-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RlOL2XfzlobgNlqut6Wz/1Exi9O99hQ/LMSxPJdcR3A9Pukv4/zy61tEMpOPvFFj xg+eZ4WjB9sxJ0tPqR3oLg== 0001015402-01-500685.txt : 20010418 0001015402-01-500685.hdr.sgml : 20010418 ACCESSION NUMBER: 0001015402-01-500685 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BGI INC CENTRAL INDEX KEY: 0000355590 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 731092118 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-10519 FILM NUMBER: 1604186 BUSINESS ADDRESS: STREET 1: 13581 POND SPRINGS RD STREET 2: SUITE 105 CITY: AUSTIN STATE: TX ZIP: 78279 BUSINESS PHONE: 5124900065 MAIL ADDRESS: STREET 1: 11006 METRIC BOULEVARD STREET 2: STE 350 CITY: AUSTIN STATE: TX ZIP: 78758 FORMER COMPANY: FORMER CONFORMED NAME: BINGO & GAMING INTERNATIONAL INC DATE OF NAME CHANGE: 19951120 FORMER COMPANY: FORMER CONFORMED NAME: PRIMARY DEVELOPMENT CORP /OK/ DATE OF NAME CHANGE: 19941215 10KSB 1 doc1.txt 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, 2000 ----------------- 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, 2000 - $3,002,238 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, 2001. - $885,529. There are approximately 4,722,818 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, 2001 9,141,142 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 __
TABLE OF CONTENTS Page Number ------ Item 1. Description of Business 1 ---------------------- Item 2. Description of Property 4 ----------------------- 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 8 -------------------- Item 8. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure 31 -------------------- Item 9. Directors, Executive Officers, Promoters and Control Persons; ------------------------------------------------------------- Compliance With Section 16(a) of the Exchange Act 32 ------------------------------------------------- Item 10. Executive Compensation 34 ---------------------- Item 11. Security Ownership of Certain Beneficial Owners and Management 35 -------------------------------------------------------------- Item 12. Certain Relationships and Related Transactions 36 ---------------------------------------------- Item 13. Exhibits and Reports on Form 8-K 37 --------------------------------
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. During 1999, the Company organized Linkmarkets.com, Inc. During 2000, the Company sold Linkmarkets.com, Inc. which did not have any assets or liabilities as of sale date to a shareholder for an immaterial amount. 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 March 8, 2001, the Company owns 325 dispensers that are located throughout the states of Texas, Oklahoma, Arizona, and Colorado. The majority of company owned machines are placed in Texas and Oklahoma. In addition, there are 90 machines that have been sold to operators and distributors. 1 During the year ended December 31, 2000, 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. 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, 2000. Additionally, pricing pressure by the competition has resulted in adjustments by the Company to remain competitive. The Company's bingo centers in Iuka and Tupelo, Mississippi have not suffered any decrease in attendance with increased competition at both locations. 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 Tradex International, which is a reseller of long distance services. 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. 2 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. 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. The Company also provides copies of 10 KSB and 10 QSB to shareholders and interested investors based on request from individuals. In addition, the public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 or the public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically and can be located at (http://www.sec.gov). ------------------ 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 March 8, 2001, the Company had three part-time and seven 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 January 26, 2001, the Company sold the remainder of the bingo hall lease for Magnolia Bingo in Tupelo, Mississippi for $45,000. Also, on February 2001, the Company filed an S-8 with the SEC registering shares of common stock for the BGI, Inc. Employee Stock Option Plan. 3 Item 2. Description of Property. ------------------------- The Company leases all of it locations. Tupelo leases a 16,000 square foot bingo facility located at 2243 Highway 25, South, Iuka, Mississippi. Tupelo also leases an 11,800 square foot bingo facility at 1800 North Gloster, Tupelo, Mississippi. Both facilities are sub-leased to charitable organizations. 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 leased 3,000 square foot of additional office space and has subsequently sub-leased the office space. 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 comparable to those of competing bingo halls in the area. The office and warehouse property are well situated and easily accessible from major thoroughfares. Item 3. Legal Proceedings. ------------------ 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. Item 4. Submission of Matters to a Vote of Security Holders. ------------------------------------------------------------ None 4 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: Common Stock High Low ------------ Fiscal 1999: - ------------ First quarter .6875 .2500 Second quarter 1.5310 .4680 Third quarter 1.4370 .6870 Fourth quarter 1.0620 .4680 Fiscal 2000: - ------------ First quarter 1.4375 .6875 Second quarter .9375 .2500 Third quarter .4062 .2500 Fourth quarter .2812 .0625 Prices are inter-dealer quotations as reported by the NASD and do not necessarily reflect transactions, retail markups, markdowns or commissions. Shareholders - ------------ The number of record holders of the Company's common stock as of December 31, 2000, was approximately 315. 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. 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. 5 Recent Sale of Unregistered Securities - ------------------------------------------ None 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. Year ended Year ended December 31, 2000 December 31, 1999 ------------------- ------------------- STATEMENT OF INCOME: Total revenues $ 3,002,238 $ 4,890,826 Cost of revenue (2,117,235) (3,257,762) General and administrative expense (1,316,377) (1,558,661) Operating income (loss) (431,374) 74,403 Net loss (660,042) (222,743) Net loss per common share (0.07) (0.03) BALANCE SHEET: Current assets $ 276,181 $ 406,135 Current liabilities 881,401 1,031,798 Total assets 1,058,867 1,645,947 Long-term debt 212,715 117,540 Stockholders' equity (deficit) (35,249) 496,609 Operations - ---------- The Company owns an exclusive distribution agreement with Cyberdyne Systems, Inc. to distribute the Lucky Strike Prepaid Phone Card Dispenser (the "Machine"). This five-year contract has two five-year extension options and provides the Company with exclusive distribution rights in North America. As of November 2000, the original contract was amended with Cyberdyne to include the development of a new product "Donation Station"and gives the Company exclusive distribution rights in the states in which it now operates. The product provides the opportunity for consumers to make a donation to a specified charity with a sweepstakes attached. This new addition compliments the sale of prepaid phone cards and dispensers , as well as, continues to diversify its current product line offered to consumers. Also, both of these products provide an alternative means of entry ("No Purchase Necessary") with the sweepstakes operations. Company owned "Machines" are placed in locations by both Company sales staff and distributors. The Company manages route operations and replaces cartridges for prepaid phone cards. There are also individually owned and operated "Machines" where the Company directly sells cartridges to location owners. 6 In March 2000, the Company retained two consultants to manage the development of a Internet game site. MetGames, Inc. developed and hosted the web-site to sell prepaid phone cards using a virtual machine. The web-site was completed in December, has been relocated to Aperian, Inc., an Internet Service Provider (ISP) specializing in web hosting for corporations with e-commerce sites. The "Beta" testing of the new site is in progress. The Company's primary focus for the first six months of 2001 is to accelerate prepaid phone card sales by increasing the number of machine placements, helping current customers promote their business operations and relocating nominal producing machines into locations with the potential of producing higher revenues. The Company will also expedite placing the new product "Donation Station" to current customers. In addition, the sales staff has identified and is calling on new potential customers. Results of Operations - ----------------------- Year Ended December 31, 2000 Compared with Year Ended December 31, 1999 ------------------------------------------ Total revenues for the year ended December 31, 2000, was $3,002,238 as compared to $4,890,826 for the prior year ended December 31, 1999. This 38.6% decrease was the result of declines in phone card and machine sales, 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 10KSB for the year ended December 31, 1999. Gross margin was $885,003 or 29.5% of total revenue for the year ended December 31, 2000 as compared to $1,633,064 or 33.4% of total revenue for the year ended December 31, 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 year ended December 31, 2000 was $1,316,377 compared to $1,558,661 for the year ended December 31, 1999. This 15.5% decrease was the result of continuing improvements in expense controls undertaken by management during the fiscal year 2000. The 23.0% or $68,478 decrease in interest expense is the result of declines in principal balances as of year ended December 31, 2000, as compared to year ended December 31, 1999. For the fiscal year ended December 31, 2000 and 1999, the Company incurred consolidated net losses of $660,042 and $222,743, respectively. The loss carry-forwards (tax basis) of approximately $1,184,000 as of year ended December 31, 2000 will begin to expire 2010. Due to federal income tax net operating loss-carry forwards, no provision for federal income tax was required. 7 Liquidity - --------- Current assets of $276,181 represented 31.3% of current liabilities of $881,401 as of December 31, 2000, as compared to current assets of $406,135 representing 39.4% of current liabilities in the amount of $1,031,798 as of December 31, 1999. The Company's decreased cash position during the 2000 fiscal year is primarily the result of decreases in the sale of phone cards, machines, and increased competition in the primary areas of operation. Subsequent to December 31, 2000, the Company has renegotiated its terms with a lessor under a master lease for equipment included in capitalized leases. Also, the Company has amended an agreement with one supplier to eliminate its trade debt of $254,468 by applying future revenues generated from "Donation Station". Management is genuinely aware of the Company's liquidity problem and is concentrating on returning to profitability as quickly as possible. In addition, the Company is arranging for additional financing needed to go forward with the Virtual Sweepstakes Internet operations. This is 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. Item 7. Financial Statements. --------------------- The following financial statements are included hereinafter: Page No. -------- Independent Auditors' Report 9 Consolidated Balance Sheets as of December 31, 2000 and 1999 10 Consolidated Statements of Loss for the years ended December 31, 2000 and 1999 12 Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 2000 and 1999 13 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999 14 Notes to Consolidated Financial Statements 16 8 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, 2000 and 1999, 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, 2000 and 1999, 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 $660,042 for the year ended December 31, 2000 and current liabilities exceed current assets by $605,220. 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 February 16, 2001 9
BGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 2000 1999 ---------- ---------- ASSETS ------ Current assets: Cash and cash equivalents $ 58,124 $ 89,636 Accounts receivable - trade, net of allowance for accounts of $50,849 and $81,814, respectively 117,505 174,868 Inventories 86,453 123,458 Prepaid expenses 14,099 18,173 ---------- ---------- Total current assets 276,181 406,135 ---------- ---------- Property and equipment, at cost, net (note 4) 684,340 1,060,922 ---------- ---------- Other assets: Intangible assets, net (note 3) 36,121 61,721 Deferred financing costs (note 9) 34,484 83,366 Deposits 27,741 33,803 ---------- ---------- Total other assets 98,346 178,890 ---------- ---------- Total assets $1,058,867 $1,645,947 ========== ==========
The accompanying notes are an integral part of these financial statements 10
BGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable - trade and accrued expenses $ 403,352 $ 299,826 Current maturities of long-term debt (note 5) 200,482 237,083 Current maturities of lease obligations (note 6) 277,567 494,889 ----------- ----------- Total current liabilities 881,401 1,031,798 Long-term debt, net of current maturities (note 5) 21,814 43,835 Long-term portion of lease obligations (note 6) 190,901 73,705 ----------- ----------- Total liabilities 1,094,116 1,149,338 ----------- ----------- 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 authorized; 9,141,142 and 8,862,389 issued and outstanding, respectively 9,141 8,862 Additional paid-in capital 936,253 808,348 Retained earnings (deficit) (980,643) (320,601) ----------- ----------- Total stockholders' equity (deficit) (35,249) 496,609 ----------- ----------- Total liabilities and stockholders' equity $1,058,867 $1,645,947 =========== ===========
The accompanying notes are an integral part of these financial statements 11
BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ------------ Revenue: Phone card and machine sales $2,626,567 $ 4,314,169 Hall rental and concession income 331,934 469,562 Other 43,737 107,095 ----------- ------------ Total revenue 3,002,238 4,890,826 ----------- ------------ Cost of revenue: Phone cards and machines 1,079,357 1,592,187 Prizes paid 847,443 1,468,070 Hall rental and concession 190,435 197,505 ----------- ------------ Total cost of revenue 2,117,235 3,257,762 ----------- ------------ Gross margin 885,003 1,633,064 General and administrative expenses 1,316,377 1,558,661 ----------- ------------ Operating income (loss) (431,374) 74,403 Interest expense (228,668) (297,146) ----------- ------------ Net loss $ (660,042) $ (222,743) =========== ============ Basic and diluted loss per common share $ (0.07) $ (0.03) =========== ============ Weighted average shares outstanding 9,052,081 8,713,267 =========== ============
The accompanying notes are an integral part of these financial statements 12
BGI, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999 ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ------------ ---------- ---------- ---------- Balance at December 31, 1998 $ 8,551 $ 643,757 $ (97,858) $ 554,450 Net 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 Net loss - - (660,042) (660,042) Cancellation of asset purchase agreement (60) (37,440) - (37,500) Issuance of common stock for: Cashless exercise of options 14 (14) - - Cash exercise of options 85 64,915 - 65,000 Services 240 100,444 - 100,684 ------------ ---------- ---------- ---------- Balance at December 31, 2000 $ 9,141 $ 936,253 $(980,643) $ (35,249) ============ ========== ========== ==========
The accompanying notes are an integral part of these financial statements 13
BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ---------- ---------- Operating activities: Net loss $(660,042) $(222,743) Adjustments to reconcile net loss to net cash from from operating activities: Depreciation and amortization 372,424 345,321 Impairment of property and equipment 68,791 - Provision for bad debts - 203,057 Common stock issued for services 100,684 9,266 Deferred financing cost charged to interest 48,882 64,206 Common stock options issued for consulting fees - 5,170 Changes in current assets and current liabilities: Accounts receivable - trade 57,363 105,462 Inventories 37,005 (36,289) Prepaid expenses 4,074 10,628 Accounts payable - trade and accrued expenses 103,526 4,909 ---------- ---------- Net cash provided from operating activities 132,707 488,987 ---------- ---------- Investing activities: Purchase of property and equipment (30,415) (39,390) Proceeds from sale of property and equipment 3,000 - Change in deposits and other assets (35,351) (1,096) ---------- ---------- Cash used by investing activities (62,766) (40,486) ---------- ---------- Financing activities: Payments on long-term debt (102,779) (143,680) Proceeds from long-term debt 44,157 - Payments on long-term leases (107,831) (363,369) Proceeds from issuance of common stock 65,000 15,000 ---------- ---------- Cash used by financing activities (101,453) (492,049) ---------- ---------- Net increase(decrease) in cash and cash equivalents (31,512) (43,548) Cash and cash equivalents at beginning of year 89,636 133,184 ---------- ---------- Cash and cash equivalents at end of year $ 58,124 $ 89,636 ========== ==========
The accompanying notes are an integral part of these financial statements 14
BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 --------- -------- Supplemental disclosures of cash flow information: Interest paid $144,197 $297,146 ========= ========= Supplemental disclosure of non-cash investing and financing activities: Common stock, warrants and options issued for financing and services $100,684 $ 39,545 ========= ========= Common stock issued (cancelled) for purchase of distribution route including accounts receivable and non-compete agreement $(37,500) $110,357 ========= ========= Purchase of assets with capital lease $ 7,705 $ - ========= =========
The accompanying notes are an integral part of these financial statements 15 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------------- NATURE OF BUSINESS AND BASIS OF PRESENTATION: BGI, Inc. formerly 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, 2000. In addition, the Company's working capital position deteriorated due to a loss from operations. At December 31, 2000, current liabilities exceed current assets by $605,220, and the Company had a deficit retained earnings of $980,643. 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. 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. 16 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 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. INTANGIBLE ASSETS: Intangible assets include goodwill, the cost of a noncompete agreement, and development of internet site. Goodwill is amortized over five years, the cost of the noncompete agreement is being amortized over two years, and the internet site is being amortized over three 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 "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. 17 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED - -------------------------------------------------------------------- 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. NEW ACCOUNTING PRONOUNCEMENTS: 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 $27,487 in notes payable to an officer and stockholder at December 31, 2000 (see note 5). Interest paid to the officer and stockholder was $333 for the year ended December 31, 2000. NOTE 3 - ORGANIZATIONAL COSTS AND INTANGIBLE ASSETS - ---------------------------------------------------------- Organizational costs and intangible assets at December 31, 2000 and 1999 consist of the following:
2000 1999 --------- --------- Organization costs $ - $ 21,834 Internet design 42,479 - Goodwill 824 38,324 Noncompete agreement 26,318 26,318 --------- --------- Total 69,621 86,476 Less accumulated amortization (33,500) (24,755) --------- --------- Net organizational costs and intangible asset $ 36,121 $ 61,721 ========= =========
Amortization expense was $29,513 and $9,072, for the years ended December 31, 2000 and 1999, respectively. 18 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 4 - PROPERTY AND EQUIPMENT - ------------------------------------ Property and equipment at December 31, 2000 and 1999 consist of the following:
Lives (Years) 2000 1999 ------------ ----------- ----------- Vehicles 7 $ 53,974 $ 53,974 Furniture and equipment 5 - 10 1,533,300 1,611,308 Leasehold improvements 5 107,151 134,190 ----------- ----------- Total 1,694,425 1,799,472 Less: accumulated depreciation and amortization (1,010,085) (738,550) ------------ ----------- Net property and equipment $ 684,340 $1,060,922 ============ ===========
Depreciation and amortization expense for property and equipment was $342,911 and $336,249 for years ended December 31, 2000 and 1999, respectively. 19 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999
NOTE 5 - LONG-TERM DEBT - --------------------------- 2000 1999 ---------- ---------- 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 $ 13,159 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 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 12%; matures November 17, 2001; collateralized by certain equipment 27,487 - Various installment notes payable to banks and other financial institutions; due in monthly installments of $11,060 including interest ranging from 9.5% to 15.59%; collateralized by certain equipment 71,650 120,611 ----------- ---------- Total 222,296 280,918 Less current maturities (200,482) (237,083) ----------- ---------- Long-term debt $ 21,814 $ 43,835 =========== ==========
The note payable to individuals are in default for payment under the terms of the notes. The Company has not received demand for payment as required by the notes. Future maturities of long-term debt are as follows: Year Ending December 31 ----------------------- 2000 $200,482 2001 17,040 2002 4,774 -------- Total $222,296 ======== 20 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES - ----------------------------------------------- The Company has financed phone card dispensers and other equipment under capital leases expiring in through 2004. 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). Minimum future lease payments under capital leases as of December 31, 2000 are as follows: Year Ending December 31 2001 $ 414,094 2002 208,125 2003 1,897 2004 711 ---------- Total 624,827 Minimum lease payment amounts representing interest (156,359) ---------- Present value of net minimum lease payments 468,468 ---------- Current portion (277,567) ---------- Long-term portion $ 190,901 ========== At December 31, 2000, the Company and lessor have renegotiated the payment of installments of monthly rent under a master lease for equipment included in the capital leases above. NOTE 7 - COMMITMENTS AND CONTINGENCIES - ------------------------------------------- The Company leases its general offices and bingo facilities. The leases expire at various dates through 2002. Future minimum lease payments are as follows: Year Ending December 31 2001 $ 218,120 2002 52,265 ---------- Total $ 270,385 ========== Rental expense for the years ended December 31, 2000 and 1999 in the amount of $254,721 and $222,020 are included in hall rental and concession and general and administrative expenses in the accompanying financial statements. 21 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 7 - COMMITMENTS AND CONTINGENCIES-CONTINUED - ----------------------------------------------------- The Company subleases bingo facilities under operating subleases that expire at various dates through the year 2002. These subleases may be canceled by either party at any time. The company also sub-leases certain office space that expires in November 2001. 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 warrants expired during the year ended December 31, 2000. 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, 2000, 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 the year ended December 31, 2000, 35,000 options to purchase common stock were exercised for $35,000 and 75,000 options expired. 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. During the year ended December 31, 2000, 25,000 options expired and the Company extended the expiration date of 180,000 options to April 2002. 22 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 8 - STOCKHOLDERS' EQUITY-CONTINUED - ------------------------------------------- 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, 2000, one individual exercised 50,000 options to purchase common stock in the amount of $30,000 and 50,000 options were extended to expire on September 17, 2001. 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, 2000, options to purchase 25,000 shares of common stock were exercised in a cashless exercise by the Company receiving 10,694 shares of free trading common stock which were cancelled. The additional 75,000 options were cancelled upon termination of the employee. 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. 23 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 8 - STOCKHOLDERS' EQUITY-CONTINUED - ------------------------------------------- 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. During the year ended December 31, 2000, 60,000 shares of common stock were cancelled due to non-performance under the terms of the contract. Goodwill has been reduced by $37,500 with an equal amount reducing common stock and additional paid in capital. During the year ended December 31, 2000 the Company issued 16,000 shares of Rule 144 common stock to employees for services valued at 50% of the fair market value of the common stock at the date of issue in the amount of $6,500 and has been charged to expense in the financial statements. Also, the Company issued 223,447 shares of common stock at the date of issue in the amount of $94,183 and has been charged to expense in the financial statements. Also during 2000, the Company issued incentive stock options to employees to purchase 101,000 shares of common stock with an exercise price of $0.81 which is the market price of the common stock at the date of grant. No compensation has been charged to expense during 2000. 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. A summary of the status of the Company's stock options as of December 31, 2000, is presented below:
2000 1999 -------- -------- Options outstanding at beginning of year 526,500 590,000 Options granted 101,000 36,500 Options exercised (110,000) (25,000) Options canceled (250,000) (75,000) -------- -------- Options outstanding and exercisable at end of year 267,500 526,500 ======== ========
24 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 9 - STOCK OPTIONS AND WARRANTS-CONTINUED - --------------------------------------------------- The following table summarizes the information about the stock options of December 31, 2000:
Weighted Weighted Weighted Average Average Average Exercise Range of Number Remaining, Exercise Number Price Exercise Outstanding Contractual Price Exercisable (Exercisable Price at Dec. 31 Life Years (Total shares) at Dec 31 shares) ------------ ----------- ----------- --------------- ----------- -------------- 0.60 50,000 0.0 $ 0.60 50,000 $ 0.60 0.55 180,000 0.0 0.55 180,000 0.55 0.50 7,500 3.0 0.50 7,500 0.50 0.81 30,000 4.0 0.81 30,000 0.81 ------------ ----------- ----------- --------------- ----------- -------------- 0.50 $ to .81 267,500 1.4 $ 0.59 267,500 $ 0.59 ============ =========== =========== =============== =========== ============== The following table summarizes the information about the stock options as of December 31, 1999: Weighted Weighted Weighted Average Average Average Exercise Range of Number Remaining, Exercise Number Price Exercise Outstanding Contractual Price Exercisable (Exercisable Price at Dec. 31 Life Years (Total shares) at Dec 31 shares) - ----------- ----------- ----------- --------------- ----------- -------------- 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 ============ =========== =========== =============== =========== ==============
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. 25 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 9 - STOCK OPTIONS AND WARRANTS-CONTINUED - --------------------------------------------------- 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: 2000 - dividends yield of 0%; expected volatility of 58.3%; risk-free interest rate of 5.50%; and expected lives of 4 years. 1999 - dividends yield of 0%; expected volatility of 109.0%; risk-free interest rate of 5.65%; and expected lives of 4 years. The weighted average fair value of options granted for the years ended December 31 2000, and 1999, respectively, was $0.41 and $0.38, respectively. 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:
2000 1999 ---------- ---------- Net income (loss) applicable to common stockholders: As reported $(660,042) $(222,743) ========== ========== Pro forma $(701,136) $(232,737) ========== ========== Loss per share: As reported $ (0.07) $ (0.03) ========== ========== Pro forma $ (0.08) $ (0.03) ========== ==========
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. The warrants expired during the year ended December 31, 2000. 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 $48,882 and $64,206 of the deferred financing costs to expense during the years ended December 31, 2000 and 1999, respectively. The unamortized balance of the deferred financing costs is $34,484 and $83,366 at December 31, 2000 and 1999, respectively. 26 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 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. Trade accounts receivable has been recorded at fair value at December 31, 2000 and 1999. 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, 2000 and 1999. 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.
2000 1999 ----------- ----------- (Loss) available to common stockholders used in basic EPS $ (660,042) $ (222,743) =========== =========== Weighted average number of common shares used in basic EPS 9,052,081 8,713,267 Effect of dilutive securities: Stock options - - Warrants - - ----------- ----------- Weighted number of common shares and dilutive potential common stock used in diluted EPS 9,052,081 8,713,267 =========== ===========
Options on 267,500 shares of common stock and warrants to purchase 475,000 shares of common stock were not included in computing diluted EPS for the year ended December 31, 2000, because their effects would have been antidilutive. In addition, 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, since there is an incremental per share effect of zero under the treasury stock method required by FASB 128 "Earnings Per Share." 27 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 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. The income tax expense (credit) differs from the amount of income tax determined by applying the applicable statutory federal tax rates is as follows:
2000 1999 ---------- --------- Federal income tax expense (credit) $(224,400) $(70,100) Valuation reserve 220,500 68,300 Other 3,900 1,800 ---------- --------- $ - $ - ========== =========
Temporary differences for the years ended December 31, 2000 and 1999, 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:
2000 1999 ---------- --------- Difference in method of accounting for financial and tax basis accounting $ 10,100 $(90,500) Depreciation 20,400 21,100 Net operating loss carryforward (257,100) (4,500) Change in valuation allowance 226,600 73,900 ---------- --------- Net deferred tax asset $ - $ - ========== =========
At December 31, 2000 and 1999, the Company had a cumulative net tax asset of $328,400 and $101,800, 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, 2000, the Company has available for federal income tax purposes unused net operating losses of approximately $1,184,000 which may provide future tax benefits that begin expiring in the year ending December 31, 2010. 28 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS - ---------------------------------------------------- CASH AND CASH EQUIVALENTS: The carrying amounts of cash and cash equivalents at December 31, 2000 and 1999, 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, 2000 and 1999. NOTE 14 - SUBSEQUENT EVENTS - ------------------------------- Subsequent to December 31, 2000, the Company sold and assigned one of its leases from Tupelo Industries, Inc., a wholly owned subsidiary of BGI, Inc to the current occupant of a bingo hall. The sale was for cash resulting in a gain on the sale of approximately $5,000. Also, on February 2001, the Company filed an S-8 with the SEC registering shares of common stock for the BGI, Inc. Employee Stock Option Plan. 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 2000 and 1999, the Company had none of the following items: discontinued operations, extraordinary items, or accounting changes. 29 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 15 - SEGMENT REPORTING - CONTINUED - ---------------------------------------------
Phone card Phone card dispensers dispensers Charity bingo Charity bingo 2000 1999 2000 1999 ------------- ------------- -------------- -------------- Sales and rents $ 2,670,304 $ 4,421,264 $ 331,934 $ 469,562 ============= ============= ============== ============== Interest expense $ 228,668 $ 297,146 $ - $ - ============= ============= ============== ============== Depreciation and amortization $ 313,781 $ 328,943 $ 14,138 $ 16,378 ============= ============= ============== ============== Profit (loss) $ (660,876) $ (260,846) $ 834 $ 38,103 ============= ============= ============== ============== Assets $ 1,017,913 $ 1,582,012 $ 40,954 $ 63,936 ============= ============= ============== ============== Asset expenditure $ 30,415 $ 32,031 $ - $ 7,359 ============= ============= ============== ==============
Reconciliation of reportable segment assets, revenue, profit or loss, and other items of significance to consolidated amounts are presented as follows:
2000 1999 ----------- ----------- Assets: Assets of reportable segment $1,058,867 $1,645,947 Assets of non reportable segments - - Assets not allocated to operating segments - - ----------- ----------- Consolidated assets $1,058,867 $1,645,947 =========== =========== Revenues: Revenue from reportable segment $3,002,238 $4,890,826 Revenue from non-reportable segments - - ----------- ----------- Consolidated revenues $3,002,238 $4,890,826 =========== =========== Profits: Profit (loss) from reportable segments $ (105,284) $ 611,676 Profit from non-reportable segments - - Expenses at corporate level not allocated to segments (554,758) (834,419) ----------- ----------- Income (loss) before tax $ (660,042) $ (222,743) =========== ===========
30 BGI, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDING DECEMBER 31, 2000 AND 1999 NOTE 15 - SEGMENT REPORTING - CONTINUED - --------------------------------------------- Other items of significance: Interest expense $ 228,668 $ 297,146 ========== ========== Depreciation and amortization $ 372,424 $ 345,622 ========== ========== Asset expenditures $ 30,415 $ 39,390 ========== ========== Item 8. Changes in and Disagreements with Accountants on Accounting and ---------------------------------------------------------------------- Financial Disclosure. --------------------- None. 31 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, 2000, and to the date hereof, and the period or periods during which each such director or executive officer has served in his respective position.
Date of Date of Election or Termination Name Positions Held Designation or Resignation - ------------------ ----------------------- ----------- -------------- Reid Funderburk* Chairman and CEO 12/94 Director 12/94 Thomas Murphy** President and COO 05/00 George Majewski* President and COO 04/96 05/00 Director 12/94 05/00 Robert H. Hughes* Director 12/94 12/00 R. E. Wilkin* Director 12/94 Rick Redmond* Director 09/97 Robert Chappell** Secretary 09/97 Treasurer 06/00 Clay McCalla** Vice President 09/97 06/00 06/00 Rhonda McClellan** Chief Financial Officer 10/98 Treasurer 04/99 06/00 * These officers and directors were re-elected on 09/29/99 at the Annual Stockholders and Board of Directors Meeting ** These persons presently serve or served in the capacities indicated opposite their respective names.
32 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. Business Experience of Current Directors and Executive Officers - ---------------------------------------------------------------------- Mr. Funderburk, age 48, 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. Murphy, age 56, brings over 30 years of general management, marketing, sales - ---------- and program management experience at IBM to BGI. He has established, rebuilt, led and successfully managed Fortune 500 corporate business units and branch offices. Prior to coming to BGI he was Vice President and Regional Director of an event management company specializing in creating and producing large corporate marketing events. He graduated from St. Edwards University in Austin with a business degree in marketing. Mr. Wilkin, age 67, 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 48, 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. Robert Chappell, age 41, 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. 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. 33 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 $.8438 per share under the Company's Incentive Stock Option Plan. These options were reported on SEC Form 4 on April 11, 2000. He also disposed of 3,750 shares on February 28,2000, and 3,000 shares on March 28, 2000, as reported on SEC Form 4 on April 11, 2000. Involvement in Certain Legal Proceedings - -------------------------------------------- Except as indicated below and to the knowledge of management, during the past five years, no present or former director, person nominated to become a director, executive officer, promoter or control person of the Company: (1) Was a general partner or executive officer of any business by or against which any bankruptcy petition was filed, whether at the time of such filing or two years prior thereto; (2) Was convicted in a criminal proceeding or named the subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. (4) Was found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. Item 10. Executive Compensation. ----------------------- The following table shows the cash compensation paid by the Company, as well as other compensation, for the Company's Chief Executive Officer for the fiscal years 2000, 1999 and 1998.
Name and Other Restricted All other Principal Compen- Stock Options/ LTIP Compen- Position Year Salary Bonus sation (1) Awards SARS (#) Payouts sation ($) - ------------------------ ------------ ----------- ---------- ----------- -------- --------- ------- ---------- Reid Funderburk 2000 $ 89,000 $ -0- $ -0- $ -0- $ -0- -0- $ -0- Chairman, CEO 1999 $ 89,000 -0- -0- -0- -0- -0- 2,500 and Director 1998 $ 76,149 1,241 -0- -0- -0- -0- 3,000
Compensation of Directors - --------------------------- None 34 Employment Contracts and Termination of Employment and Change of Control - -------------------------------------------------------------------------------- Arrangement - ----------- Except as indicated below, during 2000, 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. Mr. Funderburk entered into an Employment Agreement in 1995 with the Company. This Employment Agreement provides for payment of all compensation due under such Agreement 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, 2001.
DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------- Number Percentage Name and address of Shares * Beneficially Owned - ----------------------------------- ----------- ------------------- Reid Funderburk (1) 2,573,000 28.14 13581 Pond Springs Road, Suite 105 Austin, Texas 78729 Robert Hughes 410,000 4.49 1506 West 13th #12 Austin, Texas 78704 R. E. Wilkin 257,600 2.82 4304 Kirkland Dr. Fort Worth, Texas 76109 Thomas Murphy 39,835 0.01 13581 Pond Springs Road Suite 105 Austin, Texas 78729 Rick Redmond 100,000 1.09 13492 Research Boulevard Austin, Texas 78750 Robert Chappell 1,100 0.01 P.O. Box 624 Martindale, Texas 78655 ----------- ------------------- Totals 3,381,535 36.56 =========== =================== 1. This figure includes the following transfers to certain family members which took place on October 17, 1995, February 6, 1996, April 8, 1996, and July 06, 2000: Ashlie Funderburk 10,000 shares and 10,000 shares; Jacklyn Funderburk 10,000 shares,10,000 shares, 10,000 shares and 10,000 shares; and Lyndsey Funderburk 10,000 shares, 10,000 shares, 10,000 shares and 10,000 shares. This figure does not include transfers to certain adult children, relatives and friends, as to which Mr. Funderburk disclaims any beneficial interest.
35 *Footnote: The number of Shares listed above do not include the shares underlying certain stock options. 36 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. Item 12. Certain Relationships and Related Transactions. -------------------------------------------------- Transactions with Management and Others. - ------------------------------------------- During the two years ended December 31, 2000 and 1999, 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, 2000 and 1999, 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, 2000 and 1999, 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, 2000 and 1999, 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. 37 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 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. 38 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: 4/16/01 By: S/S ---------------- ---------------------------------- 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: 4/16/01 By: S/S ---------------- ---------------------------------- Reid Funderburk, Chairman, C.E.O. & Director Date: 4/16/01 By: S/S ---------------- ---------------------------------- Thomas Murphy, President Date: 4/16/01 By: S/S ---------------- ---------------------------------- Robert Chappell, Treasurer Date: 4/16/01 By: S/S ---------------- ---------------------------------- R. E. Wilkin, Director Date: 4/16/01 By: S/S ---------------- ---------------------------------- Rick Redmond, Director 39 -----END PRIVACY-ENHANCED MESSAGE-----