilities.
The Company consists of five wholly-owned subsidiaries, Tupelo Industries, Inc.,
a Mississippi corporation, ("Tupelo"), Meridian Enterprises, Inc., a
Mississippi corporation, ("Meridian"), and Red River Bingo, Inc., a Louisiana
corporation, ("Red River"), Monitored Investments, Inc., a Texas corporation,
("Monitored") and PrePaid Plus, Inc., a Texas corporation, ("PPI"). With the
exception of PPI, the subsidiaries are dormant or sub-lessors of real
property to three charitable bingo operations in Meridian, Iuka, and Tupelo,
Mississippi. PPI was formed in October 1997 for the purpose of conducting the
prepaid phone card activities. In addition, the Company acquired a subsidiary,
Linkmarkets.com, Inc. in April 2000 for the purpose of completing the
development and launch of an Internet sweepstakes site that has been under
development since October 1999.
In September 1999, the shareholders voted in the annual shareholders meeting to
rename the Company, formerly Bingo & Gaming International, Inc., to BGI, Inc.
Business
- --------
The Company began its operations in December 1994 and was engaged in the
business of managing charity bingo locations as well as owning and operating, as
licensed commercial lessors, charity bingo locations. In May 1996, the Company
began renting and distributing prepaid phone card vending machines (the
"machines") that employed a novel marketing concept of permitting consumers to
enter a free promotional sweepstakes offering cash prizes from $1 to $1,000.
The Company redirected its focus to ownership of the Machines for its own
distribution as well as offering them for resale during 1997. This effort was
facilitated by negotiating an exclusive agreement with a new vendor for
machines with a patented cartridge based technology that offered superior
controls over cash collections and a system for the accounting of promotional
prizes paid. In addition, this new contract expanded the exclusive territory
from Texas to all of North America.
As of April 10, 2000, the Company owns 325 dispensers that are located
throughout the states of Texas, Oklahoma, Arizona, Colorado, and Pennsylvania.
The majority of company owned machines are placed in Texas and Oklahoma. In
addition, there are 80 machines that have been sold to operators and
distributors.
During the year ended December 31, 1999, the Company operated three charity
bingo centers. Casino Bingo in Meridian, Mississippi, commenced business in
June 1992. Magnolia Bingo in Tupelo, Mississippi, commenced business in June
1992. Tishomingo Bingo in Iuka, Mississippi, began operating in June 1995.
<PAGE>
- ------
Services and Products
- -----------------------
Until the end of 1996, the Company's sole business consisted of managing and/or
leasing charity bingo facilities in Texas, Louisiana and Mississippi. At the
end of 1996, the Company began to rent prepaid phone card dispensers and sell
prepaid long distance phone cards to be vended from the dispensers and
discontinued the management of bingo facilities. In December 1997, the Company
began to sell and purchase dispensers for its own operation as well as sell
phone cards. In addition, BGI continued its activities as a lessor of charity
bingo facilities.
Competition
- -----------
The promotional sweepstakes phone card industry represents only a fraction of
the telecard industry. Although there is little competition in this segment of
the prepaid phone card industry, several additional manufacturers have begun to
produce vending devices with promotional sweepstakes features. The Company has
lost some locations to these competing manufacturers in the year ended December
31, 1999. Additionally, pricing pressure by the competition has resulted in
adjustments by the Company to remain competitive.
Several new bingo halls have opened in direct competition with those owned by
the Company. In Iuka, Mississippi, a new bingo hall recently opened. While
this is a newly constructed facility, the Company's bingo center has not
suffered any decrease in attendance. In Tupelo, Mississippi, several additional
bingo facilities have opened and increased competition. For the most part, they
replace bingo centers that were closed in the past year by the Mississippi
Gaming Commission. One of these is located in a newly constructed building.
However, its location is not on a major thoroughfare. Tupelo is a larger city
than Iuka, and the Company believes that there are sufficient bingo players to
support multiple bingo centers.
Major Suppliers
- ----------------
The Company's dispensers are manufactured by Cyberdyne Systems, Inc. of Phoenix,
Arizona. Cyberdyne has been manufacturing similar equipment since 1987, and it
has diversified into such other areas as gaming and finite pull tab dispensers.
Although the Company depends on this one source for its product, the
manufacturer is financially sound and has been in operation for over ten years.
Two sources supply the thermal paper used in the Dispensers, and the Company
currently relies on Starpoint, Inc. and Tradex International,which are resellers
of long distance service.
Government Regulations
- -----------------------
The charity bingo business is regulated by the states in which such businesses
are operated. In March 1999, the Mississippi legislature passed House Bill 997
removing "the requirement that a commercial lessor obtain a license from the
Gaming Commission." This bill empowered the Gaming Commission to solely
determine the fair market rental rate for a bingo facility and removed the
requirement for independent appraisals to determine the fair market rental rate.
Unable to rely on the appraisals to validate the rental amounts charged to the
charities conducting bingo, the Company reduced its rates to a level acceptable
to the Mississippi Gaming Commission.
The Texas Lottery Commission requested an Opinion from the Office of the
Attorney General, State of Texas, "Re: Whether the offer for sale of a
sweepstakes ticket combined with a long distance telephone card constitutes an
illegal lottery". On February 20, 1997, the Office of the Attorney General
issued Letter Opinion No 97-008, which sets forth the facts which must be
determined before a promotional sweepstakes can be determined to be an illegal
lottery. The Company believes that its promotional sweepstakes meets all of the
requirements to be considered a legal sweepstakes.
<PAGE>
The Company is subject to Regulation 14A of the Securities and Exchange
Commission, which regulates proxy solicitations. Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), requires all
companies with securities registered pursuant to Section 12(g) thereof to comply
with the rules and regulations of the Commission regarding proxy solicitations,
as outlined in Regulation 14A. Matters submitted to stockholders of the Company
at a special or annual meeting thereof or pursuant to a written consent will
require the Company to provide its stockholders with the information outlined in
Schedules 14A or 14C of Regulation 14; preliminary copies of this information
must be submitted to the Commission at least 10 days prior to the date that
definitive copies of this information are forwarded to stockholders.
The Company is also required to file annual reports on Form 10-KSB and quarterly
reports on Form 10-QSB with the Commission on a regular basis, and will be
required to timely disclose certain material events in a Current Report on Form
8-K.
Additionally, the Company is subject to the same laws, rules and regulations,
and ordinances to which other businesses are subject. The Company believes that
it is in substantial compliance with all of such laws, rules and regulations,
and ordinances. There is, however, no assurance that such laws, rules and
regulations, and ordinances will not be changed. Such changes, if any, could
have a material adverse effect on the Company's business.
Employees
- ---------
At April 10, 2000, the Company had one part-time and thirteen full-time
employees. The Company's relationship with its employees is believed to be
satisfactory. No employee of the Company is represented by a labor union or is
subject to a collective bargaining agreement.
Subsequent Events
- ------------------
On April 5, 2000, the Company sold 100% of the outstanding common stock of
Meridien Enterprises, Inc. to an individual for $29,950.
Item 2. Description of Property.
-------------------------
The Company leases all of it locations. Tupelo occupies an 11,800 square foot
bingo facility located at 1800 North Gloster, Tupelo, Mississippi. Tupelo also
leases a 16,000 square foot bingo facility located at 2243 Highway 25, South,
Iuka, Mississippi. The corporate office for the Company is comprised of a 3,000
square foot warehouse and general office suite located at 13581 Pond Springs
Road, Suite 105, Austin, Texas. In addition, the Company has an option to lease
space adjoining the corporate offices with an additional 3,000 square feet. All
of such locations are well-maintained, well-equipped, and suitable for their
intended purposes. Management believes that all of the leased properties are
adequately covered by insurance. No material renovations are currently
contemplated for these leased properties.
The bingo facilities are superior to those of competing bingo halls in the
comparable area according to appraisals conducted for the Company for submission
to the Mississippi Gaming Commission. The office and warehouse property are
well situated and easily accessible from major thoroughfares.
<TABLE>
<CAPTION>
<PAGE>
Expiration Option Monthly Option
<S> <C> <C> <C> <C>
Lease Description Date Renew Rent Rent
---------- ------ ------------ -----------
Magnolia Bingo 12/31/03 None $ 4,125 None
Tupelo, MS
Tishomingo Bingo 5/31/02 None $ 3,000 No increase
Iuka, MS
General Office 9/30/01 None $1,125-1,200 None
Warehouse 5/31/01 None $1,110-1,185 None
Austin, Texas
</TABLE>
Item 3. 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 a party to an action which has any interest
adverse to the Company.
Legal proceedings discussed in previous SEC filings concerning the Mississippi
Gaming Commission have been resolved as a result of legislation passed in 1999,
which eliminated the licensing requirement applicable to the Company. All
charities conducting bingo at the Company's facilities have had their licenses
to conduct bingo renewed.
Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------
On September 29, 1999, the annual meeting was held and the following matters
were submitted to a vote and approved by the shareholders of the Company as
follows:
<TABLE>
<CAPTION>
VOTES
Broker
For Against Abstentions non-votes
<S> <C> <C> <C> <C>
Directors reelected:.
Rick Redmond 4,673,940 5,500 98 0
Reid Funderburk 4,674,440 5,000 98 0
George Majewski 4,673,940 5,500 98 0
R. E. Wilkin 4,673,926 5,500 112 0
Robert Hughes 4,673,940 5,500 98 0
Change of corporate name to BGI, Inc. 4,674,014 5,524 0 0
Approval of employee incentive stock
option plan 4,606,542 72,828 168 0
Authorization of 10,000,000 shares of
preferred stock 4,608,542 70,628 368 0
</TABLE>
<PAGE>
PART II
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------------
Market Information
- -------------------
The Company's Common Stock, $.001 par value, is traded on the NASD OTC
Electronic Bulletin Board under the symbol "BGII". The following table shows the
range of reported high and low closing bid quotations for the fiscal quarters
indicated:
<TABLE>
<CAPTION>
Common Stock
------------
High Low
----- -----
<S> <C> <C>
Fiscal 1998:
- --------------
First quarter 1.600 0.375
Second quarter 1.438 0.688
Third quarter 1.375 0.688
Fourth quarter 0.813 0.250
Fiscal 1999:
- --------------
First quarter 0.6875 0.250
Second quarter 1.531 0.468
Third quarter 1.437 0.687
Fourth quarter 1.062 0.468
</TABLE>
Prices are inter-dealer quotations as reported by the NASD and do not
necessarily reflect transactions, retail mark-ups, markdowns or commissions.
Shareholders
- ------------
The number of record holders of the Company's common stock as of December 31,
1999, was approximately 314. Such number does not include an indeterminate
number of shareholders whose shares were held by brokers in street name, and of
which the Company is not aware. As of March 8, 2000, there were approximately
238 shareholders whose shares are unrestricted.
Dividends
- ---------
There are no present material restrictions that limit the ability of the Company
to pay dividends on its common stock or that are likely to do so in the future.
The Company has not paid any dividends with respect to its common stock and does
not intend to pay dividends in the foreseeable future.
<PAGE>
Recent Sales of Unregistered Securities
- -------------------------------------------
None
<PAGE>
Item 6. Management's Discussion and Analysis.
---------------------------------------
Selected Financial Information
- --------------------------------
The following selected financial information has been derived from the
financial statements of the Company. It should be read in conjunction with such
financial statements and the notes thereto.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
------------------- -------------------
<S> <C> <C>
Statement of income:
Total revenues $ 4,890,826 $ 4,207,297
Cost of revenues (3,257,762) (2,433,922)
Total expenses (1,558,661) (1,123,725)
Operating income 74,403 649,650
Net income (loss) (222,743) 126,646
Net income (loss) per common share (0.03) 0.01
Balance sheet:
Current assets $ 406,135 $ 674,077
Current liabilities 1,031,798 890,772
Total assets 1,645,947 2,192,994
Long-term debt 117,540 747,772
Stockholders' equity 496,609 554,450
</TABLE>
Plan of Operation
- -------------------
In October 1997, the Company executed an exclusive distribution agreement with
Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid Phone Card
Dispenser (the "Machine"). This agreement provides for the Company to have the
exclusive distribution rights for North America for five years with two five
year options. As of April 10, 2000, the Company has distributors or company
owned dispensers located in Texas, Oklahoma, Arizona, Idaho, Indiana,
Connecticut, and Pennsylvania.
The Company's principal objective is to sell an increasing number of phone cards
through the Machines. This objective is accomplished by increasing the number
of machines placed in locations that will sell the greatest volume of the
sweepstakes enhanced phone cards. Generally, the Company owned machines produce
greater sales volumes in Company operated routes where machines are more
geographically concentrated. However, Company owned machines are also placed in
locations where it is more advantageous for the machine to be operated by a
distributor.
<PAGE>
The sales production of locations varies. Whether the machines are Company
owned and operated, Company owned and distributor operated, or distributor owned
and operated, the Company continuously evaluates the sales production of the
machines. If production in a particular location is not adequate, the machine
is relocated.
<PAGE>
During the latter part of 1998, one of the larger distributors was not producing
adequate sales or handling its financial obligations satisfactorily. On August
1, 1999, the Company executed an agreement to directly purchase the operations
of the distributor for $221,169 by issuing 176,570 shares of its common stock
and commenced to operate the machines in that territory directly. This purchase
has resulted in better control over placement of machines in Oklahoma and
allowed more efficient collection of accounts receivable.
In August 1999, the Company executed an agreement with Multimedia Games, Inc.
(MGAM) to develop and host a website to sell phone cards employing a virtual
machine. The contract was assigned to Gamebay.com, Inc., a subsidiary that was
spun off from MGAM in December 1999. It is expected that the site will sell,
through the virtual machine, the same sweepstakes enhanced phone cards that are
available to a customer purchasing from the actual machines. The site is
expected to be fully operational in the third quarter of 2000.
The Company's primary focus for the first six months of 2000 is threefold.
First, a consultant has been hired to make recommendations to restructure the
Company to regain profitability. Second, the Company owned machines, not
currently deployed, will be placed or sold to distributors to increase
production of phone card revenues. Finally, the program of upgrading machine
locations implemented in January 1999 will continue.
Results of Operations
- -----------------------
Year Ended December 31, 1999
Compared with Year Ended December 31, 1998
------------------------------------------
Total revenues increased by 16% for the year ended December 31, 1999, as
compared to the prior year ended December 31, 1998. This was the result of a
19% increase in phone card sales and an 83% increase in machine sales which was
partially offset by a decrease in bingo hall rental income. The increase in
machine sales is the result of contracts with new distributors. The decrease in
bingo hall rental income is the result of regulatory actions taken by the
Mississippi Gaming Commission to reduce rents.
The total cost of revenues represent expenses directly related to the
operations of the Machines and bingo facilities. Such costs increased by 34%
which includes a 100% increase in sweepstakes prizes paid due to an increase in
the route operated Company owned machines and a 68% increase in commissions
related to the increase in machine sales for this fiscal year. In addition, the
Company wrote off the cost of obsolete software related to the machines. These
increases were offset by a decrease in long distance costs resulting from unit
cost savings and changes in usage patterns.
Operating expenses represent expenses indirectly related to the operations of
the Machines and the bingo halls. Such costs increased by 116.3% principally
due to uncollectible receivables purchased from the distributor of the Oklahoma
territory. In addition, a modification to the dispenser software increased
small equipment costs by 1064.05 % for the year ended December 31, 1999, as
compared to the year ended December 31, 1998.
Salaries increased by 44.7% during the fiscal year ended December 31, 1999, as
compared to the previous fiscal year. This was principally the result of hiring
a chief financial officer in October 1998, as well as an increase in the number
of support staff positions, and increases in other salaries. Other general and
administrative expenses increased by 4.11% during fiscal year ended December 31,
1999, as a result of consultant costs, travel and other expenses incurred in
connection with an offering that was planned to occur in 1999. In addition,
significant increases in telephone expense contributed to this cost with the
increased use of cellular phones used by technicians while traveling to perform
installations and make repairs.
As the result of the above, the Company sustained a net loss for the fiscal year
ended December 31, 1999, of $222,743 as compared to net income of $126,646 for
the fiscal year ended December 31, 1998. Due to federal income tax net
operating losscarry forwards, no provision for federal income tax was required.
<PAGE>
Liquidity
- ---------
As of December 31, 1999 and 1998, the Company's total assets were $1,645,947 and
$2,192,994, respectively, with total liabilities of $1,149,338 and $1,638,544,
respectively. Current assets of $406,135 for the fiscal year ended December 31,
1999, represent 39.4% of current liabilities in the amount of $1,031,798 as
compared to current assets of $674,077 for the year ended December 31, 1998,
which represent 75.7% of current liabilities amounting to $890,772.
Deterioration of the Company's cash position during the 1999 fiscal year is
primarily the result of decreased revenue from phone card sales coupled with a
provision for bad debt expense of $203,057. In addition, as of December 31,
1999, the Company is delinquent on $120,763 of monthly rent installments due
under a master lease for equipment included in capitalized leases. The
delinquent payments have been included in current liabilities.
The Company has a need for additional working capital to meet contractual
obligations. Management believes that debt restructuring as well as cost
containment measures including an agreement to purchase long distance time at
decreased rates will to produce the working capital necessary to meet its
presently anticipated requirements.
THIS SPACE LEFT BLANK INTENTIONALLY
<PAGE>
PART II - OTHER INFORMATION
<PAGE>
Item 7. Financial Statements.
---------------------
<TABLE>
<CAPTION>
The following financial statements are included hereinafter:
Page No.
----------
<S> <C> <C>
Independent Certified Public Accountants' Report 10
Consolidated Balance Sheets as of December 31, 1999 and 1998 11
Consolidated Statements of Income (Loss)
for the years ended December 31, 1999 and 1998 12
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1999 and 1998 13
Consolidated Statements of Cash Flows
for the years ended December 31, 1999 and 1998 14
Notes to Consolidated Financial Statements 16
</TABLE>
<PAGE>
BROWN, GRAHAM AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
BGI, Inc.
Austin, Texas
We have audited the consolidated balance sheets of BGI, Inc. and Subsidiaries
(the"Company") as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has incurred a net loss of $222,743 for the
year ended December 31, 1999 and current liabilities exceed current assets by
$625,663. These factors, and others described in Note 1, raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
/S/ Brown, Graham and Company, P.C.
Georgetown, Texas
April 7, 2000
<PAGE>
<TABLE>
<CAPTION>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
- -------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 89,636 $ 133,184
Accounts receivable - trade, net
Inventories 123,458 87,169
Prepaid expenses 18,173 15,874
----------- -----------
Total current assets 406,135 674,077
----------- -----------
Property and equipment, at cost, net (note 4) 1,060,922 1,357,187
----------- -----------
Other assets:
Organizational costs and intangible assets, net (note 3) 61,721 6,451
Deferred financing costs (note 9) 83,366 122,572
Deposits 33,803 32,707
----------- -----------
Total other assets 178,890 161,730
----------- -----------
Total assets $1,645,947 $ 2,192,994
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade
$ 253,747 $ 274,071
Accrued expenses 46,079 20,847
Current maturities of long-term debt (note 5) 237,083 142,962
Current maturities of lease obligations (note 6) 494,889 452,892
----------- -----------
Total current liabilities 1,031,798 890,772
Long-term debt, net of current maturities (note 5) 43,835 268,701
Long-term portion of lease obligations (note 6) 73,705 479,071
----------- -----------
Total liabilities 1,149,338 1,638,544
----------- -----------
Stockholders' equity (notes 8 and 9):
Preferred stock, non-voting; $.001 par; 10,000,000
shares authorized; no shares issued and outstanding - -
Common stock, $.001 par; 70,000,000 shares authorized; 8,551,819 and 8,558,418,6021,5
authorized; 8,862,389 and 8,551,819 issued and
outstanding, respectively 8,862 8,551
Additional paid-in capital 808,348 643,757
Retained earnings (deficit) (320,601) (97,858)
----------- -----------
Total stockholders' equity 496,609 554,450
----------- -----------
Total liabilities and stockholders' equity $1,645,947 $2,192,994
----------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<S> <C> <C> <C>
ASSETS 1999 1998
----------- -----------
Revenue:
Phone card sales $4,098,169 $3,444,523
Machine sales 216,000 118,298
Hall rental and concession income 469,562 565,622
Other 107,095 78,854
----------- -----------
Total revenue 4,890,826 4,207,297
----------- -----------
Cost of revenue:
Phone cards and royalties 1,070,258 1,064,644
Machine depreciation 286,626 200,949
Machines sold 181,795 117,747
Machine and location rental 53,508 107,215
Prizes paid 1,468,070 735,839
Hall rental and concession 197,505 207,528
----------- -----------
Total cost of revenue 3,257,762 2,433,922
----------- -----------
Gross margin 1,633,064 1,773,375
----------- -----------
Expenses:
Operating expenses 220,320 119,782
Bad debt expense 203,057 76,017
Salaries 603,578 417,218
Other general and administrative expenses 531,706 510,708
----------- -----------
Total expenses 1,558,661 1,123,725
----------- -----------
Operating income 74,403 649,650
Other income and expense:
Impairment of long-lived asset (note 16) (205,192)
Interest expense (297,146) (317,812)
Net income (loss) $ (222,743) $ 126,646
============ ===========
Basic and diluted income (loss) earnings per common share $ (0.03) $ 0.01
============ ===========
Weighted average shares outstanding 8,713,267 8,516,704
============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BGI, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
<S> <C> <C> <C> <C>
------- ----------- ---------- ---------
Balance at December 31, 1997 $ 8,418 $ 393,197 $(224,504) $ 177,111
Net income - - 126,646 126,646
Issuance of warrants and options - 174,513 - 174,513
Issuance of common stock for cash 133 76,047 - 76,180
------- ----------- ---------- ----------
Balance at December 31, 1998 8,551 643,757 (97,858) 554,450
Net income (loss) - - (222,743) (222,743)
Issuance of options - 5,170 - 5,170
Issuance of common stock for:
Cash 25 14,975 - 15,000
Services 109 34,266 - 34,375
Purchase of assets 177 110,180 - 110,357
------- ----------- ---------- ----------
Balance at December 31, 1999 $ 8,862 $ 808,348 $(320,601) $ 496,609
======= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<S> <C> <C>
1999 1998
Operating activities:
Net income (loss) $(222,743) $ 126,646
Adjustments to reconcile net income to net cash from
from operating activities:
Depreciation and amortization 345,321 268,988
Gain on disposal of assets - (3,161)
Provision for bad debts
203,057 76,017
Common stock issued for services 9,266 -
Deferred financing cost charged to interest 64,206 43,776
Common stock options issued for consulting fees 5,170 8,166
Changes in current assets and current liabilities:
Accounts receivable - trade 105,462 (166,838)
Inventories (36,289) (67,358)
Prepaid expenses 10,628 (9,429)
Accounts payable - trade (20,319) 82,039
Accrued liabilities 25,228 20,841
Net cash provided from operating activities 488,987 379,687
Investing activities:
Purchase of property and equipment (39,390) (141,409)
Proceeds from sale of equipment
- 56,946
Payments received on notes receivable - 7,494
Change in deposits and other assets (1,096) 17,153
Cash used by investing activities (40,486) (59,816)
Financing activities:
Payments on long-term debt (143,680) (143,300)
Proceeds from long-term debt - 108,850
Payments on long-term leasesProceeds from long term debt (363,369) (282,351)108,850
Proceeds from issuance of common stock 15,000 76,180
Cash used by financing activities (492,049) (240,621)
Net increase(decrease) in cash and cash equivalents (43,548) 79,250
Cash and cash equivalents at beginning of year 133,184 53,934
Cash and cash equivalents at end of year $ 89,636 $ 133,184
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Supplemental disclosures of cash flow information:
Interest paid $ 297,146 $ 317,812
Income taxes paid $ - $ 6,304
Supplemental disclosure of non-cash investing and
financing activities:
Proceeds from financing of equipment purchases $ - $ 1,093,549
Common stock, warrants and options issued for
financing and services
$ 39,545 $ 174,513
Common stock issued for purchase of
distribution route including accounts
receivable and non-compete agreement $ 110,357 $ -
Cash used by financing activities (492,049) (240,621)
---------- ------------------
Net increase(decrease) in cash and cash equivalents (43,548) 79,250
---------- ------------------
Cash and cash equivalents at beginning of year 133,184 53,934
---------- ------------------
Cash and cash equivalents at end of year $ 89,636 $ 133,184
---------- ------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<S> <C> <C>
1999 1998
Supplemental disclosures of cash flow information:
Interest paid $ 297,146 $ 317,812
============== ================
Income taxes paid $ - $ 6,304
============== ================
Supplemental disclosure of non-cash investing and
financing activities:
Proceeds from financing of equipment purchases $ - $ 1,093,549
============== ================
Common stock, warrants and options issued for
financing and services
$ 39,545 $ 174,513
============== ================
Common stock issued for purchase of
distribution route including accounts
receivable and non-compete agreement $ 110,357 $ -
============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
Nature of business and basis of presentation:
Bingo & Gaming International, Inc. (Bingo) was formed in 1981 and was dormant
from 1984 to November 1994. In December 1994, the Company acquired Monitored
Investment, Inc. and Affiliates (Monitored Investment, Inc., Red River Bingo,
Inc., Tupelo Industries, Inc., and Meridian Enterprises, Inc., hereinafter
referred to collectively as "Monitored"). Monitored's principal operations
consist of developing, managing and operating charity bingo entertainment
centers. Monitored is a commercial lessor of bingo facilities to charity
lessees which utilize bingo events as a means of fund raising. The stockholders
of Monitored became the controlling stockholders of Bingo in a "reverse
acquisition", whereby each of the corporations comprising Monitored became
wholly-owned subsidiaries of Bingo. As a result, the merger was accounted for
as an "equity restructuring" of Bingo. On September 29, 1999, the shareholders
of Bingo & Gaming International, Inc. voted to change its name to BGI, Inc.
In October 1997, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired
under the purchase method. PPI is a wholly owned subsidiary of BGI, Inc. PPI
was formed for the purpose of transacting the prepaid telephone card dispenser
operations. PPI began distributing and selling the Lucky Strike Phone Card
Dispenser, a video enhanced prepaid phone card dispenser, under an exclusive
distribution agreement for five years with two successive five year options to
renew with Cyberdyne Systems, Inc.
The consolidated financial statements include the accounts of BGI, Inc. and its
wholly-owned subsidiaries (the Company). All significant intercompany accounts
and transactions have been eliminated in consolidation.
Going concern:
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. Numerous factors could affect
the Company's operating results, including, but not limited to, general economic
conditions, competition, and changing technologies. A change in any of these
factors could have an adverse effect on the Company's consolidated financial
position or results of operations. The Company had an operating loss for the
year ended December 31, 1999. In addition, the Company's working capital
position deteriorated due to a loss from operations. At December 31, 1999,
current liabilities exceed current assets by $625,663, and the Company had a
deficit retained earnings of $320,601. Also, the Company was delinquent with
permission of the lessor on payments under a master lease agreement for
equipment.
In view of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which in turn may be dependent upon the success of its future
operations. Also, management has engaged a consultant to make recommendations
to restructure the Company and recommend cost containment measures to regain
profitability. In addition, management is negotiating the restructure of debt.
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.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
- --------------------------------------------------------------------
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, goodwill and the cost of a noncompete
agreement. Organizational costs and goodwill are amortized over five years
and the cost of the noncompete agreement is being amortized over two years.
Property, equipment and depreciation and amortization:
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. For financial statement purposes, depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the related assets. Amortization of leasehold improvements is computed using
the straight-line method over
the shorter of the term of the related lease or the useful life of the leasehold
improvements. Accelerated depreciation methods are used for tax purposes.
Maintenance and repairs are charged to expense as incurred. The cost of
betterments and renewals are capitalized. Gains or losses upon disposal of
assets are recognized in the period during which the transaction occurs.
Taxes on income:
The Company accounts for income taxes under the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates. The Company
provides a valuation allowance against its deferred tax assets to the extent
that management estimates that it is 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
persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the price to the customer is fixed and determinable and
collectibility is reasonably assured. An allowance for doubtful accounts is
provided based on periodic reviews of the accounts.
Accounting estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
- --------------------------------------------------------------------
New accounting pronouncements:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that it is used internally for evaluating performance of
an allocation of resources to operating segments. The Company has included
segment information in the accompanying financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income generally represents all changes in stockholders' equity except those
resulting from contributions by stockholders. There was no impact to the
Company as a result of the adoption of SFAS No. 130, as there were no
differences between the net loss and the comprehensive loss available to common
stockholders for the year ended December 31, 1999.
In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). This SAB summarizes certain of the Staff's views in applying
generally accepted accounting principles in the United States, to revenue
recognition in financial statements. The Company's revenue recognition policy
is in compliance with SAB 101.
NOTE 2 - RELATED PARTY TRANSACTIONS
- ----------------------------------------
The Company had $14,003 in notes payable to an officer and stockholder at
December 31, 1998 (see note 5). Interest paid to the officer and stockholder
was $659 and $5,201 for the years ended December 31, 1999 and 1998,
respectively.
NOTE 3 - ORGANIZATIONAL COSTS AND INTANGIBLE ASSETS
- ----------------------------------------------------------
Organizational costs and intangible assets at December 31, 1999 and 1998
consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Organization costs $ 21,834 $ 24,415
Goodwill 38,324 -
Noncompete agreement 26,318 63,678
--------- ---------
Total 86,476 88,093
Less accumulated amortization (24,755) (81,642)
--------- ---------
Net organizational costs and intangible asset $ 61,721 $ 6,451
========= =========
</TABLE>
Amortization expense was $9,072 and $13,254, for the years ended December 31,
1999 and 1998, respectively.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 4 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
Lives
(Years) 1999 1998
<S> <C> <C> <C>
Vehicles 7 $ 53,974 $ 53,974
---------------- ---------------
Furniture and equipment 5 - 10 1,611,308 1,576,165
Leasehold improvements 5 134,190 129,348
Total 1,799,472 1,759,487
Less accumulated depreciation and
amortization (738,550) (402,300)
Net property and equipment $ 1,060,922 $ 1,357,187
</TABLE>
Depreciation and amortization expense for property and equipment was $336,249
and $255,734 for years ended December 31, 1999 and 1998, respectively.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
NOTE 5 - LONG-TERM DEBT
- ---------------------------
1999 1998
<S> <C> <C>
Note payable to a bank, due on demand or in monthly
installments of $1,113 including interest at 10% collateralized
by stock held by certain stockholders; matures January 5, 2001 $ 13,159 $ 21,140
Note payable to a bank, due in monthly installments of $1,005
including interest at prime plus 2%; collateralized by
stock held by certain stockholders; maturing with an additional
lump sum payment of $32,370 due December 30, 2000 37,148 44,892
Notes payable to individuals; principal is due in full on various
dates in the year 2000; interest at 18% due in monthly
installments; unsecured 110,000 110,000
Note payable to officer and stockholder; interest at 14%; matures
September 24, 1999; unsecured - 14,003
Various installment notes payable to banks and other financial institutions; due in mont=
institutions; due in monthly installments of $11,060 including
interest ranging from 9.5% to 15.59%; collateralized by certain
equipment 120,611 221,628
Total 280,918 411,663
Less current maturities (237,083) (142,962)
Long-term debt $ 43,835 $ 268,701
Future maturities of long-term debt are as follows:
Year Ending
December 31
1999 $ 237,083
2000 32,719
2001 5,919
2002 5,197
Total $ 280,918
</TABLE>
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES
- -----------------------------------------------
The Company has financed phone card dispensers under capital leases expiring in
2000 and 2001. The assets and liabilities under capital leases are recorded at
the lower of the present value of the minimum lease payments or the fair value
of the assets. The assets are depreciated over the lower of their related lease
terms or their estimated productive lives. Depreciation of assets under capital
leases is included in depreciation expense (see Note 4).
In addition, the Company used funds received under capital leases to refinance
accounts payable during the year ended December 31, 1998 in the amount of
$242,010.
Minimum future lease payments under capital leases as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
<S> <C>
2000 $ 591,470
2001 65,373
Total 656,843
Minimum lease payment amounts representing interest (88,249)
Present value of net minimum lease payments 568,594
Current portion (494,889)
Long-term portion $ 73,705
</TABLE>
At December 31, 1999, the Company is in default for the payment of installments
of monthly rent under a master lease for equipment included in the capital
leases above. However, the lessor has granted, in writing, a temporary deferral
of the lease payments due under the agreement.
NOTE 7 - COMMITMENTS
- -----------------------
The Company leases its general offices and bingo facilities. The leases expire
at various dates through 2003. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending
December 31
2000 $218,940
2001 121,765
2002 64,500
2003 49,500
Total $454,705
</TABLE>
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 7 - COMMITMENTS-CONTINUED
- ---------------------------------
The rental expense for the years ended December 31, 1999 and 1998 in the amount
of $222,020 and $256,949 are included in hall rental and concession and general
and administrative expenses in the accompanying financial statements.
The Company subleases bingo facilities under operating subleases that expire at
various dates through the year 2003. These subleases may be canceled by either
party at any time.
The Texas Lottery Commission requested an Opinion from the Office of the
Attorney General, State of Texas, "Re: Whether the offer for sale of a
sweepstakes ticket combined with a long distance telephone card constitutes an
illegal lottery". On February 20, 1997, the Office of the Attorney General
issued Letter Opinion No. 97-008, which sets forth facts that must be determined
before the Lucky Strike sweepstakes can be considered to be an illegal lottery.
The Company and its legal counsel believe that the Lucky Strike sweepstakes
meets all of the requirements to be considered a legal sweepstakes.
NOTE 8 - STOCKHOLDERS' EQUITY
- ---------------------------------
The Company agreed to sell to the sales agent of the limited offering made
during 1995, a warrant to purchase one share of the Company's common stock for
each ten shares sold during the offering. These warrants may be exercised for
a period of five years from the date of issuance at an exercise price of 110% of
the sales price of the shares or $1.37 per share. The warrants contain
provisions for adjustment of the exercise price and the type of securities
issuable upon exercise thereof upon the occurrence of certain events, and grant
to the holder piggy-back registration rights for a five year period. In 1995,
19,920 of these warrants were sold at $.001 a warrant.
The Company, as part of certain employment contracts, may grant options to key
employees to purchase common stock of the Company. The employment contracts
were adopted in January 1995. The options, when granted, will vest at least 20%
per year on the five anniversaries consecutively following the date of the
employment agreements. The options are exercisable for a period of 10 years
from the date of vesting, at a price equal to the offering price of the
Company's common stock pursuant to the Disclosure Statement, plus 10% per share.
As of December 31, 1999, no options have been granted.
During 1996, the Company issued options to purchase 110,000 shares of the
Company's common stock to individuals as part of certain note agreements. These
options are exercisable at $1.00 per share, which was the approximate fair
market value at the dates of issuance. These options expire on various dates in
the year 2000.
During 1996, in return for services rendered by an officer/director and release
of the officer's employment contract, the Company issued 225,000 stock options.
These options are exercisable at $.55 per share and expire in April 2000. In
October and November 1996, 10,000 of these options were exercised for $5,500.
In July 1998, an additional 10,000 of these options were exercised for $5,500.
In December 1997, the Company issued options to purchase 300,000 shares of the
Company's common stock to individuals as part of certain consulting agreements.
These options are exercisable at $.60 per share which was the approximate fair
market value at the date of issuance. These options vest and expire on various
dates in the years 1998 through 2000. During the year ended December 31,1999,
25,000 options were exercised and 50,000 expired. During the year ended
December 31, 1998, 75,000 options were exercised and 75,000 expired.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 8 - STOCKHOLDERS' EQUITY-CONTINUED
- -------------------------------------------
In July 1998, the Company issued options to purchase 25,000 shares of common
stock, to an individual as part of a consulting agreement. These options are
exercisable at $1.00 per share and expire in July 2001. The contract was voided
during the year ended December 31, 1999.
During the year ended December 31, 1998, employee stock options for 100,000
shares were granted as part of an employment contract. The options vest in
increments of 25,000 shares each six months beginning with the execution date of
the contract, or October 26, 1998. The options have a five year life at an
exercise price of $.44 per share.
During the year ended December 31, 1998, the Company issued warrants to purchase
475,000 shares of common stock to a leasing company in connection with obtaining
financing on phone card dispensers. (See note 9)
During the year ended December 31, 1999, the Company amended its articles of
incorporation to authorize 10,000,000 shares of one mill ($0.001) par value
non-voting preferred stock, with such dividend and conversion rights as the
Board of Directors of the Company may determine. The shares of preferred stock
will not have any pre-emptive rights.
During the year ended December 31, 1999, the Company granted 26,500 options to
employees to purchase common stock with an exercise price of $.50 which is the
market price of the common stock at the date of the grant. Also, the Company
granted 10,000 options to purchase common stock to a consultant for services
with an exercise price of $.66 which is the market price of the common stock at
the date of the grant. The amount of $5,170 has been charged to consultant fees
and additional paid-in capital during the year ended December 31, 1999. (See
note 9)
During the year ended December 31, 1999, the Company issued 109,000 shares of
common stock to two companies in connection with securing additional financing
or investment capital. The common stock was valued at fair market value for
restricted Rule 144 stock at the date of issue in the amount of $34,375.
On August 1, 1999, the Company issued 176,570 shares of common stock to an
individual for the purchase of accounts receivable, a noncompete agreement, a
distribution route for dispensing phone card machines and phone cartridges.
The common stock was valued at fair market value for restricted Rule 144 stock
on the date of issue in the amount of $110,357.
NOTE 9 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
During the year ended December 31, 1999, the Company adopted the "1999 Incentive
Stock Option Plan". The plan sets aside options for 1,000,000 shares of common
stock for full time employees and meets the IRS requirements for a qualified
Incentive Stock Option Plan. See Note 8 for options granted under this plan.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCK OPTIONS AND WARRANTS - CONTINUED
- -------------------------------------------------------
<TABLE>
<CAPTION>
A summary of the status of the Company's stock options as of December 31, 1999,
is presented below:
1999 1998
-------- --------
<S> <C> <C>
Options outstanding at beginning of year 590,000 625,000
Options granted 36,500 125,000
Options exercised (25,000) (85,000)
Options canceled (75,000) (75,000)
Options outstanding and exercisable at end of year 526,500 590,000
</TABLE>
The following table summarizes the information about the stock options of
December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
--------------
Average Weighted Average
Number Remaining, Average Number Exercise
Range of Outstand- Contractual Exercise Exercisable Price
Exercise ing at Life Price at (Exercisable
Price Dec. 31 Years (Total shares) Dec. 31 shares)
--------- --------- ----------- --------------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
0.60 75,000 0.5 $ 0.60 75,000 $ 0.60
0.55 205,000 1.0 0.55 205,000 0.55
1.00 110,000 1.0 1.00 110,000 1.00
0.44 100,000 4.0 0.44 75,000 0.44
0.50 26,500 4.0 0.50 26,500 0.50
0.66 10,000 1.0 0.66 10,000 0.66
0.44
$ to 1.00 526,500 1.7 $ 0.63 501,500 $ 0.63
</TABLE>
The following table summarizes the information about the stock options as of
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Number Remaining, Average Number Exercise
Range of Outstand- Contractual Exercise Exercisable Price
Exercise ing at Life Price at (Exercisable
Price Dec. 31 Years (Total shares) Dec. 31 shares)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.55 205,000 2 $ 0.55 205,000 $ 0.55
0.60 150,000 2 0.60 - -
1.00 25,000 3 1.00 25,000 1.00
0.44 100,000 5 0.44 25,000 0.44
1.00 110,000 2 1.00 110,000 1.00
0.44 to
1.00 590,000 2.5 $ 0.65 365,000 $ 0.71
</TABLE>
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCK OPTIONS AND WARRANTS - CONTINUED
- -------------------------------------------------------
SFAS No. 123 requires the Company to provide pro forma information regarding net
income (loss) applicable to common stockholders and income (loss) per share as
if compensation cost for the Company's stock options granted to employees had
been determined in accordance with the fair value based method prescribed in
that Statement.
The Company estimated the fair value of each stock option for employees at the
grant date by using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants as follows:
1999 - dividends yield of 0%; expected volatility of 109.0%; risk-free interest
rate ranging 5.65%; and expected lives 4 years.
1998 - dividends yield of 0%; expected volatility of 54.42%; risk-free interest
rate of 5.65%; and expected lives of 3 to 5 years.
The weighted average fair value of options granted for the years ended December
31 1999, and 1998, respectively, was $0.38 and $0.23.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
applicable to common stockholders and pro forma amounts are indicated below:
<TABLE>
<CAPTION>
1999 1998
----------
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders:
As reported $(222,743) $126,646
Pro forma $(232,737) $120,818
Income (loss) per share:
As reported $ $ (0.03) $ 0.01
Pro forma $ $ (0.03) $ 0.01
</TABLE>
At December 31, 1999, the Company had 19,920 warrants outstanding which were
issued in connection with the Company's limited offering in 1995 (see Note 8).
These warrants are unregistered and are exercisable at any time at 110% of the
sales price of the common stock or $1.37 prior to expiration on October 1, 2000.
No value has been attributed to these outstanding warrants at December 31, 1999.
In addition, the Company issued warrants to purchase 475,000 of common stock at
various prices ranging from $1.05 to $3.00 and may be exercised at any time
prior to expiration at various dates in the year 2004 (See Note 8). These
warrants were issued to a leasing company in connection with obtaining long-term
financing for phone card dispensers. The warrants were recorded at the fair
value of $166,348 as deferred financing costs and amortized over the terms of
the lease agreements. The Company charged $64,206 and $43,776 of the deferred
financing costs to expense during the years ended December 31, 1999 and 1998,
respectively.
<PAGE>
- ------
NOTE 10 - CONCENTRATION OF CREDIT RISK
- --------------------------------------------
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of trade accounts receivable.
The majority of the Company's customer base are charitable organizations located
in Mississippi and retail outlets for its phone cards located in Texas.
Although the Company is directly affected by the well being of the
organizations, management does not believe significant credit risks existed at
December 31, 1999 and 1998.
NOTE 11 - EARNINGS PER SHARE
- ---------------------------------
The following data details the amounts used in computing earnings per share
(EPS) and the effect on income and the weighted average number of shares of
dilutive potential common stock.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Income (loss) available to common stockholders used in basic EPS $ (222,743) $ 126,646
- ---------------------------------------------------------------- ----------- ----------
Weighted average number of common shares used in basic EPS 8,713,267 8,516,704
Effect of dilutive securities:
Stock options - -
Warrants - -
Weighted number of common shares and dilutive potential
common stock used in diluted EPS 8,713,267 8,516,704
</TABLE>
Options on 526,500 shares of common stock and warrants to purchase 494,920
shares of common stock were not included in computing diluted EPS for the year
ended December 31, 1999, because their effects would have been antidilutive. In
addition, options on 590,000 shares of common stock and warrants to purchase
494,920 shares of common stock were not included in computing diluted EPS for
the year ended December 31, 1999 and 1998, since there is an incremental per
share effect of zero under the treasury stock method required by FASB 128
"Earnings Per Share."
NOTE 12 - INCOME TAXES
- --------------------------
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 or 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.
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 12 - INCOME TAXES - CONTINUED
- ----------------------------------------
The income tax expense (credit) differs from the amount of income tax determined
by applying the applicable statutory federal tax rates is as follows:
<TABLE>
<CAPTION>
1998
1999
---------
<S> <C> <C> <C>
Federal income tax expense (credit) $(70,100) $ 32,600
Utilization of net operating loss carryforward - (34,400)
Valuation reserve 68,300 -
Other 1,800 1,800
-
$ - $
--------- -
</TABLE>
Temporary differences for the years ended December 31, 1999 and 1998, between
the financial statement carrying amounts and the tax basis of assets and
liabilities that give rise to significant portions of the net deferred tax asset
(liability) relate to the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Difference in method of accounting for financial
and tax basis accounting $(90,500) $ (10,500)
Depreciation 21,100 62,400
Net operating loss carryforward (4,500) (7,000)
Change in valuation allowance 73,900 (44,900)
Net deferred tax asset $ - $ -
</TABLE>
At December 31, 1999 and 1998, the Company had a cumulative net tax asset of
$101,800 and $27,900, respectively.
Since management can not determine that it is more likely than not that the
Company will realize the deferred tax assets, a 100% valuation allowance has
been recorded.
At December 31, 1999, the Company has available for federal income tax purposes
unused net operating losses of approximately $428,000 which may provide future
tax benefits that begin expiring in the year ending December 31, 2010.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ----------------------------------------------------
Cash and cash equivalents:
The carrying amounts of cash and cash equivalents at December 31, 1999 and 1998,
approximate fair value because of the short maturity of those instruments.
Long-term debt:
Based on borrowing rates currently available to the Company for bank loans with
similar terms and average maturities, the fair value of long-term debt,
including the current portion thereof, approximates its carrying value at
December 31, 1999 and 1998.
<PAGE>
- ------
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
NOTE 14 - SUBSEQUENT EVENTS
- -------------------------------
Subsequent to December 31, 1999, the Company sold all the outstanding common
stock of Meridian Enterprises, Inc., a wholly owned subsidiary of BGI, Inc. The
sale was for cash and a note receivable resulting in a gain on the sale of
approximately $5,000.
NOTE 15 - SEGMENT REPORTING
- -------------------------------
The Company's operations are divided into operating segments using individual
products or services. The Company has two operating segments. The phone card
dispensers segment rents and distributes prepaid phone card vending machines
which permits customers to enter a free promotional sweepstakes offering cash
prizes. The charity bingo facility segment operates as a lessor of charity bingo
facilities. Each operating segment uses the same accounting principles as
reported in Note 1, Summary of Significant Accounting Policies, and the Company
evaluates the performance of each segment using before-tax income or loss from
continuing operations.
Listed below is a presentation of certain profit or loss and other information
for reportable segments. The only non-cash items are depreciation and
amortization. Taxes are not allocated to segment operations, and for 1999 and
1998, the Company had none of the following items: discontinued operations,
extraordinary items, or accounting changes.
<TABLE>
<CAPTION>
Phone card
Phone card
dispensers dispensers Charity bingo Charity bingo
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales and rents $ 4,421,264 $ 3,641,675 $ 469,562 $ 565,622
Interest expense 297,146 317,812 - -
Depreciation and amortization
328,943 224,489 16,378 44,499
Profit (loss) (260,846) 128,617 38,103 (1,971)
Assets 1,582,012 2,084,248 63,936 108,746
Asset expenditure 32,031 1,228,243 7,359 2,445
</TABLE>
<PAGE>
BGI, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 1999 AND 1998
<PAGE>
NOTE 15 - SEGMENT REPORTING - CONTINUED
- ---------------------------------------------
Reconciliation of reportable segment assets, revenue, profit or loss, and other
items of significance to consolidated amounts are presented as follows.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets:
- ---------------------------------------------------
Assets of reportable segment $1,645,947 $2,192,994
- --------------------------------------------------- -----------
Assets of non reportable segments - -
- ---------------------------------------------------
Assets not allocated to operating segments - -
- --------------------------------------------------- ----------- ----------
Consolidated assets $1,645,947 $2,192,994
- --------------------------------------------------- ----------- ----------
Revenues:
- ---------------------------------------------------
Revenue from reportable segment $4,890,826 $4,207,297
- --------------------------------------------------- ----------- ----------
Revenue from non-reportable segments - -
Consolidated revenues $4,890,826 $4,207,297
Profits:
Profit from reportable segments $ 611,676 $ 716,503
Profit from non-reportable segments - -
Expenses at corporate level not allocated to
segments 834,419 589,857
- --------------------------------------------------- ----------- ----------
Income (loss) before tax $ (222,743) $ 126,646
Other items of significance:
Interest expense $ 297,644 $ 317,812
Depreciation and amortization $ 345,622 $ 268,988
----------- ----------
Asset expenditures $ 39,390 $1,230,688
</TABLE>
NOTE 16 - IMPAIRMENT OF ASSETS
- -----------------------------------
During the year ended December 31,1998, the Company leased certain phone card
dispensers under capital leases in excess of the market value of the dispensers.
As a result, pursuant to FASB Statement No. 121, Accounting for Impairment of
Long - Lived Assets and for Long - Lived Assets to be Disposed Of, an impairment
of $205,192 has been recognized for this equipment and included as a component
of income before income taxes under the caption, "Impairment of long - lived
assets"for the year ended December 31, 1998.
<PAGE>
- ------
Item 8. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure.
--------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
-------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act.
-----------------------------------------------
Identification of Directors and Executive Officers
--------------------------------------------------
The following table sets forth the names and the nature of all positions and
offices held by all directors and executive officers of the Company for the year
ended December 31, 1999, and to the date hereof, and the period or periods
during which each such director or executive officer has served in his
respective position.
<TABLE>
<CAPTION>
Date of Date of
--------------
Election or Termination
----------- --------------
Name Positions Held Designation or Resignation
- ------------------ ----------------------- ----------- --------------
<S> <C> <C> <C>
Reid Funderburk* Chairman and CEO 12/94
- ------------------ ----------------------- -----------
Director 12/94
----------------------- -----------
George Majewski* President and COO 04/96
- ------------------ ----------------------- -----------
Director 12/94
----------------------- -----------
V.P., Sec., Treasurer 12/94 09/97
----------------------- ----------- --------------
Robert H. Hughes* Director 12/94
- ------------------ ----------------------- -----------
R. E. Wilkin* Director 12/94
- ------------------ ----------------------- -----------
Rick Redmond* Director 09/97
- ------------------ ----------------------- -----------
Robert Chappell** Secretary 09/97
- ------------------ ----------------------- -----------
Treasurer 09/97 04/99
----------------------- ----------- --------------
Clay McCalla** Vice President 09/97
- ------------------ ----------------------- -----------
Rhonda McClellan** Chief Financial Officer 10/98
- ------------------ ----------------------- -----------
Treasurer 04/99
----------------------- -----------
</TABLE>
* These officers and directors were re-elected on 09/29/99 at the Annual
Stockholders and Board of Directors Meeting
** These persons presently serve in the capacities indicated opposite their
respective names.
Term of Office
- ----------------
The term of office of the current directors shall continue until the next annual
meeting of stockholders. The annual meeting of the Board of Directors, at which
officers for the coming year are elected, immediately follows the annual meeting
of stockholders.
<PAGE>
- ------
Business Experience of Current Directors and Executive Officers
- ----------------------------------------------------------------------
Mr. Funderburk, age 47, began engaging in the bingo commercial lessor business
- ---------------
in 1987. Since then, he and/or companies with which he was associated, have
owned and/or operated and/or managed thirteen bingo commercial lessor
operations. He has been a director and executive officer of Monitored and its
affiliated companies since their inception. He served as President of the Texas
Bingo Commercial Lessors Association from 1989 through 1993. Mr. Funderburk has
prior experience as the owner of a bank equipment and supply company and as a
real estate developer.
Mr. Majewski, age 56, has been associated with Bingo & Gaming International,
- -------------
Inc. and its affiliated companies and/or predecessor companies since 1989. He
- ---
holds a B.B.A. from the University of Texas and has prior experience as an owner
of businesses in the entertainment, catering, concessions, and vending
industries.
Ms. McClellan, age 48, is a Certified Public Accountant and held the position
- --------------
of Senior Manager in a regional public accounting firm in Texas, specializing in
SEC practice, prior to joining the Company in October 1998 as Chief Financial
Officer. For the previous four years, she held the position of Finance Manager
and Controller for a City of Austin department. She holds a B.B.A. from the
University of Texas.
Mr. Hughes, age 72, is a retired attorney and a legislative consultant in
- -----------
Austin, Texas, spending much of his time representing various clients in the
- ------
charity bingo and amusement and vending industry.
- ---
Mr. Wilkin, age 66, is a retired CPA and a general business consultant. He was
- ----------
a practicing CPA with Ernst & Whinney (now Ernst & Young), an international
accounting firm, from 1957 through 1984 and a partner in such firm from 1969
through 1984. Since then, he has been involved with several start-up companies,
including AmeriCredit Corporation (NYSE). For the past several years, Mr.
Wilkin has been the Chief Financial Officer of U.S. Cast Products, Inc. of Fort
Worth, Texas.
Mr. Redmond, age 47, is the founding owner and major stockholder of Lone Star
- ------------
Cafe, Inc., a restaurant chain based in Austin, Texas, with operations in Texas
and Colorado. He serves as Vice President of Real Estate Acquisitions for that
corporation. In addition, Mr. Redmond is General Partner and majority
stockholder of VIP Marina and Volente Beach Club.
Mr. McCalla, age 41, graduated with a B.B.A. from Texas Tech University,
- ------------
Lubbock, Texas, in 1980. Until his employment with the Company, he was
- ------
president of Logistics by Clay, Inc., an event management corporation from 1988
- ------
through present. Mr. McCalla planned and managed executive travel programs for
corporate clients such as RJR Nabisco and PepsiCo. Mr. McCalla was Chief of
Staff for Bob Bullock, State of Texas Comptroller from 1981 through 1985.
Robert Chappell, age 40, graduated with an Associate of Applied Sciences
- ----------------
(Financial Management) from Community College of the Air Force in 1993. He
- ------
served with the U.S. Air Force in the positions of Financial Manager and
- ----
Auditor. In December of 1996, he accepted a position as a senior accountant
- ----
with the City of Austin - Neighborhood Housing Division. Mr. Chappell accepted
- ---
his current position in September 1997.
Family Relationships
- ---------------------
No family relationship exists between any current director or executive officer.
<PAGE>
- ------
Compliance with Section 16(a) of the Exchange Act
- --------------------------------------------------------
Reid Funderburk, an officer and director, disposed of 12,374 shares as a gift on
- ---------------
July 29, 1999, as reported on SEC Form 4, dated August 16, 1999. He disposed of
50,000 shares on August 10, 1999, as reported on SEC Form 4 on August 16, 2000.
George Majewski, an officer and director, disposed of 8,000 shares as a gift on
- ---------------
September 16, 1999, as reported on Form 4 on October 5, 1999. He also disposed
of 12,000 shares of stock as gifts on December 25, 1999, as reported on SEC Form
4 on April 11, 2000.
Robert Chappell, an officer, received options to purchase 1,500 shares of common
- ---------------
stock at $.50 per share under the Company's Incentive Stock Option Plan on
October 25, 1999. He also received 1,100 shares of restricted stock on January
21, 2000, as reported on SEC Form 4 dated April 11, 2000. On February 11, 2000
he also received options to purchase 8,000 shares of common stock at $.8438 per
share under the Company's Incentive Stock Option Plan. These options were
reported on SEC Form 4 on April 11, 2000. He also disposed of 3,750 shares on
February 28,2000, and 3,000 shares on March 28, 2000, as reported on SEC Form 4
on April 11, 2000.
Rhonda McClellan, an officer, received 2,000 shares of restricted stock on
- -----------------
January 21, 2000, as reported on SEC Form 4 dated April 11, 2000. She also
- -----
received 75,000 shares by exercising stock options on February 11, 2000, as
- ----
reported on SEC Form 4 on April 11, 2000. On February 11, 2000, she also
- ----
received options to purchase 20,000 shares of common stock at $.8438 per share
- ----
under the Company's Incentive Stock Option Plan. These options were reported on
SEC Form 4 on April 11, 2000.
Clay McCalla, an officer, received 2,000 shares of restricted stock on January
- --------------
21, 2000, as reported on SEC Form 4 dated April 11, 2000. On February 11, 2000,
he also received options to purchase 10,000 shares of common stock at $.8438 per
share under the Company's Incentive Stock Option Plan. These options were
reported on SEC Form 4 on April 11, 2000.
Involvement in Certain Legal Proceedings
- --------------------------------------------
Except as indicated below and to the knowledge of management, during the past
five years, no present or former director, person nominated to become a
director, executive officer, promoter or control person of the Company:
(1) Was a general partner or executive officer of any business by or against
which any bankruptcy petition was filed, whether at the time of such filing or
two years prior thereto;
(2) Was convicted in a criminal proceeding or named the subject of a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) Was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities.
(4) Was found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
<PAGE>
Item 10. Executive Compensation.
-----------------------
The following table shows the cash compensation paid by the Company, as well as
other compensation, for the Company's Chief Executive Officer for the fiscal
years 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Name and Other annual Restricted All other
- ------------------------ -------------- ----------- -----------
Principal Compen- Stock Options/ LTIP Compen-
- ------------------------ -------------- ----------- --------- -------- -----------
Position Year Salary Bonus sation (1) Awards SARS (#) Payouts sation ($)
- ------------------------ ---- ------- ------ -------------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reid Funderburk f f 1999 $89,000 $ -0- $ -0- $ -0- $- -0- -0- $ -0- $ 2,500
- ------------------------ ---- ------- ------ -------------- ----------- ------ --------- -------- -----------
Chairman, CEO 1998 $76,149 -0- -0- -0- -0- -0- 3,000
- ------------------------ ---- ------- ------ -------------- ----------- --------- -------- -----------
and Director 1997 $64,759 1,241 -0- -0- -0- -0- -0-
- ------------------------ ---- ------- ------ -------------- ----------- --------- -------- -----------
</TABLE>
Compensation of Directors
- ---------------------------
Directors fees totaling $14,500 were paid to directors during the year ended
December 31, 1999.
Employment Contracts and Termination of Employment and Change of Control
- --------------------------------------------------------------------------------
Arrangement
- -----------
Except as indicated below, during 1999, there were no compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any named executive officer which would in any way result in payments to any
such person because of his or her resignation, retirement or other termination
of such person's employment with the Company or its subsidiaries, or any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
Messrs. Funderburk and Majewski entered into Employment Agreements in 1995 with
the Company. These Employment Agreements provide, among other things, for
payment of all compensation due under such Agreements for a period of one year
from the date of termination of employment due to physical or mental disability
that results in the non-performance of the employee's duties for a period of six
months in any 12 month period, death, thirty days notice of breech of the
Agreement, which is not cured, or termination by the Company for specified
causes.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------------
The following table sets forth the share holdings of the Company's directors and
executive officers and those persons who owned more than 5% of the Company's
common stock as of March 8, 2000.
Directors and Executive Officers Number Percentage
- ----------------------------------- ------ ----------
Name and address of Shares * Beneficially Owned
- ------------------ ------------- -------------------
Reid Funderburk (1) 2,518,000 27.86%
------------------- --------- ------
13581 Pond Springs Road, Suite 105
- ---------------------------------------
Austin, Texas 78729
- ---------------------
Robert Hughes 460,000 5.09%
------------- ------- -----
1506 West 13th #12
- ---------------------
Austin, Texas 78704
- ---------------------
George Majewski 447,461 4.95%
--------------- ------- -----
13581 Pond Springs Road, Suite 105
Austin, Texas 78729
- ---------------------
R. E. Wilkin 257,600 2.85%
------------ ------- -----
4304 Kirkland Dr.
Fort Worth, Texas 76109
- --------------------------
Directors and Executive Officers - Continued Number Percentage
- -------------------------------- ------ ----------
Name and address of Shares * Beneficially Owned
- ------------------ ------------- -------------------
Rick Redmond 100,000 1.11%
------------ ------- -----
13492 Research Boulevard
- --------------------------
Austin, Texas 78750
- ---------------------
Rhonda McClellan 77,000 0.85%
---------------- ------ -----
8402 Daleview
- --------------
Austin, Texas 78757
- ---------------------
Clay McCalla 17,000 0.19%
------------ ------ -----
11602 Hare Trail
- ------------------
Austin, Texas 78726
- ---------------------
Robert Chappell 1,100 0.01%
--------------- ----- -----
P.O. Box 624
- --------------
Martindale, Texas 78655
- -------------------------
Subtotals 3,878,161 42.91%
--------- --------- ------
Additional 5% Owners
- ----------------------
Henry A. Anawaty, III (2) 528,100 5.84%
--------------------------- ------- -----
5910 Courtyard Drive Suite 150
Austin, Texas 78731
- ---------------------
Totals 4,406,261 48.75%
------ --------- ------
CHANGES IN CONTROL
TO THE KNOWLEDGE OF THE COMPANY'S MANAGEMENT, THERE ARE NO PRESENT ARRANGEMENTS
OR PLEDGES OF THE COMPANY'S SECURITIES THAT MAY RESULT IN A CHANGE OF CONTROL OF
THE COMPANY.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
DURING THE TWO YEARS ENDED DECEMBER 31, 1999 AND 1998, THERE WERE NO MATERIAL
TRANSACTIONS, OR SERIES OF SIMILAR TRANSACTIONS, OR ANY CURRENTLY PROPOSED
TRANSACTIONS, OR SERIES OF SIMILAR TRANSACTIONS, TO WHICH THE COMPANY OR ANY OF
ITS SUBSIDIARIES WAS OR IS TO BE A PARTY, IN WHICH THE AMOUNT INVOLVED EXCEEDED
$60,000 AND IN WHICH ANY DIRECTOR, EXECUTIVE OFFICER OR ANY SECURITY HOLDER WHO
IS KNOWN TO THE COMPANY TO OWN OF RECORD OR BENEFICIALLY MORE THAN 5% OF ANY
CLASS OF THE COMPANY'S COMMON STOCK, OR ANY MEMBER OF THE IMMEDIATE FAMILY OF
ANY OF THE FOREGOING PERSONS, HAD AN INTEREST.
CERTAIN BUSINESS RELATIONSHIPS.
DURING THE TWO YEARS ENDED DECEMBER 31, 1999 AND 1998, THERE WERE NO BUSINESS
RELATIONSHIPS, TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES WAS OR IS TO BE A
PARTY, IN WHICH THE AMOUNT INVOLVED EXCEEDED $60,000 AND IN WHICH ANY DIRECTOR,
EXECUTIVE OFFICER OR ANY SECURITY HOLDER WHO IS KNOWN TO THE COMPANY TO OWN OF
RECORD OR BENEFICIALLY MORE THAN 5% OF ANY CLASS OF ITS COMMON STOCK, OR ANY
MEMBER OF THE IMMEDIATE FAMILY OF ANY OF THE FOREGOING PERSONS, HAD AN INTEREST.
INDEBTEDNESS OF MANAGEMENT.
DURING THE TWO YEARS ENDED DECEMBER 31, 1999 AND 1998, THERE WAS NO NEGOTIABLE
INDEBTEDNESS, TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES WAS OR IS TO BE A
PARTY, IN WHICH THE AMOUNT INVOLVED EXCEEDED $60,000 AND IN WHICH ANY DIRECTOR,
EXECUTIVE OFFICER OR ANY SECURITY HOLDER WHO IS KNOWN TO THE COMPANY TO OWN OF
RECORD OR BENEFICIALLY MORE THAN 5% OF ANY CLASS OF ITS COMMON STOCK, OR ANY
MEMBER OF THE IMMEDIATE FAMILY OF ANY OF THE FOREGOING PERSONS, HAD AN INTEREST.
PARENTS OF THE ISSUER.
THE COMPANY HAS NO PARENTS.
TRANSACTIONS WITH PROMOTERS.
DURING THE TWO YEARS ENDED DECEMBER 31, 1999 AND 1998, THERE WERE NO MATERIAL
TRANSACTIONS, OR SERIES OF SIMILAR TRANSACTIONS, OR ANY CURRENTLY PROPOSED
TRANSACTIONS, OR SERIES OF SIMILAR TRANSACTIONS, TO WHICH THE COMPANY OR ANY OF
ITS SUBSIDIARIES WAS OR IS TO BE A PARTY, IN WHICH THE AMOUNT INVOLVED EXCEEDED
$60,000 AND IN WHICH ANY PROMOTER OR FOUNDER OR ANY MEMBER OF THE IMMEDIATE
FAMILY OF ANY OF THE FOREGOING PERSONS, HAD AN INTEREST.
13. EXHIBITS AND REPORTS ON FORM 8-K.*
CURRENT REPORT ON FORM 8-K FILED, DATED JANUARY 5, 1998, REGARDING THE
CHANGE IN ACCOUNTANTS.**
EXHIBITS
(II)
EXHIBIT NUMBER DESCRIPTION
21 SUBSIDIARIES OF THE COMPANY
27 FINANCIAL DATA SCHEDULE
<PAGE>
EXHIBIT 21
Date Incorporated State Name
March 4, 1988 Texas Monitored Investments, Inc.
September 6, 1991 Louisiana Red River Bingo, Inc.
June 5, 1992 Mississippi Tupelo Industries, Inc.
April 1, 1980 Oklahoma BGI, Inc.
October 8, 1997 Texas Prepaid Plus, Inc.
*SUMMARIES OF ALL EXHIBITS CONTAINED WITHIN THIS REPORT ARE MODIFIED IN
THEIR ENTIRETY BY REFERENCE TO THESE
EXHIBITS.
**THESE DOCUMENTS AND RELATED EXHIBITS HAVE BEEN PREVIOUSLY FILED WITH THE
SEC AND INCORPORATED HEREIN.
<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.
DATE: ____________________ BY_______________________________
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: _____________________ BY_______________________________
REID FUNDERBURK, CHAIRMAN, C.E.O. & DIRECTOR
DATE: ____________________ BY_______________________________
GEORGE MAJEWSKI, DIRECTOR, PRESIDENT
DATE: ____________________ BY_______________________________
RHONDA MCCLELLAN, CHIEF FINANCIAL OFFICER
DATE: ____________________ BY _______________________________
R. E. WILKIN, DIRECTOR
DATE:_____________________ BY _______________________________
ROBERT H. HUGHES, DIRECTOR
DATE:_____________________ BY _______________________________
RICK REDMOND, DIRECTOR
